The Minnesota Supreme Court recently clarified the application of the doctrine against disproportionate forfeiture under Minnesota contract law in Capistrant v. Lifetouch Nat’l Sch. Studios, Inc., 916 N.W.2d 23 (Minn. 2018). Minnesota courts (and other jurisdictions) have long relied on the disproportionate forfeiture doctrine as a way to prevent inequitable penalties in contracts, although the doctrine is not uniformly interpreted. In Capistrant, while the court confronted the specific question of “whether a former employee’s delay in returning his employer’s property excuses the employer from paying a commission otherwise due to the employee,” its interpretation of the disproportionate forfeiture doctrine may have wider application.
Capistrant worked as a photography and sales representative for Lifetouch, a photography services company that contracts with schools and other organizations. After he retired, Capistrant filed this action seeking to recover unpaid commissions based on his employment contract. The parties entered that contract in 1986, when Capistrant managed certain territory for Lifetouch and was compensated entirely with commissions, including “residual commissions” owed after his employment with Lifetouch ended. The contract also contained a term by which Lifetouch could terminate its obligation to make any unpaid payments of residual commissions to Capistrant if “at any time” Capistrant “breached” certain provisions. Included among those provisions was a “restriction against competition” wherein Capistrant was required, in one part, to “immediately deliver to Lifetouch all of Lifetouch’s property” at the end of his employment. The Minnesota Supreme Court referred to this as the “return-of-property” clause.
During the discovery period, Capistrant revealed that he had retained a large number of Lifetouch’s proprietary documents in violation of the return-of-property clause. Capistrant quickly returned the documents to Lifetouch and its forensic expert determined Capistrant had not disseminated the documents to outside sources. Regardless, Lifetouch argued Capistrant’s failure to comply with the return-of-property clause excused it from paying him residual commissions. Continue Reading