Opinion
X08CV166031273S
10-01-2018
Walter J. WINROW v. POSEIDON WATER, LLC
UNPUBLISHED OPINION
OPINION
Hon. Charles T. Lee, Judge
Mr. Walter Winrow commenced this action on or about November 21, 2016 against Poseidon Water, LLC, the successor in interest to his former employer, Poseidon Resources Corporation, LLC (collectively, "Poseidon"). The complaint alleges that Mr. Winrow worked for Poseidon from 1994 to 2008, eventually becoming its president and chief operating officer. During this period, Poseidon was engaged in, among other things, the development of two desalination plants in Carlsbad and Huntington Beach, California (the "Projects"). Mr. Winrow contends that he has not been properly paid under the Second Amended and Restated Huntington Beach/Carlsbad Project Development Bonus Plan (the "Bonus Plan"), which was triggered by a change in control provision upon the acquisition in 2015 by Brookfield Infrastructure Partners, LLP ("Brookfield") of seventy-five percent of the members’ interests in Poseidon.
Winrow’s complaint contains four counts: breach of contract (count one); breach of the implied covenant of good faith and fair dealing (count two); failure to pay wages in violation of General Statutes § 31-72, entitling him to double damages and attorneys fees (count three); and breach of fiduciary duty against the defendant as the administrator of the Bonus Plan (count four). On April 2, 2018, the defendant filed the present motion for summary judgment against the third and fourth counts. The defendant argues that it is entitled to summary judgment because there are no genuine issues of material fact that the bonus cannot be considered a "wage" pursuant to General Statutes § 31-71a(3), and that the defendant did not owe a fiduciary duty to the plaintiff as an at will employee. In support of its motion, the defendant submitted a memorandum of law and several exhibits, including the affidavit of Mr. Frederick Lowther, a board member of Poseidon, a copy of the Bonus Plan and various amendments, as well as several other documents and correspondence.
On May 16, 2018, the plaintiff filed his opposition to the defendant’s motion for summary judgment, accompanied by a memorandum of law and several exhibits, including excerpts from various deposition transcripts and numerous documents. On May 30, 2018, the defendant filed a reply to the plaintiff’s opposition. The court heard oral argument on the motion on June 8, 2018.
As more fully explained below, the court grants the defendant’s motion for summary judgment as to count three because it finds that plaintiff’s contested payment under the Bonus Plan cannot be considered to be a "wage" because it was not based solely on plaintiff’s performance and its calculation involves several discretionary elements. The court also grants the defendant’s motion for summary judgment as to count four because the record before the court establishes as a matter of law that no fiduciary relationship existed between the parties.
Findings of Uncontested Fact
Based on a review of the pleadings and the evidence submitted with the present motion, the court makes the following findings of material uncontested facts:
1. Plaintiff was employed by Poseidon from 1994 to 2008.
2. In September 2007, Poseidon Water, LLC assumed the Bonus Plan from Poseidon Resources Corporation, LLC. Under the Bonus Plan’s terms, the plaintiff, as one of the Bonus Plan’s participants, was entitled to certain cash bonuses payments as a financial incentive to promote the success and increased value of the Carlsbad and Huntington Beach desalination Projects.
3. Under the terms of the Bonus Plan, plaintiff was entitled to a certain percentage of a pool of monies, which was to be comprised of eight percent of the "net sales proceeds" received from a "project distribution." The Bonus Plan was payable upon the occurrence of certain events, including a "change of control."
4. On April 25, 2008, Poseidon modified the Bonus Plan. The modification provided that the plaintiff’s rights to receive his earned bonus payments under the Bonus Plan vested and removed any conditions imposed under the Bonus Plan based upon continued employment or employment status that would reduce or diminish the plaintiff’s bonus payment or cause its forfeiture. In April 2008, the plaintiff agreed to the Bonus Plan’s modification (the "Bonus Plan Amendment").
5. In the Bonus Plan Amendment, the plaintiff was awarded an aggregate participation percentage of 33.5 percent in the Development Bonus Pool for Carlsbad and 36 percent in the Development Bonus Pool for Huntington Beach. In his deposition, Mr. Lowther stated that the percentages were to reflect the roles or contributions of participants to those Projects at the time the percentages were designated.
6. The Bonus Plan Amendment further provides, in the event of a change of control, "[i]f the purchaser (or surviving entity) does not reaffirm the Company’s commitment to perform this Plan following such Change of Control (a ‘Non-Reaffirmation Event’), then the Company shall contribute to the Development Bonus Pool for each Project 8 percent of the net sales proceeds for such Project. Such amounts will be immediately due and payable to the eligible Participants in each Development Bonus Pool in accordance with Section 3."
7. The net sales proceeds are defined as "a cash amount equal to the net present value of such Project, reduced by the sum of (a) the balance of the Company’s Capital Contribution Account as defined in the Project LLC Agreement for the Project, immediately preceding the closing, and (b) any transaction fees (excluding fees payable to the Members of the Company), costs and expenses payable in connection with the Change of Control which are directly attributable to the project ..."
8. "Net present value" is defined as, "[a]s of any given determination date, the net present value, calculated on the basis of the discount rate that reflects the current risk profile of the Project, of the project cash flows then projected to the distributable from the Project to the Company based on assumptions that are reasonable in light of facts and circumstances known at such date."
9. In July 2008, the plaintiff’s employment with the defendant terminated. The plaintiff was not terminated for cause, and he continued to participate in the Bonus Plan.
10. The other Bonus Plan participants traded their interests in the Bonus Plan for interests in a new "Incentive Unit Plan" (IUP), which provided more favorable tax treatment, because they received a participation interest via equity units and avoided a tax on cash bonus payments. As a result, the plaintiff was the only remaining Bonus Plan participant. The IUP participants were ongoing members of the management team, were eligible for and holders of other classes of the defendant’s stock, and were eligible for other incentive plans. Plaintiff contends that the disparity in bonus pools puts management in a conflict of interest with him because of essentially a "zero sum" situation, where more money for plaintiff’s bonus meant less money for the people administering his Bonus Plan.
11. On April 30, 2015, the defendant’s Chief Financial Officer, Mr. Kingsman, notified the plaintiff that a potential bonus pool determination could be forthcoming incident to an anticipated change of control event.
12. In May 2015, the defendant presented the plaintiff with the details of the proposed calculation for the Development Bonus Pool incident to Brookfield’s purchase of 75 percent of the members’ interests in Poseidon.
13. Plaintiff disagreed with the calculation of the bonus pool and claimed that the discount rates were inflated with respect to the desalination Projects and the deducted expenses were excessive, resulting in an understatement of the bonus pool.
14. The parties were unable to come to an agreement on an appropriate amount for the bonus pool. On October 28, 2015, the defendant informed the plaintiff that he would not receive any payment at all unless he tendered a full release, which plaintiff refused and contended was contrary to the Bonus Plan.
15. On December 31, 2015, the defendant closed the transaction with Brookfield, which did not reaffirm Poseidon’s commitment to pay the Bonus Plan, thereby triggering the defendant’s payout obligation to the plaintiff under the Bonus Plan’s change of control provision.
Contentions of the Parties
Poseidon contends that the plaintiff’s bonus is not a "wage" within the meaning of General Statutes § 31-71a(3) because it was not exclusively tied to the plaintiff’s performance and the calculation of the bonus payment involves factors within the defendant’s discretion, such as the applicable discount rate used to calculate the net present value of the Projects. The defendant further argues that it is entitled to summary judgment as to count four because it did not owe a fiduciary duty to the plaintiff with respect to any payment due to him pursuant to the Bonus Plan because the plaintiff was an at-will employee, and because Poseidon’s duties to Mr. Winrow were strictly contractual.
In response, the plaintiff argues that his bonus is a "wage" pursuant to Section 31-71a(3) because the bonus was contractually required as a reward for services rendered in an amount determined pursuant to a contractually mandated formula, which reflected the plaintiff’s individual contributions. The plaintiff also argues that Poseidon owed a fiduciary duty to him because it had an obligation to administer the plan in good faith for the benefit of the Bonus Plan participants. He alleges that such a fiduciary duty existed because Poseidon, through its Board, administered the Bonus Plan, in which the plaintiff had vested rights to a bonus payment upon the change of control event, the knowledge of which was exclusively within the defendant’s control, and the defendant was in a unique position to abuse its power to its own benefit and the benefit of its management at the plaintiff’s expense.
Discussion
A. Standard of Review
"[S]ummary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party." (Internal quotation marks omitted.) Cefaratti v. Aranow, 321 Conn. 637, 645 (2016). "The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to judgment as a matter of law. The courts hold the movant to a strict standard." (Internal quotation marks omitted.) Romprey v. Safeco Ins. Co. of America, 310 Conn. 304, 319-20 (2013).
"Once the moving party has met its burden, however, the opposing party must present evidence that demonstrates the existence of some disputed factual issue ... It is not enough, however, for the opposing party merely to assert the existence of such a disputed issue. Mere assertions of fact ... are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court under Practice Book § [17-45]." (Internal quotation marks omitted.) Ferri v. Powell-Ferri, 317 Conn. 223, 228 (2015).
B. Count Three: The Wage Claim under General Statute § 31-71a(3)
In count three, the plaintiff alleges that the bonus he is owed under the Bonus Plan constitutes "wages" under Section 31-71a(3), that the defendant violated Section 31-72 by failing to pay him the bonus, and, therefore, that he is entitled to double damages and attorneys fees pursuant to Section 31-72.
Section 31-71a(3) defines "wages" as "compensation for labor or services rendered by an employee, whether the amount is determined on a time, task, piece, commission or other basis of calculation ..." Section 31-72 provides, in relevant part: "When any employer fails to pay an employee wages in accordance with the provisions of sections 31-71a to 31-71i, inclusive ... such employee ... shall recover, in a civil action ... twice the full amount of such wages, with costs and such reasonable attorneys fees as may be allowed by the court ... [and] any agreement between him and his employer for payment of wages other than as specified in said sections shall be no defense to such action."
Our Supreme Court has addressed the circumstances under which a bonus award constitutes wages within the meaning of Section 31-71a(3). See Assn. Resources, Inc. v. Wall, 298 Conn. 145 (2010); Ziotas v. Reardon Law Firm, P.C., 296 Conn. 579 (2010); Weems v. Citigroup, Inc., 289 Conn. 769 (2008).
In Assn. Resources Inc. v. Wall, supra, 298 Conn. 173, the Supreme Court determined that the bonuses at issue were wages because they were nondiscretionary and calculated in accordance with a formula set forth in the employment agreement. The plaintiff was "a senior level, executive manager of one of the defendant’s divisions, with the bonus tied directly to the success of that specific division, rather than the performance of the defendant as a whole." (Emphasis in original.) Id., 177-78. "[T]o conclude that the bonus is not a wage because not every dollar earned by the [plaintiff’s division] was directly attributable to the plaintiff’s labors would be to ignore the realities of his executive-level managerial position, which was to be directly and solely responsible for the profitability of that division." Id., 179.
In Weems v. Citigroup, supra, our Supreme Court held "that bonuses that are awarded solely on a discretionary basis, and are not linked solely to the ascertainable efforts of the particular employee, are not wages under § 31-71a(3)." 289 Conn. 782. "Our superior courts interpreting Weems have concluded that ‘an employee who seeks to recover a bonus under the wage statutes must prove that the bonus meets two criteria. First, the bonus cannot be a wage if its award is solely within the employer’s discretion ... Second, the bonus must be linked solely to the employee’s performance or efforts and not linked to other factors unrelated to the particular employee’s performance.’ (Emphasis added.) State Commissioner of Labor v. Fireman’s Fund Ins. Co., Superior Court, judicial district of Hartford, Docket No. CV-08-4039312-S (February 18, 2010, Prescott, J.) (49 Conn.L.Rptr. 303, 306); see also Hayes v. Pfizer, Inc., Superior Court, [judicial district of Hartford,] Docket No. CV-15-6014614-S [March 16, 2017, Domnarski, J.) ]." Anderson v. Hartford Fin. Services Group, Inc., Superior Court, judicial district of Harford, Docket No. HHD CV 14 6052974 S (December 18, 2017, Bright, J.) (2017 WL 6997242, at *13) .
As a result, the court must examine the Bonus Plan in a two-step process. First to determine whether the plaintiff’s bonus was awarded solely on a discretionary basis; and second, whether the amount was linked solely to the efforts of the individual employee. In the present case, the Bonus Plan provides, "such Participant ... shall be entitled to be paid the balance of the Development Bonus with respect to the Project, as and when payments from the applicable Development Bonus Pool are required to be made ..." (Emphasis added.) It is undisputed that the plaintiff, as a participant in the Bonus Plan, would become entitled to payments from the Bonus Pool in the event of Poseidon’s change of control and a determination by the surviving entity not to continue the Bonus Plan. The uncontested evidence shows that the purchaser, Brookfield, did not reaffirm the Poseidon’s commitment to perform the Bonus Plan after the change of control transaction. Therefore, pursuant to the Bonus Plan, the defendant was required to contribute to the Bonus Pool eight percent of the net present value of the net sales proceeds for such Project and plaintiff’s payment would nominally be triggered.
The court does not reach defendant’s contention that Brookfield’s acquisition of a seventy-five percent interest does not constitute a change of control because of its resolution of the wage claim on other grounds.
However, a bonus is not a "wage" even "when an employee is contractually entitled to a bonus [when] the amount is indeterminate and discretionary." Ziotas v. Reardon Law Firm, P.C., supra, 296 Conn. 589. The court, therefore, must determine the extent to which the amount of the bonus is indeterminate and discretionary. Here, the Bonus Plan provides that the net sales proceeds are a cash amount equal to the value of the net present value of the Project(s) reduced by the sum of Poseidon’s capital contribution account and certain transaction fees. As set forth above, the Bonus Plan defines the net present value to be "as of any given determination date, the net present value, calculated on the basis of a discount rate that reflects the current risk profile of the Project, of the project cash flows then projected to be distributable from the Project[s] to the Company based on assumptions that are reasonable in light of facts and circumstances known at such date." As a result, the calculation of the net sales proceeds is based on a number of subjective factors, (1) a discount rate "that reflects the current risk profile of the Project"; and (2) projected cash flows based on assumptions that are reasonable in light of factors known at the time.
Among other things, the plaintiff and the defendant disagree as to the proper discount rate for the Projects. The Bonus Plan does not provide a definition for "discount rate," or how the discount rate is calculated. In his deposition, Mr. Lowther stated that the Board calculates the net sales proceeds and the net present value for each of the Projects. In May 2015, the Board selected a ten percent discount rate for Carlsbad and a twenty percent discount rate for Huntington Beach. However, upon further analysis, the Board selected the discount rate of eight percent for Carlsbad and retained the discount rate of twenty percent for Huntington Beach. Mr. Lowther also said, "the [B]oard from the inception believed that Huntington Beach had no value at all, and the only reason for applying the 20 percent was to provide some value to it so that we could reach a compromise." Thus, the amount of the bonus is influenced by subjective factors such as a discount rate based on risk factors and a projected cash flow of the Projects, which must be reasonably determined by Poseidon’s Board. Accordingly, this aspect of the bonus arguable has a discretionary or indeterminate component, militating against its characterization as a wage.
Section 31-72(2) reduces the practical effect of the question considerably because it prevents an award of double damages, "if the employer establishes that the employer had a good faith belief that the underpayment of wages was in compliance with law." However, attorneys fees would still be recoverable because the statute provides for recovery of "the full amount of such wages or compensation, with costs and such reasonable attorneys fees as may be allowed by the court."
The second step under Weems, whether the bonus is "linked solely to the ascertainable efforts of the particular employee" is dispositive here. 289 Conn. 782. While Mr. Winrow was awarded 33.5 percent of the Carlsbad bonus pool and 35 percent of the Huntington Beach pool in recognition of his contribution to the success of the Projects, the value of the Projects, and therefore the pools themselves, was based on many factors beyond Mr. Winrow’s control, such as their value at the time of change of control, including risk value and revenue projections, which in turn presumably related to anticipated demand, competition, economic health of the region, and other variable factors. This calculation takes the case out of the holding of Wall, where the bonus was based on a formula applied to the division for which the plaintiff was solely responsible. Assn. Resources, Inc. v. Wall, supra, 298 Conn. 179. Here, as Mr. Lowther said in his deposition, the Projects were the "focus of the company’s activities," and their value was not solely a result of Mr. Winrow’s activities. As a result, the defendant has met its burden in demonstrating that the bonus at issue is not a "wage" as defined by Section 31-73a(3). The court, therefore, will grant the defendant’s motion for summary judgment as to count three.
C. Count Four: Breach of Fiduciary Duty
In count four, the plaintiff alleges that the defendant, as Bonus Plan administrator, owed a fiduciary duty to him. Defendant moves for summary judgment on this count, contending that no fiduciary relationship existed between Poseidon and Mr. Winrow because, among other things, Mr. Winrow was an at-will employee. Mr. Winrow correctly asserts that the issue is not his status as an employee, but the nature of the relationship between the parties, which requires an analysis of the facts pertinent to the relationship.
"Whether a fiduciary duty exists is a question of law ..." Iacurci v. Sax, 139 Conn.App. 386, 401 (2012), aff’d, 313 Conn. 786 (2014). "The law does not provide a bright line test for determining whether a fiduciary relationship exists, yet courts look to well established principles that are the hallmark of such relationships. Our Supreme Court has stated that [a] fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other ... The superior position of the fiduciary or dominant party affords him great opportunity for abuse of the confidence reposed in him ... We have not, however, defined that relationship in precise detail and in such a manner as to exclude new situations, choosing instead to leave the bars down for situations in which there is a justifiable trust confided on one side and a resulting superiority and influence on the other ... [U]nder our case law, the fiduciary relationship is not singular. The relationship between sophisticated partners in a business venture may differ from the relationship involving lay people who are wholly dependent upon the expertise of a fiduciary. Fiduciaries appear in a variety of forms, including agents, partners, lawyers, directors, trustees, executors, receivers, bailees and guardians. [E]quity has carefully refrained from defining a fiduciary relationship in precise detail and in such a manner as to exclude new situations." (Internal quotation marks omitted). Id., 401.
"Although [our courts have] refrained from defining a fiduciary relationship in precise detail and in such a manner as to exclude new situations ... we have recognized that not all business relationships implicate the duty of a fiduciary ... In particular instances, certain relationships, as a matter of law, do not impose upon either party the duty of a fiduciary." (Internal quotation marks omitted.) Id. "The fact that one party trusts another is not dispositive of whether a fiduciary relationship exists ... rather, proof of a fiduciary duty requires an evidentiary showing of a unique degree of trust and confidence between the parties such that the [defendant] undertook to act primarily for the benefit of the plaintiff." (Internal quotation marks omitted.) Id., at 402.
"[T]he employer-employee relationship does not necessarily imply the existence of a fiduciary obligation." (Internal quotation marks omitted.) Pergament v. Green, 32 Conn.App. 644, 653, cert. denied, 228 Conn. 903 (1993); Bill v. Emhart Corp., Superior Court, judicial district of Hartford, Docket No. CV- 94-0538151-S (October 24, 1996, Hennessey, J.) (18 Conn.L.Rptr. 121) (striking count alleging fiduciary duty of employer to at-will employee); see Ochieke v. Turbine Controls, Inc., Superior Court, judicial district of Hartford, Docket No. CV-10-5035041-S (October 8, 2014, Elgo, J.) (In the absence of a contract, the plaintiff was an at-will employee, and could not have been owed a fiduciary duty by the defendants.)
These cases are not dispositive, however, because Mr. Winrow had a contract relating to the bonus at issue, i.e., the Bonus Plan. The Bonus Plan provides: "This plan is intended to constitute an ‘unfunded plan’ for incentive and deferred compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company." The Bonus Plan also provides, "The Plan shall not be construed as giving any right to continued employment with [Poseidon]." Thus, the language of the Bonus Plan, per se, does not create any special relationship between the plaintiff and Poseidon.
Mr. Winrow contends that the status of Poseidon’s managers as the administrators of the Bonus Plan establishes a fiduciary relationship with him. However, plaintiff submits no authority supporting that unconditioned position. Plaintiff’s citation to General Statutes § 45a-199, which provides, "As used in sections 45a-186c, 45a-202 to 45a-208, inclusive, and 45a-242 to 45a-244, inclusive, unless otherwise defined or unless otherwise required by the context, ‘fiduciary’ includes an executor, administrator, trustee, conservator or guardian" is unconvincing because it relates to the probate context, where an administrator is appointed to oversee an intestate estate- hardly the situation at issue here.
Indeed, applicable authority establishes that the position of administering a fund, without more, is not enough to establish a fiduciary relationship between the administrator and a participant in the fund. In Haught v. Allied World Assurance Co., (U.S.) Inc., Superior Court, judicial district of Hartford, Docket No. HHD CV 14 6049226S, 2015 WL 2036502, at *4 (April 2, 2015), Judge Wiese found, "The plaintiff makes the conclusory allegation that [defendant], as sole administrator of the [employee bonus pool], owed a fiduciary duty to plan participants and that they made [bonus pool] payments to other members but refused to make such payments to the plaintiff. These allegations fall short of describing a relationship with a unique degree of trust and confidence between the parties. Therefore, the plaintiff has failed to allege sufficient facts to demonstrate that a fiduciary relationship existed between the parties."
In Bill v. Emhart Corp., supra, No. CV 940538151, 1996 WL 636451, at *3-4, Judge Hennessey found, "The plaintiffs argue that by virtue of Emhart’s exercise of sole discretion in the administration of the stock option program, it owed a fiduciary duty to the plaintiffs. The plaintiffs did not cite, and research did not reveal, any cases that stand for the proposition that a company administering a stock option plan owes a fiduciary duty to the option holder. The cases cited by the plaintiffs, finding the existence of fiduciary relationship in connection with the administration of benefits programs, were determined pursuant to the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. The plaintiffs do not allege, however, that the Plan is governed by ERISA ... This court finds that no fiduciary relationship existed between Emhart and the plaintiffs." The plaintiff makes no claim here that the Bonus Plan is governed by ERISA.
More generally, the question of a fiduciary duty is not to be determined by the status of the parties, but by an analysis of their relationship under the principles relating to a fiduciary relationship as elucidated in Iacurci, supra, 139 Conn.App. 401:
1. Is there a unique degree of trust and confidence between the parties? No evidence has been submitted establishing this. The negotiations in 2015, as shown by the submitted correspondence, were plainly conducted at arms-length, and with skepticism.
2. Does one of the parties have superior knowledge, skill or expertise? Given Mr. Winrow’s experience as president and chief operating officer of Poseidon, there was little disparity of knowledge between these sophisticated parties. While plaintiff claims that the management had knowledge of the Brookfield acquisition in 2015, which he did not, plaintiff does not explain the relevance of that knowledge to the calculation of his bonus.
3. Is one party under a duty to represent the interests of the other? Nothing has been presented to establish any such duty under the Bonus Plan, which is a contract giving plaintiff no rights greater than that of a "general creditor of the Company."
4. Does the superior position of the dominant party afford it great opportunity for abuse of the confidence reposed in him? The record provided the court suggests that the plaintiff reposed no confidence whatsoever in Poseidon.
As a result of the foregoing analysis based on a review of the pleadings and evidence submitted in connection with the present motion, the court concludes that there is no genuine issue as to any material fact and that the defendant Poseidon is entitled to judgment on the fourth count as a matter of law, having demonstrated the absence of a fiduciary relationship between the parties.
CONCLUSION
By reason of the foregoing, the court grants the defendant’s motion for summary judgment as to counts three and count four.