## Facts

- Horizon Corporation (Horizon) employed Bernard Gelfand for about 13 years, first as a real-estate sales agent and later as a sales manager.
- After Gelfand transferred to New Mexico, he served as district manager overseeing sales at Horizon developments near Albuquerque (including Paradise Hills and Rio Communities).
- During the period at issue, Horizon compensated Gelfand with a reduced salary plus commissions and “overrides” tied to sales in his district; the override percentages were set out in an internal memorandum.
- Horizon terminated Gelfand in January 1979. A dispute followed about compensation allegedly due on 12 transactions.
- Gelfand sued in federal district court for unpaid commissions and overrides. After a bench trial, the court found him entitled to compensation on 11 of the 12 deals and entered judgment for $140,322.88.
- One disputed transaction involved B & C Enterprises (B & C), a corporation formed shortly before the sale and inactive afterward, in which Mrs. Gelfand owned a one-third interest.
- Acting for Horizon, Gelfand sold B & C an option to purchase land for $2,500; Mrs. Gelfand advanced the option price.
- Soon after, B & C sold the option to a third party for $60,000. The third party then exercised the option and paid Horizon the $165,000 price Horizon had set for the real estate. Mrs. Gelfand received one-third of B & C’s profit.
- Horizon did not know of Mrs. Gelfand’s interest at the time and would not have approved the sale had it known, although Horizon’s vice president of sales signed the purchase agreement.
- Horizon had no formal policy requiring disclosure in this setting and did not forbid employees from buying company land; employees were eligible for a discount on unimproved lots.
- The district court found Gelfand breached fiduciary duties on the B & C transaction, denied him any commission on that sale, and offset his total recovery by the amount of profit Mrs. Gelfand received (not B & C’s entire profit).
- A separate dispute involved the Paradise View Apartments sale. Although Horizon management handled negotiations and Gelfand was not the procuring cause, the district court awarded Gelfand a 1% commission under the district-manager override arrangement.

## Issues

1. When an employee-agent fails to disclose a spouse’s ownership interest in the purchaser entity, must the principal’s offset/disgorgement include all profits earned by other participants allied with the agent, or may it be limited to the profits that flowed to the agent indirectly through the spouse?
2. Was it clearly erroneous to award the district manager a 1% override commission on the Paradise View Apartments sale where the manager was not the procuring cause, but claimed a right to payment under Horizon’s override plan?

## Decision

- The Tenth Circuit affirmed the district court’s judgment for Gelfand.
- The court agreed that Gelfand breached fiduciary duties in the B & C option transaction and upheld the denial of any commission on that deal.
- The court upheld limiting the offset to the amount of profit actually received by Mrs. Gelfand and rejected Horizon’s request to offset Gelfand’s recovery by the full profit realized by B & C and its other participants.
- The court upheld the 1% commission on the Paradise View Apartments sale, concluding the district court’s reading of the override arrangement and related fact findings were supported by the record and not clearly erroneous.

## Legal Principles

- An employee-agent owes a duty of loyalty and must disclose conflicts of interest, including an undisclosed financial interest held through a spouse in a transaction handled for the employer.
- For a disloyal transaction, a court may deny the fiduciary compensation on the tainted deal and require an offset/disgorgement of profits the fiduciary obtained directly or indirectly (including through a spouse).
- The scope of disgorgement is an equitable remedy and may be limited to profits actually received by the agent (or an indirect beneficiary such as a spouse), rather than automatically extending to all profits earned by other associated third parties.
- A commission or override entitlement may arise from the employer’s compensation plan for district-wide sales, even if the district manager was not the procuring cause of a particular sale.
- On appeal from a bench trial, factual determinations about the compensation plan and entitlement to commissions are reviewed for clear error.

## Conclusion

The Tenth Circuit affirmed a commission judgment largely in favor of a terminated district manager while enforcing fiduciary-duty limits: Gelfand lost his commission on a conflicted option sale and his recovery was reduced by his wife’s share of the profit, but Horizon was not awarded a broader offset for profits earned by other B & C participants, and Gelfand still recovered a district-manager override commission on the Paradise View Apartments transaction under Horizon’s compensation arrangement.


Gelfand v. Horizon Corp., 675 F.2d 1108 (1982)