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Roberts v. Overby-Seawell Co.

United States District Court, N.D. Texas, Dallas Division

March 23, 2018



          Sam A. Lindsay, United States District Judge.

         Before the court are: Defendants' Motion for Partial Summary Judgment (Doc. 74), filed June 16, 2017; Plaintiff's Motion for Summary Judgment (Doc. 80), filed June 16, 2017; Defendants' Motion to Exclude the Testimony and Report of J. Daniel Caskey, Mark A. Gannaway, and Janice Williams (Doc. 71), filed June 16, 2017; Plaintiff's Motion to Exclude Expert (Doc. 76), filed June 16, 2017; and Defendants' Motion to Strike Plaintiff's Untimely Expert Declarations (Doc. 104), filed July 21, 2017. Having considered the motions, legal briefing, appendixes, evidence, record, and applicable law, the court grants in part and denies in part Defendants' Motion for Partial Summary Judgment (Doc. 74); grants in part and denies in part Plaintiff's Motion for Summary Judgment (Doc. 80); denies Defendants' Motion to Exclude the Testimony and Report of J. Daniel Caskey, Mark A. Gannaway, and Janice Williams (Doc. 71); grants Plaintiff's Motion to Exclude Expert (Doc. 76); and denies Defendants' Motion to Strike Plaintiff's Untimely Expert Declarations (Doc. 104).

         I. Background Facts and Procedural History

         This action arises from a dispute between an insurance salesman, Plaintiff David Roberts (“Roberts”), and his former employer, Defendant Overby-Seawell Company (“OSC”), a subsidiary of Defendant Breckenridge IS, Inc. (“Breckenridge IS”). Roberts contends that OSC failed to pay him contingent commissions to which he was entitled under the parties' agreement, and reduced his commission checks by $35, 000 per month over a period of ten months without his authorization. Defendants contend that Roberts was not owed contingent commissions, and that contingent commissions cannot even be calculated for an individual salesperson. Alternatively, Defendants contend that Roberts waived any right to seek contingent commissions by failing to assert his entitlement to them during his employment at OSC. With regard to the $35, 000 deducted each month from Roberts's commission check, Defendants assert that Roberts agreed to this deduction.

         On March 24, 2015, Roberts filed Plaintiff's Original Petition in the 160th Judicial District Court, Dallas County, Texas, against OSC, as well as Breckenridge Insurance Group, Inc. (“Breckenridge Group”), which acquired OSC in 2010. On April 22, 2015, Defendants OSC and Breckenridge Group removed this action to the district court for the Northern District of Texas on grounds that complete diversity of citizenship exists between the parties and that the amount in controversy exceeds $75, 000, exclusive of interest and costs.

         On May 12, 2015, Roberts amended his pleadings, and on September 23, 2015, after the court granted him leave, he filed Plaintiff's Second Amended Complaint (“Complaint”) (Doc. 19), the operative pleading in this case, adding Breckenridge IS as a party. Roberts is suing Defendants for: (1) breach of contract; (2) promissory estoppel; and (3) quantum meruit, and he also seeks declaratory relief with respect to the rights and obligations of the parties. Roberts seeks actual damages, attorney's fees, and costs. Disagreeing about the specifics of Roberts's commission agreement and contending that Roberts breached a confidentiality agreement, Defendants OSC and Breckenridge IS (sometimes collectively “Defendants”) offer a number of affirmative defenses and assert counterclaims against Roberts for: (1) breach of fiduciary duty; (2) fraud by nondisclosure; (3) misappropriation of trade secrets; and (4) breach of contract. See Defs.' Ans. to Pl.'s Sec. Am. Compl. and Overby-Seawall Company and Breckenridge IS's Counterclaims against Pl. (Doc. 20).[1]Defendants seek actual damages, exemplary damages, costs, and attorney's fees. The court now sets forth the facts in accordance with the standard in Section II(A) of this opinion.[2]

         A. OSC's Business

         OSC is a Managing General Agency (MGA) in the business of selling lender or “force placed” insurance to its clients (including banks and mortgage servicing companies) and placing those policies with various insurance companies. “Force placed” insurance coverage is insurance placed on collateral by a lender seeking to protect its interests when the borrower fails to maintain the required insurance coverage on the collateral. In 2010, Breckenridge Group acquired OSC. Breckenridge IS is the “parent company” with whom OSC and Breckenridge Group are affiliated.

         B. OSC's Commission Structure

         As part of the revenue received from certain carriers with whom OSC places business, OSC may be entitled to contingent commissions from insurance carriers. Contingent commissions, also known as profit commissions, are based on the overall profitability of the accounts that OSC places with each insurance carrier. The insurance carrier evaluates the overall profitability of the book of business that OSC placed with it and performs this analysis based on a three-year period. Even if a contingent commission is paid to OSC in one year, it is possible that if the contingents are negative for the following year that OSC could be required to repay money to the carrier or that the negative amounts are carried forward year after year.

         Mark Pearce, Head of the Underwriting Department for OSC, explained the commission structure as follows:

Q. What are contingent commissions?
A. Contingent commission in our world is -- well, there's two pieces of the commission process. You get what they call front commission, which is commission that an agent or an agency earns as premium comes in the door. When policies -- when policies are paid for, contingent commission then is an additional piece of premium that an agency can earn if the portfolio of business that you write performs well below certain pre-established loss limits and -- and that's -- it's just an additional deal that you look after the fact. You say, okay, here's -- here's a year's worth of business. How did we do? We took in this much premium, we had this many losses. And based on the calculation then as described by each carrier that you have a relationship with -- and there is a calculation that occurs after on a retrospective basis.
Q. And if the company wanted to, they could drill down and figure out how much of that was related to each individual salesperson's production?
A. Oh, yeah, I would think so. Yeah. We certainly keep track of -- we certainly keep track of premium and losses at a client level, policy level.

         Pl.'s Summ. J. App. 218-219 (Doc. 82). Eugene Norton (“Norton”), OSC's Vice-President of Accounting, who was designated by Defendants as the corporate representative to speak on the structure and calculation of contingent payments, described a contingent commission as something that is “calculated contingent on the profitability of a business, of a book of business that's paid to the - someone like us[, ] [a] general agent from the carrier” Id. at 176. Norton also stated at his deposition that contingent commissions are revenue:

Q. So there's -- there may be more than this, but there's at least a couple of different revenue sources to OSC for writing business, that would be the front-end commission?
A. Yes.
Q. And then the contingent commission?
A. Yes.

Id. at 176. Keith Gilroy (“Gilroy”), OSC's President, similarly stated at his deposition that contingent commissions are “an additional type of revenue.” Id. at 81.

         C. Roberts's Employment with OSC

         Roberts has worked in the insurance industry for twenty years. His primary focus is on “force placed” insurance and large accounts in the mortgage servicing space. On May 3, 2011, OSC hired Roberts as a sales executive. The offer letter states that Roberts's salary “will be $3, 653.85 per biweekly pay period, plus commission, paid bi-weekly.” Defs.' Summ. J. Resp. App. 1.

         At the inception of his employment, Roberts signed a Confidentiality Agreement that stated in part:

Best Efforts: Individual agrees to devote his full time and best efforts in his position relating to the marketing, selling, administrating, managing or servicing the Company's business and in the performance of any general duties as may be from time to time required by Company.
Conflict of Interest: Individual agrees that, during his employment with Company, he will not perform any activities or services or accept such other employment that would be inconsistent with Company's business or would in any way interfere with or present a conflict of interest concerning Individual's employment with Company.
Extent of Service: Individual shall exclusively devote his entire working time, energy and attention to his duties in connection with the Company.

Id. at 2 (Confidentiality Agreement).

         Roberts brought in approximately $1, 000, 000 in premiums his first year. In January of 2012, Roberts signed OSC's largest account-Shellpoint Loan Servicing (“Shellpoint”), formerly named Resurgent. Shellpoint accounted for $9, 000, 000 in premiums in 2012 and grew to an annual premium exceeding $20, 000, 000.

         D. The 2011 Commission Agreement

         In 2011, OSC's commission agreement provided that Roberts would receive 20% commission on “OSC Net Revenue” for the first year of a new account. Pl.'s Summ. J. App. 11 (2011 Commission Agreement) (Doc. 82). After one year, the commission changed to the renewal rate, which was 10% of “OSC Net Revenue.” Id. The 2011 Commission Agreement did not define the terms “commission” or “OSC Net Revenue.”

         In February 2013, the Shellpoint account was in its thirteenth month. Under the 2011 Commission Agreement, therefore, Roberts's commission on that account lowered from 20% to the renewal rate of 10%. In the fall of 2013, Roberts noticed the reduction in his commission and questioned John Dangoia (“Dangoia”), then-president of OSC, and James Robertson (“Robertson), OSC's Executive Vice President, regarding the lower rate. Dangoia and Robertson reminded him that the 2011 Commission Agreement provided that after one year, commissions are paid on the renewal rate. Roberts thereafter agreed that his commissions had been paid properly under the 2011 Commission Agreement, even though he never received any portion of contingent commissions under that agreement.

         E. The 2014 Commission Agreement

         In the spring of 2014, after soliciting input from Roberts and other salespersons, OSC implemented a new commission agreement (the “2014 Commission Agreement”), retroactive to April 1, 2014. Id. at 12 (2014 Commission Agreement). The 2014 Commission Agreement removed the renewal rate, allowing the initial commission rate to be effective throughout the term of the agreement. Commissions would now be paid on 12.5% of “OSC Gross Revenue.” Id. Just as the 2011 Agreement did not define “OSC Net Revenue, ” the 2014 Commission Agreement did not define “commission” or “OSC Gross Revenue.” Id.

         F. The $35, 000 Monthly Deductions

         Beginning in May 2014, the Shellpoint business no longer included a subagent commission. As a result, under OSC's commission structure, Roberts's commission percentage was to increase from 5% to 12.5%. Contending that the elimination of a subagent translated into increased expenses associated with servicing the account, OSC began internal discussions about how to share these costs with Roberts. On October 21, 2014, Robertson, Dangoia, and other OSC executives had a conference call with Roberts to propose a cost-sharing agreement. The parties dispute whether Roberts ultimately agreed to share these costs. While OSC believed, based on the conference call with Roberts, that he had agreed to share the costs associated with servicing the Shellpoint account, thereby authorizing the monthly deductions, Roberts stated at his deposition that he never agreed to share the expenses. According to Roberts, he believed that no agreement was reached, as his questions were never answered in a satisfactory manner and the information provided him was insufficient.

         G. The Sales Bonus and General Release and Waiver of Claims

         In September 2014, OSC provided certain employees, including Roberts, a sales bonus in exchange for a release of claims. Defs.' Summ. J. Resp. App. 55-58 (Sales Bonus Agreement); id. at 59-61 (General Release and Waiver of Claims). The General Release provided that an employee receiving the sales bonus released Defendants from all claims in consideration for the sales bonus award. Roberts signed both documents.

         OSC continued to pay commissions solely on revenue from premiums, and Roberts registered no complaints. During the entire period of his employment, Roberts never informed his employer that he expected to be paid on contingent commissions and never complained about not being paid them.

         H. Termination of Roberts's Employment

         On March 20, 2015, Defendants terminated Roberts's employment. In the termination letter, Robertson stated that the basis for Roberts's termination included failing to use best efforts, engaging in unlawful competition, and usurping business opportunities. Defendants also threatened him in the letter with civil and criminal legal actions.

         I. This Lawsuit

         On March 24, 2015, Roberts filed this civil action. This case was originally set for trial on the court's four-week docket commencing August 1, 2016. After numerous discovery disputes, which necessitated extensions of time and amendments to the court's scheduling order, on January 11, 2017, the court granted the parties' Amended Fifth Agreed Motion to Extend Scheduling Order Deadlines. See Sixth Am. Sch. Order (Doc. 45). The court reset the trial date for the court's four-week docket beginning on October 2, 2017, extended the deadline for pretrial disclosures to September 5, 2017, extended the deadline to object to the opposing parties' pretrial disclosures to September 18, 2017, extended the deadline for dispositive motions to June 16, 2017, extended the deadline to challenge experts to June 16, 2017, and extended the deadline to complete all discovery, including expert discovery, to June 2, 2017. See Sixth Am. Sch. Ord. (Doc. 45).

         On June 9, 2017, a week after discovery closed, Roberts filed a Motion to Compel Interrogatory Responses and Document Production. (Doc. 66). Among other things, Roberts argued that Defendants had “thwart[ed] [his] efforts to recover his commission on the contingent commission revenue received by Defendants” by arguing it was “not possible to calculate the amount of contingent commission allocable to an individual producer.” Pl.'s Mot. to Compel 5. Robert introduced evidence that, contrary to Defendants' answers and objections to interrogatories and production requests, several of OSC's executives, including Norton and Pearce, stated in their depositions that contingent commissions could be calculated on the basis of an individual producer. Among other things, Roberts moved to compel a proper answer to Subpart (a) ...

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