Wall Systems, Inc. v. Pompa
2017 Conn. LEXIS 58, 154 A.3d 989, 324 Conn. 718 (2017)
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Rule of Law:
The remedies of forfeiture of an employee's compensation and disgorgement of illicit profits for a breach of the duty of loyalty are not mandatory. Instead, they are equitable remedies whose imposition is a matter of the trial court's discretion, based on the equities and specific circumstances of the case.
Facts:
- William Pompa was a management-level employee at Wall Systems, Inc., a building contractor, where his duties included hiring and supervising subcontractors.
- Beginning in 2005, Pompa became dissatisfied with his compensation from Wall Systems.
- From 2005 to 2010, without informing his employer, Pompa also worked as an independent contractor for MK Stucco, a subcontractor and sometimes competitor of Wall Systems.
- During this same period, Pompa demanded and received cash kickbacks from another subcontractor, B-Jan Stucco.
- The kickback scheme involved Pompa instructing B-Jan to add extra work to its contracts, which Wall Systems would pay for, and B-Jan would then return half of the additional payment to Pompa in cash.
- The owner of Wall Systems, Richard Valerio, was informed of the kickback scheme in the spring of 2010.
- Wall Systems terminated Pompa's employment in October 2010.
Procedural Posture:
- Wall Systems, Inc. sued William Pompa and his wife, Jill Pompa, in a trial court, alleging breach of duty of loyalty, statutory theft, fraud, and other claims.
- The plaintiff sought monetary damages, treble damages, and the imposition of a constructive trust on the defendants' assets.
- The defendant, William Pompa, filed a counterclaim for unpaid compensation.
- Following a bench trial, the court found William Pompa had breached his duty of loyalty.
- The trial court awarded Wall Systems $14,400 in damages for the kickback scheme, which it trebled to $43,200 for statutory theft, plus attorney's fees and interest.
- The trial court declined the plaintiff's request to order the defendant to forfeit all compensation he received from both the plaintiff and MK Stucco.
- The court imposed a constructive trust on a joint bank account held by William and Jill Pompa.
- Wall Systems, Inc. (appellant) appealed to the state's highest court, challenging the trial court's refusal to order forfeiture. William Pompa (appellee) cross-appealed the damages calculation, and Jill Pompa (appellee) appealed the constructive trust.
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Issue:
Is a trial court required, as a matter of law, to order a disloyal employee to forfeit all compensation earned during the period of disloyalty, or is forfeiture an equitable remedy subject to the court's discretion?
Opinions:
Majority - Rogers, C.J.
No. A trial court is not required to order a disloyal employee to forfeit all compensation; rather, forfeiture is a discretionary equitable remedy. The imposition of remedies like forfeiture and disgorgement depends on the specific facts and equities of the case. While these remedies are available even if an employer cannot prove specific damages, they are not mandatory. The court reasoned that because claims of employee disloyalty are highly fact-specific, a 'mechanical application of abstract rules of law' is inappropriate. Instead, a trial court must exercise its equitable discretion to formulate a fair and practical remedy, weighing various factors to arrive at a just result and avoid a penalty that is disproportionate to the misconduct. Here, the trial court properly exercised its discretion by considering that Wall Systems failed to prove it was harmed by Pompa's side work and that the proven damages from the kickback scheme were negligible compared to the nearly $1 million forfeiture sought.
Analysis:
This decision clarifies that the remedy of forfeiture for a breach of the duty of loyalty is equitable and discretionary, not a mandatory legal requirement. It moves the jurisdiction away from a rigid, punitive approach toward a more flexible, fact-sensitive analysis. By establishing a multi-factor test, the court provides lower courts with a framework to tailor remedies to the specific misconduct, preventing disproportionately harsh outcomes for minor breaches. This precedent ensures that remedies 'fit the circumstances' and promotes fairness over mechanical application of rules in employee disloyalty cases.
