Whinfield v. Capitas Distributors, Inc.

Citations: 111 F. Supp. 3d 177; 2015 I.E.R. Cas. (BNA) 184; 2015 U.S. Dist. LEXIS 71415Docket: No. 3:12-CV-00812 (MPS)

Court: District Court, D. Connecticut; June 3, 2015; Federal District Court

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John Whinfield claims that Capitas Distributors, Inc. (CDI) breached an employment agreement by not paying commissions for his sales of two life insurance policies. CDI counterclaims that Whinfield owes employment-related expenses. After a two-day bench trial in May 2015, the Court found that CDI breached both the written SVP Agreement regarding override commissions and a separate contract concerning base commissions. However, Whinfield’s override commissions were reduced to account for a processing fee and his owed expenses, resulting in a net amount of $48,211.90 in override commissions and $52,689.75 in base commissions from the Lenoci Sr. policy, totaling $100,901.65 owed to Whinfield. The Court concluded that CDI did not act in bad faith or unreasonably in breaching its contracts, thus denying Whinfield's request for double damages or attorneys’ fees under Conn. Gen. Stat. § 31-72. The Court entered judgment in favor of Whinfield for $100,901.65. The findings of fact included Whinfield's extensive experience in life insurance sales, starting in 1978 with The Hartford, where he advanced to branch manager and developed expertise in various life insurance products. Whinfield retired in 2006 and later connected with CDI's President, Tom Nassiri, a former colleague from The Hartford.

Nassiri informed Whinfield in 2010 about his plans to develop CDI, a subsidiary of Capitas Financial, Inc. (CFI), into a wholesale life insurance organization targeting financial institutions. CFI also owns Capitas Agents, LLC (CAL), which holds life insurance licenses and processes commissions for non-variable products. CFI provides administrative support to both CDI and CAL. The Leaders Group, Inc., a broker-dealer regulated by the SEC and FINRA, acts as CDI’s wholesale broker-dealer for sales requiring a registered broker-dealer. David Wickersham, a key figure in Leaders, has multiple roles in CFI and CDI, alongside other executives like Blake Mohr and Rick Maholchic.

Whinfield accepted a position with CDI in August 2010, formalized through an "at will" Sales Vice President Employment Agreement (SVP Agreement) that outlined his role in selling life insurance products, including securities, to financial institutions in Georgia. The SVP Agreement specifies Whinfield's compensation structure, which includes a commission of 45% of profits from products he sells, defined as revenue from sales minus his expenses. The agreement also clarifies that it does not cover retail commissions related to personal production, as CDI primarily focuses on wholesale sales, though it does not reject retail business when it occurs. Override commissions, the difference between total payouts by insurance companies and base commissions, are identified as CDI’s main revenue source.

Section 2.3 of the SVP Agreement categorizes advances made to Senior Vice Presidents (SVPs) by CDI as expenses, which include a monthly draw and other monthly costs (gas, phone, travel, and entertainment), allowing CDI to deduct these expenses from the SVPs’ commissions. It is agreed that CDI is entitled to recoup $88,935.47 in expenses incurred by Whinfield under Sections 2.1 and 2.3. Section 10.7 stipulates that modifications to the Agreement must be in writing and signed by both parties, but no formal written amendment was executed between Mr. Whinfield and CDI. Evidence presented at trial indicated a mutual understanding between CDI and the SVPs, including Whinfield, regarding periodic revisions to the override commission formula. Whinfield described a grid provided by CDI that detailed override percentages for life insurance sales as the definitive reference for expected compensation. The grid included a calculation process for override commissions, notably a 10% processing fee deducted by CDI, representing costs incurred for transaction processing. Updates to this grid were issued annually, affecting commission calculations. Whinfield was also required to become a registered representative with Leaders, per his employment, entering into an agreement that outlined compensation as per Leaders' bulletins or schedules, none of which were provided to him prior to the dispute. 

From August 2010, Whinfield worked in Georgia for nine months without closing any sales, subsequently instructing CDI to cease his monthly draw while remaining employed. He acknowledged owing CDI $88,935.47 after this period. Upon returning to Connecticut, Whinfield began selling life insurance policies to Alfred Lenoci Sr. and Jr., with the Lenoci Sr. Case becoming CDI's largest transaction and its first involving a variable product, building on an existing relationship from prior sales.

Whinfield was not required to submit the Lenoci Cases to CDI due to his territory being Georgia, but chose to do so to address debts owed to CDI, believing the commissions would help him retire the debt. Communication regarding the Lenoci Cases occurred via email with Maholchic and Nassiri, with Nassiri approving the placement with CDI. Whinfield confirmed his understanding of commission terms in an email exchange with Maholchic, where it was established he would receive 85% of the target premium as compensation for personal production. This understanding was supported by Nassiri during his deposition. 

In August 2011, an important sales meeting clarified compensation for personal production, resolving prior confusion among SVPs that personal production would be compensated at 85% of target premium without overrides. Following this, Maholchic sent a follow-up email on October 10, 2011, detailing that personal production payments would depend on validation of the SVP or BDP sales agreement and that compensation would be withheld if validation was not met. Mohr clarified that "validation" meant having no reimbursement debts to CDI. Both Nassiri and Mohr indicated that it was clear to Whinfield that no overrides would be provided for personal production. However, Whinfield, not present at the meeting, found the email confusing and sought clarification from Maholchic, who responded briefly that the email had “none” effect on his compensation for the Lenoci cases. Whinfield interpreted this to mean no negative impact on his compensation and continued pursuing the Lenoci Cases, while Mohr acknowledged the lack of clarity in Maholchic's response but believed Whinfield should have asked for further clarification. Whinfield kept both Nassiri and Maholchic updated on his progress with the cases.

Whinfield provided updates on the Lenoci Cases to Maholchic and Nassiri in late 2011, emphasizing the importance of closing these cases for CDI, as the Lenoci Sr. Case was the largest CDI had handled. By year-end 2011, both policies for Lenoci Sr. and Lenoci Jr. were issued by Lincoln. On January 2, 2012, Whinfield inquired about the commissions he expected for the Lenoci Cases, seeking both personal and override commissions. Nassiri promised a response, and on January 12, 2012, CDI paid Whinfield $74,630, an advance on the base commission for Lenoci Jr., which was 85% of the target premium. This amount did not account for any override commissions or deductions for Whinfield's owed expenses. 

CDI received $102,724.519 in revenue for Lenoci Jr., and on January 20, 2012, Leaders paid CDI $534,506.82 in total commissions for the Lenoci Cases. On February 2, 2012, Nassiri provided Whinfield with commission calculations detailing the target premiums and commissions for both Lenoci Sr. and Jr. The report indicated total commissions for Lenoci Sr. of $526,897.51, reduced by a broker-dealer fee and an undisputed commission assignment to Vetrosky, leaving Whinfield with $326,613.57 for Lenoci Sr. The report also noted Whinfield's expenses of $92,040.86 and did not include any calculations for override commissions. The day after receiving this report, Whinfield contested the expense calculations, finding them excessive, while acknowledging that he had not received any override commissions by that time.

On February 6, 2012, Nassiri informed Whinfield via email that CDI was prepared to issue a check based on previously provided compensation calculations, requesting Whinfield's confirmation of the amount to process the payment. Whinfield only indicated he expected a check the following day. On February 7, 2012, CDI sent Whinfield a check for $233,872.61 as full payment for the Lenoci Cases, accompanied by a cover letter stating that endorsing the check would confirm receipt of full payment. Whinfield, disputing the amount, did not endorse or cash the check. This amount represented total retail commissions from the Lenoci Sr. Case ($326,613.57) minus $92,740.96 in expenses, excluding any override commissions. 

Tensions escalated when Whinfield delayed sending a required signed "illustration" to Lincoln, necessary for completing the Lenoci transactions, and considered transferring the Lenoci Cases to another entity. On February 14, 2012, Nassiri informed Whinfield that Lincoln would charge back the commissions due to the lack of the signed illustration, prompting CDI to halt payment on the check. However, Lincoln ultimately did not charge back the commissions. 

On February 17, 2012, Nassiri, copying Wickersham, communicated that the check from Capitas Distributors was issued in error as the Lenoci Sr. policy involved variable universal life products that should have compensated Whinfield directly from the Leaders Group. He also notified Whinfield of his suspension from business pending an internal review due to issues surrounding the Lenoci Sr. policy. CDI reversed the payment on February 24, returning $325,958.51 to Leaders and retaining $208,548.31 from an initial $534,406.82 received.

Whinfield eventually provided the signed illustration and abandoned plans to transfer the transactions. On or around February 27, 2012, Leaders paid Whinfield $273,399.00 in commissions, a sum lower than the previous calculation, with no expense deductions or override commissions. Whinfield questioned this amount in a subsequent email. Wickersham clarified that Leaders paid a maximum of 85% of the total retail commission received, which was 85% of the target premium, noting that this was lower than the rate for wholesale business due to reduced liability. After further inquiries, Leaders provided a document outlining commission percentages for variable life policies. Whinfield claimed he had not seen this document prior to it being sent to his attorney on March 2, 2012. Whinfield resigned as a registered agent with Leaders on March 15, 2012, and CDI terminated his employment on March 19, 2012.

The legal dispute between Whinfield and CDI centers on two main issues: whether the SVP Agreement mandated CDI to pay override commissions for the Lenoci Cases and whether CDI owed Whinfield base commissions on the Lenoci Sr. Case. It is established that if CDI was obligated to pay override commissions, it breached this duty. Additionally, if base commissions were owed for the Lenoci Sr. Case, Whinfield is entitled to 85% of the target premium, resulting in a current debt of $52,689.75 owed to Whinfield, reflecting a shortfall from what was initially paid. Conversely, Whinfield owes CDI $88,935.47 in expenses.

Regarding the SVP Agreement, the court determined it did not originally cover the Connecticut-based Lenoci Cases due to its geographic limitation to Georgia. Whinfield contended that the Agreement was amended through email correspondence with Maholchic to include the Lenoci Cases, which the court found to be ambiguous. However, the court ruled that the emails effectively modified the Agreement, extending its coverage to Connecticut and personal production. The court noted that the email exchange met the requirements for written modifications, as established by Section 10.7 of the SVP Agreement and the Connecticut Uniform Electronic Transactions Act, thus satisfying any legal signature requirements.

Maholchic's role as an officer of CDI and Director of Sales, along with his involvement in a discussion about compensation and the inclusion of his signature block in his email response, indicates he adopted the email with the intent to sign it. The court recognizes ambiguity in the agreement regarding whether it constituted a definite-term employment contract or an at-will employment contract, necessitating the consideration of extrinsic evidence to clarify the parties' intent. The court emphasizes that all relevant evidence regarding contract interpretation is admissible, including the parties’ prior dealings, the nature of the transaction, and any preliminary negotiations.

The court concludes that the parties intended for electronically signed documents to be binding commitments. Despite the SVP Agreement containing only Whinfield's handwritten signature and none from CDI, subsequent interactions indicate that both parties treated electronically signed communications as firm commitments, particularly regarding compensation. CDI's practice of sending annual commission updates that Whinfield regarded as authoritative, coupled with Mohr's acknowledgment of CDI's adherence to these updates, reinforces this interpretation. 

The court finds Whinfield's testimony credible, establishing his reliance on Maholchic's July 30 email as a binding commitment for override and base commissions. Whinfield's decision to route the Lenoci Cases through CDI, rather than seeking potentially larger payouts elsewhere, provided consideration for the commitment outlined in Maholchic’s email. The court asserts that the email, although brief, was sufficiently definitive to constitute a contract, as it directly addressed a specific inquiry about compensation and referred to existing agreements. Whinfield’s response to a subsequent email from Maholchic further demonstrates his understanding of the overrides he was to receive.

Whinfield believed that Maholchic’s July 2011 email established a binding commitment regarding his compensation for the Lenoci cases. Concerns about the potential impact of an October 2011 email led Whinfield to seek clarification, to which Maholchic cryptically responded "none." This reply did not indicate a rescission of the July commitment or any adverse effects on Whinfield’s compensation, thereby failing to negate the earlier agreement. Given the significance of the Lenoci Sr. Case as CDI’s largest deal, Whinfield could reasonably interpret the July and October emails collectively as a confirmation of his compensation structure remaining unchanged.

Whinfield's January 3, 2011 email referencing both overrides and base commissions aligned with the view that Maholchic's July email continued to bind CDI. Nassiri's testimony supported that by February 2, 2012, Whinfield was expressing concerns about not receiving override commissions for the Lenoci Cases. CDI contended that Maholchic was unauthorized to discuss financial matters, yet as the National Sales Manager and Whinfield’s superior, Maholchic held significant authority and had previously communicated compensation matters to the sales force. 

Nassiri acknowledged the appropriateness of trusting Maholchic on such issues, and there was no evidence that Whinfield had been warned against relying on Maholchic’s guidance. The Court concluded that Maholchic had the authority to modify the Senior Vice President (SVP) Agreement to include override commissions for the Lenoci Cases, which he did through the email exchanges. Consequently, CDI's failure to pay these commissions constituted a breach of the SVP Agreement. Additionally, Nassiri indicated that if override commissions applied, a 10% processing fee would need to be deducted before calculating the 45% profit share.

A processing fee is not explicitly stated in the SVP Agreement, but Section 2.1 mentions that all Commission payments will be made to the Employee minus regular deductions and withholdings, which is ambiguous. Whinfield argues this refers to income tax and employee benefits, while CDI contends that insurance expenses are addressed in Section 2.3(e), allowing them to deduct these expenses from the Employee's Commission. Section 10.11 also permits CDI to withhold applicable taxes from benefits. The compensation grid, referenced as "the Bible," includes the processing fee as a percentage of the target premium deducted from CDI's revenue for override commission calculations. The Court determines that this practice clarifies the meaning of "less regular deductions and withholdings," allowing CDI to deduct the 10% processing fee from override commissions.

Regarding the damages owed to Whinfield, CDI received $102,724.51 from Lincoln for the Lenoci Jr. policy and paid Whinfield an advance commission of $74,630.00, leaving $28,094.51 for override commission calculations. For the Lenoci Sr. policy, CDI received a total of $241,383.32 in override commissions, resulting in total revenue of $269,477.84 from both cases. After deducting the processing fees of $62,404.81, the remaining revenue is $207,073.02. Further deductions include $88,935.47 in stipulated expenses, leading to a net amount of $118,137.55. Additionally, CDI provided a recoverable draw of $6,000 per month, with any amount over $5,000 excluded from expense calculations and deducted from the final commission.

Whinfield incurred $88,935.47 in expenses, which included $56,215.30 in draw/payroll expenses. His monthly draw was $6,000, resulting in an excess of $1,000 monthly. The calculation determined that the total excess over 9 months amounts to $9,000, which is added to $118,137.55, yielding a total of $127,137.55 for commission calculations. The override commission is then calculated as 45% of this amount minus the $9,000, resulting in total damages for override commissions related to the Lenoci Cases of $48,211.90.

Regarding the breach of the express agreement on base commission, Maholchic's email amended the SVP Agreement to include override commissions and established a separate agreement for 85% of the target premium as base commission. CDI acknowledges its obligation to pay base commissions as per this agreement, having compensated Whinfield accordingly for the Lenoci Jr. Case. However, CDI contests that this agreement applied to the Lenoci Sr. Case, which involved SEC-regulated products requiring payment through Leaders, a licensed broker-dealer. 

Initially, CDI calculated the retail commission for the Lenoci Sr. Case based on the amount received from Leaders, which had charged a 5% wholesaling fee. After reversing the transaction, Leaders charged an additional 10%, totaling a 15% fee for retail production. Leaders ultimately paid Whinfield $273,399.00 in commissions for this case. CDI asserts that Whinfield's commission calculations adhered to the Registered Representative Agreement governing his relationship with Leaders and denies liability for the additional deduction made by Leaders. Despite Leaders’ involvement for regulatory reasons, CDI had significant interaction with Whinfield regarding the cases, including congratulatory emails and updates on his progress, and was responsible for notifying Whinfield about commission chargebacks.

Nassiri from CDI informed Whinfield that Leaders was responsible for paying his check due to regulatory issues, and that Leaders would not pay commission on the Lenoci Sr. Case until delivery requirements were fulfilled. Whinfield was also suspended from business activities pending internal review by Leaders. CDI supervisors were actively involved in Whinfield's work on the Lenoci Cases, while no communications occurred between Whinfield and Leaders during this period. There was no indication from CDI to Whinfield that his agreement was with Leaders instead of CDI. All parties, including Leaders employees and Whinfield, treated the transactions as CDI’s. Initially, payments to Whinfield were calculated based on CDI’s agreements, but later, CDI reversed a transaction to have Leaders pay Whinfield due to regulatory reasons, resulting in an undisclosed fee being deducted by Leaders. As a result, the court concluded that Leaders acted as an agent for CDI in paying Whinfield. The court found that CDI owes Whinfield $52,689.75 in base commissions.

Regarding Whinfield's claim for double damages and attorney’s fees under Conn. Gen. Stat. 31-72, the statute allows recovery if an employer fails to pay wages and acts in bad faith, arbitrarily, or unreasonably. Established case law indicates that attorney's fees and double damages are only warranted when such findings are made. Whinfield contends that CDI acted in bad faith by promising override commissions without payment. He argues that even if CDI considered its promise a mistake, it failed to communicate this to him and attempted to include language in his commission check that would waive any claims to those commissions if endorsed.

Whinfield contended that CDI acted in bad faith by initially tendering the appropriate retail commission on February 7, 2015, only to later return the funds to Leaders, which subsequently deducted an additional 10% from the commission. However, the Court found that CDI did not act in bad faith, arbitrarily, or unreasonably, thus denying Whinfield’s request for double damages and attorneys’ fees. CDI provided credible evidence indicating that personal production was not part of its business model, and that it encountered confusion regarding compensation policies, particularly in the context of handling the Lenoci Sr. Case, which involved a variable product. This confusion was shared among multiple parties involved in the case. The Court referenced the precedent set in Sansone v. Clifford, where a lack of clarity regarding rights led to a similar finding against claims of bad faith. Additionally, CDI consistently compensated other SVPs similarly and asserted that the language used in the check dated February 7, 2012, was standard commercial practice aimed at resolving disputes. Ultimately, the Court ruled in favor of Whinfield for breach of the SVP agreement and an express agreement regarding base commissions, but allowed CDI to deduct processing fees from override commissions. The Court awarded Whinfield $100,901.65, declining to impose double damages or attorneys’ fees under Connecticut General Statutes § 31-72.

Whinfield previously raised various claims against CDI and its related entities regarding different transactions, but these claims for equitable and declaratory relief have been abandoned or dismissed. The active claims are detailed in Counts One and Five of Whinfield's Amended Complaint and CDI's Counterclaim. Any Finding of Fact that also serves as a legal conclusion is treated as a Conclusion of Law, and vice versa. CFI and CAL were defendants until the court granted them summary judgment on Whinfield's claims. CDI is currently inactive, with Mohr as CEO of a dormant company. The term "cases" is used to refer to opportunities for life insurance sales. Mohr testified that CDI issued a larger policy later, while Whinfield sold another policy to a Michigan client, Ms. Shoemaker, but later abandoned that claim against CDI. 

The Lenoci Cases initially aimed at making Allen Vetrosky the retail broker but shifted to Whinfield as the retail broker, as recognized by CDI in a July 29, 2011 email. The trial presented an agreed amount approximately $1.50 less than the pretrial stipulation of total commissions paid to CAL, which totaled $102,726. The court rejected Whinfield’s objections regarding expense calculations, relying on the parole evidence rule, and the remaining expense discrepancy of about $4,000 was resolved, with total expenses owed by Whinfield to CDI amounting to $88,935.47. The amount of $52,689.75 presented at trial was accepted without objection, though it slightly differed from pretrial figures.

The SVP Agreement lacks a specified governing law, but both parties assumed Connecticut law applies, particularly since Whinfield and the Lenocis resided in Connecticut during relevant transactions. CUETA applies as the parties engaged in electronic transactions, evidenced by CDI’s email updates and other communications. The August 2011 Revised SVP Compensation grid altered the revenue share from 45% to 40% for production up to $499,999 and 50% above that threshold. The 2012 SVP Compensation Plan introduced three production levels with varying revenue shares. These documents indicate the parties routinely modified the SVP Agreement's compensation terms through electronically signed documents. The amounts presented at trial, including Whinfield's claim of $208,548.32 and $32,835.01 in commissions on excess premiums, were undisputed.