This section contains the nature of the case and procedural background.

D sells photography services to schools and other organizations across the nation. In 1980, P began working as a photographer and sales representative for D. Eventually, P took over as Territory Manager of the San Francisco Bay Area in 1986 and entered into the contract with D. In exchange for his management, Paragraph 8 provides that P would be compensated as described in exhibits attached to the agreement. The agreement explains in part that P had a right to a post-employment 'residual commission.' The agreement also stated that if P breaches the provisions of Paragraph 11, D shall be entitled to terminate D's obligation to make any payments of Residual Commission that have not yet been paid by giving Territory Manager written notice of such termination. Under Paragraph 11, P agreed for a period of 24 months after his employment that he would not 'disclose any trade secrets and confidential information,' 'solicit or deal with any school included in D's Business,' or 'solicit any present or future employee of D for the purpose of hiring or attempting to hire such employee.' A separate clause at the end of Paragraph 11 additionally provides that P would 'immediately deliver to D all of D's property' that was in P's possession or control at the end of his employment. P and D had many disputes about how commissions were to be calculated and paid. In September of 2014, P commenced a declaratory-judgment action in district court requesting a declaration of the parties' respective rights and duties under the employment contract, including the proper calculation of the residual commission he was to be paid under the contract. In March of 2015, while this litigation was still in the discovery phase, P retired. On June 26, 2015, D demanded that P return the documents he had retained. P returned the documents within three business days of this request. On August 4, 2015, D also demanded that P give it access to his e-mail account; P complied. D's forensic expert then determined that the D materials P had sent to his personal e-mail account had not been shared with outside sources. In January of 2016, the parties each moved for summary judgment on the issue of P's right to a residual commission. D argued in its motion that its obligation to pay the residual commission was excused because P failed to comply with the return-of-property clause. The court rejected P's argument that the court should not enforce the condition because to do so would result in an inequitable forfeiture. The court held that the return-of-property clause was a condition precedent to D's payment of the residual commission. P appealed, and the court of appeals reversed. The court of appeals determined that the district court did err in failing to recognize that, read as a whole, the non-compete provisions and the residual commission provision 'function as a non-compete agreement with a forfeiture clause.' It determined that the district court erred in not applying 'binding precedent on the unenforceability of disproportionate forfeiture clauses and overbroad non-compete agreements.' Under section 229 of the Restatement (Second) of Contracts, it ruled that 'the timing of the return of property was not a material part of the contract' and 'a forfeiture of potentially $2.6 million for retaining proprietary documents and e-mails, when there is no evidence of an intent to compete and when it is undisputed that there is no evidence of any dissemination of the retained documents' would cause a disproportionate forfeiture. It held that P’s failure was excused as a matter of law. D appealed.

The legal issues presented in this case will be displayed here.

The court's holding and decision will be displayed here.

Legal analysis from Dean's Law Dictionary will be displayed here.