Date: 02-26-2016

Case Style: Kirk Lory v. Concord Equity Group Advisors, LLC

Case Number: A-3200-13T1

Judge: William E. Nugent

Court: SUPERIOR COURT OF NEW JERSEY

Plaintiff's Attorney: Joel N. Kreizman

Defendant's Attorney: Darth M. Newman, Joseph A. Martin, Benjamin D. Morgan

Description: This action's relevant procedural history is not complex.
One month after Loury's nearly two-year employment as a Concord
executive ended, he filed a four-count complaint against
Concord. Three of the counts were dismissed for failure to
state a claim upon which relief could be granted. The surviving
count alleged Concord breached the parties' employment
agreement.
Following dismissal of the three counts, Concord filed an
answer, counterclaim, and third-party complaint against Wealth
Planning Consulting, Inc., the company Loury formed after
A-3200-13T1 3
leaving Concord.1 Inexplicably, Concord's pleading contained no
affirmative defenses.2 Concord's "counterclaims" against Loury
and Wealth Management were dismissed on summary judgment.3 Loury
later moved to bar Concord from presenting at trial – as a
defense to his contract claim — any purported evidence
underlying Concord's now dismissed counterclaims; and Concord
cross-moved for leave to amend its answer and assert affirmative
defenses. A judge granted Loury's motion, denied Concord's
cross-motion without prejudice, and filed a March 22, 2013
implementing order, one of two from which Concord appeals.
Although Concord's cross-motion to amend its answer and assert
affirmative defenses was denied without prejudice, and though
the judge directed Concord to refile it, Concord never did.
Loury's contract claim was tried for three days before a
judge sitting without a jury, the parties having waived a jury
the day trial was scheduled to begin. The judge found for Loury
1 Concord designated third-party defendant Wealth Planning Consulting, Inc., as a "Counterclaim Defendant."
2 The law firm that filed Concord's responsive pleading is not the firm representing Concord on this appeal.
3 Concord has not appealed from the summary judgment order dismissing its claims against Loury and Wealth Planning Consulting, Inc.
A-3200-13T1 4
and filed a March 10, 2014 order entering judgment against
Concord for $378,934.45.4 Concord appealed.
We derive the facts underlying the parties' dispute from
the motion and trial records. Concord is "engaged in the
business of providing outsourced wealth management solutions and
certain other services to financial services companies
(including depository and trust institutions)." Concord
employed Loury as its Chief Investment Officer from November 28,
2007 through October 5, 2009. The parties' employment agreement
described Loury's "duties and position" as "a full-time employee
. . . with various responsibilities covering: investments,
investment marketing, investment application design, Concord
Wealth Consulting and Concord Canada." The employment agreement
required Concord to pay Loury $200,000 annually plus "Additional
Compensation" for accounts designated by the parties as any
"Qualifying Assets Under Management Account (QAUM). The
additional compensation for QAUM accounts – the accounts at the
heart of the parties' dispute — was "ten percent . . . of such
revenue until the aggregate Additional Compensation . . . for
any calendar year exceeded . . . $250,000"; and a declining
4 Concord's opposition to the form of the order did not reach the judge before she signed the order. Consequently, she considered the opposition after receiving it, was unpersuaded by it, and filed a March 24, 2014 order affirming and leaving "in full force and effect" the March 10, 2014 order.
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percentage of such revenue once the $250,000 cap had been
reached. The employment agreement contained an example:
[I]f [Concord] were to receive $8,000,000 in revenue in a calendar year in connection with [a] QAUM account, . . . the Additional Compensation for such calendar year would equal $450,000 (10% of $2,500,000 [i.e., $250,000] + 5% of $2,500,000 [i.e., $125,000] + 2.5% of $3,000,000 [i.e., $75,000]).
Section eight of the employment agreement contained a
confidentiality clause that defined "confidential information"
to include, among other things: "information concerning the
nature and operation of [Concord] including, but not limited to,
. . . intellectual property, trade secrets, customers . . . ,
documentation, . . . computer files, programs and databases."
The confidentiality terms further provided:
[Loury] acknowledges and agrees that all such confidential information which he receives or is granted access to during the course of his employment will be treated by him as such, and that both during and after the term of [Loury]'s employment, however caused, he will not, directly or indirectly, other than in the ordinary course of business, make use of such information or any other confidential and propriety information concerning [Concord] for his own benefit, nor divulge such information to any other parties not duly entitled thereto, nor retain or create any lists of [Concord]'s customers for his own personal use nor reveal same to any other party.
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Additionally, the agreement provided that intellectual
property Loury developed during the term of the employment
agreement was confidential, "whether or not created or
accumulated by [him]," and that such intellectual property
developed by him was "the exclusive property of [Concord] and
shall remain so after the termination of this Agreement for
whatever reason." The agreement restricted Loury's post
employment use of such information and required him to return
all business related documents and property to the company upon
the employment agreement's termination.
Before becoming employed by Concord, Loury had conceived an
idea for developing a technology platform known as "Balance
Sheet Methodology" (BSM). Loury intended to develop BSM from
his pre-existing knowledge, thus, he negotiated a term in the
employment agreement permitting him "to use the philosophies,
concepts, methodologies, writings, renderings, specifications,
formats, tables, charts, and graphs for all material originally
authored, created and maintained by [him]." The parties
referred to this provision as the "IP Carve Out." During
Loury's employment with Concord, Concord contracted with a
company in India named Sarjen Systems Pvt. Ltd. to develop BSM
with Loury.
A-3200-13T1 7
The employment agreement restricted Loury's ability to
solicit Concord's customers once he was no longer employed by
Concord. The agreement provided:
[Concord], an industry pioneer, is engaged in the business of providing outsourced wealth management solutions and certain other services to financial services companies (including depository and trust institutions) (collectively, the "Business"). [Loury] acknowledges and agrees that the following Non-Solicitation of Customers/Active Leads provisions serve as a material inducement for [Concord] to enter into this Agreement, do not impose a greater restraint on [Loury] than is necessary to protect the interests of [Concord] and contain certain geographical, time, and scope of activity limitations, which are reasonable under the circumstances.
Loury agrees that during his employment and for one . . . year after the termination of his employment, however caused, but provided that the compensation provisions of Sections 1(b) and 1(c) are met, he will not, directly or indirectly, . . . solicit, attempt to obtain, accept, service or transact Business, . . . from or with any customer, client, account or active leads/prospects of [Concord].
The references to Sections 1(b) and 1(c) referred to Loury's
right to compensation upon termination of the agreement.
Section 1(c), the provision central to the parties' dispute,
provided:
If [Loury]'s employment with [Concord] is terminated (i) by [Concord] without Cause or (ii) by [Loury] with Good Reason, then
A-3200-13T1 8
[Loury] shall, provided [Loury] is not in breach of Section 8, 10, 11 or 16 of this Agreement prior to the date of such payment or the provision of such benefit, be entitled to receive (x) the Accrued Obligations, (y) an amount equal to [Loury]'s base salary (as hereinafter defined) for the twelve-month period immediately preceding such termination, [payable in 24 equal semi-monthly installments in accordance with such payroll and compensation procedures and policies of [Concord] as shall be prevailing from time to time] and subject to all requisite payroll tax and withholding deductions, and (z) an amount equal to one year of the Additional Compensation revenues as contained on Schedules A, B and C from which [Loury] would have been entitled to receive from [Concord] if [Loury]'s employment with [Concord] had continued throughout the twelve-month period immediately following the termination of [Loury]'s employment (which amount shall be payable to [Loury] in increments and at such time as such amount would have been paid to [Loury] had [Loury]'s employment not been terminated), subject to all requisite payroll tax and withholding deductions. Section 8 contained the confidentiality provisions, section
10 contained a covenant not to compete, section 11 prohibited
Loury from soliciting Concord's employees for one year after
leaving, and section 16 provided for equitable remedies in the
event Loury breached the employment agreement. The employment
agreement defined the terms "cause" and "good reason":
(i) the term "Cause" shall mean: (A) any material breach of this Agreement (which shall include, without limitation, a breach of
A-3200-13T1 9
Section 7, 8, 10, 11 or 16 hereof); (B) the refusal or failure by [Loury], after written warning to him from [Concord], to act in accordance with the reasonable and nondiscriminatory operating rules and procedures adopted by [Concord]; (C) the refusal or failure of [Loury] to execute and carry out a reasonable directive of [Concord]'s managing members or board of managers (collectively, the "Managers") relating to [Concord], other than an isolated, insubstantial or inadvertent failure not incurring in bad faith or which is remedied by [Loury] promptly after receipt of notice thereof from [Concord]; (D) [Loury]'s conviction for, or entry of a plea of guilty or nolo contendere or no contest with respect to, any felony, or a misdemeanor involving moral turpitude; (E) [Loury] committing an intentional tort (including, but not limited to, sexual harassment of an employee) against [Concord] or any employee of [Concord]; or (F) [Loury]'s unlawful use (including being under the influence) or possession of illegal drugs on the premises of [Concord] or while engaging in employment activities (such as attending meetings with clients).
(ii) The term "Good Reason" shall mean (A) relocation of [Loury]'s principal work location more than sixty (60) miles from its current location; (B) the failure of a successor to all or substantially all of the assets of [Concord] to assume any obligations of [Concord] under
A-3200-13T1 10
this Agreement, either contractually or as a matter of law, within forty-five . . . days of such transaction; or (C) any failure by [Concord] to comply with any material provision of this Agreement, other than an isolated, insubstantial or inadvertent failure not occurring in bad faith or which is remedied by [Concord] promptly after receipt of notice thereof from [Loury].
On December 14, 2007, two weeks after signing the
agreement, Loury sent an email to two of Concord's principals,
Lee Argush and Alan Gavornik. In the email, Loury alleged he
had been shorted on his bonus compensation, in violation of the
employment agreement. Four months later, in April 2008, Loury
alleged Concord breached the employment agreement by not making
timely payments to the company retained to create BSM. As his
remedy, Loury "claim[ed] full ownership of BSM from this point
forward."
More than a year later, on August 19, 2009, Loury alleged a
third breach of the agreement, contending Concord had, since
February, improperly charged expenses to a QAUM account, thereby
reducing the account's "revenue," and his ten percent
compensation by $3,021.41. In an email to Concord's president
and Chief Executive Officer, Loury described this reputed
violation as "a culminating event regarding [Loury]'s status at
A-3200-13T1 11
[Concord]." Loury invoked his option to terminate with good
reason under the employment agreement. Concord disagreed
Loury had good reason to resign. Loury left open the
possibility of continuing to work for Concord, which he did
until October 5, 2009, when Concord's counsel wrote to him and
detailed the reasons Concord disagreed he had resigned for good
reason.
In the letter, counsel for Concord demanded that Loury:
return all business records and his laptop computer; refrain
from ever using or disclosing confidential information; and
honor his covenant not to compete. In addition, the letter
demanded that Loury
refrain from making any use of Concord's software, programming, source code, reports, memoranda, analyses, or any other work product (including any "intellectual capital") resulting from Concord's development of the BSM product. For the sake of clarity, we note that the language in the penultimate sentence of section 8 applies to any materials authored solely and originally by you and does not grant to you a license to use materials and work product developed through Concord's investment in the BSM product or otherwise in collaboration with Concord or its vendors.
Moreover, information concerning the work performed by [Sarjen] on behalf of Concord relating to the BSM product are confidential to Concord. Therefore, while you are free to engage any other vendor to assist you in the development of product similar to or competitive with the BSM
A-3200-13T1 12
product, any efforts by you to retain [Sarjen] to develop such a product will be considered a breach of the Agreement, and Concord will take appropriate steps to protect its proprietary information and its substantial investment in the BSM product.
The following month, Loury filed the four-count complaint.
The sole count not dismissed for failure to state a claim
alleged Concord had breached the employment agreement.
Specifically, Loury alleged in the complaint that from February
through August 2009, Concord "had intentionally and wrongfully
begun charging various overhead expenses to one of [the] QAUM
accounts." The complaint characterized this practice as a
"deliberate theft of compensation and not inadvertent." The
complaint further alleged Concord wrongfully refused Loury's
demand the company pay him $3,021.41 in additional compensation,
and thereafter, the money he was due upon termination of the
employment agreement for "good reason."
Concord filed an answer and counterclaim but no affirmative
defenses. The eight-count counterclaim alleged Loury oversaw
Concord's development of BSM's first version but then
recommended Concord have Sarjen further develop the software,
which Sarjen did. Concord believed Loury "sought to have
Concord outsource the continued development of the BSM product
so that he would later be able to retain Sarjen (or an
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affiliate) on his own account and take advantage of the
intellectual capital developed by Sarjen at Concord's expense."
Concord further alleged that Loury: had deleted
confidential proprietary files from his laptop computer before
returning it to Concord "for the purpose of hindering Concord's
ability to service its customers"; after leaving Concord, formed
Wealth Planning Consulting, Inc. (WPC) and "used the files from
Concord's computer system related to the BSM to develop
substantially similar product offerings for WPC"; used Sarjen or
Sarjen affiliates "to develop software for WPC as part of an
intentional effort to take and use for themselves the
confidential, proprietary, and trade secret software and other
product which Sarjen had developed for Concord"; caused the
disintegration of Concord's BSM team; before leaving, contacted
several of Concord's customers and told them he was solely
responsible for developing BSM; and solicited Concord customers
in violation of the employment agreement.
Based on those factual allegations, Concord alleged causes
of action for: violation of the Computer Fraud and Abuse Act, 18
U.S.C.A. § 1030(a); violation of the New Jersey Computer-Related
Offenses Act, N.J.S.A. 2A:38A-1 to -6; breach of contract; theft
of confidential information and trade secrets; breach of duty of
loyalty; tortious interference with prospective business
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relations; unfair competition; and unjust enrichment. Concord
sought permanent injunctive relief, compensatory damages,
punitive damages, and counsel fees.
Following discovery, a judge granted Loury's summary
judgment motion seeking dismissal with prejudice of all causes
of action in Concord's counterclaim. Although Concord has not
appealed from the implementing order, the summary judgment was
the basis for another judge later granting Loury's in limine
motion to bar Concord from presenting certain evidence at trial.
For that reason, the summary judgment motion record is relevant
to the issues Concord presents on this appeal.5
Loury submitted a certification and numerous exhibits. In
his certification, he averred that before leaving Concord, he
spoke with Concord's Executive Managing Director about moving
personal and Concord files located on his laptop computer.
Loury intended to move "certain personal and Concord related
files . . . , which fell within the parameters of the IP Carve
Out, to [the computer's] recycling bin." He also intended to
retain certain files that fell within the IP Carve Out by
5 Loury's summary judgment motion was one of the three decided by the judge on the same day. The judge denied Concord's motion to amend its counterclaim to add two additional plaintiffs, and the judge also denied Concord's motion for partial summary judgment. The parties have not provided the transcripts of oral argument on these or any other motions.
A-3200-13T1 15
copying them to a flash drive. According to Loury, the
executive not only approved Loury's request, but sat in Loury's
office while Loury moved the files. The process took
approximately one and one-half hours, and Loury handed his
laptop to the executive after the process was completed.
Loury also explained in his certification that Concord's
computer system archived all emails and associated documents.
Loury denied destroying or deleting any documents or files from
the laptop computer. During discovery, "Concord produced a file
listing from its servers which shows that all documents Concord
contends were deleted, including [Loury]'s emails and associated
files, were in fact on Concord's server."
Next, Loury certified that after leaving Concord and
forming WPC, he "developed a new BSM product . . . from
scratch." He denied using any source code developed by Sarjen
for the Concord version of BSM or otherwise relying on Concord
trade secrets or confidential information. In fact, a different
programming language was used to develop his product. Loury
explained that a company in India, Ecom DotCom (India) Pvt.
Ltd., wrote the source code for his new BSM product. Ecom
Dotcom is a company formed by the owner of Sarjen. Loury
asserted when, during discovery, he sought from Concord the
source code for its BSM product — presumably to refute its claim
A-3200-13T1 16
that he had misappropriated BSM software — Concord withdrew that
claim. He cited a Concord interrogatory answer that "clarified
its allegations concerning what Mr. Loury misappropriated."
Concord further explained it did not contend Loury
"misappropriated the actual source code used by Concord."
Loury included with his motion a certification from
Sarjen's managing director, who explained that Concord's
agreement with Sarjen did not pass Sarjen's copyright and
intellectual property ownership to Concord. Consequently, under
Indian copyright law, Sarjen owns the copyright and intellectual
property for the BSM code Sarjen developed for Concord.
Sarjen's managing director also believed Sarjen owned the
intellectual property under American copyright law. Sarjen's
managing director purported to revoke Concord's proprietary
interest in BSM due to invoices to Concord that had not been
paid for more than a year. He averred that when he called
Concord's Chief Executive Officer and President (CEO) to discuss
the paid invoices, the CEO "threatened me with non-payment of
the invoices should Sarjen or an affiliate work with Kirk
Loury."
In opposition to Loury's motion, Concord filed
certifications from two officers, its Executive Managing
Director and its CEO. The Executive Managing Director
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acknowledged "[o]n October 5, 2009, the last day of Kirk Loury's
employment with Concord, he was requested to give me his laptop
computer. Mr. Loury told me that prior to handing over the
laptop computer to me, he wanted time to remove personal data
from the computer's hard drive." The Executive Managing
Director "acceded to Mr. Loury's request." He denied Loury had
disclosed his intention to delete documents related to Concord's
business, and he also denied being in the room when Loury made
the deletions. Sometime after Loury departed, the Executive
Managing Director "became aware that Concord business data had
been deleted from the laptop computer." He did not explicitly
dispute either that Loury had moved the data to the computer's
recycle bin or that the information Loury retained fell within
the IP Carve Out.
Concord's CEO submitted two certifications. In the first,
he explained that after Loury departed, Concord discovered there
was no Concord data on the laptop computer. Concord retained a
company that charged $539 to retrieve the data and numerous
documents were recovered, but "there were many documents which
could not be obtained." According to the CEO, "Concord's
inability to resurrect Loury's [PowerPoint] presentation and
marketing program for [a major customer] put [Concord] at a
severe disadvantage in seeking renewal of Concord's consulting
A-3200-13T1 18
contract with [the customer]." When the existing contract
expired, Concord was unable to renew it for five months, losing
during that time its monthly fee of $10,417 and sustaining a
total loss of $52,085. The CEO also asserted that "[b]ecause of
the scramble caused by Loury's destruction of marketing data,
Concord was required to retain a marketing company . . . [a]t a
cost of $6000 per month, i.e., an annual cost of $72,000."
In his second certification, the CEO disputed Loury's claim
that Concord had shorted his compensation. The CEO noted
on prior occasions [Loury], after reviewing accounting records, believed he was shortchanged on his compensation. On both of those occasions, when he presented the data to me and two other managing directors, we reviewed it and agreed with him. One of those occasions involved more money than is involved in this matter.
The CEO conceded Concord personnel "at times" made mistakes when
computing Loury's compensation, but if warranted, the mistakes
were corrected. He asserted there were instances where mistakes
were made in Loury's favor. The CEO explained "Concord did not
pay Loury the $3021.41, which is the amount he claims was
wrongly withheld from him, because we did not believe he was
entitled to it. There was no mistake."
The CEO implied that expenses should have been applied
against its fees on all QAUM accounts before Loury's ten percent
was computed. The CEO further explained that some QAUM accounts
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for which Loury received additional compensation "involved
minimal expenses and, therefore, [Concord]'s bookkeeper, on
occasion, may have overlooked the deduction she was supposed to
take for expenses before calculating the 10% compensation for
Loury." In contrast, the QAUM account involving the $3021.41 in
dispute, "with its [1200] customers had far more significant
expenses and the bookkeeper was more careful to properly
calculate the commission due to [Loury]." The CEO pointed out
"that at all times [Loury] had unfettered access to [Concord]'s
accounting data. That is how he was able to discover the prior
two mistakes [Concord] corrected, as well as the data for his
current claim. Nothing was ever hidden from him."
In her written decision granting Loury's summary judgment
motion to dismiss Concord's counterclaim, the judge first
addressed Concord's claim Loury had violated the Consumer
Computer Fraud and Abuse Act. The judge acknowledged the
factual dispute concerning whether a Concord principal actually
observed what Loury was doing on the laptop during his last day
of work, but noted "it's undisputed that what Mr. Loury did was,
he says he did to clean out or clean up his computer before he
left. He left the laptop there but he moved certain things to
the recycle bin."
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The judge also noted that in response to Loury's discovery
demands for proofs of its damage claim, including a demand
relating to communications between Concord and its customer,
Concord had provided no documentary evidence. Moreover, at his
deposition, the CEO conceded Loury's moving of laptop files did
not cause any downtime on Concord's main computer system. The
CEO could offer no more than his belief that Concord's inability
to pick up where Loury had left off with the customer's
consulting relationship was a "major contributor" to the delay
in renewing the customer's account, thereby resulting in the
alleged $52,085 loss. After considering these proofs, the judge
determined Concord had "failed to establish competent evidence
for a jury question despite [Loury]'s repeated requests for
evidence of damages sought as a result of [his] alleged
violation of [the federal Consumer Computer Fraud and Abuse
Act]."
The judge also determined that Loury's moving files on the
laptop computer to the recycle bin was not an alteration of the
computer. She concluded that moving files to a recycling bin,
without more, is not actionable under New Jersey's Computer
Related Offenses Act.
Next, the judge summarized Concord's breach-of-contract
action:
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[Concord] alleges that Mr. Loury breached his employment contract that he, upon termination of [his] employment, the contract says upon termination of [his] employment however caused or upon demand by [Concord], [Loury] will promptly return to [Concord] all documents or materials that may be in his possession, custody or control that contain confidential information as defined herein.
[Loury] is not authorized to retain any copies of the business related documents, all of which remain the property of [Concord] and which must be returned as set forth herein.
The judge explained that Loury's moving computer documents
to a recycle bin did not equate to taking the computer with him
and would not, based on the language in the employment
agreement, constitute a breach of contract. The judge also
noted Concord's allegations that Loury took information with him
concerning "the product he created when he was working with
Concord" and tried to take clients "or a client" from Concord.
She found there was no viable claim for damages.
The judge dismissed Concord's claim that Loury had taken
confidential information and trade secrets. The judge
determined Concord had not proved that it owned BSM and had not
refuted Loury's averment that he had not used BSM in developing
his new product. As for Concord's claim that Loury had taken a
list of prospective customers, the judge "did not see anything
in the record indicating that Loury had gained any financial
A-3200-13T1 22
advantage as a result of taking or knowing of this list of
prospective clients." The judge also found: "based upon the
evidence that's been presented in this case, based upon the
discovery that was taken, it does not appear that the theft of
confidential information and trade secrets claim can survive the
motion for summary judgment and summary judgment needs to be
granted."
The judge also rejected Concord's claim that Loury had
breached his duty of loyalty. She found no evidence in the
motion record "that would sustain a claim that [Loury] violated
a duty of loyalty to Concord with reference to solicitation of
Concord's customers." She further determined, as a matter of
law, that moving the laptop computer files did not constitute a
breach of Loury's duty of loyalty to Concord.
Concerning Concord's claims that Loury tortiously
interfered with Concord's prospective business relations and
engaged in unfair competition, the judge found he did not
tortiously interfere by deleting files with the intention of
hindering Concord's ability to service its clients. She further
found no evidence "that [Loury] steered customers away from
Concord for [his] own economic benefit." Once again, the judge
determined that Concord's claims were mostly speculative.
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Finally, the judge rejected Concord's claim of unjust
enrichment. She found no evidence in the record to support the
claim.
Following the summary judgment order's entry, Loury filed a
motion to bar Concord from arguing or referencing at trial any
matter decided or precluded by the court's decision granting
summary judgment. Concord filed a cross-motion to amend its
answer and assert affirmative defenses. Relying upon the "rule
of the case" doctrine, the judge concluded Concord was "unable
to assert any previously dismissed counterclaims as affirmative
defenses."
In its implementing order, the judge precluded the parties
from making any argument or offering any testimony or other
evidence that Loury: (1) breached his employment agreement; (2)
breached his duty of loyalty; (3) misappropriated any trade
secrets or confidential information; (4) tortiously interfered
with Concord's relationships with clients, potential clients, or
other business opportunities; and (5) violated state and federal
computer fraud law.
The judge denied Concord's motion to amend its answer and
file affirmative defenses because Concord had not included in
the motion a copy of the proposed pleading. Counsel for Concord
said he filed the proposed amended answer with his motion, but
A-3200-13T1 24
"[s]omehow it got lost in the Clerk's Office." Based on that
representation, the court denied the motion without prejudice.
The court directed counsel to resubmit the motion "because it's
only then can we determine whether those are matters that have
been litigated or not litigated before." Concord did not
resubmit the motion.
During the three-day bench trial, the parties presented two
witnesses, Loury and the CEO, and considerable documentary
evidence. The witnesses repeated and elaborated on the
positions the parties had taken during pre-trial motion practice
whether Concord had breached the employment agreement and, if
so, whether the breach was material. A third judge – not the
judge who denied plaintiff's summary judgment motion and not the
judge who decided plaintiff's in limine motion – decided the
case in Loury's favor.
The judge found the witnesses' credibility to be "in
equipoise" and also found "in large measure that the
contemporaneous emails between the parties provided the most
reliable source of information relative to the parties' dealings
with one another." She concluded the term "revenue" in the
employment agreement's additional compensation section was
unambiguous, and Concord "belatedly attempted to engraft upon
this word the concept of 'profit' (that which is left after all
A-3200-13T1 25
costs and expenses have been paid), or 'net profit,' in an
effort to justify a change in position regarding the deduction
of expenses." The judge further concluded the parties chose the
term "revenue" "because it properly expressed the parties'
agreement and [Concord] acquiesced to its use because it
expected that little or no costs would be associated with the
generation of income or 'revenue' on the accounts in question."
The judge noted it was "only when more substantial costs were
incurred on the [disputed accounts], along with a concomitant
downturn in the financial market, that [Concord] attempted to
recapture a portion of the costs out of [Loury]'s share."
The judge also determined Concord's breach of the
employment contract was material, and Loury resigned for good
reason. She noted "the deduction of expenses from [Loury]'s
monthly commissions reduced the compensation to which he was
otherwise entitled under the Agreement and would have continued
for the life of the contract had [Loury] not made his own
independent calculations and discovered the shortfall." She
further noted Concord "declined to cure the breach by paying the
amounts that had been previously deducted." Based on those
facts, the judge concluded Loury had sustained his burden of
proving Concord materially breached the employment agreement,
A-3200-13T1 26
that the breach was not insubstantial, and that Concord failed
to cure the breach after notice.
Concord also contended Loury's contractual damages
constituted liquidated damages, which bore no relation to his
actual damages, and were therefore barred as a matter of law.
The judge rejected the argument, finding, among other things,
Loury had taken a salary reduction when he accepted employment
with Concord, and the employment agreement was negotiated at
arms-length among sophisticated businessmen.
II.
In its first point on appeal, Concord contends the March
22, 2013 in limine order was erroneously entered and prevented
Concord from presenting at trial all facts relevant to Loury's
breach of the employment agreement. Concord notes the judge who
decided the in limine motion held "[t]he law of the case
doctrine . . . prohibits this [c]ourt from making any rulings
that conflict with [the summary judgment] order"; but a review
of the summary judgment decision "reveals that [the judge who
granted summary judgment] made no finding that Loury did not
breach the Employment Agreement, or breach his duty of loyalty
or wrongfully take confidential materials belonging to
[Concord]." According to Concord, the judge who decided the in
limine motion "did not seem to appreciate . . . that a
A-3200-13T1 27
counterclaim in a damage case, just like a complaint in a damage
case, has two parts, i.e., (1) liability and (2) damages."
Concord asserts its inability to prove damages on the summary
judgment motion did "not mean there was no breach of contract,
. . . no breach of the duty of loyalty, . . . no wrongful taking
of confidential information or tortious interference with
economic relations."
Concord emphasizes "[i]t is hornbook law" that a
significant breach by one party to a contract relieves the other
party to the contract of his or her obligation; the employment
agreement entitled Loury to a remedy for terminating his
employment for good reason only if he were "not in breach of
Section 8, 10, 11, or 16 of [the] Agreement"; and the in limine
order precluded Concord from presenting proofs that it was
relieved from performance due to Loury's breach of the
employment agreement. Concord maintains that it should have
been permitted to present evidence that Loury downloaded 1700
documents belonging to Concord, including a memorandum with a
detailed analysis of Concord's customers, as prima facie
evidence Loury breached Section 8 — the confidentiality
provisions — of the employment agreement.
In addition to arguing that Loury breached the employment
agreement, Concord contends Loury's conduct during the course of
A-3200-13T1 28
his employment breached his duty of loyalty to Concord. Concord
also alleges Loury breached the implied covenant of good faith
and fair dealing.
In response, Loury emphasizes Concord not only failed to
raise affirmative defenses when it filed its answer, but again
failed to do so when the motion judge, after granting Loury's in
limine motion, specifically directed Concord to resubmit the
motion so he could determine whether the proposed affirmative
defenses involved matters that had been litigated or not
litigated previously. Loury notes Concord has not appealed from
the order denying its motion to amend its answer to assert
affirmative defenses. Acknowledging that courts may treat as
affirmative defenses issues pled as counterclaims, Loury argues
"such a procedural leniency could not exist once the trial court
dismissed Concord's counterclaims with prejudice."
Loury further contends the motion judge did not abuse his
discretion by granting the motion in limine. Loury argues that
Concord was attempting to bypass the summary judgment motion
judge's decision by recasting its counterclaims as affirmative
defenses, a tactic barred by the law of the case doctrine.
Loury also disputes Concord's contention that because the
summary judgment decision only found damages lacking, Concord
should have been permitted to present at trial factual evidence
A-3200-13T1 29
of Loury's breach. Loury makes three arguments: first, even if
Concord had been permitted to rely on its counterclaims as
affirmative defenses, Concord never asserted in its
counterclaims that Loury was not entitled to compensation upon
leaving because he breached paragraph 1(c) of the employment
agreement, which entitled him to such compensation.
Second, the "timing language" of paragraph 1(c) required
Concord to pay Loury within a short period of time after Loury
notified Concord of his decision to terminate the employment
agreement for good reason. Loury submits he notified Concord on
August 19, 2009, and was therefore entitled to compensation no
later than September 19, 2009; not when he left the building on
October 5, 2009, the date when, according to Concord, Loury's
first breach of the employment agreement occurred.
Third, Loury argues the judge did not abuse his discretion
in granting the in limine motion because the judge who decided
the summary judgment motion determined that Concord had produced
no competent evidence to support its liability — as
distinguished from its damage — claims.
Appellate review of the evidentiary rulings a trial court
has made on a motion in limine is limited. "[A] trial court's
evidentiary rulings are 'entitled to deference absent a showing
of an abuse of discretion, i.e., there has been a clear error of
A-3200-13T1 30
judgment.'" State v. Brown, 170 N.J. 138, 147 (200) (quoting
State v. Marrero, 148 N.J. 469, 484 (1997)). As such, "an
appellate court should not substitute its own judgment for that
of the trial court, unless the trial court's ruling was so wide
of the mark that a manifest denial of justice resulted." Ibid.
When applying that standard, we must of course consider
only the evidence the parties presented to the court in support
of and in opposition to the motion. A trial court cannot be
deemed to have abused its discretion by failing to consider
either evidence or arguments not presented by the parties. As
our Supreme Court has noted, "[t]here is an instinct of fairness
due . . . the trial judge . . . and a litigant's adversary, a
sense that one's opponent should have a chance to defend,
explain, or rebut some challenged ruling and that the trial
judge should have a clear first chance to address the issue."
State v. Robinson, 200 N.J. 1, 19 (2009) (quoting Frank M.
Coffin, On Appeal: Courts, Lawyering, and Judging 84-85 (W.W.
Norton & Co. 1994)).
Here, the judge who decided the in limine motion determined
the previous judge's summary judgment decision was the law of
the case and precluded Concord from recasting its counterclaims
as affirmative defenses. "Under the law-of-the-case doctrine,
'where there is an unreversed decision of a question of law or
A-3200-13T1 31
fact made during the course of litigation, such decision settles
that question for all subsequent stages of the suit.'" Bahrle
v. Exxon Corp., 279 N.J. Super. 5, 21 (App. Div. 1995) (quoting
Slowinski v. Valley Nat'l Bank, 264 N.J. Super. 172, 179 (App.
Div. 1993)), aff'd, 145 N.J. 144 (1996). For that reason, the
decision "should be respected by all other lower or equal courts
during the pendency of that case." Lanzet v. Greenberg, 126
N.J. 168, 192 (1991) (citing State v. Reldan, 100 N.J. 187, 203
(1985)). Thus, if the doctrine applies, it prohibits "a second
judge on the same level, in the absence of additional
developments or proofs, from differing with an earlier ruling."
Hart v. City of Jersey City, 308 N.J. Super. 487, 497, (App.
Div. 1998).
A judge has discretion in applying the doctrine because
"the court is never irrevocably bound by its prior interlocutory
ruling." Daniel v. N.J. Dep't of Transp., 239 N.J. Super. 563,
581 (App. Div.) (quoting Sisler v. Gannett Co., Inc., 222 N.J.
Super. 153, 159 (App. Div. 1987), certif. denied, 110 N.J. 304
(1988)), certif. denied, 122 N.J. 325 (1990). Rather, the
doctrine exists "to prevent relitigation of a previously
resolved issue." In re Estate of Stockdale, 196 N.J. 275, 311
(2008). The doctrine "should be applied flexibly to serve the
interests of justice." Bahrle, supra, 279 N.J. Super. at 21
A-3200-13T1 32
(quoting Reldan, supra, 100 N.J. at 205. Nonetheless, when
liability is decided on summary judgment "fully as a matter of
law and fact, the summary judgment orders became the 'law-of
the-case.'" Ibid. (quoting Lanzet, supra, 126 N.J. at 192).
Here, the judge who decided the in limine motion misapplied
his discretion in applying the rule-of-the-case doctrine to bar
the admission of relevant trial evidence. As Concord asserts,
the judge who decided the summary judgment motion did not
conclude Concord had failed to establish materially disputed
facts as to each element of every counterclaim. For example,
the judge found as to the first count of the counterclaim:
[Concord]'s assertion that it suffered damages isn't
substantiated in this case." As an additional example, in
dismissing the counterclaim alleging breach of contract, the
judge acknowledged "Loury did take materials, information with
him . . . [but] damages is a necessary element." The judge then
dismissed the breach-of-contract counterclaim, though the
explanation for doing so was not entirely clear.
The judge made similar rulings with respect to the
remaining counterclaim counts, finding nothing in the record
"indicating that Loury had gained any financial advantage as a
result of taking or knowing of the list of prospective clients";
nothing in the record "indicat[ed] that Mr. Loury obtained
A-3200-13T1 33
economic benefit to the detriment of [Concord] with reference to
[Concord]'s customers"; and Loury was not "unjustly enriched."
In short, with one or two exceptions, the judge dismissed
Concord's counterclaims mainly because it had not been damaged
and thus had no viable claim for relief. Consequently, there
remained factually disputed evidence to support defenses to
Loury's breach-of-contract action.
Rule 4:5-4 recognizes that "[i]f a party has mistakenly
designated a defense as a counterclaim or a counterclaim as a
defense, the court, on terms if the interest of justice
requires, shall treat the pleading as if there had been a proper
designation." Consequently, the allegations in Concord's
counterclaim should have been considered as affirmative defenses
to the extent not squarely precluded by way of the earlier
summary judgment ruling.6 For example, an allegation in the
6 Our concurring colleague suggests this Rule does not apply as broadly as we have stated because, in his view, "Concord did not mistakenly designate a defense as a counterclaim" but instead pleaded "a counterclaim and pursued it as such until it was dismissed on summary judgment." It is difficult, however, to conclude from this record that Concord's failure to also plead the allegations of the counterclaim as affirmative defenses was anything but mistaken. In that circumstance, we conclude that the spirit — if arguably not the letter — of the Rule required a consideration of the counterclaim allegations as affirmative defenses. Our concurring colleague appears to agree with this, albeit to a lesser degree, since he observes that "the trial court could have treated the allegations in the counterclaim as affirmative defenses" (emphasis added), but the exercise of (continued)
A-3200-13T1 34
counterclaim that Loury breached the contract would still be
viable, pursuant to Rule 4:5-4, as an affirmative defense so
long as the counterclaim for breach of contract was dismissed
only because of a lack of evidence that Concord had been
damaged. A motion seeking to confirm what Rule 4:5-4 declares,
or a motion to amend the pleadings to recognize the counterclaim
allegations as affirmative defenses, was not necessary.
We are mindful, as highlighted by our colleague's
concurring opinion, that Concord failed to move to amend its
pleadings when invited to do so by the motion judge. To be sure,
with the benefit of hindsight, the wiser course would have been
for Concord to file such a motion even though it had already
filed a motion to amend that was rejected because the proposed
amended pleading was misplaced in the clerk's office. We are
not blind, however, to the likelihood that this motion would
also have been denied. It was apparent from the judge's ruling
(continued) discretion permitted the judge to choose a different course. We agree the judge possessed discretion in this setting, but the withholding of that discretion was groundless. The administration of justice in this case would not have been deterred or delayed if Concord's counterclaim had been viewed as a statement of its affirmative defenses, and Loury would not have been prejudiced because it was well aware of Concord's claims and defenses from the time Concord filed its responsive pleading. Yes, the judge had discretion, but what factors warranted a narrow view of Concord's responsive pleading? There being none, we must conclude that the judge abused his discretion.
A-3200-13T1 35
and the breadth of the order barring evidence at trial that the
renewed motion would have been dead on arrival. We cannot fault
counsel, to the degree urged by our colleague, for his failure
to engage in such a useless exercise or incur an unnecessary
expense.
Loury was acutely aware of each of Concord's affirmative
defenses. The defenses had been the subject of considerable
discovery and motion practice; and Loury had addressed the
proposed defenses when he filed his certification in support of
his summary judgment motions seeking dismissal of Concord's
counterclaims.
To summarize, the judge who granted Loury's in limine
motion failed to understand that Concord's proposed affirmative
defenses had not been "fully as a matter of law and fact"
decided on the summary judgment motion. Bahrle, supra, 279 N.J.
Super. at 21. The judge erred by ruling to the contrary.7

7 On leave granted at oral argument, Loury filed a motion to strike portions of the record, including certain emails authored by Loury and parts of his deposition testimony, because the documents had not been admitted into evidence at trial, or had been admitted for a limited purpose, and had not been presented to the trial court in opposition to the motion in limine. Concord does not dispute that it did not present the documents to the judge who decided the in limine motion. Accordingly, Loury's motion is granted.
A-3200-13T1 36
III.
In its second and third points, Concord challenges the
trial judge's decision. Concord contends the judge misapplied
the employment agreement's "without good cause/good reason"
termination provision and erred in its determination that the
employment agreement entitled Loury to receive 10% of gross
revenue on QAUM accounts. We disagree.
The scope of our review of a judgment entered following a
non-jury case is limited. Sebring Assocs. v. Coyle, 347 N.J.
Super. 414, 424 (App. Div.), certif. denied, 172 N.J. 355
(2002). When evaluating the basis for the court's decision, "we
will defer to a trial court's factual findings, particularly
those influenced by the court's opportunity to assess witness
testimony firsthand." Willingboro Mall, LTD. v. 240/242 Franklin
Ave., L.L.C., 215 N.J. 242, 253 (2013). "Whether conduct
constitutes a breach of contract, and, if it does, whether the
breach is material" is a question of fact. Magnet Res., Inc. v.
Summit MRI, Inc., 318 N.J. Super. 275, 286 (App. Div. 1998). We
owe no such deference, however, to a trial court's conclusions
of law. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140
N.J. 366, 378 (1995).
Concord contends that its failure to pay Loury $3,021.41 in
QAUM revenue – a nominal amount when viewed in light of Loury's
A-3200-13T1 37
salary and benefits – was an "insubstantial" failure, and thus
did not entitle Loury to the full severance package under the
agreement. It further contends its dispute with Loury
concerning deduction of expenses was a legitimate disagreement
that could have been resolved "using any of a number of dispute
resolution mechanisms."
In her written opinion, the trial judge concluded:
Applying this analysis to the facts of the within matter, the court finds that the deduction of expenses from [Loury]'s monthly commission reduced the compensation to which he was otherwise entitled under the Agreement and would have continued for the life of the contract had [Loury] not made his own independent calculations and discovered the shortfall . . . . After notice by the [Loury], [Concord] declined to cure the breach by paying the amounts that had been previously deducted. Under these facts, the court finds that [Loury] has met his burden of proving by a preponderance of the evidence that [Concord] materially breached the Agreement, that the breach was not insubstantial and that [Concord] failed to cure the breach after notice.
In coming to this determination, the judge considered the
statement of Concord's CEO, who had testified in discovery that
the deducted amount was not "insubstantial." She found the
CEO's explanation at trial, in which he attempted to backtrack
from his prior assertion, "lacked credibility both as to its
content and his demeanor on the witness stand." Further, the
A-3200-13T1 38
judge determined that, "[t]o the extent that [Concord] argued
that the amount in question constituted only about one percent
of [Loury's] annual income, the court finds that $3,021 was not
a de minimis amount of money and, more importantly, would have
increased over time had the deductions not been discovered by
[Loury]." As a result, the trial judge concluded that the
severance payment was necessary to compensate Loury "for the
clients and continuing income that [Concord] would retain as a
result of [Loury]'s efforts."
Contrary to Concord's argument, the trial judge's analysis
and conclusions were based on sufficient credible evidence in
the record. We thus defer to her findings, which were for the
most part "influenced by [her] opportunity to assess witness
testimony firsthand." Willingboro Mall, supra, 215 N.J. at 253.
We reach the same conclusion as to Concord's contention the
trial judge erred in determining the employee agreement entitled
Loury to 10% of the gross revenue from QAUM accounts, as opposed
to net revenue.
"The polestar of contract construction is to discover the
intention of the parties as revealed by the language used by
them." Karl's Sales & Serv., Inc. v. Gimbel Bros., Inc., 249
N.J. Super. 487, 492 (App. Div.), certif. denied, 127 N.J. 548
(1991). In determining the parties' intent, contract language
A-3200-13T1 39
"must be interpreted 'in accord with justice and common sense,'"
ibid. (quoting Krosnowski v. Krosnowski, 22 N.J. 376, 387
(1956)), and "must consider the relations of the parties, the
attendant circumstances, and the objects they were trying to
attain," Tessmar v. Grosner, 23 N.J. 193, 201 (1957).
Here, in interpreting the term "revenue," which was not
expressly defined in the employment agreement, the judge stated:
The court finds that the term "revenue," as used in the Agreement, is not ambiguous but rather that [Concord] entered the Agreement with the expectation that expenses on the QAUM accounts would be negligible. The ordinary meaning of the term "revenue" is money made by or paid to a business or organization (Merriam-Webster Unabridged Dictionary) . . . . Had [Concord] or its representatives, who were experienced, sophisticated businessmen and attorneys, wished to express the concept of profit or net profit, they could have easily done so . . . .
. . . It was only when [Concord] realized that the number of individual accounts within [one of Concord's major accounts] would necessitate greater costs for the creation and mailing of over 1,000 reports (on an on-going basis) that [Concord] began deducting a portion of the costs from [Loury]'s share. The court is satisfied that this was done without notification to [Loury] and reflected [Concord]'s desire to alter the terms of the deal in order to pass a portion of the unanticipated costs on to [Loury].
In support of these findings, the judge noted that a
reading of "revenue" as gross revenue "is consistent with
A-3200-13T1 40
[Loury]'s testimony that [Concord] suggested a flat 10% rate to
avoid the need for complicated bookkeeping calculations." In
addition, the judge concluded that her interpretation of
"revenue" was "consistent with [Concord]'s expectation that
costs on the QAUM accounts would be so insignificant that they
need not be deducted." These factual findings are supported by
substantial, credible evidence on the record and are entitled to
our deference.

Outcome: We have considered Concord's remaining arguments and found them to be without sufficient merit to warrant further discussion. Reversed and remanded for a new trial. We do not retain jurisdiction.

Plaintiff's Experts:

Defendant's Experts:

Comments: