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In re HA-LO Industries

August 11, 2005

IN RE: HA-LO INDUSTRIES, INC., ET AL., DEBTORS.
STEPHEN H. WOLFF, APPELLANT,
v.
HALO INDUSTRIES, INC., APPELLEE.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

On December 31, 1997, HA-LO Industries, Inc. acquired Wolff Marketing Group from Stephen Wolff, the sole shareholder. WMG thereafter became a division of HA-LO known as HALO Custom Products (HCP). Stephen Wolff was made president of HCP. His employment agreement with HA-LO, which is governed by New York law, specifies that he was to be paid a base salary of $500,000 in the first year and $250,000 a year thereafter. The employment agreement also provided that Wolff had the opportunity to earn two types of bonus compensation, "Bonus Compensation" and "Additional Bonus Compensation." "Bonus Compensation" could be earned after Wolff's first year as President of HCP if, during the year, the "Executive's 'gross profits' derived by the sales of the Executive exceeds Two Million Four Hundred Thousand Dollars ($2,400,000) during such period." Agreement § 3(b). The agreement defined "Executive" as Wolff and "Executive's gross profits" as: the net sales revenues generated on behalf of and expenses incurred by Employer ... by (i) the Executive ... (ii) any other individual who was a sales representative of Wolff Marketing Group, Inc. immediately prior to the effectiveness of the Merger, (iii) any new sales representative of the Employer, and (iv) entities merged into or acquired by Employer.

Id. § 3(d)(ii)(D). In other words, the term "Executive's gross profits" included the value of gross profits earned by Wolff and all of the HCP sales representatives.

The agreement also provided that Wolff could earn "Additional Bonus Compensation" if the "'gross profits' of the Employer for such calendar year equals or exceeds thirty-four percent (34%) of the net sales of the Employer for such calendar year." If that occurred, Wolff would receive compensation equal to "(1) ten percent (10%), multiplied by (2) the amount by which gross profits in such calendar year exceeds the Employer's gross profits for calendar year 1997." Id. § 3(c).*fn1 Finally, Wolff could earn stock options if "Executive's 'gross profits' equals or exceeds" $6,240,000 in the first year, $8,112,000 in the second year, and amounts that escalated every year thereafter. Id. § 3(d)(ii).

Wolff was paid his base salary through July 31, 2001. On July 30, 2001, HA-LO and certain of its subsidiaries filed petitions for reorganization under Chapter 11 of the Bankruptcy Code. Wolff filed a proof of claim in the bankruptcy court seeking $852,257 in "Bonus Compensation" and "Additional Bonus Compensation" for 1999-2001, and a priority claim for wages in the amount of $4,650. HA-LO filed a motion for summary judgment, arguing that Wolff was not entitled to "Bonus Compensation" because the gross profits from his sales had not surpassed $2,400,000, and was not entitled to "Additional Bonus Compensation" because the gross profits from HCP's sales failed to exceed those of WMG in 1997.

Bankruptcy Court's Decision

In an oral ruling, the bankruptcy court granted HA-LO's motion for summary judgment in part, holding that Wolff was entitled to "Additional Bonus Compensation," but was not entitled to "Bonus Compensation" and was not eligible for a priority wage claim.

The court's decision was based on its interpretation of the bonus provisions of the employment agreement. Wolff argued that the "Bonus Compensation" provision entitled him to bonus compensation based on HCP's sales because HCP's sales had exceeded $2,400,000, as required by the agreement. The court, however, held that the phrase "Executive's 'gross profits' derived by the sales of the Executive" unambiguously meant that Wolff was only entitled to "Bonus Compensation" if the gross profits from the sales he personally completed surpassed $2,400,000. Because it was undisputed that Wolff's own sales amounted to far less than $2,400,000, the court found that the agreement did not entitle him to "Bonus Compensation."

As to the "Additional Bonus Compensation," the bankruptcy court found that Wolff was entitled to compensation for 2000 and 2001. The court found that the provision clearly stated that the availability of "Additional Bonus Compensation" was based on sales attributable to HCP as a whole, rather than only those sales attributable Wolff. The court examined business records showing that HCP's gross profits in 2000 and 2001 exceeded those of WMG in 1997, and then used the formula provided in § 3(c)(i) to calculate Wolff's bonus, which came to $89,519. T. 0084-85.

The bankruptcy court spent little time discussing Wolff's priority claim for wages in the amount of $4,650. The court found that because Wolff made no mention of the amount in his pleadings and failed to provide any supporting evidence for the claim, the priority wage claim should be denied.

In sum, the bankruptcy court granted HA-LO's motion for summary judgment as to the "Bonus Compensation" and priority wage claims, but denied the motion as to Wolff's "Additional Bonus Compensation" claim and awarded him $89,510.

Wolff has appealed the bankruptcy court's judgment, arguing that the bankruptcy court erred in holding that the "Bonus Compensation" provision unambiguously limited the opportunity to earn bonus compensation to his personal sales and improperly denied his priority wage claim. For the reasons stated below, the Court affirms the bankruptcy's court decision as to Wolff's bonus compensation claims and reverses the decision as to the priority wage claim.

Standard of Review

Both parties agree that the bankruptcy court's decision is subject to de novo review. Bank v. Van Diest Supply Co., 303 F.3d ...


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