LOS ANGELES, Aug. 15 LAWFUEL – Legal News Network — The California Court of Appeal, Second Appellate Division, on August 9 reversed a trial court decision and reinstated a claim for tort and punitive damages against Paychex, Inc. (Nasdaq: PAYX), B. Thomas Golisano, and Walter Turek, according to Stephen Wald of the Boston law firm Craig and Macauley, attorney for the plaintiff.
The case was brought by Accuchex, Inc., a family owned payroll-processing
company located in Novato, California.
Paychex is the nation’s second largest payroll processing firm. It has a subsidiary named Rapid Payroll, Inc. that licensed payroll-processing software known as Rapid Pay. Mr. Golisano is the founder of Paychex, served as its President, and currently is its Chairman. Mr. Turek serves as Paychex Senior Vice President of Sales and Marketing.
Accuchex was one of 76 independent payroll-processing companies with
Rapid Payroll licensing agreements that expressly provided the license
could not be canceled unless the licensee consented or breached the
agreement. In August 2001, all Rapid Pay licensees received letters from
Mr. Turek stating that Rapid Payroll intended to stop supporting the
software in August of 2002. After that letter, more than 25 Rapid Pay
licensees brought actions against Paychex, Rapid Payroll, and, in some
cases, the two Paychex officers.
In the first of the cases to go to trial, a Los Angeles jury returned a
verdict in 2004 for $6.4 million in favor of a Texas firm against Rapid
Payroll. The judgment was later reduced by the Court to $5.1 million, after which the case settled.
In the Accuchex case, after a bench trial in 2005, the court found,
among other things, that Rapid Payroll breached its contract and directed
that Rapid Payroll support Rapid Pay until the company dissolves. Prior to that trial, the court had dismissed a claim that sought damages and
punitive damages against Paychex, Mr. Golisano, and Mr. Turek for their
role in the attempt to terminate the license between Accuchex and Paychex’s subsidiary. The ruling by the Court of Appeal reverses that decision and, as a result, the claim for damages and punitive damages against them will
be remanded to the California Superior Court for a jury trial.
The lawyer for Accuchex, who also represented the Texas plaintiff in
the 2004 case, Stephen Wald of the Boston law firm Craig and Macauley,
stated, “We are delighted with the decision and look forward to a jury
scrutinizing the conduct of Paychex and the two senior Paychex officers
responsible for the decision.”
Mr. Wald also currently represents 15 other Rapid Pay licensees. Twelve
of those licensees hold judgments from the United States District Court in
Los Angeles, which also found that Rapid Payroll breached their license
agreements. That court also found that a provision of the contracts limited
the damages licensees could collect from Rapid Payroll to the total license fees they paid. In those cases, the District Court dismissed claims against Paychex, Mr. Golisano, and Mr. Turek that were identical to the claim asserted in the Accuchex case. Those cases are currently on appeal before the Ninth Circuit Court of Appeals. The licensees expect that the Ninth Circuit will follow the California Appellate Court’s decision in the Accuchex case in interpreting California law and will reinstate the tort
claims in the federal cases. Because Paychex, Mr. Golisano, and Mr. Turek
are not parties to the contract, they are not protected by the clause in
the contracts that limited Rapid Payroll’s liability.
The case of another licensee, Computer Payroll Company of Palm Dessert,
California, was scheduled to begin trial on May 5, 2006. However, on May 4,
2006, Rapid Payroll filed a petition under Chapter 11 of the Bankruptcy
Code. The bankruptcy petition was signed by Paychex’s Vice President and
Chief Legal Officer. In a recent decision, the United States District Court
wrote that the bankruptcy filing was a strategy first threatened by Paychex
in 2004 to avoid adverse decisions of the Los Angeles Superior Court. Rapid
Payroll’s bankruptcy case, which temporarily stays the litigation against
Rapid Payroll, is pending in the United States Bankruptcy Court in Santa
Ana, California (Case No. SA-06-10631 TA).
Three former licensees who had cases pending at the time of the
bankruptcy filing serve as the Official Unsecured Creditors’ Committee in
the bankruptcy case. They and other creditors have stated that they intend
to vigorously pursue their rights, including taking action to ensure that
Rapid Payroll asserts claims against Paychex and other insiders necessary
to pay all licensees in full.
Most of the Rapid Pay plaintiffs licensed the first version of the
Rapid Pay payroll processing software from Olsen Computer Services, Inc.
(OCS). These independent payroll companies built their businesses around
the software, which requires frequent updating to comply with tax laws and
other operational changes. Paychex acquired OCS in late 1996 and operates
it as a wholly-owned subsidiary under the name of Rapid Payroll, Inc.
Contact: Lynn Kettleson