Shamrock Power Sales, LLC v. John Scherer, Patrice Tilearcio, Scherer Util. Sales, LLC

• Decision Date: 07 December 2016
• Docket Number: 12 Civ. 8959 (KMK)(JCM)
• Parties: SHAMROCK POWER SALES, LLC, Plaintiff, v. JOHN SCHERER, PATRICE TILEARCIO, SCHERER UTILITY SALES, LLC, and STORM KING POWER SALES, LLC, Defendants.
• Court: U.S. District Court — Southern District of New York

SHAMROCK POWER SALES, LLC, Plaintiff, v. JOHN SCHERER, PATRICE TILEARCIO,SCHERER UTILITY SALES, LLC, andSTORM KING POWER SALES, LLC, Defendants.

12 Civ. 8959 (KMK)(JCM)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

December 7, 2016

REPORT AND RECOMMENDATION

To the Honorable Kenneth M. Karas, United States District Judge:

Plaintiff Shamrock Power Sales, Inc. ("Plaintiff" or "Shamrock Power") seeks to recover damages from defendants John Scherer ("Defendant Scherer"), Patrice Tilearcio ("Defendant Tilearcio"), Scherer Utility Sales, LLC, and Storm King Power Sales, LLC (collectively "Defendants") for causes of action arising out of Defendant Scherer's employment with Plaintiff. (Docket No. 1). Plaintiff filed the instant complaint on December 10, 2012, alleging fourteen causes of action. (Id.). On September 30, 2015, the Honorable Kenneth M. Karas ("Judge Karas") entered summary judgment on five of Plaintiff's claims: breach of fiduciary duty; faithless servant; misappropriation of trade secrets; fraud in the inducement; and unjust enrichment. See Shamrock Power Sales, LLC v. Scherer, No. 12-CV-8959(KMK), 2015 WL 5730339 (S.D.N.Y. Sept. 30, 2015). Following entry of summary judgment, this matter was referred to the undersigned to oversee damages discovery and conduct an inquest on damages. (Docket No. 148). The undersigned oversaw limited discovery on damages, with the final discovery deadline of April 1, 2016.¹ The undersigned then conducted an inquest hearing on damages on June 30, 2016. Plaintiff's president, Andrew McMahon ("Mr. McMahon"), and Defendant Scherer testified at the hearing. Based on the evidence presented at that hearing, as well as the admissible evidence submitted to the Court in support of Plaintiff's motion for assessment of damages, I respectfully recommend entry of a judgment awarding Plaintiff $493,866.04 in damages and prejudgment interest at 9% per annum from January 5, 2015 to the date judgment is entered. Additionally, I respectfully recommend that the Court deny (1) Plaintiff's motion to strike certain portions of the declarations annexed to Defendants' opposition papers (the "Motion to Strike"²); and (2) the requests set forth in Defendants' July 13, 2016 letter to strike and disregard portions of Plaintiff's submissions, (Docket No. 142).

I. BACKGROUND³

Plaintiff is a seller of "high voltage power equipment" that serves as the exclusive representative for manufacturers of these products in sales deals with utility companies such as Con Edison, Long Island Power Authority, Orange and Rockland Utility, Central Hudson Gas and Electric, National Grid, Public Service Gas and Electric, New York Power Authority, Long Island Railroad, New Jersey Transit, Metro North Railroad, Wesco and Graybar. (SummaryJudgment Order⁴ at 3-4). Plaintiff represents approximately forty manufacturers in distinct geographic regions from New Jersey to Maine. (Inquest Hr'g. Tr.⁵ at 7). Plaintiff enters into contracts with manufacturers by which any sales made of the manufacturers' products within the contracted region results in a commission paid to Plaintiff. (Id.). These contracts vary in duration, from a thirty-day contract to a year-long contract that renews automatically at the end of the year unless either party declines to continue the relationship. (Id.). Plaintiff does not have a contract with every manufacturer that it represents. (OSC Hr'g. Tr.⁶ at 100). Mr. McMahon testified that manufacturers and Plaintiff generally have a thirty-day notice period to terminate the relationships, but that it was not common for a manufacturer to do so. (Id. at 104, 109).

In 2004, Plaintiff hired Defendant Scherer as a sales representative, providing him with confidential information regarding the industry, client and customer contacts, pricing lists, commission schedules, contracts and pricing histories to allow him to sell high voltage power equipment -- made by Plaintiff's manufacturer clients -- to Plaintiff's utility company customers. (Summary Judgment Order at 4, 6). Defendant Scherer mainly worked in the New York City, New Jersey and Long Island areas, although he also worked in Dutchess County, (Inquest Hr'g. Tr. at 116), and Mr. McMahon testified that, for a period of time, Defendant Scherer also covered for another sales representative in upstate New York, (id. at 27). During his employment with Plaintiff, Defendant Scherer's customers included Central Hudson Gas and Electric, Con Edison, National Grid, Orange and Rockland Utilities, and Public Service Electric and Gas. (Inquest Hr'g. Tr. at 116; Summary Judgment Order at 5). In addition to forming relationships with contacts at these utility company customers, Defendant Scherer attended tradeshows on behalf of Plaintiff to call on potential customers in the market. (Inquest Hr'g. Tr. at 116).

Both Plaintiff and Defendant Scherer assert that Defendant Scherer was paid a base salary of $65,000 per annum. (Inquest Hr'g. Tr. at 129; OSC Hr'g. Tr. at 64). Additionally, Defendant Scherer earned a percentage of the commissions that he brought in for Plaintiff, portions of which were paid to him as bonus advances throughout the year. (Inquest Hr'g. Tr. at 77-78). For example, according to the records supplied by Defendant Scherer, in 2011 he received $65,000 in salary, two bonus advances of $35,000, IRA contributions of $1,200, medical expenses of $16,267.92 and a final bonus payment of $53,484.59.⁷ (Scherer Decl.⁸ at Ex. B). A review of the pay records provided by Defendant Scherer indicates that Plaintiff incorporated one of the bonus advances of $35,000 into Defendant Scherer's monthly paycheck, resulting in a monthly salary of $8,333.33, (id. at Ex. A), that Plaintiff paid him an additional $35,000 bonus advance on September 16, 2011, (id. at Ex. B), and that Plaintiff included his final bonus payment of $53,484.59 in Defendant Scherer's final paycheck for the year, (id. at Ex. A). The parties have not provided any pay records from 2012. However, Plaintiff asserts that from October 1, 2011 to October 8, 2012, Defendant Scherer received $131,864.89 in base salary and bonuses relating to his commissions. (McMahon Decl.⁹ at ¶ 24).

On September 28, 2011, while still employed with Plaintiff, Defendant Scherer and his wife, Defendant Tilearcio, formed Scherer Utility and began conducting and soliciting business with at least one of Plaintiff's customers. (Summary Judgment Order at 14-18). In October 2011, on behalf of Scherer Utility, Defendant Scherer represented a manufacturer, Partner Technologies, Inc. ("PTI"), in a transaction with Plaintiff's customer, Con Edison. (Id. at 15-16). This transaction resulted in $271,806 in sales. (Id. at 16). In January 2012, Plaintiff paid for Defendant Scherer to attend a trade show on its behalf, where Defendant Scherer instead approached manufacturers to solicit their business for Scherer Utility sales. (Id. at 45). Finally, in September 2012, Defendant Scherer sought and received a $19,528.42 advance from Plaintiff in the form of a check that cleared on October 7, 2012. (Id. at 19). Defendant Scherer resigned from the company the following day. (Id. at 19-20).

Defendant Scherer notes that notwithstanding these activities, he continued to perform in his position with Plaintiff during this period. (Inquest Hr'g. Tr. at 95). In support of this, Defendant Scherer recounted a sales meeting for manufacturer Cooper Power, in which the sales manager commended Defendant Scherer for having one of the best project presentations among the ten to twelve sales representatives present. (Id. at 129).

When Plaintiff recovered its company-issued laptop and cellphone from Defendant Scherer when he left its employ, it found that client and customer information, license software, e-mail correspondence with proprietary price lists, invoices, orders, and contracts had been deleted. (Summary Judgment Order at 22). Defendant Scherer had copied and retained them for his own use. (Id. at 22). On the date Defendant Scherer resigned, he e-mailed several of Plaintiff's clients to inform them that he had resigned but wanted to continue representing them in the New York and New Jersey area through his new company. (Id. at 24). Within weeks,Defendant Scherer claimed to be representing five of Plaintiff's former manufacturer clients: Plymouth Rubber Europa, S.A. ("Plymouth Rubber"), Connector Products, Inc ("CPI"), Phoenix Wire and Cable Inc. ("Phoenix"), KoCos, Inc. ("KoCos") and Schonstedt Instrument Company ("Schonstedt"). (Summary Judgment Order at 23; OSC H'rg. PL Ex.¹⁰ 5).

Prior to 2012, Plymouth Rubber had a "house account" with Con Edison, which Mr. McMahon explained to be an account with a customer from which Plaintiff did not earn commissions. (OSC Hr'g. Tr. at 48). Mr. McMahon testified that this house account resulted in one million dollars in sales annually, which he claimed to know because the manufacturer reported the sales figure to him directly. (Inquest Hr'g. Tr. at 85). On September 20, 2012, Plymouth Rubber sought to amend the existing contract with Plaintiff, such that Plaintiff would receive a five percent commission on those existing customer accounts. (Docket No. 141-4). Mr. McMahon asserted that, as a result of this transition from a house account to a commissioned account, Plaintiff anticipated $50,000 in annual commissions from its representation of Plymouth Rubber. (McMahon Supp. Decl.¹¹ at ¶ 8). Following Defendant Scherer's departure from Plaintiff's employment, Mr. McMahon was contacted by a Plymouth Representative who informed him that they would be "leaving Shamrock [Power]" and instead working with Scherer Utility. (McMahon Supp. Decl. at ¶ 9). Plaintiff asserts that it "lost business from Plymouth" for one year, resulting in lost commissions of approximately $50,000. (McMahon Supp. Decl. at ¶ 10). In response, Defendant Scherer puts forth evidence that, while Defendant Scherer workedfor Plaintiff, his sales...