IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
DENNIS KILIAN, ) ) Plaintiff, ) ) v. ) ) C.A. N22C-05-111 EMD THE INTERNATIONAL SOCIETY OF ) INTERDISCIPLINARY ENGINEERS ) LLC and GLOBAL KNOWLEDGE ) SOLUTIONS LLC, ) ) Defendants. ) ) )
Submitted: October 10, 2022 Decided: January 18, 2023
Upon Defendants The International Society of Interdisciplinary Engineers LLC and Global Knowledge Solutions LLC’s Motion for Partial Dismissal GRANTED IN PART, DENIED IN PART
David A. Felice, Esq., Bailey & Glasser, LLP, Wilmington, Delaware, David Wechsler, Esq., Daniel Grossman, Esq., Harris St. Laurent & Wechsler LLP, New York, New York; Attorneys for Plaintiff.
Jessica C. Watt, Esq., Ballard Spahr LLP, Wilmington, Delaware, Steven Suflas, Esq., Ballard Spahr LLP, Salt Lake City, Utah, Joseph J. Bailey, Esq., Ballard Spahr LLP, Philadelphia, Pennsylvania; Attorneys for Defendants.
DAVIS, J.
I. INTRODUCTION
Plaintiff Dennis Kilian commenced this action against The International Society of
Interdisciplinary Engineers LLC (“ISIE”) and Global Knowledge Solutions LLC (“GKS”)
(collectively, “Defendants”). 1 Mr. Kilian seeks relief for an alleged breach of his Employment
1 D.I. No. 1 Contract (the “Contract”) with ISIE, and violations of wage and labor statutes in New Jersey and
California.
The Complaint contains four separate claims for relief. Mr. Kilian seeks damages for: (i)
Breach of Contract, (ii) Failure to Pay Wages in Violation of New Jersey Wage Payment Law,
(iii) Failure to Pay Wages Owed in Violation of California Labor Code § 200 et seq. and Request
for Penalties, and (iv) Violation of California Business and Professions Code § 17200 et seq.
Defendants filed their Motion for Partial Dismissal (the “Motion”) on July 7, 2022. The
Motion asks the Court to dismiss Counts II, III, and IV, and reject Mr. Kilian’s calculation of
damages under Count I. Mr. Kilian responded with an Opposition to the Motion on August 12,
2022. Defendants filed their Reply on August 29, 2022. The Court held a hearing on the Motion
on October 10, 2022. At the conclusion of the hearing, the Court took the Motion under
advisement.
For the reasons discussed below, the Motion is GRANTED as to Counts III and IV,
DENIED as to Counts I and II without prejudice.
II. FACTUAL BACKGROUND
A. THE PARTIES
Mr. Kilian is a resident of California. 2 Mr. Kilian was a resident of New Jersey when he
signed the Contract. 3
The American Society of Mechanical Engineers (“ASME”) is a New York 501(c)(3) non-
profit organization with its principal place of business in New York, New York. 4 Mr. Kilian
began working for ASME in September 2016. 5
2 Compl. ¶ 2. 3 Id. ¶ 16. 4 Defendants’ Motion for Partial Dismissal (“Defs.’ Mot.”) at 1. 5 Compl. ¶ 8.
2 On or about April 2020, ASME formed the ISIE as a holding company for purposes of
housing other for-profit subsidiaries. 6 ISIE is a Delaware limited liability company with its
principal place of business in New York, New York. 7 In November 2020, ISIE acquired
Camelot US Acquisition 7 Co. (“Camelot”) and Camelot’s subsidiary, Techstreet LLC
(“Techstreet”). 8 Thereafter, in mid-December 2020, ISIE converted Techstreet into GKS as an
indirect subsidiary of ASME. 9 GKS is a single member Delaware limited liability company with
its principal place of business in Ann Arbor, Michigan. 10
B. MR. KILIAN’S EMPLOYMENT WITH GKS
On or around December 16, 2020, Mr. Kilian entered a five-year Employment Contract
(the “Contract”) with ISIE to serve as the President of GKS. 11 New Jersey law governed the
Contract. 12 The Contract provided for a set base salary of $300,000 per year:
The Executive shall be entitled to receive a base salary (the “Base Salary”) at a rate of $300,000.00 per annum, payable in bi-weekly equal installments in accordance with the Company’s payroll practices, with such increases as the Board may determine or as provided in the following subparagraph (b). Once increased, such the higher amount shall constitute the Executive’s Base Salary. 13
The Contract provided for an increase in Mr. Kilian’s base salary contingent on GKS
meeting annual revenue milestones:
The Base Salary shall be increased during the Employment Term upon the Company’s achievement of revenue milestones (the “Revenue Milestones”) during each calendar year of the employment term (an “Employment Year”) based upon revenues recorded in the Company’s ordinary course of business. Increases of the Base Salary shall be effective at such time or times in an Employment Year as each
6 Id. ¶ 9. 7 Id. ¶ 3. 8 Id. ¶ 10. 9 Id. ¶¶ 10-11. 10 Id. ¶¶ 4-5. 11 Id. ¶ 15. Mr. Kilian was a New Jersey resident when the Contract was executed. Id. ¶ 16. Immediately prior to entering the Contract, Mr. Kilian served as ASME’s Managing Director of Corporate Sales in their New Jersey office. Defs.’ Mot. at 3. 12 Employment Agreement (“Contract”) § 9.6. 13 Contract § 2.2.
3 new Revenue Milestone is achieved. In the following Employment Year, Base Salary increases shall occur upon achievement of Revenue Milestones for such Employment Year more than the Revenue Milestones previously achieved. The Revenue Milestones and corresponding increases to Base Salary are outlined in Schedule I annex hereto and made a part hereof. 14
The Contract provided for an annual bonus of 35% of Mr. Kilian’s annual base salary at
the discretion of GKS’s Board:
In addition to the Executive’s Base Salary, the Company may pay to the Executive during the Employment Term an annual bonus (the “Annual Bonus”) based upon the Executive’s performance, the amount of which bonus shall be thirty-five (35%) percent of the Executive’s Base Salary and solely within the discretion of the Company as determined by the Board. 15
Contract Section 5.1. addresses termination. Sections 5.1.1(a)-(b) relate to termination
prior to expiration of the Employment Term and provide:
(a) If, prior to the expiration of the Employment Term, the Executive’s employment is terminated by the Company for Cause or by the Executive without Good Reason, the Executive shall be entitled only to his accrued but unpaid Base Salary (“Accrued Base Salary”) through and including the date of termination.
(b) If prior to the expiration of the Employment Term, the Executive’s employment with the Company is terminated by the Company Without Cause or by the Executive for Good Reason, the Executive shall be entitled only to (i) his Accrued Base Salary through and including the date of termination; (ii) his Base Salary from the day after the termination date through the normal expiration date of the Employment Term, payable in equal installments on the same terms as at the end of the Employment Term; and (iii) the benefits set forth under Section 4 of this Agreement through the normal expiration date of the Employment Term. 16
Contract Section 5.4 defines “Good Reason,” stating:
Termination by Executive for “Good Reason” shall mean termination by the Executive because of (i) a material reduction in the nature or scope of Executive’s position as President or his authorities, powers, duties, or responsibilities in such capacity; or (ii) a material diminution in the ‘Executive’s base compensation or target bonus below the amount as of the date of this Agreement or as increased during the course of his employment with the Company; or (iii) a requirement that that [sic] the Executive report to a corporate officer or employee of the Company
14 Id. § 2.2(b). “Employment Term” is defined in the Contract at Section 1.3. 15 Id. § 2.3. 16 Id. §§ 5.1.1(a)-(b).
4 or entity created by a merger or acquisition instead of reporting directly to the Board/Management Committee . . . 17 Mr. Kilian claims that, contrary to the GKS Operating Agreement and the Employment
Agreement, he was required to report to a corporate officer who was not a member of the GKS
Board. 18 Mr. Kilian alleges that Thomas Costabile, ASME’s Executive Director and CEO,
“repeatedly exerted control over GKS’s operations, issued directives to Mr. Kilian as GKS’s
President, and otherwise acted as if he and ASME controlled GKS.” 19 Mr. Kilian also alleges
that he attempted to limit Mr. Costabile’s role in the daily operations and control of GKS, and
these attempts resulted in business conflicts between Mr. Kilian and Mr. Costabile. 20
On or around March 12, 2021, Mr. Kilian relocated to California while continuing to
serve as the President of GKS. 21 On March 22, 2021, Mr. Kilian alleges he was notified of an
organizational change at GKS and that he would be removed as the President of GKS on March
22, 2021. 22 On April 15, 2021, Mr. Kilian provided Defendants a written notice of termination
for Good Reason, stating that his demotion from the position of President was a “material
reduction in the nature or scope of [Mr. Kilian’s] authorities, powers, duties or responsibilities”
and the requirement for Mr. Kilian to “report to a corporate officer or employee and not directly
to the [GKS] Board/Management Committee” constituted Good Reason under the Contract. 23
Mr. Kilian asserts that, after Defendants received his Good Reason notice, Defendants
failed to make any of the required severance payments as required under Sections 5.1.1(b) and
5.4. 24 Mr. Kilian also alleges that contrary to Section 5.1.1(b), Defendants only provided him
17 Id. § 5.4. 18 Compl. ¶ 43. 19 Id. ¶ 44. 20 Id. ¶¶ 45-55. 21 Id. ¶ 39. 22 Id. ¶¶ 57-58. 23 Id. ¶¶ 62-63. 24 Id. ¶ 77.
5 with benefits defined in Section 4 until September 15, 2021, a period of five months after Mr.
Kilian’s termination. 25
Defendants deny Mr. Kilian’s assertions that the termination of the Contract was due to
“Good Reason.” 26 Defendants argue that Mr. Kilian was, in fact, fired “for Cause.” 27
Defendants argue that Mr. Kilian’s “Good Reason” notice to Defendants was insufficient to
constitute valid notice as required under Section 5.1.1(b). Defendants highlight that while Mr.
Kilian’s notice stated that Mr. Kilian “had good reason to resign,” Mr. Kilian “remain[ed] open
to staying in a new, mutually satisfactory executive capacity (my preference). If not, I ask that
we agree on a separation date that will allow a seamless transition.” 28
C. THE CALIFORNIA LITIGATION
On August 2, 2021, Mr. Kilian filed a complaint in the Superior Court of the State of
California in the County of Placer (the “California Action”) against ASME, ISIE, and GKS (the
“California Defendants”). The California Action asserts claims that are substantially like those
asserted here. 29 The California Defendants removed the California Action to the United States
District Court for the Eastern District of California (the “District Court”) and moved to dismiss
that action for lack of personal jurisdiction over the California Defendants. 30
The District Court found that the Cal. Defendants did not purposefully avail themselves
to jurisdiction in California. The District Court opined, “Plaintiff's choice of residence cannot
serve as the basis for personal jurisdiction, otherwise defendants would be subject to personal
jurisdiction in any state to which Plaintiff happens to relocate. For these reasons, Plaintiff's own
25 Id. ¶¶ 76-77, 77 n.3. 26 Defs.’ Mot. at 8. 27 Id. 28 Id. 29 Id. at 2. ASME is not a party to the current action. 30 Id.
6 contacts with California do not establish specific jurisdiction over GKS either.” 31 The District
Court granted the dismissal on January 21, 2022. 32
III. PARTIES’ CONTENTIONS
A. THE MOTION
Defendants seek to dismiss Counts II, III, and IV of the Complaint. In addition,
Defendants dispute the damage calculations offered in Count I. Defendants contend that Mr.
Kilian’s contract-based damage claims under Count I are limited to amounts set out in the
Contract. Defendants also argue that Mr. Kilian’s New Jersey wage statute claims lack merit as
the severance pay does not constitute “wages” under the New Jersey’s Wage Payment Law.
Defendants maintain that Mr. Kilian’s claims under California law should be dismissed because
the Contract’s choice-of-law provision asserts New Jersey law, and—as recognized by the
District Court—California law does not apply.
Defendants also assert that the Affidavit of Dennis Kilian (the “Affidavit”) filed with
Kilian’s Answering Brief was procedurally improper. As such, Defendants ask the Court to
disregard the Affidavit for considerations on the Motion.
B. THE OPPOSITION
Mr. Kilian contends that Defendants removed him from his position at president of GKS
in breach of the Contract, which triggered Mr. Kilian’s option to terminate the Contract with
“Good Reason.” Mr. Kilian asserts damages from the unpaid severance payments, expected
raises and bonuses, monetary value of the benefits under Section 4 of the Contract, and per diem
payout of unused vacation days.
31 Kilian v. American Society of Engineers, 2022 WL 198563, at 2-3* (E.D. Cal. Jan. 21, 2022). 32 See id.
7 Mr. Kilian also argues that for the relevant period, Mr. Kilian was both a New Jersey and
California employee of Defendants and under both states’ labor and wage statutes, severance
payments are categorized as “wages.” In turn, any employers found to be violating the statutes
are subject to penalties, with additional liquidated damages provided to the employee plaintiffs.
Mr. Kilian filed his affidavit in support of the Opposition, alleging additional facts and
arguments in support of the Complaint. While Mr. Kilian recognized that the Affidavit is
premature at this stage of the proceedings, Mr. Kilian alleges that the information offered in the
Affidavit is relevant to the choice-of-law dispute and cites to caselaw to support the admission of
the Affidavit for the Court’s consideration.
IV. STANDARD OF REVIEW
Upon a motion to dismiss, the Court (i) accepts all well-pled factual allegations as true,
(ii) accepts even vague allegations as well-pled if they give the opposing party notice of the
claim, (iii) draws all reasonable inferences in favor of the non-moving party, and (iv) only
dismisses a case where the plaintiff would not be entitled to recover under any reasonably
conceivable set of circumstances. 33 However, the court must “ignore conclusory allegations that
lack specific supporting factual allegations.” 34
In considering a motion to dismiss under Civil Rule 12(b)(6), the court generally may not
consider matters outside the complaint. 35 However, documents that are integral to or
incorporated by reference in the complaint may be considered. 36 “If . . . matters outside the
pleading are presented to and not excluded by the Court, the motion shall be treated as one for
33 See Central Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 227 A.3d 531, 536 (Del. 2011); Doe v. Cedars Academy, 2010 WL 5825353, at *3 (Del. Super. Oct. 27, 2010). 34 Ramunno v. Crawley, 705 A.2d 1029, 1034 (Del. 1998). 35 Super. Ct. Civ. R. 12(b). 36 In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 70 (Del. 1995).
8 summary judgment and disposed of as provided in Rule 56, and all parties shall be given
reasonable opportunity to present all material made pertinent to such a motion by Rule 56.” 37
V. DISCUSSION
A. THE AFFIDAVIT IS PROCEDURALLY BARRED
The Affidavit, and portions of the Answering Brief citing to the Affidavit, will not be
considered by the Court for purpose of ruling on the Motion.
Under Civil Rule 7(a), parties are permitted to file a complaint, answer, and related
responses. Filings outside of pleadings can only be considered if the documents are “integral to
a plaintiff’s claim and incorporated in the complaint.” 38 In context of contractual disputes,
Delaware courts may consider affidavits offering extrinsic evidence when “there is uncertainty in
the meaning and application of contract language . . .” 39
Mr. Kilian offers Sonitrol Corp. v. Signature Flight Support Corp. to assert that an
affidavit submitted with an opposition to a motion to dismiss may be admitted by this Court for
consideration of relevant facts. However, the Sonitrol court only allowed the admission of the
affidavit in the case because the court found that the additional facts contained in the affidavit
would have permitted the complaint to survive the motion to dismiss. 40 The narrow exception to
Civil Rule 7(a) found in Sonitrol does not apply here. While the Affidavit does provide
additional information generally relevant to the present matter, the alleged facts contained in the
Affidavit either overlap with what is already contained in the Complaint or assert new facts that
do not assist the Court in the present analysis.
37 Super. Ct. Civ. R. 12(b). 38 In re Santa Fe Pacific Corp. S’holder Litig., 669 A.2d at 69. 39 Eagle Industries, Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997). 40 Plaintiff’s Answering Brief (“Pl.’s Answering Br.”) at 22 (citing Sonitrol Corp. v. Signature Flight Support Corp., 2006 WL 1134775, at *1 (Del. Super. March 24, 2006)).
9 As such, the Court will not consider the Affidavit or portions of Mr. Kilian’s Answering
Brief relying on the Affidavit.
B. THE MOTION IS DENIED AS TO COUNT I.
Mr. Kilian seeks damages arising out of the termination of the Contract and Defendants’
failure to pay severance as per the Contract terms. Mr. Kilian alleges damages amounting to at
least $2,645,535.82, calculated by adding (i) his base salary, with salary increases for each year,
(ii) annual bonuses of 35% proportionate to the base salary with the annual salary increases, (iii)
monthly cost of the benefits provided under Section 4, including “family medical, vision, and
dental insurance,” and (iv) monetary conversion of 125 vacation days corresponding with the
increased base salary per year. 41
Defendants argue that Mr. Kilian’s damage are calculated in a manner inconsistent with
the express language of the Contract. Defendants claim that the Contract’s severance clause only
provides for the base salary, calculated at the time of termination, to be paid in equal installments
on the same terms as agreed upon for the base salary. 42 Defendants argue that the annual salary
increases were conditioned upon GKS meeting its annual financial goals which were not
satisfied prior to Mr. Kilian’s termination. Defendants also contend that the bonuses were
discretionary and required approval by the GKS Board, and that the benefits were not payable at
a per diem rate as a part of the severance clause. 43
Section 5 of the Contract provides that if Mr. Kilian’s employment is terminated either by
the Company without cause, or by Mr. Kilian with Good Reason:
[T]he Executive shall be entitled only to (i) his Accrued Base Salary through and including the date of termination; (ii) his Base Salary from the day after the termination date through the normal expiration date of the Employment Term,
41 Compl. ¶¶ 77(a)-(c). 42 Defs.’ Mot. at 22. 43 Id.
10 payable in equal installments on the same terms as at the end of the Employment Term, and (iii) the benefits set forth under Section 4 of this Agreement through the normal expiration date of the Employment Term. 44
The language is unambiguous: severance payments are calculated at the time of the
termination. The clause does not provide for calculation of annual salary increases, nor bonuses,
regardless of whether Mr. Kilian “reasonably expected to receive” them. 45
Mr. Kilian’s inclusion of the cash-out monetary calculation of benefits is similarly not
supported by the language of the Contract. Section 4 provides:
General Benefits. The Executive shall be eligible to participate in the company’s health and benefit programs, consistent with those benefit programs provided to other Company’s senior executives.
Vacation. The Executive shall be entitled to twenty-five (25) days paid vacation each year following the Company’s applicable policies. 46
The Termination Clause provides that the term “benefits” means being able to maintain
health and benefit programs provided by Defendants for the remainder of the Employment Term.
The Contract does not include the option to take a payout of the “$2,906.82 in monthly payments
for family medical, vision, and dental insurance coverage” nor does it provide that the vacation
days can be “cashed out” at the end of the employment term. In short, when Mr. Kilian’s
employment ended at GKS, Mr. Kilian was only entitled to his Base Salary of $300,000 as
severance payments without the addition of “expected” bonuses, raises, or a per diem cash out of
unused vacation days.
The Court does find that there presently is a factual dispute as to the basis of Mr. Kilian’s
termination at GKS. If the termination was a result of “Good Reason” by Mr. Kilian, or
44 Contract § 5.1.1(b). Accrued Base Salary is defined as Mr. Kilian’s accrued but unpaid Base Salary through and including the date of termination. 45 Compl. ¶ 77. 46 Contract § 4.
11 “Without Cause” by the Company, as per Section 5.1.1(b), Mr. Kilian had the contractual right to
terminate the Contract and receive severance payments equal to his Base Salary ($300,000 at the
time of the termination) along with benefits under Section 4 until the end of the Employment
Period. If the termination was a result of Defendants having valid “For Cause” or by Mr. Kilian
“Without Good Reason,” then Mr. Kilian was only entitled to his salary up to the date of his
termination date.
Civil Rule 12(b)(6) requires that the Court accept all non-conclusory and well-pled
allegations as true and draw all reasonable inferences in favor of the non-moving party. 47 Mr.
Kilian alleges that he terminated the Contract for “Good Reason.” As per the Contract, if Mr.
Kilian had a valid “Good Reason” to terminate the contract, Defendants were required to pay Mr.
Kilian a severance equal to his Base Salary set at the time of the termination. Defendants failed
to do so. While the Defendants argue that Mr. Kilian was fired “for cause” and thus ineligible to
receive any amount of severance under the Contract, Defendants do not demonstrate that they are
legally entitled to overcome the factual allegations contained in the Complaint at this time.
As such, the Complaint sufficiently pleads a valid cause of action under Count I, and
therefore, the Motion to dismiss Count I is DENIED. The Court’s decisions regarding the
unambiguous language of certain provisions of the Contract will apply going forward in this civil
proceeding.
C. THE MOTION IS DENIED AS TO COUNT II.
The parties dispute whether severance payments constitute “wages” under New Jersey
law, as the categorization of severance payments as “wages” would create statutory liability for
Defendants under New Jersey wage law. However, due to the ongoing factual dispute as to
47 Del. Super. Ct. Civ. R. 12(b).
12 whether Mr. Kilian terminated the Contract “for Good Reason” or if he was fired “For Cause,”
accepting all non-conclusory and well-pled allegations as true and drawing all reasonable
inferences in favor of the non-moving party under Rule 12(b)(6), the Court denies the Motion to
Dismiss Count II at this junction for the reasons discussed below.
Mr. Kilian asserts that Defendants failed and/or refused to pay all wages due and owed in
the form of the severance payments in violation of the New Jersey Wage Payment Law
(“NJWPL”). N.J.S.A. 34:11-4.4 states: “No employer may withhold or divert any portion of an
employee’s wages unless: a) the employer is required or empowered to do so by New Jersey or
United States law . . . .” 48 NJWPL defines wages as: “[D]irect monetary compensation for labor
or services rendered by an employee, where the amount is determined on a time, task, piece, or
commission basis excluding any form of supplementary incentives and bonuses which are
calculated independently of regular wages and paid in addition thereto.” 49
Mr. Kilian argues that Defendants violated NJWPL when they “unreasonably and without
good faith, knowingly failed and/or refused to pay Mr. Kilian wages owed to him,” including the
severance payments consisting of the Base Salary, annual bonus, and benefits for the remainder
of the five-year employment term as required under the Contract. 50 Mr. Kilian contends that this
failure was a violation of NJWPL, and under N.J.S.A. § 34:11-4.10(c), Defendants are liable for
liquidated damages “equal to not more than 200 percent of the wages lost or of the wages due,
together with costs and reasonable attorney’s fees.” 51 Mr. Kilian asserts damages amounting to
$7,936,607.46 under Count II, including liquidated damages under NJWPL. 52
48 NJWPL N.J.S.A. § 34:11-4.4. 49 Id. § 34:11-4.1. 50 Compl. ¶ 85. 51 Pl.’s. Answering Br. at 7 (citing N.J.S.A. § 34:11-4.10(c)). 52 Compl. ¶ 86.
13 Mr. Kilian asserts that the only excluded payments from the NJWPL definition of
“wages” are “supplementary incentives and bonuses,” and cites to cases supporting the argument
that a set annual salary constitutes earned wages at the time the parties enter the employment
contract. However, the cases offered by Mr. Kilian fail to address the specific issue of
severance payments constituting wages, and do not assist the Court for the present issue at
hand. 53
Defendants argue that the NJWPL definition of “wages” does not include severance
payments. Defendants parse out the wording of the statutory definition of “wages” and state that
severance is not “direct monetary compensation for labor or services rendered,” but that
severance is “an exchange for services not rendered.” 54 Defendants maintain that “rendered”
implies that services must have been previously completed by the employee, i.e., in the past, and
severance payments are “purely prospective, paid out after services are no longer being
rendered.” 55 Defendants contend that severance falls into the category of “supplementary
incentives” which are expressly excluded from the NJWPL definition of wages.
Defendants cite certain caselaw to support their arguments that severance pay does not
constitute wages. In Moran v. DaVita, Inc., the United States District Court for the District of
New Jersey opined: “Therefore, this Court concludes the ‘wages’ as defined in the Wage
Payment Law were not intended to embrace payments owed to an employee pursuant to a
contractual obligation but not tethered to the performance of services by the employee.” 56
53 Pl.’s Answering Br. at 8-12. The cited cases discuss issues of deferred salaries, earned commissions and bonuses, and bankrupt companies and are not applicable to the current case. 54 Defs.’ Mot. at 11. (emphasis in original). 55 Id. 56 Moran v. DaVita, Inc., 2009 WL 792074, at 18* (D.N.J. Mar. 23, 2009).
14 Defendants also rely on the legislative history of the NJWPL to show that earlier
iterations of the bill defined wages to include “any other benefits arising out of an employment
contract.” 57 As Defendants contend, this language was not included in the final definition of
“wages” in the NJPWL and shows the intent of the New Jersey legislature to exclude severance
as a form of “other benefits” from protections offered under NJWPL.
The Court notes that the crux of the issue falls on what constitutes “services rendered.”
Mr. Kilian contends that his services were rendered at the time he was employed by Defendants,
and the severance payments “are guaranteed without contingencies or qualification; vested and
earned through the direct services Mr. Kilian performed for GKS, but paid later.” 58 In other
words, the right to the severance payments became vested and earned at the time Mr. Kilian
entered into the Contract and does not constitute “supplementary incentives and bonuses” as
excluded in the NJWPL definition of “wages.” Defendants argue that the language of the
“wages” definition on its face does not include severance, as wages are only owed for services
actually rendered by the employee, and severance is payment made after the termination of an
employee and thus not “earned” by prior services rendered. 59
Severance, in its very nature, is designed to pay a terminated employee for their services
previously rendered to their employer while they were still employed. In turn, the severance
payments can be considered wages, as wages are intended to compensate an employee for their
already-rendered labor. The U.S. Supreme Court offers guidance on this issue in U.S. v. Quality
Stores, Inc., where the Court found that severance payments constituted wages. 60 Severance
57 Defs.’ Mot. at 13. 58 Pl.’s Answering Br. at 8. 59 Defs.’ Mot. at 11. 60 See U.S. v. Quality Stores, Inc., 572 U.S. 141 (2014). While the Court made this determination in context of FICA and federal taxation purposes, it is relevant and persuasive caselaw as applied to the current case.
15 payments are vested when the employee is hired by the employer, and unlike regular wages
which are only paid upon actual work completed by the employee, the Quality Stores Court
noted that “severance payments made to terminated employees are ‘renumeration for
employment.’ Severance payments are, of course, ‘renumeration,’ and common sense dictates
that employees receive the payments ‘for employment.’” 61 In other words, severance payments
constitute wages for “services” which are considered rendered by the employee’s execution of
the employment agreement. “[S]everance payments are made in consideration for employment –
for a ‘service performed’ by ‘an employee for the person employing him.’” 62
Severance is also a part of what is likely a negotiated compensation package between the
employee and the employer. The mutual understanding may be that if the relationship
deteriorates between the two parties or some event occurs resulting in the termination of the
employee, the employee will receive the severance as payment for the employee’s services
already rendered to the employer. Simply put, severance payments may be wages.
Having established the above, Defendants have not sufficiently met their burden under
Civil Rule 12(b)(6). Defendants’ arguments do not overcome the active factual dispute of
whether the termination of the Contract was by Mr. Kilian for “Good Reason,” or by Defendants
“for Cause.” This is a critical issue that requires resolution before the Court can adjudicate on
the interpretation of NJWPL. Under the present circumstances, accepting all non-conclusory and
well-pled allegations as true and drawing all reasonable inferences in favor of the non-moving
party, the Court DENIES the Motion to dismiss Count II.
Unlike the Court’s ruling on whether certain provisions of the Contract are ambiguous,
the Court may revisit whether “severance” constitutes wages under the NJWPL. The Court is
61 Id. at 146. 62 Id.
16 not comfortable that the legal analysis on this issue has been completely/exhaustively analyzed
under New Jersey law. This case is in the initial stages of litigation and the issue may need to be
revisited later.
D. THE COURT WILL GRANT THE MOTION AS TO COUNT III.
Mr. Kilian argues that because Defendants failed to pay him the severance payments
when Mr. Kilian was a resident of California, Defendants should be subject to penalties under
the California Labor Code. 63
California Labor Code § 200 defines wages as:
“[A]ll amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other methods of calculation.” 64
Mr. Kilian states that Defendants failed to pay Mr. Kilian owed wages, including
severance payments. In turn, Defendants violated California Labor Code Section 203, which
provides penalties to employers who fail to pay earned wages to their employees. 65 Mr. Kilian
also cites to California caselaw which provides that California law treats severance payments as
wages under the Labor Code. 66
Defendants argue that California law does not apply here. Defendants assert that the
Contract is governed by New Jersey law, and Defendants have no significant contacts with
California. Defendants state that Mr. Kilian previously brought a suit against Defendants in the
California Action on the same factual allegations, and the District Court dismissed the action
63 Mr. Kilian initially pleaded the applicability of the California statute as an alternative to the New Jersey claims under Count II, but in the subsequent Answering Brief, Mr. Kilian asserted both New Jersey and California statutes against Defendants. 64 Cal. Labor Code § 200. 65 Compl. ¶¶ 90-91. 66 Pl.’s Answering Br. at 15 (citing Battista v. Fed. Deposit Ins. Corp., 195 F.3d 1113, 120 n.8 (9th Cir. 1999), Willig v. Exiqon, Inc., 2012 WL 10375, at *13 (C.D. Cal. Jan. 3, 2012)).
17 after finding that Defendants’ contacts with California “are unconnected to [Mr. Kilian]’s claims
which arise solely out of the alleged breach of the [Contract].” 67
Mr. Kilian argues that a choice-of-law determination is premature at this stage. The
Court disagrees. The issue is ripe for consideration currently, as Counts III and IV rely on the
applicability of California law.
When faced with a choice-of-law issue, Delaware applies the Second Restatement’s most
significant relationship test to find which state’s substantive law applies to the case. 68 The Court
looks at three factors for the choice-of-law analysis: (i) determining if the parties made an
effective choice of law through their contract; (ii) if not, determining if there is an actual conflict
between the laws of the different states each party urges should apply; (iii) if so, analyzing which
state has the most significant relationship. 69
The first factor requires looking at whether a choice of law has already been effectively
decided by the parties in the contract. Here, the Section 9.6 of the Contract provides that the
Contract is “construed, interpreted, and governed in accordance with the laws of the State of
New Jersey.” 70 The second and third factors do not require further exploration as the choice-of-
law analysis is satisfied by the first factor.
Furthermore, Mr. Kilian’s arguments that California law should apply because he resided
in California at the time of the termination is not persuasive. While Mr. Kilian alleges that he
was employed by Defendants in California from March 12, 2021, to approximately April 15,
2021, Mr. Kilian does not sufficiently plead whether Defendants directed Mr. Kilian to move to
California on behalf of, or in support of, Defendants’ business or as a requirement of Mr.
67 Defs.’ Mot. at 15. 68 See Certain Underwriters at Lloyds, London v. Chemtura Corp., 160 A.3d 457, 464 (Del. 2017). 69 Id. at 464. 70 Contract § 9.6.
18 Kilian’s employment. Mr. Kilian argues that Defendants were aware of Mr. Kilian’s intent to
move to California, and that such understanding was material to Mr. Kilian’s entry to the
Contract; however, the facts before the Court show Mr. Kilian’s move to California was a
unilateral decision made before the parties even entered the Contract, and it was not made with
the intent to directly benefit Defendants.
Defendants also offer persuasive caselaw where California federal courts denied the
application of California labor laws against employers who had no contact with California except
for the residency of their employee. 71 In Shorter v. Peaches Uniform, Inc., the Eastern District
of California found that when an employee moved to California for personal reasons and
unrelated to her job, and the employer merely permitted the employee to continue working
remotely in California. 72 California labor laws could not be applied against the employer in a
wrongful termination suit without purposeful, significant contact by the employer with the
state. 73 Defendant cite to Oman v. Delta Air Lines, Inc. 74 In Oman, the United States District
Court for the Northern District of California found that the California Labor Code did not apply
to the defendant employer when the plaintiff employee only worked a de minimis amount of time
in California, and the defendant was not based in California. 75
Mr. Kilian fails to meet the pleading standard for Count III. The Contract explicitly
provides New Jersey law as the governing law of the agreement. None of Defendants are
incorporated or have their principal place of business in California. 76 The pleadings do not
provide that Defendants have any additional assets, business, or employees in California. Mr.
71 Defs.’ Mot. at 16 (citing Shorter v. Peaches Uniform, Inc., 2012 WL 3882322 (E.D. Cal. Sept. 6, 2012)). 72 See Shorter, 2012 WL 3882322, at *1. 73 See id. 74 230 F.Supp.3d 986, 992-94 (N.D. Cal. 2017). 75 Id. at 992-94. 76 ISIE is a Delaware incorporated company with its principal place of business in New York, New York. GKS is a Delaware incorporated company with its principal place of business in Ann Arbor, Michigan.
19 Kilian was employed by Defendants in California for a de minimis period before the Contract
was terminated.
Finally, the Court must recognize what happened in the California Action. The District
Court dismissed the California Action because the California Defendants were not subject to
personal jurisdiction in California. As such, the District Court did not find that Mr. Kilian’s
action was subject to the application of California employment law. Moreover, the District
Court did not find that Defendants caused injury in California in a manner that subjected
Defendants to jurisdiction. Whether explicitly or implicitly addressed in a decision, these are
critical points when making a personal jurisdiction ruling. The District Court held that
Defendants were not subject to personal jurisdiction in California. Logically, this means that
California law was not applicable to the facts plead by Mr. Kilian.
For the reasons above, the Court will GRANT the Motion as to Count III.
E. THE COURT WILL GRANT THE MOTION AS TO COUNT IV.
Mr. Kilian alleges that, in the alternative to Count III, Defendants violated the California
Business and Professions Code § 17200 for failing to pay wages, constituting an unfair trade
practice. The Code § 17200 states:
“As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business Professions Code.” 77
Kilian offers no additional arguments as to the applicability of the Code in either the
Complaint or the Answering Brief.
The Court’s reasoning as to Count III applies to Count IV. As previously discussed, New
Jersey substantive law applies to the current matter, not California law. Mr. Kilian fails to meet
77 California Business and Professions Code § 17200.
20 the pleading standard for Count IV under Civil Rule 12(b)(6), and as such, the Court will
GRANT the Motion to dismiss Count IV.
VI. CONCLUSION
For the foregoing reasons, the Motion is GRANTED as to Counts III and IV and
DENIED as to Counts I and II.
IT IS SO ORDERED.
/s/ Eric M. Davis Eric M. Davis, Judge
cc: File&ServeXpress