Suits Reflect Anxiety Over Wind Turbine Sales : Company, Ex-Employees Fight Over Records; Tax Credits to Lapse at Year-End
Purloined client records, unpaid commissions and allegedly illegal payments to financial planners are elements of an Orange County Superior Court case involving three former Orange County salesmen for a Tehachapi-based wind turbine company.
The legal battle comes amid heightened competition for wind turbine sales as state and federal energy tax credits, which make investments in wind energy more attractive, are due to expire at the end of this year.
California leads the nation in wind turbine sales. By the end of the year, about 8,000 wind turbines are expected to be operating on 50 California “wind farms,” according to the American Wind Energy Assn.
Tehachapi-based Zond Systems Inc., one of the nation’s largest wind turbine companies, went to court last week to try to stop three former salesmen from using about 1,500 pages of Zond’s confidential client and business records. The salesmen admit they secretly copied the records before Zond fired them last December but insist they have not used them to solicit clients.
In a $40-million lawsuit filed earlier this month, the trio countersued Zond, claiming the company breached its employment contracts with them, stole commissions and made illegal payments to financial planners in the form of finders’ fees.
Zond officials deny all the allegations. They insist their client list is a trade secret because it contains sensitive financial information. Mark Rosenthal, an attorney for Zond, told Superior Court Judge John Ryan that use of the records is “potentially catastrophic” to Zond because the fired salesmen now work for a competing wind turbine company.
However, at a July 25 hearing, Ryan refused to grant Zond’s request for a preliminary injunction against the salesmen. Ryan said there was no showing that the salesmen “misused the evidence,” meaning he believed they did not use the client list to sell turbines.
“We contend they did steal and misuse the records,” said Craig Anderson, senior vice president and general counsel for Zond. Anderson said the judge’s denial “didn’t hurt us” because the salesmen have agreed to “stop contacting our clients and competing against us.”
Edward Sybesma Jr., a Costa Mesa attorney representing the salesmen, said his clients never used the information to solicit clients. He said they copied the records to use as evidence in their lawsuit against Zond. The three now sell wind turbines for Oak Creek Energy Systems Inc. of Tehachapi.
In the suit filed against Zond, ex-salesmen Daniel Walters, Greg Adamson and Ronald Cunningham claim that Zond officials told them they could earn at least $250,000 a year on commissions alone. The suit contends Zond management “made every effort to steal their lucrative sales and sales contracts, otherwise exploited the efforts of the cross-complainants (the three salesmen) for their own benefit, and harassed and vexed each of the cross-complainants at every opportunity.”
The salesmen contend Zond’s management thwarted their attempts to sell wind turbines by guiding potential customers to more favored salesmen. They also claim Zond told them there weren’t enough turbines available for them to sell.
“Zond management intended to sell most of the turbines available to Zond through securities dealers and illegal ‘finder’ arrangements, leaving relatively few turbines for in-house salesmen to sell,” the suit states. The suit also contends Zond management withheld commissions due the salesmen.
Zond has sold about 1,300 wind turbines to hundreds of investors through its in-house sales force, financial planners, accountants, attorneys and Dean Witter Reynolds Inc.
The turbines, installed along mountain ridges near Tehachapi, each generate about 50 megawatts of power for local utilities. For about $160,000, individuals can purchase a turbine and contract with Zond to install and manage the machine, Anderson said. Smaller investments can be made through limited partnerships.
In a recent interview, Anderson said the finders’ fees paid to accountants, attorneys and financial planners are not illegal because they are fully disclosed to investors. He said the company also sells turbines through Dean Witter Reynolds Inc. on a commission basis. Anderson said the three former salesmen were fired after Zond found out they were working for a competitor, Oak Creek.
Worked for Both
Sybesma, the salesmen’s attorney, confirmed that two of the three salesmen worked briefly for both companies at the same time. He said the salesmen did not want to give notice to Zond until they were paid commissions due them.
For the year ended Dec. 31, 1984, Zond reported net income of $8.8 million on revenues of $50 million. In fiscal 1983, the company posted net income of $3.2 million on revenues of $26 million.
A Dean Witter spokesman said Tuesday he was not aware of the Zond lawsuit. He confirmed that Dean Witter’s Tax Advantage Investment department arranges private placements for qualified investors to buy Zond wind turbines.
Nationwide, wind turbine sales reached about $650 million last year, up from $20 million in 1981, according to American Wind Energy Assn. sales figures.