Punitive Damages to be Considered Next Week
LOS ANGELES– LAWFUEL – The Legal Newswire –On June 27, 2007, a Los Angeles Superior Court jury returned a verdict for $15 million in favor of Computer Payroll Company, a payroll service company located in Palm Desert, California. The jury found that Rapid Payroll, Inc., a wholly owned subsidiary of Paychex, Inc. (NASDAQ:PAYX), breached a software licensing agreement it had with Computer Payroll Company. The jury also found that Paychex, B. Thomas Golisano, and Walter Turek are liable for the $15 million in compensatory damages. 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.
Paychex is the nation’s #2 payroll processing firm. It has a subsidiary named Rapid Payroll, Inc. that licensed payroll-processing software known as Rapid Pay.
In addition to the monetary award, the jury also determined that the conduct of Paychex, Mr. Golisano, and Mr. Turek came within the statute that allows the jury to assess punitive damages. In a second phase of the trial to begin on Monday, July 2, 2007, the jury will determine what amount, if any, to award for punitive damages against those defendants.
The lawyer for Computer Payroll Company, Stephen Wald of the Boston law firm Craig and Macauley, stated, “We are delighted with the verdict, and we look forward to the second phase of the trial on punitive damages.” Mr. Wald was assisted on this and other Rapid Pay litigation by Jonathan Gordon, a lawyer with the Los Angeles firm Weston, Benshoof, Rochefort, Rubalcava & MacCuish.
The defendants are represented by Morgan Chu of the Los Angeles firm Irell & Manella LLP.
Computer Payroll Company 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 2004, in the first of the cases to go to trial, a Los Angeles jury returned a verdict 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. Mr. Wald was also the lead trial lawyer in that case.
Computer Payroll Company’s case was originally scheduled to go to trial in May 2006, but that trial was stayed when the Paychex subsidiary filed bankruptcy. Earlier this year, after a series of decisions regarding the rights of Computer Payroll Company and other former Rapid Pay licensees, the United States Bankruptcy Court of the Central District Of California confirmed a plan of reorganization that allowed Computer Payroll Company to continue to pursue its claims in the Los Angeles Superior Court. Under that plan, Paychex and an affiliate guarantee that all obligations of Rapid Payroll, Inc. to licensees will be paid in full.
Mr. Wald represented 20 of the Rapid Pay licensees who brought claims against these defendants. Before this most recent verdict, after the confirmation of the plan of reorganization and a series of favorable rulings by the bankruptcy court, all of the cases handled by Mr. Wald other than the matter just tried were settled.
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 then operated it as a wholly owned subsidiary under the name of Rapid Payroll, Inc.