Capistrant v. Lifetouch National Schools Studio, Inc.

916 N.W.2d 23 (2018)

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Nature of the Case

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Facts

D sells photography services to schools and other organizations across the nation. P began working as a photographer and sales representative for D. P took over as Territory Manager of the San Francisco Bay Area in 1986 and entered into the contract with D that is at issue in this appeal. In exchange for his management, Paragraph 8 provides that P would be compensated as described in exhibits attached to the agreement. Exhibit B clarifies that D would compensate P entirely with 'commissions. Section III of Exhibit B, entitled explains P's right to, and the calculation of, a post-employment 'residual commission.' Paragraph 11 stated that P is entitled to receive Residual Commission payments. 'At any time,' P 'breaches the provisions of Paragraph 11 of the Agreement, in addition to D's other remedies, D was entitled to terminate D's obligation to make any payments of Residual Commission that have not yet been paid by giving Territory Manager written notice of such termination. P agreed for a period of 24 months after his employment that he would not 'disclose any trade secrets and confidential information,' 'solicit or deal with any school included in D's Business,' or 'solicit any present or future employee of D for the purpose of hiring or attempting to hire such employee.' Paragraph 11 provides that P would 'immediately deliver to D all of D's property' that was in P's possession or control at the end of his employment. P and D disagreed about how his commissions, including the residual commission, were or would be calculated. P refused to sign a new agreement. P was planning for retirement, and some of these past disputes remained unresolved. P commenced a declaratory-judgment action in district court requesting a declaration of the parties' respective rights and duties under the employment contract, including the proper calculation of the residual commission he was to be paid under the contract. P retired. In response to D's discovery requests, P disclosed that he had in his possession a large number of D's documents, including customer lists, sales data, payroll records, financial statements, and business plans that he had kept after his retirement. D demanded their return. P returned the documents within three business days of this request. D demanded that access to his e-mail account; P complied. D's forensic expert determined that the materials P had sent to his personal e-mail account had not been shared with outside sources. Both parties moved for summary judgment. D that its obligation to pay the residual commission was excused because P failed to comply with the return-of-property clause. The could held that the return-of-property clause was a condition precedent to the payment of the residual commission. P claimed it would be an inequitable forfeiture. The court ruled for D and P appealed. The court of appeals applied section 229 of the Restatement (Second) of Contracts and held that the 'the timing of the return of property was not a material part of the contract' and 'a forfeiture of potentially $2.6 million for retaining proprietary documents and e-mails, when there is no evidence of an intent to compete and when it is undisputed that there is no evidence of any dissemination of the retained documents' would cause a disproportionate forfeiture. D appealed.