Bottomline v . Ingrum CV-95-246-M 08/26/96 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Bottomline Technologies, Inc., Plaintiff v. Civil N o . C-95-246-M L . Robert Ingrum, Defendant.

O R D E R

On August 1 3 , 1993, Bottomline Technologies and L . Robert

Ingrum entered into an "Account Executive Agreement," by which

Ingrum became an account executive for Bottomline and acquired

the non-exclusive right to promote and sell its products in

certain areas of California. Approximately 18 months later, on

February 1 5 , 1995, Ingrum resigned from that position to accept

employment with ACOM Computer, Inc., one of Bottomline's

competitors. Subsequently, Bottomline brought this action,

seeking damages for Ingrum's alleged breach of the agreement's

covenant not to compete. Ingrum counterclaimed, asserting that

Bottomline is wrongfully withholding certain sales commissions to

which he is entitled under the agreement. Ingrum now moves for

summary judgment with regard to his counterclaim for those

commissions. Standard of Review

Summary judgment is proper "if pleadings, depositions,

answers to interrogatories, and admissions on file, together with

the affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). A material

fact "is one `that might affect the outcome of the suit under the

governing law.'" United States v . One Parcel of Real Property

with Bldgs.,

0 0 , 204 (1st Cir. 1992) (quoting Anderson

v . Liberty Lobby, Inc.,

4 2 , 248 (1986)). The moving

party has the burden of demonstrating the absence of a genuine

issue of material fact for trial. Anderson, 477 U.S. at 256.

The party opposing the motion must set forth specific facts

showing that there remains a genuine issue for trial,

demonstrating "some factual disagreement sufficient to deflect

brevis disposition." Mesnick v . General Elec. Co.,

(1st Cir. 1991), cert. denied,

(1992). That

burden is discharged only if the cited disagreement relates to a

genuine issue of material fact. Wynne v . Tufts Univ. Sch. of

Medicine,

9 1 , 794 (1st Cir. 1992), cert. denied,

(1993).

2 Facts

Bottomline Technologies, Inc. is a New Hampshire corporation

with a principal place of business in Exeter, New Hampshire. It

is a software development company that sells software, laser

printers, and associated products for use in magnetic ink

character recognition document printing. According to

Bottomline's president, Daniel McGurl, Bottomline does business

in a highly specialized niche market, in which only about six

other companies compete. ACOM is one of those companies.

Robert Ingrum is a resident of California who has been

involved in sales and sales management in the computer industry

for his entire career. Prior to working with Bottomline, Ingrum

worked for IBM for approximately 25 years. And, upon resigning

from his position as an account executive for Bottomline, he

became a sales manager for ACOM. Along with his letter of

resignation, Ingrum submitted a summary of all commissions to

which he claimed he was entitled under the agreement. He also

included a list of all accounts which were seriously considering

purchasing products from Bottomline and, therefore, which might

give rise to additional commissions. In a letter dated February

3 2 0 , 1995, Bottomline acknowledged that it would pay all

"commissions due under the standard rules of the AE agreement."

The parties do not dispute that, following Ingrum's resignation, Bottomline paid him commissions totalling $11,342.78. Ingrum claims, however, that he is entitled to additional commissions in excess of $13,000. Bottomline disagrees, saying that at most, Ingrum is entitled to roughly $4,600 in commissions. To date, however, Bottomline has refused to tender those sums, arguing that because Ingrum breached the agreement's covenant not to compete, it is entitled to withhold any unpaid commissions as a set-off against the damages it claims to have suffered.

Discussion

The agreement's covenant not to compete, which Bottomline

says Ingrum violated, provides:

Noncompetition. AE [i.e., Ingrum] warrants to BT that it does not currently sell or market any products that are competitive with any of the Products. AE agrees that, both during the term of this Agreement and continuing for a period of two (2) years thereafter, neither AE nor any of its officers, directors, shareholders, partners, employees, or agents will, either directly or indirectly, sell or market any products that are competitive with any of the Products.

4 Agreement, para. 6. While the interpretation of that agreement

is a question of law, whether Ingrum violated its provisions

(assuming, of course, that it is enforceable under New Hampshire

law) qualifies as a disputed issue of material fact. See, e.g.,

Colonial Life Ins. v . Electronic Data Systems,

(D.N.H. 1993) (Typically, the existence of a breach of

contract is a question of fact to be resolved by the trier of

fact, based upon the unique circumstances of each case.).

Nevertheless, Ingrum claims that even if the covenant not to

compete is valid and enforceable and even if he has violated that

covenant, still Bottomline cannot lawfully withhold his

commissions. First, he points out that N.H. Rev. Stat. Ann.

("RSA") 275:48 expressly prohibits employers from withholding

wages (including commissions) from an employee except in limited

circumstances not applicable in this case. However, whether

Ingrum was an "employee" or an "independent contractor" of

Bottomline is also a disputed issue of material fact. See

Burnham v . Downing,

(1984) (Determining

whether an individual is an employee or an independent contractor

is a question of fact, which turns upon factors unique to each

case.). Because RSA 275:48 protects only employees and not

5 independent contractors, its applicability in this case turns on

the resolution of disputed material facts. Accordingly, the

court cannot grant Ingrum's motion for summary judgment on that basis.1

Next, Ingrum argues that New Hampshire common law does not

permit an employer to withhold commissions as a set-off against

unliquidated damages allegedly suffered as a result of an

employee's breach of his or her duty of loyalty. Wallace v .

Antrim Shovel Co.,

2 1 , 523-24 (1863). In Wallace, the

New Hampshire Supreme Court held that, absent a clear and express

agreement between the parties, a former employer could not

withhold commissions from its former employee as a set-off

against damages allegedly sustained when the employee breached an

implied obligation to serve the employer faithfully. The court

held that, "the implied engagement to serve the defendant

faithfully was at most but part of the consideration of the

1 Ingrum vigorously argues that he was an employee, rather than an independent contractor, of Bottomline. However, the agreement specifically provides that Ingrum "shall serve BT as an independent sales contractor, . . . and under no circumstances shall [Ingrum] be deemed to be a partner, employee, or agent of BT." Agreement, para 4 . Moreover, Ingrum himself has repeatedly characterized his status as that of an independent contractor. See plaintiff's Exhibit B (Ingrum's resume) and Exhibit C (letter from Ingrum dated March 1 8 , 1995).

6 defendant's promise [to pay a commission on all sales], and, we

think, as the breach of it may be compensated in damages, it is

no defense to this suit." Id. at 524.

Here, however, the provision of the agreement which Ingrum

allegedly violated was an express, rather than implied, condition

of the contract -- the obligation not to compete with Bottomline

for a period of two years. Additionally, unlike the parties in

Wallace, Ingrum and Bottomline specifically agreed that

Bottomline would be entitled to withhold Ingrum's Commissions as

a set-off against certain sums owed to it by Ingrum:

(c) All Commissions will become due and payable to BT by AE on the fifteenth (15th) day of each month with respect to the total of the net sales prices received by BT during the previous month on sales of Products made by BT for which AE is entitle to a Commission; provided, that BT shall be entitled to set off against any such Commissions: . . . (ii) any amounts now or hereafter becoming due to BT from AE under the terms of this Agreement or otherwise."

Agreement, para. 3(c) (emphasis added).

Accordingly, the legally relevant facts presented in this

case would seem to be distinguishable from those addressed in

7 Wallace. Nevertheless, even if the court finds that the holding

in Wallace is controlling, Bottomline's ability to withhold

Ingrum's commission's as a set-off against damages sustained

because of his alleged violation of the covenant not to compete

will likely turn upon the resolution of the following factual

question: Was Ingrum's performance under the covenant not to

compete an "essential" element of the agreement? Related to that

inquiry is the question whether the parties employed sufficiently

specific language, demonstrating a clear intent to permit

Bottomline to withhold commissions in the event of a breach of

the covenant not to compete, to be enforceable. See Wallace, 44

N.H. at 523 ("[T]o justify a construction that should enable a

party to hold the fruits of a contract without compensation, upon

the ground that the other party had failed to perform some

unessential stipulation, which might well be compensated in

damages, would, to say the least, require language much more

explicit than is found in this contract.") (emphasis added).

Without further factual development of the record, the court

cannot rule, as a matter of law, on Bottomline's ability to

withhold the disputed commissions as a set-off.

8 Finally, even if the holding in Wallace does not control the

outcome of this case, the court must still determine whether the

agreement's set-off provision actually authorizes Bottomline to

withhold Ingrum's commissions in this particular case. Under New

Hampshire law, the interpretation of a contract presents a mixed

question of law and fact; while the interpretation of unambiguous

contractual provisions presents a question of law, the

interpretation of ambiguous provisions presents questions of

fact. And, a clause contained in a contract "is ambiguous when

the contracting parties reasonably differ as to its meaning."

Laconia Rod & Gun Club v . Hartford Accident and Indemnity C o ,

(1983). Here, the parties plainly disagree with

regard to the proper interpretation of the phrase "any amounts

now or hereafter becoming due to BT from AE under the terms of

this Agreement or otherwise" and whether it empowers Bottomline

to withhold Ingrum's commissions in this case.

In light of the facts presently set forth in the record and

the controlling law regarding contract interpretation, the court

finds as a matter of law that the clause "any amounts now or

hereafter becoming due to BT from AE under the terms of this

Agreement or otherwise" as used in the agreement's set-off

9 provision is ambiguous. Specifically, it is unclear whether the

parties intended that provision to authorize Bottomline to

withhold commissions from Ingrum if he should violate the terms

of the covenant not to compete. And, in order to resolve the

issue presented by that ambiguity, the court must attempt to

discern precisely what the parties intended when they agreed to

that set-off provision. R. Zoppo C o . v . City of Dover,

(1984) (When resolving an ambiguity in a contract, the

court should consider "the situation of the parties at the time

of their agreement and the object that was intended thereby,

together with all provisions of their agreement taken as a

whole."). That inquiry necessarily calls for the resolution of

disputed material facts, thereby precluding the entry of summary

judgment.

Conclusion

For the foregoing reasons, it is apparent that there remain

genuine issues of material fact concerning Bottomline's ability

to withhold commissions allegedly due to Ingrum as a set-off

against unliquidated damages flowing from Ingrum's alleged breach

of the covenant not to compete. Accordingly, Ingrum's motion for

partial summary judgment (document n o . 8 ) is denied.

10 SO ORDERED.

Steven J. McAuliffe United States District Judge August 2 6 , 1996 cc: Donald J. Williamson, Esq. Andrew W . Serell, Esq. Kenneth J. Poole, Esq.

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