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Walshe v. Zabors

United States District Court, D. Colorado

March 20, 2017

BRIAN F. WALSHE, Plaintiff,


          Michael E. Hegarty United States Magistrate Judge

         The Court held a trial to the bench in this matter on January 17-19, 2017, and took the matters under advisement. A transcript of the proceeding was prepared and filed on February 13, 2017. ECF Nos. 96-98.

         I. Background

         Defendant Enovation Partners LLC (“Enovation”) was founded in July 2013 with three members: Defendant Robert Zabors (“Zabors”), Jeffrey Clark, and GTI International (“GTI”), a non-voting corporate member.[1] Essentially, Enovation provides consulting services to utility companies to devise and develop strategies for energy generation.

         At all relevant times, Enovation was governed by the July 1, 2013 Operating Agreement and the December 30, 2013 Amended Operating Agreement, which identify the members of the LLC and dictate how profits and losses are shared and distributed among the members. Plaintiff Brian Walshe (“Walshe”) was never a member of Enovation.

         Zabors and Walshe met in early 2013 when Walshe worked as a subcontractor on Zabors' project during Zabors' previous employment. Zabors discussed with Walshe his idea to form Enovation; these discussions continued for several months. Then, on September 11, 2013, Zabors emailed to Walshe a “draft” employment offer letter with a message, “basic document for discussion.” The letter included a proposed “base salary draw, ” “additional compensation potential, ” and “equity.” Id. Walshe never signed the letter but joined Enovation as an employee on October 1, 2013.

         Walshe has been the owner of a company called Altera Energy d/b/a ION Consulting (“ION”) since its inception in 2010. ION was neither merged with Enovation nor was rendered “inactive” (as that term is defined by the Colorado Secretary of State) during Walshe's employment with Enovation; however, Plaintiff transferred his clients and work from ION to Enovation.

         On April 18, 2016, the Court issued an order granting in part and denying in part the parties' motions for summary judgment, which narrowed the issues of this case as follows. Walshe alleges the Defendants breached an implied contract by failing to reimburse him for business-related expenses he incurred while employed at Enovation; the Defendants are promissorily estopped from treating him as an “employee” rather than a “partner” of Enovation entitled to compensation over and above his salary and benefits; and, Defendants were unjustly enriched by receiving the benefits (revenues) from his “large” client, who Walshe transferred to Enovation, and by engaging in bad faith in delaying the consummation of an equity agreement for more than a year while Walshe generated revenues for Enovation.

         Defendants counter by claiming that Walshe used or disclosed without Enovation's permission certain confidential information belonging to Enovation; breached a fiduciary duty by keeping ION as an active company during his employment with Enovation; and wrongfully retained information and documents belonging to Enovation.

         II. Analysis

         The issues presented for the Court's determination at trial were:

1. Whether Plaintiff proved by a preponderance of the evidence that Defendants breached an agreement to pay Plaintiff's business-related expenses;
2. Whether Plaintiff proved by a preponderance of the evidence he reasonably relied on Zabors' promise of compensation over and above his salary and benefits to his detriment;
3. Whether Plaintiff proved by a preponderance of the evidence that Zabors' conduct constitutes “bad faith” for purposes of his unjust enrichment claim;
4. Whether Defendants proved by a preponderance of the evidence that Plaintiff used or disclosed without permission Exhibits H, I, and/or J, which may be determined “trade secrets”;
5. Whether Defendants proved by a preponderance of the evidence that Plaintiff acted solely for the benefit of Enovation by keeping ION as an active company during his employment with Enovation and by performing no billable work but receiving pay during the period July - September 2014; and
6. Whether Defendants proved by a preponderance of the evidence that electronic files, including Exhibits H-K, belong to Enovation and whether Plaintiff wrongfully retained them.

         The Court will address each claim and counterclaim in turn.

         A. Breach of Contract for Business-Related Expenses against Defendants

         A contract is formed when an offer is made and accepted, and the agreement is supported by consideration. Marquardt v. Perry, 200 P.3d 1126, 1129 (Colo.App. 2008). Acceptance of an offer is generally defined as words or conduct that, when objectively viewed, manifest an intent to accept an offer. Id. A person who, with knowledge of an offer's terms, voluntarily takes the benefits of the offered services without objection is deemed to have accepted the offer and formed a contract. Restatement (Second), Contracts § 69.

         Colorado recognizes the existence of a contract implied from the conduct of the parties. I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882, 888 (Colo. 1986) (en banc); Fair v. Red Lion Inn, 920 P.2d 820, 825 (Colo.App. 1995). There must be a meeting of the minds as to the essential terms before any agreement will be implied. See A.R.A. Mfg. Co. v. Cohen, 654 P.2d 857, 859 (Colo.App. 1982); see also Dunning v. Thomas, 14 P. 49, 51 (Colo. 1887) (“An agreement is a meeting or accord of two or more minds as to a particular thing.”).

         The evidence at trial was undisputed that Zabors, Walshe, and other Enovation directors were expected, as part of their duties and responsibilities, to travel to meet with each other and with current and prospective clients. In fact, a common provision in the employment offer letters from Enovation to prospective directors provides, “All expenses directly attributable to client engagements and corporate initiatives as well as a pro rata share of approved business development expenses will be reimbursed on a monthly basis per company policy and upon completion of the appropriate expense request form.” See Exs. 2, 5. Enovation created the form by which directors might seek reimbursement for travel expenses, such as airfare, hotel fees, transportation, and meals. Ex. 59.

         At trial, Walshe proffered copies of time and expense reports he had submitted to Enovation in November 2014 totaling $10, 869.40, and argued these expenses were generated during July, August, and September 2014 for business development on behalf of Enovation, but never reimbursed. Tr. 252: 18-20; 380: 9-15. The Court finds these expenses were incurred by Walshe during the relevant time and in furtherance of his duties as an Enovation “director” and for business development. Defendants offered no persuasive evidence contradicting this finding.

         Accordingly, the Court finds Walshe proved by a preponderance of the evidence that Defendants breached an agreement to reimburse his Enovation-related expenses totaling $10, 869.40. See Ex. 43. The Court will enter partial judgment in favor of Walshe on this claim.

         B. Promissory Estoppel against Defendants

         Colorado has adopted the promissory estoppel doctrine as articulated in the Restatement (Second) of Contracts § 90(1):

A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

Nelson v. Elway, 908 P.2d 102, 110 (Colo. 1995) (en banc); Kiely v. St. Germain, 670 P.2d 764, 767 (Colo. 1983) (en banc). The doctrine “encourages fair dealing in business relationships and discourages conduct which unreasonably causes foreseeable economic loss because of action or inaction induced by a specific promise.” Kiely, 670 P.2d at 767. “It provides relief to those harmed because they relied on another's promises, even without an enforceable contract.” G&A Land, LLC v. City of Brighton, 233 P.3d 701, 703 (Colo.App. 2010) (citing Vigoda v. Denver Urban Renewal Auth., 646 P.2d 900, 905 (Colo. 1982) (en banc)).

         “[A]ny remedial order in cases involving claims based on promissory estoppel must be fashioned carefully to achieve fairness to all parties in the circumstances of the particular case.” Kiely, 670 P.2d at 767. “When injustice to a promisee who reasonably and justifiably relies on a promise can be prevented only by recognizing a right of recovery from the promisor, neither the lack of a written contract nor the absence of fraudulent conduct can defeat the claim for recompense.” Id.; see also Continental Air Lines, Inc. v. Keenan, 731 P.2d 708, 712 (Colo. 1987) (en banc) (if a plaintiff fails to prove a breach of contract claim, he or she may nevertheless be able to recover on a promissory estoppel claim).

         The elements of a promissory estoppel claim are: (1) the promisor made a promise to the promisee; (2) the promisor should reasonably have expected that the promise would induce action or forbearance by the promise; (3) the promisee in fact reasonably relied on the promise to the promisee's detriment; and (4) the promise must be enforced to prevent injustice. Marquardt, 200 P.3d at 1129 (citing Nelson, 908 P.2d at 110). Whether the elements of promissory estoppel have been proved generally presents a question of fact. See Alexander v. McClellan, 56 P.3d 102, 106 (Colo.App. 2002).

         1. The Promisor Made a Promise to the Promisee

         A promise is “a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.” Restatement (Second) of Contracts § 2(1). “A promise may be stated in words ... or may be inferred wholly or partly from conduct.” Id. § 4. But it must be “clear and unambiguous.” Hansen v. GAB Bus. Servs., Inc., 876 P.2d 112, 114 (Colo.App. 1994). It must also be sufficiently definite to allow a court to understand the nature of the obligation. George v. Ute Water Conservancy Dist., 950 P.2d 1195, 1199 (Colo.App. 1997) (citing Soderlun v. Pub. Serv. Co., 944 P.2d 616, 620 (Colo.App. 1997)).

         The evidence at trial demonstrated Zabors promised Walshe “something more” than his salary and benefits (i.e., compensation in the form of a distribution) in return for Walshe bringing his client, Quanta, to Enovation.[2] See Exs. 5, 12, 21, 26. Walshe testified that during a meeting with Zabors in early 2013 (before he began employment with Enovation), Zabors expressed his interest in Quanta by asking Walshe “how big was it, how much revenue I got from there, how long, a lot of details about it, which made it clear to me that was one of the -- and I knew, that was one of the things I was bringing to the table was my 12-year relationship with-- with Quanta, which is one of the-- the bigger-- and may be the largest specialty electrical contractor in the United States.” Tr. 33: 15-25, 34: 1-15. Zabors testified, in the context of offering employment to Walshe, that “Quanta would be a nice thing to move forward with.” Tr. 521: 2-13.

         Walshe testified that he and Zabors had a face-to-face discussion in September 2013, before he started with Enovation, at which Walshe informed Zabors that, based on family medical expenses, “the salary draw [at Enovation] would not be nearly enough for me to pay my expenses, and I would need some kind of profit distribution on a quarterly, and I think we said or semi-annual basis.” Tr. 42: 4-14. Walshe explained that he was drawing approximately $30, 000/month salary at ION, so the $13, 000/month salary draw at Enovation was insufficient. Id. 42: 15-18. Walshe stated that Zabors promised the formation of a final compensation structure by the end of 2013 (id. 48: 17-24) and the first distribution of such compensation no later than April 2014 “because a lot of us are probably going to be using this distribution to pay our 2013 salary -- income taxes.” Id. 51: 10-19.

         On October 1, 2013, Walshe transferred all work, including that concerning his client, Quanta, to Enovation, and his own company, ION, remained dormant (in a practical sense) during his employment at Enovation. Tr. 29: 2-22; 54: 1-6.

         The proposed employment agreement Zabors presented to Walshe included a provision for “additional compensation potential, ” which referred to a “bonus.” Ex. 5. Although it is undisputed that Walshe never signed the agreement, Zabors and Walshe proceeded with the intent that Walshe was “eligible for bonus compensation.” See Exs. 20, 21; see also Ex. 29 (Zabors calculated a potential bonus for Walshe based on $300, 000 in revenue minus salary and expenses totaling $60, 000, which he “expect[ed] to be paid by end of July”); Ex. 31 (Zabors responded to Walshe's request to discuss compensation structure by calculating Walshe's numbers ($329, 000 in revenue minus $131, 000 salary/benefits, $26, 000 ADP/taxes, and $5, 000 business development expenses) to come up with $165, 000 minus “overhead”). This evidence demonstrates Zabors' intention that Walshe receive “something more” than salary and benefits for bringing Quanta revenue to Enovation.

         Notably, in the email to Zabors discussing what constitutes a “director/partner” at Enovation, Walshe stated that, “The delineation for becoming a Director is almost entirely on a demonstrated ability to sell more work. ... A threshold of originating $1 million of work per year seems like a reasonable standard to make director.” Ex. 8 at 2. On its face, Walshe's statement may appear to be a concession that, to receive any compensation more than salary and benefits, a director/partner must generate more than $1 million in sales each year. However, in the “$1 million/year” context, Walshe expressed his view that directors should be the only employees receiving equity in the company; separately, Walshe discussed his views on bonuses. Id. Thus, the Court finds Walshe, by making these statements, did not concede that a director must generate $1 million in business before receiving some sort of bonus or ...

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