Summary
In Lucius, the option documents gave no indication as to what would happen when an employee was terminated, and the court ultimately determined that the Plan Administrator had discretion under the terms of the Plan to exercise his authority to terminate the plaintiff's stock options.
Summary of this case from Kovar v. CSX Transportation, Inc.Opinion
Civil Action File No. 1:03-CV-1270-TWT.
April 5, 2004
ORDER
This is an action for breach of contract and breach of fiduciary duty regarding a former employee's right to exercise stock options. It is before the Coup on the Defendants' Motion for Summary Judgment [Doc. 13]. For the reasons set forth below, the Defendants' motion is GRANTED in part and DENIED in part.
I. BACKGROUND
Defendant Micro General Corporation ("Micro General") is a Delaware corporation with its principal place of business in California. Defendant Fidelity National Information Solutions, Inc. is a Delaware corporation that acquired Micro General. Plaintiff Thomas Wayne Lucius was employed by Micro General from about April 17, 2000 until February 15, 2002. At the beginning of his employment, the Plaintiff and Micro General negotiated a Letter of Grant (the "Agreement"), whereby the Plaintiff was granted options to buy a certain quantity of Micro General common stock at a pre-determined price. The Plaintiff was entitled to exercise these stock options only after they vested according to a schedule outlined in the Agreement:
One-half of the Options granted hereunder shall be vested and exercisable on the first anniversary date of the grant, and the second halt shall be vested and exercisable on the se[c]ond anniversary date of the grant. Once such Options are vested and exercisable, such Options shall be exercisable in full subject to the remaining terms and conditions hereof.
(Compl., Ex. 1, ¶ 3). The Agreement also provided that the stock options would not be exercisable later than three months after the Plaintiffs employment with Micro General was terminated for reasons other than disability, death, or cause. (Id., ¶ 5). There is no provision in the Agreement expressly causing the vesting of options to expire. The only provision that outlines any means (other than the expiration of time) by which options may be vested or cancelled is located in the 1999 Stock Incentive Plan (the "Plan"), incorporated by reference into the Agreement. (Compl, Ex. 2). Pursuant to the Plan, the Administrator has the power to fix "[t]he term and provisions for termination of each Option," and all options shall vest "at such time or times and subject to such conditions . . . as shall be determined by the Administrator." (Id., arts. 5.4 5.5).
The "Administrator" is defined in the Plan as "the Board, or if the Board delegates responsibility for any matter to the Committee, the term Administrator shall mean the Committee." (Compl., Ex. 2, art. 2.1). The "Committee" is a committee of two or more members of the Board appointed to administer the Plan. (Id., art. 2.6).
The Plaintiff and Micro General reached the Agreement on April 17, 2000. Consequently, the first anniversary date of the grant was April 17, 2001, and the second anniversary date of the grant was April 17, 2002. Micro General terminated the Plaintiff's employment on February 15, 2002. Thus, upon the Plaintiff's termination, the first anniversary date of the grant (the vesting date of the first 13,750 options) had passed, but the second anniversary date (the vesting date of the second 13,750 options) had not yet arrived. On April 17, 2002, the Plaintiff attempted to exercise all 27,500 options. Micro General allowed him to exercise the options that vested prior to his termination but refused his request to exercise the options that vested two months after his termination. The Plaintiff contends that the second set of options properly vested on April 17, 2002, and that refusal to pernut them was inconsistent with the terms of the Agreement and Plan. The Defendants contend that the Administrator had the authority and exercised its discretion to cancel his options following his termination. The Plaintiff filed suit against the Defendants in the State Court of Fulton County, asserting claims of breach of contract, bad faith, and breach of fiduciary duty. The Defendants removed the case to this Court and move for summary judgment on the Plaintiff's claims.
II. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate only when the pleadings, depositions, and affidavits submitted by the parties show that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The court should view the evidence and any inferences that may be drawn in the light most favorable to the nonmovant. Adickes v. S.H. Kress Co., 398 U.S. 144, 158-59 (1970). The party seeking summary judgment must first identify grounds that show the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). The burden then shifts to the nonmovant, who must go beyond the pleadings and present affirmative evidence to show that a genuine issue of material fact does exist. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 257 (1986).
III. DISCUSSION
A. Breach of Contract
The Plaintiff asserts a claim of breach of contract, alleging that he was denied stock options that had vested pursuant to the Agreement. The Defendants contend that the Plan Administrator cancelled the stock options sought by the Plaintiff prior to vesting when the Plaintiffs employment was terminated. Both parties readily recognize that the Agreement provides for the vesting of 13,750 stock options after one year and an additional 13,750 stock options after two years have passed. There is no indication in the Agreement that a change in employment status, including termination, would alter this vesting schedule. Both parties also recognize that the Agreement incorporates by reference the 1999 Stock Incentive Plan. The Plan expressly outlines a second means for the vesting or termination of stock options — determination by the Plan Administrator. Sections 5.4 and 5.5 of the Plan note that the Administrator has the power to fix "[t]he term and provisions for termination of each Option," and all options shall vest "at such time or times and subject to such conditions . . . as shall be determined by the Administrator." Thus, as noted by the Defendants and conceded by the Plaintiff, the Agreement afforded the Administrator the authority and unfettered discretion to cancel the Plaintiff's stock options prior to their vesting.
Georgia law clearly establishes that "where a decision is left to the discretion of a designated entity, the question is not whether [the decision] is erroneous, but whether it was in bad faith, arbitrary or capricious so as to amount to an abuse of that discretion." Automatic Sprinkler Corp. of America v. Anderson, 243 Ga. 867, 868 (1979). In this situation, there can be no breach ofan implied covenant of good faith, as "a party to a contract has done what the provisions of the contract expressly give him the right to do." Id.; Nobel Lodging, Inc. v. Holiday Hospitality Franchising, Inc., 249 Ga. App. 497, 500 (2001). It is clear, then, that as the Agreement expressly empowers the Administrator to fix terms and conditions of vesting and termination of stock options, the Administrator did not exceed its discretionary authority.
The Plaintiff, however, does not contend that the Administrator abused its discretion; rather, he alleges that the Administrator never used its authority to determine the terms and conditions of vesting of the Plaintiff's options. Consequently, the Plaintiff contends that, in the absence of any contrary action by the Administrator, his stock options vested in accordance with the schedule in the Agreement. The Defendants argue that the Administrator had established a policy of cancelling an employee's unvested options upon the termination of that employee. As evidence of this policy, the Defendants submit only a letter from Micro General's general counsel dated May 6, 2002. (Compl., Ex. 12). The letter states that, for the duration of the Plan, Micro General has made a policy of cancelling terminated employees' unvested stock options and that the Plaintiff was informed of this policy during his termination process. Id. The Plaintiff alleges that there are no other documents that contain, identify, or state that Micro General or the Administrator of the Plan had any such policy. The Plaintiff also alleges that he was not informed of any such policy during his termination process, but rather that the May 6 letter was the first and only time that this alleged policy had been articulated to him. Viewing the evidence in the record in the light most favorable to the nonmovant Plaintiff, tills Court finds that, at the least, there remains a genuine issue of material fact as to whether the Administrator actually exercised its authority to set, through informal policy or express designation, the ternunation of the Plaintiff's stock options as coterminous with the termination of his employment. Thus, summary judgment on the Plaintiff's claim for breach of contract is inappropriate at this time.
This letter postdates both the Plaintiff's termination from Micro General and his attempt to exercise the second installment of stock options.
Indeed, the Plaintiff contends that there is no documentation that even identifies the persons that comprise the Administrator.
B. Breach of Fiduciary Duty
The Plaintiff contends that the Defendants, by refusing to allow him to exercise the disputed stock options, breached a fiduciary duty to the Plaintiff. In Georgia, a confidential relationship between parties creates a fiduciary duty. Georgia law provides that a contractual relationship is deemed confidential "where one party is so situated as to exercise a controlling influence over the will, conduct, and interest of another or where, from a similar relationship of mutual confidence, the law requires the utmost good faith. . . ." O.C.G.A. § 23-2-58. The Plaintiff, emphasizing that the Defendants' control over his interest (the stock options) was sufficient to establish fiduciary obligations to the Plaintiff, contends that his employment and the Agreement with Defendant Micro General created such a confidential relationship.
The employer-employee relationship does not generally give rise to a confidential relationship, but it may under certain circumstances where the parties do not bargain at arm's length.Harris v. Fulton-DeKalb Hosp. Authority, 255 F. Supp. 2d 1347, 1375 (N.D. Ga. 2002); Cochran v. Murrah, 235 Ga. 304, 307 (1975). In Cochran, the Supreme Court of Georgia determined that a laborer who lived on the farm, was paid sporadically by its owner, and unfailingly relied on the owner's oral representations had a confidential relationship with the owner.Id. at 307-08. The Supreme Court determined that a jury question remained as to whether a confidential relationship existed between the owner and the laborer that would excuse the laborer from a release based on his reliance on representations of the owner. Id. at 308.
In stark contrast to Cochran, the case at bar is marked throughout by dealings at arm's length between two sophisticated parties, the Plaintiff and Defendant Micro General. The Plaintiff is an educated and experienced professional who negotiated the key elements of the Agreement in extensive and even-handed negotiations. (Lucius Dep. at 38-40). Nothing about the normal employment relationship between the Plaintiff and Micro General or about the Agreement and Plan suggests that the parties had a confidential relationship or that the Defendants had any heightened duty to the Plaintiff. But even if the Plaintiff could establish the existence of a fiduciary duty, he presents no evidence suggesting that any such duty was breached by the Defendants' actions. The Plaintiff does not allege that the Defendants made any misrepresentations during negotiations upon which the Plaintiff relied. Indeed, the Plaintiff readily concedes that the Agreement and Plan expressly assign to the Administrator the right to revoke stock options before they have vested. The only issue in dispute is whether the Administrator exercised his authority to do so. As the Plaintiff fails to establish a confidential relationship with the Defendants and fails to establish any breach of attendant duties, his claim in tort against the Defendants for breach of fiduciary duty is without merit. Summary judgment on this claim for the Defendants is proper.
C. Bad Faith
The Plaintiff asserts the right to recover attorney's fees and expenses for bad faith litigation pursuant to O.C.G.A. § 13-6-11. The provision states:
The expenses of litigation generally shall not be allowed as a part of the damages; but where the plaintiff has specially pleaded and has made a prayer therefor and where the defendant has acted in bad faith, has been stubbornly litigious, or has caused the plaintiff unnecessary trouble and expense, the jury may allow them.
O.C.G.A. § 13-6-11. The Plaintiff contends that the Defendants have forced him to resort to litigation to enforce the Agreement and that, in doing so, they have acted in bad faith, demonstrated litigiousness, and caused the Plaintiff undue expense. At the least, there is a genuine issue of fact as to this claim to be deternuned by the jury.
IV. CONCLUSION
For the reasons set forth above, the Defendants' Motion for Summary Judgment [Doc. 13] is GRANTED in part and DENIED in part.
SO ORDERED.