The case of Chad Slater vs. MeritDirect took a new turn yesterday when a judge unsealed the file, revealing that the court slapped MeritDirect with a $1.3 million lien on April 30.
Connecticut Superior Court Judge Chase T. Rogers opened a large part of the case file, but some documents are still under seal.
The lien ordered by Rogers does not mean MeritDirect has lost the case—only that the amount will be held pending resolution. The parties are scheduled to begin arbitration hearings in November.
The amount represents a doubling of the $669,728 that the judge said Slater had shown with "probable cause" that he was owed in compensation by MeritDirect. Rogers also said that MeritDirect breached its contract with Slater and terminated him without cause last October.
MeritDirect has appealed the decision, and Slater said he plans further legal action.
"I’m happy with the ruling and feel it completely vindicated me," Slater said in an interview. "I’m going to be pursuing separate defamation actions based on this decision."
Ralph Drybrough, CEO of MeritDirect, said in a statement that his firm is disappointed that the judge felt that Slater "might eventually be entitled to any money from us, but we are pleased that she gave his exorbitant calculations little credence."
Drybrough added in an interview that his firm is solvent, and that the funds being held will not endanger its payments to list owners. "MeritDirect has more than sufficient retained earnings to operate without any change whatsoever in the way we compensate list owners," he said.
Whatever the final outcome, the ruling seemed to give Slater an interim victory in the complicated two-way legal battle.
For one thing, the judge said that MeritDirect had presented "no credible evidence" as a basis for terminating Slater for cause last October.
Rogers added that the firm breached its operating agreement and compensation plan by firing Slater and then refusing to pay him "bonuses for work he had performed." She also said that Slater was denied the normal 30-day cure period for healing a breach as called for in the firm’s operating agreement with members.
The judge ordered the doubling of damages because the alleged violation of the employment contract was "sufficiently unreasonable."
According to the opinion, Slater joined the firm in 2000 as a member/partner. Like other members, he was responsible for his own list brokerage profit center.
Members’ compensation was set at 40% of the quarterly net income of their profit centers and a 5% tiered bonus at year’s end if the income topped $1 million. An additional 10% was to be awarded if the net income exceeded $1.5 million.
The judge ruled Slater had shown with probable cause that he was entitled to $19,733 for the balance of his third-quarter bonus for 2002; $342,414 for the fourth quarter of 2002, and $307,581 for his tiered bonus for 2002 (based on $2 million in earnings after expenses multiplied by 15%).
However, Rogers said that Slater was not due $248,426 for the year 2000 because the firm’s compensation plan was not yet in effect. Nor did he deserve $241,123 for the January-March period of 2003 because there was "insufficient evidence that the revenue received (in that period) were the result of work performed by Slater prior to his departure."
Rogers defined Slater as an employee under Connecticut state law.
MeritDirect’s appeal is centered on the claim that the court should not even be ruling in this case because Slater’s agreement with the firm calls for all disputes to be resolved through arbitration. MeritDirect also disputes multiple points in Rogers’ decision, according to Drybrough.
Drybrough said in a statement that Rogers’ opinion was "simply a preliminary determination intended to decide if, in the judge’s discretion, using a relaxed evidentiary standard and based only upon preliminary testimony, a security set-aside was appropriate."
He added, "Whatever the outcome of our appeal, we will continue contesting Chad Slater’s claims vigorously in the main event, which is the arbitration."
It is not known if Rogers’ analysis will hold up in arbitration, but her ruling sheds light on the rancor that existed when Slater left MeritDirect last October.
According to Rogers, there was tension between Slater and manager Mark Joyce, Slater telling Drybrough that he wanted Joyce out of the company. "Joyce was not willing to separate from MeritDirect so Drybrough and Slater began discussing several options including Slater opening a branch office of MeritDirect, Slater leaving the company, or Slater assuming a larger ownership of MeritDirect.," Rogers wrote.
These tensions were aggravated by a cooperative business deal arranged by Slater with Mike Murray of Tony Murray & Associates, where Slater started his list career in 1993.
According to Rogers, the arrangement called for a list of businesses called the NFIB file to be overlaid with data from MeritDirect, and then used exclusively by Office Max. The deal would have generated "considerable profits for MeritDirect as well as all other entities involved in the transaction including Office Max, Dun & Bradstreet, infoUSA and Tony Murray & Associates," Rogers wrote.
Instead of asking Slater to explain the deal, MeritDirect’s leaders "tried to use it as grounds to terminate him," the judge continued. "In particular Joyce was concerned about the broker list being sent to Murray."
Joyce told Slater on Oct. 7 that he was being fired, according to the ruling.
Also fueling tensions was the fact that Mike Murray acted as "a professional advisor to Slater when he was trying to negotiate an agreement with MeritDirect," Rogers wrote, noting that MeritDirect executives read Slater’s e-mails to Murray.
But the judge stated that Tony Murray & Associates was not a competitor of MeritDirect," and that Slater’s communications to Mike Murray "did not breach any duty owed by Slater" to the firm.
In an interview, Drybrough defended the practice of reading the e-mails, saying that the firm in its employee handbook maintains its right to do so, and added that Tony Murray & Associates is a competitor.
MeritDirect has a separate suit going on against Slater.
