Trilegiant Corporation v. Bruce Jakubovitz (2011)

Memorandum of Decision

In this action commenced by the filing of a verified petition dated October 18, 2010, the petitioner, Trilegiant Corporation, seeks to obtain an order to perpetuate testimony pursuant to General Statutes § 52–156a(a)(1) and a bill of discovery pursuant to common law.

The evidence heard by the court establishes the following facts.   The petitioner is a Delaware corporation with a principal place of business in Stamford.   The petitioner offers membership-based travel programs and other services.   The respondent, Bruce Jakubovitz, is a resident of Mount Kisco, New York, who was formerly employed since 1992 by the petitioner and its predecessor companies in various sales related capacities.   In December 2002, as the result of the respondent's efforts, the petitioner entered into a promotion and marketing agreement with InQ, Inc. (InQ).  InQ's technology was capable of promoting the petitioner's services through pop-ups that would appear on chat rooms of websites hosted by the petitioner's marketing partners.   Under the terms of their agreement, InQ agreed to provide services to certain of the petitioner's current or potential marketing partners in return for a 25 percent share of the membership revenue received by the petitioner as a result of their joint promotional efforts.   Neither the petitioner nor the respondent were able to produce a copy of the December 2002 agreement.

On January 27, 2003, the respondent received his annual performance review from the petitioner based on his accomplishments during 2002.  (Pet.Ex. 10.)   The petitioner's form of performance review was based on a 1 through 4 scale, with 1 being the highest (Significantly Exceed Expectations) and 4 being the lowest (Needs Improvement).   In his prior performance review covering 2001, the respondent had received an overall composite score of 2 (Exceeds Expectations).   However, for 2002, he received a score of 3.53 (Needs Improvement).   The petitioner claims that at the time of the respondent's performance review he was advised that his employment would be terminated within six months.   The respondent claims that he did not learn of his termination until April 2003, when he was presented with a termination agreement.  (Pet.Ex. 2.) The respondent also pointed out that in January 2003, he was given a new performance incentive plan for 2003 that potentially could have resulted in substantial bonuses for him.

In March 2003, the petitioner and InQ entered into an amended and restated marketing agreement.  (Pet.Ex. 3.) Under the terms of the agreement, the petitioner had the right to offer software developed by InQ on websites operated by the petitioner's marketing partners.   The software would provide those visiting the website with the opportunity to enroll as members of various programs operated by the petitioner in conjunction with its marketing partners.   The evidence established that the March 2003 amendment did not materially change the terms of the original December 2002 agreement.

Prior to signing the marketing agreements with InQ, the petitioner had existing marketing partnerships with several divisions or subsidiaries of Cendant Corporation.   Some of those relationships were established at a time when the petitioner was known as Cendant Membership Services, Inc. and was a wholly owned subsidiary of Cendant Corporation.¹  A marketing agreement dated January 1, 2001, between the Cendant Hotel Division of Cendant Corporation and the petitioner was introduced as the petitioner's exhibit 4. A marketing agreement between Budget Rent A Car Corporation, (a Cendant subsidiary),² and the petitioner dated July 9, 2001, was introduced as the petitioner's exhibit 1.

After the finalization of the amended and restated marketing agreement with InQ, the petitioner advised the respondent of its decision to terminate his employment effective July 25, 2003.³  Thereafter, the petitioner and the respondent entered into a separation agreement that provided for:  (1) severance pay in the amount of $109,000 payable in equal monthly installments ending July 31, 2004;  (2) payments to the respondent of “any earned bonus associated with deals that are signed prior to August 29, 2003” and (3) an agreement by the respondent not to compete with the petitioner for a period of one year following his separation.  (Pet.Ex. 2.)

The respondent's right to commissions based on the petitioner's agreement with InQ was limited to commissions based on revenue received by the petitioner during the twelve months following the respondent's separation.  (Pet.Ex. 2, ¶ 2(b).)  No such revenues could be generated until the petitioner and its marketing partners took action to establish the programing necessary to place InQ's pop-up marketing on chat rooms located on customers' websites.

On September 1, 2003, after the completion of his employment with the petitioner, the respondent signed a “Broker–Dealer Fee Agreement” with InQ. Under the terms of that agreement, the respondent undertook to work with certain targeted InQ clients to develop sales strategies and provide on-going relationship management.   In return for his services, the respondent was to be paid a commission of ten percent of the gross revenue received by InQ from targeted clients.   The list of targeted clients covered by the agreement included “Cendant Corporation—including all divisions and affiliates including, but limited to, hotel division chains, car rental company divisions and real estate division chains.”  (Pet.Ex. 7.)

The respondent claims that in the late summer of 2003, prior to signing the Broker–Dealer Fee Agreement with InQ, he notified executive employees of the petitioner, including its president and chief executive officer, Nathaniel Litman, and senior vice president Peter Taktikos, via e-mail, of his intentions to enter into that agreement.   He testified that he received an e-mail response from Litman stating that he saw nothing wrong with the respondent's plans.   The respondent was unable to produce copies of the e-mail correspondence between him and the petitioner's executives because his computer had subsequently “crashed” and he was unable to retrieve e-mail files from 2003.   The petitioner was unable to search its electronic files for e-mail from 2003 either to corroborate or disprove the respondent's claims, because those files had been destroyed in accordance with the petitioner's document retention policies.

Litman testified that he did not recall receiving any notification from the respondent regarding his relationship with InQ and he claimed to have been ignorant of the respondent's work with InQ until late 2009 when he attempted to renegotiate the fees that the respondent was required to pay InQ under its marketing agreement with InQ.

In October 2004, the respondent and InQ renegotiated their marketing agreement to eliminate the 25 percent commission previously payable to InQ on revenue generated and replaced it with a flat rate or bounty of $7 per account.   The respondent did not participate in the renegotiation nor was he aware of it for at least four years after the event.  (Pet. Exs. 3 & 9.) (Res.Ex. 21.)

In December 2009, Richard Bayer, the petitioner's senior vice president, attempted to renegotiate the $7 bounty that the petitioner was paying to InQ. During the course of his discussions with InQ executives, Bayer learned of the 10 percent commission that InQ was paying the respondent pursuant to the Broker–Dealer Fee Agreement.   Bayer was not previously aware of that agreement and he asked InQ for a copy, which was provided to him without delay.   For the next three months, InQ executives continued to answer questions from the petitioner regarding their relationship with the respondent in the context of renegotiation of the fees being paid by the petitioner to InQ. In March 2010, InQ advised the respondent that no further information regarding its relationship with the respondent would be shared with the petitioner.

Six months later, the petitioner filed a petition against the respondent seeking an order pursuant to § 52–156a(a)(1) to perpetuate testimony by taking depositions and for a bill of discovery permitting it to take the depositions of the respondent and InQ. The petitioner further sought an order requiring the respondent and InQ to produce documents relating to any agreements or dealings between them.   Evidence was heard by the court on several days commencing on July 22, 2011, and ending on October 19, 2011.

DISCUSSION

PETITIONS TO PERPETUATE TESTIMONY PURSUANT TO GENERAL STATUTES § 52–156a

General Statutes § 52–156a(a) provides:  “(1) A person who desires to perpetuate testimony regarding any matter that may be cognizable in the Superior Court may file a verified petition in the superior court for the judicial district of the residence of any expected adverse party.   The petition shall be entitled in the name of the petitioner and shall show:  (A) That the petitioner expects to be a party to an action cognizable in the superior court but is presently unable to bring it or cause it to be brought, (B) the subject matter of the expected action and the petitioner's interest therein, (C) the facts which the petitioner desires to establish by the proposed testimony and the reasons for desiring to perpetuate it, (D) the names or a description of the persons the petitioner expects will be adverse parties and their addresses so far as known, and (E) the names and addresses of the persons to be examined and the substance of the testimony which the petitioner expects to elicit from each, and shall ask for an order authorizing the petitioner to take the depositions of the persons to be examined named in the petition, for the purpose of perpetuating their testimony.

“(2) The petitioner shall thereafter serve a notice upon each person named in the petition as an expected adverse party, together with a copy of the petition, stating that the petitioner will apply to the court, at a time and place named therein, for the order described in the petition.   At least twenty days before the date of hearing the notice shall be served in the manner provided by section 52–57;  but if such service cannot with due diligence be made upon any expected adverse party named in the petition, the court may make such order as is just for service by publication or otherwise, and shall appoint, for persons not served in the manner provided by section 52–57, an attorney who shall represent them, and, in case they are not otherwise represented, shall cross-examine the deponent.

“(3) If the court is satisfied that the perpetuation of the testimony may prevent a failure or delay of justice, it shall make an order designating or describing the persons whose depositions may be taken and specifying the subject matter of the examination and whether the depositions shall be taken upon oral examination or written interrogatories.   The depositions may then be taken in accordance with this section;  and the court may make orders for the production of documents and things and the entry upon land for inspection and other purposes, and for the physical or mental examination of persons.   For the purpose of applying this section to depositions for perpetuating testimony, each reference in this section to the court in which the action is pending shall be deemed to refer to the court in which the petition for such deposition was filed.

“(4) If a deposition to perpetuate testimony is taken under this section, it may be used in any action involving the same subject matter subsequently brought in the Superior Court.”

In In re Michael Mancini, Superior Court, judicial district of New Haven, Docket No. CV 07 4027644 (November 21, 2007, Silbert, J.) (44 Conn. L. Rptr. 533), the court considered the limited applicability of § 52–156a, holding that the statute “clearly authorizes the pre-suit taking of depositions of potential adverse parties.   It does so, however, for the sole specific purpose of ‘perpetuating,’ i.e. preserving or prolonging the existence of, their testimony, and the statute authorizes the court to allow the taking of such depositions only in order to prevent a ‘failure or delay of justice.’   Indeed, nowhere in the statute is the word ‘discovery’ even mentioned, nor is there any suggestion that the uses to which this procedure may be put might include attempts by a would-be plaintiff to determine in advance whether he has a cause of action, unless it can be established that a failure or delay of justice would ensue absent the opportunity to conduct such depositions.”  Id., 534.   See also Sheehan v. Magnano, Superior Court, judicial district of New Britain, Docket No. CV 07 4015498 (December 4, 2008, Trombley, J.) (same).

Nowhere in its petition does the petitioner claim that it needs to take any depositions in order to perpetuate testimony.   In paragraph twenty-two, the petitioner makes it clear that the reason for its petition is the wish “to discover additional information.”   In paragraph twenty-five, the petitioner seeks an order requiring the respondent and InQ to provide the petitioner with complete and unredacted copies of seven separate categories of documents.   This court agrees with the Mancini and Sheehan courts and finds that a mere desire to obtain discovery is not an appropriate justification for a petition under § 52–156a.

In addition, the court notes that subsection three of § 52–156a requires that, prior to entering an order, that court must be “satisfied that the perpetuation of the testimony may prevent a failure or delay of justice ․” Based upon the evidence presented, the court is not satisfied that a perpetuation of testimony is needed to prevent any such failure or delay.   Accordingly, the court finds that the petitioner is not entitled to the relief it seeks under § 52–156a.

COMMON–LAW BILL OF DISCOVERY

The court will next consider whether the petitioner is entitled to discovery pursuant to a common-law bill of discovery.   Bills of discovery have long been recognized in Connecticut.   In Journal Publishing Co. v. Hartford Courant Co., 261 Conn. 673, 804 A.2d 823 (2002), the Connecticut Supreme Court provided a concise, yet thorough, explanation of the action.  “The bill of discovery is an independent action in equity for discovery, and is designed to obtain evidence for use in an action other than the one in which discovery is sought ․ As a power to enforce discovery, the bill is within the inherent power of a court of equity that has been a procedural tool in use for centuries ․ The bill is well recognized and may be entertained notwithstanding the statutes and rules of court relative to discovery ․ Furthermore, because a pure bill of discovery is favored in equity, it should be granted unless there is some well founded objection against the exercise of the court's discretion ․

“To sustain the bill, the petitioner must demonstrate that what he seeks to discover is material and necessary for proof of, or is needed to aid in proof of or in defense of, another action already brought or about to be brought ․ Although the petitioner must also show that he has no other adequate means of enforcing discovery of the desired material, [t]he availability of other remedies ․ for obtaining information [does] not require the denial of the equitable relief ․ sought ․ This is because a remedy is adequate only if it is one which is specific and adapted to securing the relief sought conveniently, effectively and completely ․ The remedy is designed to give facility to proof ․

“Discovery is confined to facts material to the plaintiff's cause of action and does not afford an open invitation to delve into the defendant's affairs ․ A plaintiff must be able to demonstrate good faith as well as probable cause that the information sought is both material and necessary to his action ․ A plaintiff should describe with such details as may be reasonably available the material he seeks ․ and should not be allowed to indulge a hope that a thorough ransacking of any information and material which the defendant may possess would turn up evidence helpful to [his] case ․ What is reasonably necessary and what the terms of the judgment require call for the exercise of the trial court's discretion ․ “The plaintiff who brings a bill of discovery must demonstrate by detailed facts that there is probable cause to bring a potential cause of action.   Probable cause is the knowledge of facts sufficient to justify a reasonable man in the belief that he has reasonable grounds for presenting an action ․ Its existence or nonexistence is determined by the court on the facts found ․ Moreover, the plaintiff who seeks discovery in equity must demonstrate more than a mere suspicion;  he must also show that there is some describable sense of wrong.”  (Citation omitted;  internal quotation marks omitted.)  Id., 680–82.

In paragraph twenty-one of its petition, the petitioner lists the potential causes of action that it claims it intends to pursue against the respondent:  “claims arising from his fraudulent acts, the breach of fiduciary duty owed to Trilegiant as its employee, and his breach of the Separation Agreement with Trilegiant.”   The petitioner claims that the respondent wrongfully negotiated an agreement with InQ providing InQ with unreasonably favorable compensation in return for InQ's express or implied undertaking to reward the respondent for betraying his employer's trust by paying him compensation as a consultant while not requiring him to perform any services.

In its posthearing brief, the petitioner concisely states the basis for its belief that it has been wronged by the respondent's conduct.  “[I]f InQ was willing to pay 10 [percent] of the amounts it was already entitled to receive from Trilegiant to Mr. Kakubovitz, it should have been willing to agree to a 10 [percent] lower commission rate with Trilegiant when the Promotion and Marketing Agreement was signed up and at all times after that.   Trilegiant would have been able to get that rate if Mr. Jakubovitz had not been taking a part of it for himself.”

Having heard the evidence, the court finds that the petitioner has not demonstrated that there is probable cause supporting any cause of action against the respondent.   The petitioner claims that after January 2003, the respondent was aware that his employment with the petitioner was coming to an end.   In order to advance his own interests at the expense of his employer's, the respondent negotiated and allowed the petitioner to sign the March 20, 2003 amended and restated marketing agreement with InQ;  (Pet.Ex. 2);  which provided for excess compensation to InQ. In return for his betrayal of his employer's trust, the respondent was rewarded by InQ with the Broker–Dealer Fee Agreement.  (Pet.Ex. 7.)

The evidence does not support the petitioner's claim.   Although there is conflicting evidence, the court will accept the petitioner's claim that the respondent knew or should have known in January 2003, that his employment with the petitioner was soon to come to an end.   However, the essential terms of the agreement between the petitioner and InQ, including the fee equal to 25 percent of net membership revenue, were agreed to in the fall of 2002 and incorporated in the December 2002 Promotion and Marketing Agreement, months before the respondent was informed of the petitioner's decision to terminate his employment.

The petitioner produced no evidence showing that the 25 percent rate established under the December 2002 and the March 2003 agreements was above market rates for similar services or otherwise inflated.   In fact, on cross-examination, the petitioner's president and chief executive officer conceded that the rate was a reasonable one.

The petitioner's claim that InQ was paid excessive compensation because of the disloyalty of the respondent is significantly undermined by the fact that the vast majority of the sums ⁴ paid by the petitioner to InQ were paid pursuant to the terms of the October 2004 amendment to the InQ agreement that changed the 25 percent commission to a $7 per account bounty.   The evidence shows that the petitioner played no part in the negotiation of that amendment.

The evidence produced by the petitioner did not include any evidence that the respondent had engaged in any deceitful or deceptive practices while employed by the petitioner.   Similarly, no evidence was presented to show that InQ had, as a business practice, engaged in suborning, bribing or otherwise corrupting the representatives of its customers, suppliers or business partners.

In paragraph fifteen of the petition, the petitioner alleges that the respondent has taken affirmative actions to conceal the Broker–Dealer Fee Agreement.   The evidence is in conflict as to whether the respondent notified the petitioner of Broker–Dealer Fee Agreement that he signed with InQ in the third quarter of 2003.   Neither party had access to their e-mail files from that date to prove or disprove the respondent's claim that he had notified the petitioner, via email, of his relationship with InQ.

The evidence shows that during 2003 and 2004, the respondent was copied on several e-mails exchanged between the petitioner and InQ. (Res.Ex. 7, 8, 11, 12, 13.)   Witnesses employed by the petitioner testified that they assumed that the respondent was involved in the project solely because of the possibility that he might earn commissions under the terms of the separation agreement.   However, the petitioner offered no evidence that any such commissions were earned.⁵  These e-mails demonstrate that neither the respondent nor InQ tried to conceal the respondent's involvement with the implementation of the InQ launch with Cendant from the petitioner.   The lack of concealment is also shown by InQ's volunteering information to the petitioner regarding its contract with the respondent and providing a copy to the petitioner.

In its petition, the petitioner alleges that the Broker–Dealer Fee Agreement between InQ and the respondent was a “sham.”   In the posthearing brief filed in support of the petition, the petitioner claims that under the Broker–Dealer Agreement, the respondent was paid between $450,000 and $500,000 for “doing nothing.” ⁶  The respondent produced e-mails between InQ and him evidencing his active participation in launching the InQ program on Cendant websites and in marketing InQ's programs.  (Res.Ex. 33–38.)   Even if the evidence showed that the respondent was excessively compensated by InQ under the Broker–Dealer Agreement, that evidence, standing alone, would not suggest that the petitioner had been victimized by the respondent's behavior.

The court finds that the evidence does not establish probable cause that the petitioner has a cause of action against the respondent based on either fraudulent acts or breach of any fiduciary duty that an employee owes to an employer.   The petitioner's remaining claim relates to an allegation that the respondent's actions constituted a breach of his separation agreement with the petitioner.   In the brief submitted in support of its petition, the petitioner does not identify the provision of the separation agreement that it claims the respondent breached.

The separation agreement is organized into paragraphs, each covering a particular topic.   Paragraph one covers the termination of the respondent's employment and his removal from the petitioner's payroll.   Paragraph two sets forth the consideration to be paid to the respondent by the petitioner.   Paragraph three is an acknowledgment by the respondent that he was not otherwise entitled to the payments to be made to him under paragraph two and that such payments constitute consideration for his promises under the agreement.   Paragraph four recites the rights being waived by the respondent.   Paragraph five sets forth certain representations by the respondent not directly relevant to the petitioner's current claims.   Paragraph six is an agreement by the respondent not to participate in any class action against the petitioner.   Paragraph seven is an acknowledgment that the respondent has or will return all tangible personal property owned by petitioner to it on or before his final day of employment.   Paragraph eight covers confidentiality issues arising from the existence and terms of the separation agreement.

Paragraph nine sets forth mutual provisions regarding non-disparagement.   In Paragraph ten, the respondent undertakes to cooperate and assist the petitioner, if called upon, in any litigation that may thereafter arise where the respondent might be called as a witness.   The petitioner has not presented any evidence supporting a claim that the respondent has breached the foregoing provisions or those of paragraphs twelve through seventeen, which are “boilerplate” provisions.

Paragraph eleven sets forth a number of posttermination obligations applying to the respondent.   Subparagraph (a) prohibits the respondent for one year following his termination from:  (1) accepting employment (broadly defined) with “any Competing Business”;  (2) soliciting any party having a relationship with the petitioner to terminate that relationship or engage in competition with the petitioner and (3) soliciting any employee from leaving the petitioner.⁷  Subparagraph (d) defines the term “Competing Business” and states that it is limited to:  (A) certain named companies (not including InQ) and their subsidiaries and successors;  (B) “any new business, created after the date of this agreement, involving the offering of membership-based products or membership based services to consumers marketed through any financial institution or through any retail entity's credit or charge card division or otherwise using a third party's affinity branding” and (C) any other business that the petitioner engaged in during the term of the respondent's employment if the respondent was actively involved in such business and was thereby exposed to confidential information.

The evidence does not show that InQ would qualify as a “Competing Business” under the terms of the separation agreement.   The court cannot find that the petitioner has any bona fide cause of action against the respondent based on a claim of breach of the separation agreement.

In summary, the petitioner has not demonstrated that its claims against the respondent are based on anything more than suspicion and conjecture.   Based on the evidence produced, the court finds that the petitioner has failed to satisfy the relatively low standard of proof needed to justify its petition for a bill of discovery.   Accordingly, the petition is denied.

David R. Tobin, Judge

FOOTNOTES

FN1. By late 2002, the petitioner was entirely independent of Cendant Corporation..  FN1. By late 2002, the petitioner was entirely independent of Cendant Corporation.

FN2. There was conflicting testimony as to whether Budget Rent A Car Corporation was, in fact, owned by Cendant Corporation as of January 1, 2001..  FN2. There was conflicting testimony as to whether Budget Rent A Car Corporation was, in fact, owned by Cendant Corporation as of January 1, 2001.

FN3. The petitioner's chief executive officer, Nathaniel Litman, testified that in January 2003, he made it clear to the respondent that his employment would be terminated in six months.   The respondent testified that no such information had been communicated to him.   In the absence of corroborating evidence, the court finds the respondent's recollections in this regard to be more accurate.   In any event, the question appears to be irrelevant to the petitioner's claims.   In his testimony, Litman conceded that the 25 percent commission rate was most likely established in the original agreement between the petitioner and InQ that was signed in December 2002, prior to the time that the petitioner claims to have told the respondent to anticipate termination of his employment within six months..  FN3. The petitioner's chief executive officer, Nathaniel Litman, testified that in January 2003, he made it clear to the respondent that his employment would be terminated in six months.   The respondent testified that no such information had been communicated to him.   In the absence of corroborating evidence, the court finds the respondent's recollections in this regard to be more accurate.   In any event, the question appears to be irrelevant to the petitioner's claims.   In his testimony, Litman conceded that the 25 percent commission rate was most likely established in the original agreement between the petitioner and InQ that was signed in December 2002, prior to the time that the petitioner claims to have told the respondent to anticipate termination of his employment within six months.

FN4. Approximately 97 percent of applicable revenues were generated after October 1, 2004.  (Pet.Ex. 9.).  FN4. Approximately 97 percent of applicable revenues were generated after October 1, 2004.  (Pet.Ex. 9.)

FN5. The respondent denied having received any such commissions from the petitioner..  FN5. The respondent denied having received any such commissions from the petitioner.

FN6. Testimony suggests that InQ received revenues of approximately $4 million to $5 million from its marketing partnership with the petitioner and that the petitioner may have received revenues of up to $50 million from the arrangement..  FN6. Testimony suggests that InQ received revenues of approximately $4 million to $5 million from its marketing partnership with the petitioner and that the petitioner may have received revenues of up to $50 million from the arrangement.

FN7. Subparagraphs (b) and (c) relate to the disclosure of confidential information and the assignment of rights to the petitioner of any intellectual property developed by the respondent in the course of his employment.   The provisions of these subparagraphs do not appear to be relevant to any claims currently being asserted by the petitioner..  FN7. Subparagraphs (b) and (c) relate to the disclosure of confidential information and the assignment of rights to the petitioner of any intellectual property developed by the respondent in the course of his employment.   The provisions of these subparagraphs do not appear to be relevant to any claims currently being asserted by the petitioner.

Tobin, David R., J.