Lopez v. Smiths Detection, Inc.
| Decision Date | 25 January 2021 |
| Docket Number | Case No.: 20-CV-1453 JLS (WVG) |
| Parties | ALBERTO LOPEZ, an individual, Plaintiff, v. SMITHS DETECTION, INC., a Delaware corporation; and DOES 1 through 50, inclusive, Defendants. |
| Court | U.S. District Court — Southern District of California |
ORDER DENYING DEFENDANT'S MOTION TO DISMISS PLAINTIFF'S COMPLAINT
Presently before the Court is Defendant Smiths Detection, Inc.'s Motion to Dismiss Plaintiff's Complaint ("Mot.," ECF No. 4), as well as Plaintiff Alberto Lopez's Opposition thereto ("Opp'n," ECF No. 5) and Defendant's Reply in support thereof ("Reply," ECF No. 6). The Court took the matter under submission without oral argument pursuant to Civil Local Rule 7.1(d)(1). See ECF No. 7. Having carefully reviewed Plaintiff's Complaint ("Compl.," ECF No. 1-2), the Parties' arguments, and the law, the Court DENIES the Motion.
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"[Defendant] manufactures, manages, and sells detection and screening technology for use in airports, ports and borders, urban security, and defense end use markets." Compl. ¶ 19. Defendant hired Plaintiff in 2012 as a Senior Sales Business Development Manager for Latin America. See id. ¶ 14. While employed by Defendant, Plaintiff received a base salary as well as "the opportunity to earn sales commissions." Id. Annually, Plaintiff and Defendant entered commission agreements that contained substantially similar terms year after year. See id. ¶ 15. On or around January 21, 2020, Plaintiff and Defendant entered into such an agreement covering the sales period from August 1, 2019, through July 31, 2020 (the "Commission Contract"). See id. ¶ 13; see also generally Compl. Ex. A.
As relevant to the present Motion, the Commission Contract provides that "Sales Commission Credits accrue to Employee upon a customer's order for Products having been Booked by [Defendant] during the Sales Period." Compl. Ex. A § 3.1.2 Similarly, "Sales Commission Credits for a given Product order do not accrue to Employee unless and until the customer's order is Booked"; accordingly, if an order is not booked until "after the date of Employee's separation from [Defendant]," "no Sales Commission Credits will accrue to Employee and no Net Sales Commissions will be earned." Id. § 3.1.2.
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"Booked" is defined as:
[T]he sales event that takes place when [Defendant] notifies the customer that [Defendant] has accepted the customer's order for Products and has entered the customer's order into [Defendant's] order entry system. For purposes of calculating Sales Commission Credits for Professional Services, "Booked" means the date on which [Defendant] accepts and enters the order for those Professional Services that have actually been rendered and accepted by the customer or third party.
Id. § 1.1. "Product" or "Products" is defined as "those SMITHS hardware and software products, Maintenance Services, Professional Services, and other services for which Employee is eligible to earn Sales Commissions Credits," and "Professional Services" is defined as "those services rendered by [Defendant's] internal professional services organization." Id.
Plaintiff's Commission Rates are set forth in the "FY 20 Employee Commission Target Schedule" (the "Target Schedule"), which provides that his Commission Rate is 1.0% for a booking of less than $6,000,000, his Commission Rate is 2.0% for bookings between $6,000,001 and $15,000,000, and his Commission Rate is 2.5% for bookings exceeding $15,000,000. Id. at Target Schedule. The Commission Contract indicates that, "if [Defendant] wishes to reduce any Commission Rate under this Plan, such Commission Rate reduction will be communicated in writing to the applicable Employee within seven (7) business days of acceptance by [Defendant] of the relevant customer purchase order." Id. § 3.4.4. "Additionally, [Defendant] shall not reduce any Commission Rate on any sale of Products where the gross margins on the sale exceed 35%." Id.
Moreover, "[Defendant] reserves the right to allocate, increase or decrease Gross Sales Commission Credits, as it deems appropriate in its sole discretion, under Special Circumstances." Id. § 3.7. The Commission Contract defines "Special Circumstances" to include "[o]ther circumstances as may reasonably be determined by [Defendant]." Id. § 3.7.5. "Where Special Circumstances exist, [Defendant] will inform Employee of the presence of such Special Circumstances and will inform Employee of the amount of GrossSales Commission Credits that Employee is eligible to receive at or prior to the date the customer's order is Booked." Id. § 3.7. "Gross Sales Commission Credits" is defined as "the total amount of Sales Commission Credits attributed to Employee for a specified period, prior to any adjustments being made and, thus, prior to being Earned by Employee." Id. § 1.1. "Sales Commission Credits" is defined as "the amount of commission credits attributed to Employee for each Booked Product order, calculated by multiplying the Net Sales Price of the Product Order by the designated Commission Rate for the applicable credit accumulation period . . . ." Id.
"Gross Sales Commission Credits that have accumulated are subject to cancellation and reversal by [Defendant] and / or offset against future Gross Sales Commission Credits" in a number of delineated circumstances, including if "the Product order or contract for which the Sales Commission Credits accumulated has been cancelled, reversed, reserved, or de-Booked based on returned Products, recalled Products, unpaid receivables, or contract breaches." Id. § 3.6.1.
Upon separation of employment, the Commission Contract "shall automatically terminate." Id. § 3.11. "Employee will not be entitled to accumulate any Sales Commission Credits or receive any Net Sales Commissions on Product orders that have not been Booked as of the date of separation of employment." Id. "Subject to any off-set rights [Defendant] may have under this Plan, [Defendant] may, in its sole discretion, accelerate the calculation of any Gross Sales Commission Credits accumulated up to and including the date of separation of employment and the payment of Net Sales Commissions." Id.
The Commission Contract Id. § 3.12.
Beginning in or around March 2019, Plaintiff began "pursuing several high value sales opportunities that would result in hundreds of thousands of dollars in salescommissions" with Grupo Aeroportuario del Pacifico ("GAP"). Compl. ¶¶ 21-22. Plaintiff was Defendant's main point of contact with GAP, communicating extensively with GAP, traveling to Mexico for meetings and to evaluate GAP's needs, and preparing cost and sales proposals. See id. ¶ 22.
On or around September 17, 2019, about six months into pursuing the GAP opportunity, Plaintiff received a letter from Stephen Esposito, Vice President of Sales & Business Development at Defendant. See id. ¶ 23. The letter indicated Defendant had determined a "special circumstance" applied to the GAP opportunity, and accordingly "[Plaintiff] would only be entitled to a 0.5% commission on particular projects within the GAP sales opportunity." Id. Several days after Plaintiff received this letter, Mr. Esposito telephoned Plaintiff to inform him "that a further, undisclosed reduction of commission would also be implemented," and that Defendant "could reduce and/or change a salesperson's commission 'at the company's discretion.'" Id. ¶ 24. Plaintiff subsequently contacted Mr. Esposito and informed him "that he felt the reduction in his commission percentage, and the policy that commissions could be reduced and/or changed at the company's discretion, was in breach of his Commission Contract." Id. ¶ 25.
In or around January 2020, Plaintiff informed Defendant that GAP was to award two airport contracts to Defendant. See id. ¶ 26. Plaintiff's commission potential on these contracts was "close to $450,000." Id. Shortly thereafter, "[Plaintiff] and [Defendant] revised the pricing and cost proposal provided to GAP to reflect the awarded bids," resulting in Defendant's gross margins on the contracts exceeding 35%. Id. ¶ 27.
In or around January or February 2020, Plaintiff spoke with his direct supervisor, Javier Rivera, "again object[ing] to the reduction in his commission rate" and conveying his view "that the Commission Contract precluded a reduction in commission when [Defendant's] gross margins exceeded 35%." Id. ¶ 28. Mr. Rivera assured Plaintiff Defendant would pay Plaintiff his full commission and abide by the Commission Contract. See id.
/ / / Over the next several months, GAP and Defendant engaged in contract negotiations, with Plaintiff continuing to serve as the main point of contact. See id. ¶ 29. Defendant provided approval of the final contracts on or around March 31, 2020, executing them and sending them back to GAP. See id. ¶ 31. That same day, "the GAP order was 'booked' into [Defendant's] order entry system." Id. ¶ 32. On or around April 3, 2020, "[c]orrespondence from [Defendant] . . . confirmed that the GAP contracts were accepted as booked into [Defendant's] order entry system." Id.
Plaintiff alleges on information and belief that GAP never canceled, modified, or otherwise indicated any intention to not proceed with the contracts. See id. ¶ 34. On or around April 9, 2020, however, Defendant informed Plaintiff "that, due to an error, the GAP contract was being placed in a 'holding pattern.'" Id. ¶ 35. Plaintiff alleges on information and belief that "[Defendant's] custom and practice dictate that a contract in a 'holding pattern' does not preclude payout of commissions to a sales person, nor does it mean that a sale is no longer 'booked.'" Id.
On or around April 10, 2020, Mr. Esposito requested...
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