JEFFERSON AUDIO VIDEO SYSTEMS, INC. v. KENNETH W. ROUSSEAU; BRADLEY W. LAUFER, JR.; AND COMMONWEALTH OF KENTUCKY, LABOR CABINET, DIVISION OF EMPLOYMENT STANDARDS
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RENDERED: MAY 4, 2001; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2000-CA-000551-MR
JEFFERSON AUDIO VIDEO SYSTEMS, INC.
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE ROGER L. CRITTENDEN, JUDGE
ACTION NO. 98-CI-01195
KENNETH W. ROUSSEAU;
BRADLEY W. LAUFER, JR.; AND
COMMONWEALTH OF KENTUCKY, LABOR CABINET,
DIVISION OF EMPLOYMENT STANDARDS
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
GUDGEL, CHIEF JUDGE, EMBERTON, AND SCHRODER, JUDGES.
SCHRODER, JUDGE:
Jefferson Audio Video Systems, Inc. appeals
from an order of the Franklin Circuit Court reversing that
portion of a final order of the Kentucky Labor Cabinet which
found that appellee, Kenneth W. Rousseau, was not entitled to an
alleged unpaid bonus.
As the Labor Cabinet’s findings of fact as
to net profits were supported by substantial evidence, we reverse
and remand for reinstatement of the Labor Cabinet’s final order
with regard to Rousseau’s claims.
Kenneth W. Rousseau and Bradley W. Laufer filed an
action with the Labor Cabinet, No. 97-LABC-0837, pursuant to KRS
Chapter 337, alleging unpaid wages owed to them by their former
employer, Jefferson Audio Video Systems, Inc. (JAVS).
(Laufer’s
claims are addressed in a separate appeal, 2000-CA-000524.)
Rousseau alleged that JAVS owed him an unpaid balance on a
profit-based bonus in the sum of $20,369.50.
The Labor Cabinet
issued tentative findings of fact on August 13, 1997, finding
that Rousseau was not entitled to the alleged amount due.
Rousseau subsequently requested and was granted an evidentiary
hearing, and, on August 3, 1998, the hearing officer entered his
findings of fact, conclusions of law, and recommended order that
the Labor Cabinet’s tentative findings as to Rousseau be
affirmed.
The hearing officer's findings of fact stated, in
pertinent part:
1. Rousseau was employed with JAV from
December 1982 through August 29, 1995. He
was initially an hourly employee but in 1990
he became sales manager for the company with
a salary of approximately $60,000 per year.
2. In 1993, Rousseau's pay structure
changed. Although no written documents were
ever executed between Rousseau and JAV, the
evidence establishes that Rousseau agreed to
receive $50,000.00 per year in salary,
supplemented by a bonus to be calculated as
one-third of the combined profits of the
various departments under his management.
3. In calendar years 1993 and 1994,
Rousseau received no bonuses because the
year-end income calculations revealed no
total profits for these departments.
4. In April of 1995, Green telephoned
Rousseau and stated, "Looks like you're going
to make some money this year." Shortly
thereafter, Green met with Rousseau and
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presented him a ticker tape from an adding
machine reflecting a total bonus owed
Rousseau of $40,369.50. [] Green requested
that Rousseau accept the sum of $20,000.00 as
partial payment on this bonus, citing some
cash flow problems the company was currently
experiencing. Rousseau accepted this payment
with the understanding that the balance of
$20,369.50 would be paid as soon as the
company's financial situation improved.
Rousseau previously let Green make a
$12,000.00 commission payment in three equal,
monthly installments on a handshake
agreement; thus Rousseau had some history
with Green in receiving partial payments from
JAV during its financial difficulties.
5. Rousseau never received the balance of
$20,369.50 from JAV, despite periodic
requests. After Rousseau left employment on
August 29, 1995, he made a demand for the
balance of this bonus through legal counsel.
To date he has received no payment towards
this balance.
6. Green adamantly maintains that the
ticker tape reflecting the total bonus of
$40,369.50 was a preliminary figure and not
intended to serve as a binding agreement or
promise to Rousseau that the balance would be
paid. Green maintains that his decision to
make the partial payment at this time frame
was partly made due to his increasing
distrust for Rousseau in the manner in which
the sales and commission figures were being
tabulated in the company's records.
7. Green also maintained, as referenced in
detail in the Cabinet's tentative findings,
that the year end financial statements
prepared for JAV's tax returns reflected a
revised profit for Rousseau's departments of
$29,614.00, thus entitling Rousseau to a
bonus of only $9,772.62. It is Green's
position, therefore, that Rousseau was
overpaid. Green maintained that the company
had incurred a bad debt which had not been
added against the profit and costs to be
applied to Rousseau's departments, thus
artificially inflating the profit for these
departments. In support, and by example,
Green referred to a change sales order on the
Damon's account, introduced as Respondent's
exhibit 2, where various hardware had been
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invoiced at a no cost unit price within one
of Rousseau's departments.
8. Although the testimony of Sharon Weller
corroborated Rousseau's characterization of
the events, in resolving this issue it is not
necessary to look to Weller's testimony. The
undersigned finds as fact that the agreement
was for Rousseau to earn a bonus based on
thirty-three percent of the net profit of
Rousseau's departments. The undersigned is
persuaded that the ticker tape evidence was,
in fact, a preliminary compilation which
Green prepared at his home based on tentative
figures which did not, in fact, reflect an
accurate report of the profits enjoyed by the
various Departments Rousseau was managing.
CPA McGee was clear in his testimony that a
reviewed financial statement took two to
three months after the completion of the
fiscal year in which to prepare, and that the
fiscal year for this company was April 1
through March 31. Accordingly, when Mr.
Rousseau accepted the payment of $20,000.00
on May 5, 1995, it is found as fact that the
reviewed financial statements had not yet
been prepared by McGee upon which Green could
reasonably have relied in making an informed
decision of the bonus Rousseau was entitled
to receive.
9. The undersigned does not find
significant the issue whether the bonus
calculation is based on the company's monthly
financial statements, or whether they are
calculated based upon the CPA's year-end
review report, as in either event the company
would have legal justification to pursue
collection of any overpayment made to
Rousseau following a review of the year-end
report.
10. Although Rousseau argued at hearing
that JAV had waived any right to pursue
collection efforts for any overpayment, and
further that JAV was legally estopped from
raising this as a defense in the proceeding,
no legal authority was provided to the
undersigned at any point during this
administrative action to support that
position.
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Exceptions were filed, and on September 2, 1998, the Secretary of
the Labor Cabinet issued a final order adopting the findings of
fact, conclusions of law, and recommended order of the hearing
officer.
On September 30, 1998 and October 5, 1998, Rousseau
filed a petition and amended petition for review with the
Franklin Circuit Court.
On January 6, 2000, the court entered an
order granting that portion of Rousseau's petition as to the
issue of the unpaid bonus.
The court stated:
This court finds that the handshake
agreement between Green and Rousseau was a
binding contractual agreement obligating JAVS
to pay Rousseau $20,369.50 in unpaid wages.
Green promised a bonus to Rousseau in the sum
of $40,369.50. The actual payment of $20,000
served as good and valuable consideration for
JAVS to support the amount of the bonus.
Rousseau's agreement to allow JAVS to
postpone payment of the balance of the money
due him was a sufficient legal detriment to
serve as valid consideration binding JAVS to
the contract.
Green’s claims that his offer was merely
preliminary and, thus, not paramount to an
offer fall under the weight of scrutiny. No
evidence suggests that Green placed any
qualifying language upon the agreement with
Rousseau that would reasonably inform
Rousseau that what appeared to be an offer
was merely a preliminary negotiation.
Secondly, the setting where this agreement
took place was a business setting in which
Rousseau could reasonably expect that Green's
words were meant to constitute an offer.
Therefore this Court finds that the Labor
Cabinet's order denying Rousseau the
remaining $20,369.50 erroneously disregarded
the contract between JAVS and Rousseau.
(In the same order, the court denied that portion of Rousseau's
petition seeking prejudgment interest, double liquidated damages,
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and attorney fees.
Rousseau's appeal to this Court from the
circuit court's denial of these claims is addressed in a separate
appeal, 2000-CA-000524.)
On January 18, 2000, JAVS filed a
motion to reconsider, which the court denied on February 8, 2000.
This appeal followed.
On appeal, JAVS argues that the circuit court erred by
impermissibly overturning the Labor Cabinet's findings of fact
regarding the bonus due Rousseau under the contract.
The amount
due under a contract can be a mixed question of fact and law.
It
is undisputed that the contract at issue originally provided for
Rousseau to receive a bonus of 33% of the net profits of
Rousseau's departments.
The profits and what constitutes 33% of
the profits are issues of fact.
In reviewing an agency decision, this Court may only
overturn that decision if the agency acted arbitrarily or outside
its scope of authority, if the decision itself is not supported
by substantial evidence on the record, or if the agency applied
an incorrect rule of law.
Kentucky State Racing Commission v.
Fuller, Ky., 481 S.W.2d 298 (1972).
of law de novo.
This Court may review issues
Mill Street Church of Christ v. Hogan, Ky. App.,
785 S.W.2d 263 (1990).
On questions of fact, however, this
court's review is limited to "whether the agency's decision was
supported by substantial evidence or whether the decision was
arbitrary or unreasonable."
Cabinet for Human Resources v.
Jewish Hospital Healthcare Services, Inc., Ky. App., 932 S.W.2d
388, 390 (1996).
However, on mixed questions of law and fact,
this Court is given greater latitude to determine whether the
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findings of the agency were supported by substantial evidence of
probative value.
Uninsured Employers’ Fund v. Garland, Ky., 805
S.W.2d 116 (1991).
The Labor Cabinet found that the net profits of
Rousseau’s departments were actually $29,614.00, based on which
Rousseau’s 33% bonus would be $9,772.62.
We conclude there was
substantial evidence to support this finding that the actual net
profits of Rousseau’s departments were less than the original,
preliminary figure on the ticker tape reflecting profits of
$121,108.49 (from which the 33% bonus of $40,369.50 claimed by
Rousseau was calculated).
James McGee, a CPA who prepares JAVS’s
year end financial statements and income tax returns, testified
that, in preparing the reviewed financial statements for JAVS, he
discovered that the actual profits were much lower than the
preliminary figures relied upon by Green, which indicated
artificially high profits in Rousseau’s departments due to
improper record keeping.
McGee testified that his review of the
books revealed, for example, instances of sales entered into the
books with zero costs associated with the sales, and instances
where income showing in one department would have costs showing
in another.
McGee explained that such record keeping practices
by employees would show abnormally large profits on sales.
JAVS president David Green testified that the original
figure of $40,369.50 presented to Rousseau was based on 33% of
preliminary compilations from which it appeared that there was
going to be a larger profit in Rousseau’s departments.
Green
testified that when McGee prepared the reviewed financial
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statements, it was revealed that the profits attributed to
Rousseau’s departments had appeared artificially high due to
improper bookkeeping and postings.
Green testified that the
review revealed instances where inventory was not posted to a
job, instances where salesmen were paid commissions on jobs that
had lost money, and a bad debt that had not been accounted for.
Green explained that the end result of such practices was that
the profit and inventory in Rousseau’s departments initially
appeared high, when in reality, both profit and inventory were
much lower.
Whether the "handshake agreement" for Rousseau to
accept $20,000 immediately and the balance of $20,369.50 when the
money became available raises the issue of whether there was an
amendment or novation to the original contract, which provided
for Rousseau to receive 33% of the profits.
It is undisputed
that Rousseau’s contract called for a bonus of 33% of the net
profits of his departments.
We do not believe that the
"handshake agreement" for a bonus of $40,369.50 was meant to
amend the 33% provision of the original contract, nor substitute
a new contract in its place, but was a statement of 33% of a
miscalculated amount of net profits.
As stated previously, the
amount of net profits is an issue of fact.
"If the court finds
the correct rule of law was applied to facts supported by
substantial evidence, the final order of the agency must be
affirmed."
Commonwealth, Department of Education v.
Commonwealth, Ky. App., 798 S.W.2d 464, 467 (1990), citing Brown
Hotel Company v. Edwards, Ky., 365 S.W.2d 299, 302 (1963).
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Having determined that the Labor Cabinet’s findings regarding the
amount of net profits were supported by substantial evidence, and
that there was no amendment or novation of the original contract
calling for Rousseau to receive a bonus of 33% of these profits,
we conclude that the circuit court erred in overturning the Labor
Cabinet's final order with regard to Rousseau’s claim for the
unpaid bonus.
Accordingly, that portion of the Franklin Circuit
Court’s order granting Rousseau’s petition as to the unpaid bonus
is reversed, and the case remanded for reinstatement of the final
order of the Labor Cabinet denying Rousseau's claim for the
unpaid bonus.
GUDGEL, CHIEF JUDGE, CONCURS.
EMBERTON, JUDGE, DISSENTS BY SEPARATE OPINION.
EMBERTON, JUDGE, DISSENTING.
I respectfully dissent.
I agree with the findings and holding of the trial court and
would therefore affirm.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEES, KENNETH
ROUSSEAU AND BRADLEY LAUFER,
JR.:
Rocco J. Celebrezze
Jeffery L. Parrish
Louisville, Kentucky
H. Douglas Willen
Hopkinsville, Kentucky
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