Opinion
FSTCV136020367S
01-03-2017
Jonathan Goldberg v. Glencore Ltd
UNPUBLISHED OPINION
MEMORANDUM OF DECISION
Kenneth B. Povodator, J.
Nature of the Proceeding
This is a lawsuit arising from the relatively short but seemingly lucrative employment relationship between the plaintiff and the defendant. The plaintiff was lured away from his prior employment by a customized employment arrangement, intended not only to compensate the plaintiff for his services to his new employer but also to compensate him for lost benefits that had not yet vested with his former employer.
In particular, there are two provisions of the employment agreement that are in issue. First, the agreement provided for an annual discretionary performance bonus with a reference to payment in cash, and the extent of the obligation to pay the performance bonus in cash for the plaintiff's performance in 2012 is one part of the dispute. The agreement of the parties referenced a target, and the parties agree that that target was 10%. The plaintiff was given a cash performance bonus in excess of $2 million for calendar year 2012, amounting to approximately 9.3% of his net profits (after overhead) for that year (net profits being the benchmark for calculation of the performance bonus), which concededly was in the 10% range; however, three was an additional bonus of more than $1 million that was paid in non-vested stock and it is the plaintiff's contention that that additional bonus also should have been paid in cash. The position of the defendant is that once it paid approximately 10% in cash, any increment was payable in any form it chose.
The other provision of the agreement in issue relates to a guarantee intended to replace non-vested benefits that the plaintiff left behind, when he left his former employer. As part of his compensation package, the plaintiff was provided with 75 shares in a profit participation plan and the guarantee was that as of the end of 2012, there would be a benefit to the plaintiff of at least $4 million. The court has utilized the word " benefit" intentionally (evasively!); the dispute centers on what was guaranteed to be $4 million--earnings from the units/shares, the value of the units/shares, etc.
As will be discussed, the terminology is of some significance. In connection with the submissions of the parties relating to the defendant's motion for summary judgment, the parties referred to profit participation shares, a term used in the agreement, as the focus of attention. However, as the court noted in its decision, the term has no particular meaning in the structure of defendant--there were GH shares and profit participation units, each with particular meaning and financial significance. In effect, the court was and is required to " deconstruct" the term " profit participation share" in order to resolve the dispute between the parties, and in their post-hearing briefs, the parties have addressed this process.
The undisputed but critical complicating fact with respect to the guarantee is that the corporate structure changed within the first year of the plaintiff's employment; the employer " went public" and in association with the IPO, prior rights were converted into shares of the newly-issued stock or otherwise terminated. The plaintiff claims that the $4 million is to be measured against the actual profit participation amounts credited to his account in the brief period of time that the shares/units existed (and income generated by the shares to which his prior interests had been converted), resulting in a discrepancy of approximately $3 million. The defendant claims that the $4 million is to be measured against not only the amounts deposited into the plaintiff's account (as converted) and other earnings from newly-issued shares, but also the value assigned to all of the newly-issued shares themselves as part of the reorganization process, which in the aggregate was a multiple of the $4 million that had been guaranteed.
The defendant also argues that the plaintiff effectively had waived his claims relating to that $4 million guarantee, by virtue of signing something called an Agency Agreement, an agreement that was essential to the conversion of prior rights and interests into stock in the newly-public employer. The defendant contends that the plaintiff's execution of the agreement terminated the guarantee.
This is not the court's first effort to untangle the competing claims of the parties; the court addressed the issues in the context of a motion for summary judgment filed by the defendant (denying it) and in the context of an application for a prejudgment remedy (partially granting the application). The court will build upon the prior decisions, to the extent appropriate.
Facts
The principal operative facts are not in dispute; some secondary matters relating to confirmatory or concession-type conduct are subject to some level of disagreement.
In his brief, the plaintiff comments on the testimony and credibility of Mr. Beard, the defendant's chief witness with respect to the process by which the plaintiff was convinced to come to work for the defendant. While the court does not wish to overemphasize the importance of " preparing a witness, " the court cannot help but note, and recall having noted during the course of the testimony, that Mr. Beard seemed to have a relatively poor command of the facts, even as to objective/historical facts that presumably were amenable to confirmation/verification by review of appropriate paperwork.
Defendant is a natural resources company headquartered in Switzerland, with an office in Stamford. One of its businesses is oil derivatives trading. Prior to employment by the defendant, the plaintiff had several years of experience trading oil derivatives at Goldman Sachs. In early 2010, while the plaintiff was working as a trader at Goldman Sachs, the parties began serious discussions as to the possibility of the plaintiff joining defendant as an oil derivatives trader in Glencore's Stamford, Connecticut office.
One of the key individuals with whom the plaintiff spoke was Alex Beard, a high-ranking employee of Glencore U.K. Ltd. and Glencore Energy U.K. Ltd., who was the head of defendant's worldwide oil trading operations. In the course of their discussions, Beard explained Glencore's compensation structure to plaintiff, including the fact that year-end bonuses were discretionary, and that the plaintiff would participate in an equity participation program of defendant's parent company, then a private company.
Following a March 17, 2010 meeting, Beard emailed Plaintiff the proposed terms of employment at defendant. The bonus would be a 10% discretionary bonus based on net profit (P+L) after overhead and that the plaintiff would receive profit participation shares subject to a two-year vesting period. Further, the defendant would guarantee that by the end of 2012, the shares would return a minimum of $4 million in earnings/value, intended to match deferred unvested Goldman Sachs benefits that the plaintiff owned but would be of no value if the plaintiff were to leave and join the defendant. As a further inducement, if the defendant were to decide to terminate the plaintiff's employment prior to the end of 2012, defendant either would vest the shares so that the plaintiff would receive a minimum of $4 million or would directly compensate the plaintiff in cash up to $4 million. Beard also explained that in the event of an IPO, there likely would be a substantial premium.
In mid-April of 2010, the plaintiff accepted Glencore's job offer. At that point, Beard asked Ray Bartoszek, then head of Glencore's Stamford oil trading operations, to finalize the terms of plaintiff's employment. As part of this finalization process, counsel for the plaintiff sent an email to Bartoszek to confirm how plaintiff's bonus would be calculated, when it would be payable, and whether it would be payable in cash. Counsel also asked Bartoszek for further details relating to the profit participation plan, including when earnings would be payable on plaintiff's profit participation shares, in what form the payments would be made, and whether vesting of those shares would be accelerated upon a change in control. Bartoszek responded, indicating that the performance bonus at Glencore was discretionary, and that the bonus pool was approximately 10% of the profits after trader overhead, but can vary year to year. It was made clear that the 10% profit percentage after overhead was not a rule and would not be put in any offer letter.
The profit participation plan was outlined as involving payments over a period of time after an employee left employment, with no one really knowing what would happen to the plan if an IPO were to take place. Bartoszek offered to let plaintiff review a copy of the profit participation plan agreement in his office, but would not provide an actual copy. The profit participation agreement provided that every Glencore employee who participated in the program received " profit participation units" in Glencore Holding AG.
Counsel for the plaintiff sent an email to Bartoszek, with proposed language to be inserted into the plaintiff's offer letter. In an effort to address the 10% bonus level without explicitly stating such a figure, counsel suggested that there be a reference to a " discretionary performance bonus having a target consistent with our previous discussions." With respect to the $4 million guarantee, counsel proposed adding language stating that if the plaintiff were to be terminated by the defendant prior to December 31, 2012, the plaintiff would receive $4 million in share value or cash upon departure. Bartoszek included both proposals in the final offer letter. Thus, while the defendant drafted most of the terms of the agreement, counsel for the plaintiff participated also, requesting language perceived to be important to the plaintiff.
On or about April 19, 2010, the parties executed the offer letter/agreement that became Plaintiff's employment contract. As to plaintiff's bonus, the Agreement states that " a discretionary performance bonus having a target consistent with our previous discussions is payable in cash approximately April of the following year." As to the profit participation plan, the Agreement states:
Glencore will be also be granting you 75 Profit Participation Shares which will begin accumulating value with an effective date of July 1, 2010. These shares have a two year vesting period. Additionally, we will guarantee that until the end of 2012 those shares will return a minimum of $4,000,000 in earnings. If we decide to terminate your employment at any time until that date, you will receive a minimum of $4,000,000 in share value or cash upon departure.
In May of 2011, Glencore's parent company, Glencore International AG, undertook an initial public offering (IPO). To participate in the IPO and convert his profit participation units and GH shares into Glencore plc common stock (stock in the new, publicly-traded company), Plaintiff signed a Shareholders' Agreement and an Agency Agreement in mid-April of 2011. The Agency Agreement contained a provision that terminated all prior agreements governing the previously-owned shares that were involved in the IPO process.
" . . . any prior oral or written agreement related to the GH Shares which are the subject matter of this Agreement shall terminate upon the date of execution of this Agreement."
In 2011, the plaintiff received an all-cash performance bonus which was approximately 6.2% of his net profits and losses for 2010. In 2012, he received an all-cash performance bonus which was approximately 13.8% of his net profits and losses for 2011. (Both calculations were after overhead had been deducted, pursuant to a formula used by the defendant.)
In 2013, Plaintiff received a cash performance bonus amounting to 9.3% of his net profits and losses for 2012 plus unvested stock nominally worth approximately 4.8% of his net profits and losses for 2012.
In the IPO process, the plaintiff's profit participation and stock/share interests were converted into shares of the new publicly-traded entity. The value of his profit participation accruals was converted into 113, 818 shares of the new common stock (rabbi shares), and his related but separate GH shares were converted into 2, 058, 074 shares of the new common stock (investor shares). Subject to mandatory holding periods, the plaintiff sold all of his shares, with the rabbi shares selling for $621,089 and the public shares selling for more than $10.6 million. Prior to being sold, the investor shares generated $419,874 in dividends. If the rabbi shares had been held until December 31, 2012, they would have generated an additional $17,528 in dividends.
Claims in Context
Having established the general claims and the actual critical facts, it is helpful to put everything together, before discussing the proper resolution.
The plaintiff's total performance bonus for 2012, received in 2013, nominally totaled $3.4 million, consisting of a cash bonus of $2,244,000 or approximately 9.3% of his net profits, plus additional unvested stock nominally worth an additional $1,156,000 or approximately 4.8% of his net profits. The plaintiff claims he was entitled to an all-cash performance bonus; the defendant claims that as long as it paid the plaintiff a cash bonus in the area of 10%, it could provide an additional performance bonus in a non-cash format.
The profit on which the bonus was calculated was $24,173,000.
The plaintiff received $621,089 from the sale of the rabbi shares (after a mandatory holding period) which were a conversion of his PPU account, and subject to possible adjustment for dividends not received due to early sale of the rabbi shares ($17,528) and the addition of dividends received from his non-rabbi shares ($419,874), he claims that that is the amount ($1,058,491) that is to be compared to the $4 million guarantee set forth in his employment agreement (adjusted deficit--see footnote immediately above--$2,941,509). The defendant claims that the proper comparison includes all proceeds from liquidation of shares and units, including the $10.6 million received from the public shares obtained in exchange for the plaintiff's GH shares, and the total of approximately $12 million received clearly exceeds the $4 million guarantee, leaving no deficit.
As will be discussed below, the plaintiff and his expert do not agree that this adjustment should be made, but the expert has engaged in the necessary calculation in order to address the question that was raised by the court in that regard.
Law
In construing a [contract], three elementary principles must be kept constantly in mind: (1) The intention of the parties is controlling and must be gathered from the language of the [contract] in the light of the circumstances surrounding the parties at the execution of the instrument; (2) the language must be given its ordinary meaning unless a technical or special meaning is clearly intended; [and] (3) the [contract] must be construed as a whole and in such a manner as to give effect to every provision, if reasonably possible. (Internal quotation marks and citation, omitted.) Middlesex Mutual Assurance Co. v. Vaszil, 279 Conn. 28, 35-36, 900 A.2d 513, 517 (2006).
Discussion
Guarantee Claim
The court will start by discussing the $4 million guarantee issue. The court believes that an appropriate starting point for such a discussion is the defendant's summarization of the issue at pages 2-3 of its brief in support of its motion for summary judgment--although the defendant has expanded and clarified its arguments in its post-hearing submission, the court still finds this to be the most concise statement of the defendant's positions:
There is no basis for such a claim. The shares were explicitly part of one, unitary promise: to replace value that he was leaving on the table when he left Goldman Sachs to join Glencore. Plaintiff's holdings of restricted Goldman shares would have been worth approximately $4 million by the end of 2012 when they vested, but were worthless if he left Goldman to join Glencore in 2010. To make up for that amount, Glencore guaranteed that by the end of 2012, Plaintiff would derive $4 million in value from his Glencore shares. And if Glencore fired Plaintiff before the end of 2012, Glencore would make up for the fact that the Glencore shares would not have had time to appreciate by guaranteeing him the balance of the $4 million in cash.
No evidence supports Plaintiff's tortured theory that the $4 million guarantee was on top of the value of the stock, or constituted some independent promise of cash. There is no separate provision saying Plaintiff gets the shares plus $4 million in dividends or some other method of payment. In the end, Plaintiff earned over $11 million from those shares, far more than promised, and he has no claim to any more money on those shares.
Plaintiff's share claim should be dismissed for a separate reason: to participate in the IPO process, all shareholders in the private company (including Plaintiff) explicitly agreed, in writing, to give up any and all previous agreements relating to those shares. Plaintiff did so voluntarily. Thus, Plaintiff's claim that he had some " special deal" on his shares to receive cash separate from the share value was eliminated when he converted those shares in the IPO.
The argument embodied in the last-quoted paragraph can be addressed briefly. It relies on a provision in the Agency Agreement, one of the documents executed by the plaintiff in connection with the IPO:
8.6 Prior Agreements
Except for the PAs, the new shareholders' agreement between (among others) the Shareholder, GH and GI, in relation to the Shareholder's GH Shares and Shareholder's GI Shares dated on or around the date of this Agreement and any other agreement entered into by the Shareholder in relation to the IPO dated on or around the date of this Agreement, any prior oral or written agreement related to the GH Shares which are the subject matter of this Agreement shall terminate upon the date of execution of this Agreement . (Emphasis added.)
The defendant contends that the plaintiff's execution of the agreement terminated the guarantee. The court does not agree with the premise of this position. The plaintiff is not advancing a claim based on " any prior oral or written agreement related to the GH Shares" which agreement would have " [terminated] upon the date of execution of [the Agency] Agreement." The plaintiff is claiming rights under his employment agreement. The relevant portion of the employment agreement makes no mention of " GH shares" but rather is focused on the guaranteed value of his deferred compensation plan (the profit participation plan) which only indirectly is tied to rights derived from the GH shares.
Indeed, as discussed below, the GH shares followed from the award of 75 Profit Participation units, and the guarantee agreement related to the cumulative value of profit participation accruals. The guarantee, then, was not an agreement " related to the GH shares"; the guarantee and the obligation to purchase GH shares each were independently related to the award of 75 PPUs.
At this point, the court returns to a point it made in earlier decisions and continues to rely upon. The controlling agreement made reference to " shares" that did not exist under the corporate structure of the defendant at the time of plaintiff's employment:
Glencore will also be granting you 75 Profit Participation Shares which will begin accumulating value with an effective date of July 1, 2010. Those shares have a two year vesting period. Additionally, we will guarantee that until the end of 2012, those shares will return a minimum of $4,000,000 in earnings. If we decide to terminate your employment at any time until that date, you will receive a minimum of $4,000,000 in share value or cash upon departure.
In the pre-IPO context, " Profit Participation" was not associated (directly) with " shares" but rather with " units" (Profit Participation Units or PPUs). The GH shares were separately " purchased" by the plaintiff, and the GH shares were required to be purchased by the plaintiff in an amount equal to the number of PPUs (the extent of the previously identified linkage). The PPUs, in turn, provided an annual contribution to a running account for the plaintiff, accessible over a period of five years (quarterly) after cessation of employment--a deferred compensation plan (referred to in some documents as IPP or Incentive Profit Participation--see, Exhibit 16).
There does not appear to be any question but that, if there had not been an IPO, the aggregate value in the plaintiff's account based on PPUs over the 2 1/2 years leading up to December 31, 2012 is the figure that would have been compared to $4 million, in order to determine the extent to which the guarantee might have been needed to be invoked. Absent an IPO, there seems to be no question but that the value of the GH shares would not have played any role in determining whether the guaranteed figure had been reached.
In order to characterize the agreement language as ambiguous, the court must be able to characterize each party's position as plausible/reasonable, and the court finds that to be the case. The defendant's interpretation is that the two components (GH shares and PPUs) were effectively a unitary system, and the references in discussions to a premium if the company went public emphasized the integrated nature of the concepts, as that premium was strictly related to the GH shares. Another perspective (reasonable interpretation) is that the conversion of GH shares when the company went public effectively was a liquidation or vesting of the right to future profits implicit in those shares (as entitlements to PPUs).
The plaintiff plausibly argues that the agreement related solely to the deferred compensation program embodied in the PPUs and that allusions in extra-contractual discussions to a premium if there were to be an IPO were independent of the deferred compensation program actually being discussed in the quoted paragraph. Implicitly, the plaintiff is arguing that " premium" means something in addition to or on top of, whereas the defendant is making the possibility of an IPO part of the agreement itself (without any explicit mention).
In practical terms, the plaintiff is arguing that whether the IPO took place one week after he began employment, or took place in late December of 2012 just before the guarantee period expired, he would be entitled to (at least) $4 million as guaranteed value/earnings plus whatever the 75 GH shares were worth (or became) post-IPO. And if he had been terminated by the defendant prior to the two-year vesting (but after the IPO), again, presumably he would be claiming entitlement to $4 million that had been guaranteed plus whatever the 75 GH shares were converted to. The defendant argues to the contrary, that it is the aggregate value derived from the PPUs and the associated GH shares that determines whether the guarantee is still in play.
In its post-hearing submissions, the focus of the defendant's arguments is the GH shares and not the PPUs. Thus, at page 22 of its post-hearing brief, the defendant states that " at the time the Employment Agreement was negotiated and executed in March and April 2010, Plaintiff was offered 75 Glencore shares 'which will match [his] deferred unvested [Goldman Sachs] stock.'" While this interpretation is semantically possible (due to the non-existence of something accurately identified as profit participation shares), the attempted focus on the GH shares rather than the PPUs leads to an even more indeterminate situation. Other than in the IPO context, there was no evidence that the GH shares ever had anything other than a relatively nominal value (the purchase price to the plaintiff). The GH shares were not accumulating value over time--the profit participation units in a cumulative sense were where any value or earnings or other monetary increments could be found. Again, absent an IPO, the value of the GH shares was both irrelevant and seemingly insignificant.
In Exhibit 22, the plaintiff was told by an advisor involved in the IPO process that the basis for the investor shares should be treated as $0.
Only minimally simplified: The guarantee related to the value of the deferred compensation program--the pre-IPO profit participation plan--as of December 31, 2012, and the hoped-for or expected " IPO premium" (which was not contractual) was related to the value of the GH shares. The PPUs were related to the GH shares only in the sense that ownership of GH shares was a requirement and the number of GH shares was to be the same number as the PPUs, but their areas of operation were distinct.
Technically, the PPUs dictated the number of GH shares. Pursuant to the Profit Participation Agreement:
B.1. Execution and Maintenance of Shareholders' Agreement (GH)This Agreement shall only be effective if Employee has executed the Shareholders' Agreement (GH) and fulfilled his/her obligations thereunder, in particular to subscribe and pay the par value for the same number of shares in GH as the number of PPUs Employee is entitled to have allocated to him hereunder, and for as long as such Shareholders' Agreement (GH) remains in force.
Nomenclature plays a further role in complicating the issue--or at least giving the appearance of a complicating consideration. The plaintiff has focused on the use of the term " earnings" which ordinarily connotes periodic payments or an income stream or some such other dynamic cash-flow concept. The defendant effectively has claimed that the term was not used in a technical sense and relies more on the term " value" and the notion that the focus was on the end result--replacement of the unvested $4 million benefits left behind by a guaranteed $4 million from the defendant (in addition to other compensation). Both sides have some valid points in this regard, but in the end, the court has concluded that it is not critical to the outcome.
The goal, of course, was to replace the value of plaintiff's holdings of restricted Goldman shares, shares which would have been worth approximately $4 million by the end of 2012 when they vested, but would become worthless if/when he left Goldman (his prior employer) to join Glencore in 2010. The defendant characterizes the guarantee in terms of " value" from his Glencore shares, e.g., " [t]o make up for that amount, Glencore guaranteed that by the end of 2012, Plaintiff would derive $4 million in value from his Glencore shares" (emphasis added). The actual language of the offer is " those shares will return a minimum of $4,000,000 in earnings " (emphasis added), followed by a later reference to " $4,000,000 in share value or cash." (There is an earlier reference to " accumulating value.")
In earlier decisions, the court addressed these and other differences in terminology that the parties relied upon, but the court has concluded that those distinctions are secondary at best. The plaintiff mildly confirms this secondary nature, by valuing the PPUs as converted into shares which then were sold at market value--the net of which is a major component of his acknowledgment of partial compliance with the guarantee. If the benchmark truly were earnings-dependent in a rigorous sense, then instead of the $621,089 received from the sale of the rabbi shares, the shortfall should be measured by the aggregate value of the PPUs at the time of the IPO, i.e. $973,990.13. (See, Exhibit 20.)
Rather than looking at words, the court has looked at sentences and concepts. " Glencore will also be granting you 75 Profit Participation Shares which will begin accumulating value with an effective date of July 1, 2010. Those shares have a two-year vesting period." That is the basic declaration of the deferred compensation that the plaintiff would be receiving. The next sentence is a guarantee relating to the value of that benefit as of December 31, 2012: " Additionally, we will guarantee that until the end of 2012, those shares will return a minimum of $4,000,000 in earnings." That is a guarantee relating to " those shares" which, necessarily, are the 75 Profit Participation Shares mentioned in an antecedent sentence, which the court necessarily has construed to be a reference to PPUs. (The antecedent could not have been the GH shares, which were not accumulating value in any meaningful or measurable sense, and therefore could not have been " those shares" to which reference was made. There also was no evidence or suggestion that the GH shares had a two-year vesting period.) And the final sentence assures the plaintiff that even if he were to be terminated, he still would obtain the benefit of the guarantee.
Consideration of a few alternate scenarios helps to illustrate the magnitude of the problem, made slightly more complicated by the actual facts--the plaintiff started working in the middle of a calendar year, but PPUs were determined on an end-of-year profit basis. The plaintiff began work in the middle of 2010 and the guarantee was as to the value of the profit participation shares as of the end of December of 2012. The scenarios:
1. The company went public in the first six months of the plaintiff's employment, such that there were no PPU accruals; the entire $4 million guaranteed value would, according to the defendant, be charged against the " premium" --the value of the GH shares. The plaintiff claims that he would be entitled to the $4 million guaranteed amount, in addition to the premium.
2. The company went public in the first full year of the plaintiff's employment, i.e. after the first partial year (but before the end of the first full year). Assuming that the average projected rate of PPU accruals took place ($800 thousand per half year), the plaintiff claims that he would be entitled to $3.2 million in addition to the premium; the defendant claims that it would be entitled to charge the $3.2 million against the premium. Note that the same result would be obtained whenever the company went public during that year, whether on January 3 or December 28; although the company's earnings might have warranted a $1.6 million accrual to the plaintiff's PPU account, going public prior to the end of the calendar year would have precluded any PPU accruals.
3. The company went public in the final year of the guarantee period, 2012. Again, regardless of when in the year that occurred, there would be no accrual and therefore the plaintiff would be claiming entitlement to an additional $1.6 million guarantee whereas the defendant would be claiming that it was to be credited against the premium.
The " problem" would be more pronounced if the actual company operations did not generate the implicit accruals based on a $4 million guarantee over the first 2.5 years of the plaintiff's employment. If the business warranted no PPU accruals during the guarantee period (no profits to share), and the company went public in that final year, the plaintiff would obtain nothing " net" from the PPU guarantee--the guarantee would all be charged against the premium. The company might owe the plaintiff most or all of the $4 million guarantee one day (with GH shares untouched), and the next day, after going public, it would owe him nothing (other than the premium derived from the GH shares).
This can be demonstrated even more clearly by consideration of two scenarios, assuming a non-trivial shortfall in the guaranteed return of the profit participation units. In the first scenario, if the company went public in early 2013, say, January 3, 2013, the plaintiff would obtain the full $4 million valuation (with the shortfall made up under the guarantee) plus the full expected " premium." If the company had gone public a week earlier, then the plaintiff would also have the $4 million guaranteed value of his profit participation shares, but with a potentially-substantial diminution in the net value (to him) of his " premium" (if the defendant's interpretation were correct). While it might be argued that any undistributed profits from the final year of the guarantee period might inflate the premium, any shortfall attributable to lower-than-expected distributable profits in the first year and a half of the guarantee period would not have such a theoretically-possible offset. In a sense, going public during the guarantee period would render the guarantee at least somewhat illusory under the defendant's theory, for the company would not have to " make good" for any shortfall, instead telling the plaintiff to look to his IPO premium for satisfaction of the shortfall.
While perhaps unrealistically extreme, a no-distributable-profit scenario for the full guarantee period demonstrates the point most starkly. In such a situation, going public in January of 2013 would provide the plaintiff with the full $4 million guaranteed amount plus the full premium available, whereas going public a week earlier would provide the plaintiff only with the full then-available premium (and in this extreme situation, there would not be any inflation of the premium due to undistributed profits).
The defendant's position requires the court to accept the premise that the term " Profit Participation Shares" either meant " GH shares" by themselves or a composite of PPUs and GH shares, because only if the value of the GH shares converted into publicly traded shares were to be included in the December 31, 2012 valuation of the benefit to the plaintiff, can the defendant claim that the plaintiff received all that he was entitled to receive. The PPUs, alone, clearly did not meet that standard--the PPUs were converted into the rabbi shares that generated only a fraction of the guaranteed $4 million.
The pre-IPO structure negated any possible linkage between profit participation and shares. Accumulations of increments of profit sharing went into an account measured/governed by PPUs, but PPUs explicitly were stated to represent no interest in assets of the company--they could not be characterized as " shares." Thus, a PPU was a unit of profit participation (an accounting entry), without any initial intrinsic value (especially prior to vesting), with increments added on an approximately yearly basis reflecting the allocated profit sharing per unit. It was a form of deferred compensation, generally payable after employment terminates, over a period of 20 calendar quarters. (In addition to annual increments, there also are provisions relating to some modest level of interest on the balance.) In effect, then, each individual who had one or more PPUs had a deferred compensation account, with the number of PPUs representing the annual increment to that account, but the account balance for that individual was dependent upon both the number of units as well as the specific years that the account-owner has been a participant (as there was no predetermined amount for each year's per-PPU value or increment).
The only way that the term " shares" could apply to the profit participation program would be to use it in a non-corporate sense but rather in a " slice of the pie" sense, i.e., a portion or allotment of the profits.
The transition occasioned by the IPO confirmed the distinct nature of GH shares and PPUs. The plaintiff acquired 2, 058, 074 shares in the newly-publicly-traded entity from his GH shares, but no shares were directly attributed to the PPUs themselves, i.e., no shares were received for the surrender of the nominal 75 profit participation units. His profit participation aggregate value of $973,990.13 (net amount of contributions to his profit participation account) was converted into 113, 818 shares of the newly-publicly-traded entity (through an intermediary Grantor Trust), shares that the plaintiff has characterized as " rabbi shares, " which were required to be treated separately.
The antecedent discussions between the plaintiff (and his attorney) and the defendant (largely through Mr. Beard and Mr. Bartoszek) do not do much to resolve the uncertainty arising from the use of imprecise terms.
The long-term average of Glencore shares over the last few years has been approx $35,000 and so annual earnings of the 75 shares ought to be approx $2.5m per annum. In addition, although very difficult to quantify today, I believe that an IPO type premium for these shares would be in the order of $10m.(Email from Mr. Beard to plaintiff; Exhibit 2.)
The reference to annual earnings had to have been a reference to per-PPU contributions to the profit participation plan--a deferred compensation program based on profit sharing. The premium, however, had to have been a reference to the value of GH shares, since the PPUs appear to have had no intrinsic value beyond contributions for purposes of deferred compensation, which ended with the IPO. For an insider, the required equal number of GH shares and PPUs may have led to the informality in terminology, but in dealing with outsiders, greater care was required. Ultimately, the court is required to determine the true intent.
The court recognizes that the actual language used in the corporate documents was precise if borderline opaque. The corporate documents are heavily dependent upon acronyms/abbreviations. For example, after reciting 30+ definitions (mostly acronyms/abbreviations), the Profit Participation Agreement, provided, in Section A.1.1:
On, and subject to, the terms outlined hereunder, GI grants Employee deferred compensation which will be calculated on the basis of the results of GI (the IPP). Solely for purposes of calculating the amount of IPP, AG has issued to GI GS pursuant to Section 657 CO which shall serve as PPUs for the purpose of calculating Employee's IPP as provided in A.2, below.
" GS" in turn is defined elsewhere: " GS means 'Genussscheine' issued by GI or Employer as authorized by their articles of association" with " Genussscheine" not subject to any specific definition or explanation. (As best the court can determine, it is a Swiss/German term for a profit participation certificate.) It thus appears that the concept of PPUs, itself, was a construct, with GSs to " serve as PPUs" in connection with the deferred compensation plan. (" IPP" means incentive profit participation; " GI" means Glencore International AG.)
Back to the case at hand, then, the plaintiff was awarded 75 profit participation units (PPUs), as part of the employment contract. A PPU is a unit of profit participation, without any initial intrinsic value, with increments added on approximately a yearly basis reflecting the allocated profit sharing per unit. It is a form of deferred compensation, generally payable after employment terminates, over a period of 20 calendar quarters. (In addition to annual increments, there also are provisions relating to some modest level of interest on the balance.) Absent an IPO, the PPUs would continue to generate value (accumulating deferred compensation) but have no intrinsic or capital value. Simplistically, there is no value to the right to receive profit participation, only value in the profit participation amounts determined/awarded each year. Therefore, the value associated with the PPUs in the plaintiff's calculation of damages reflects the accumulated value in his account (effectively, the contribution for the first year of his participation), after which the IPO took place resulting in cessation of contributions.
The court recognizes that the GH shares, as converted into common stock in a business expected to continue generating profits, have a significant value component based on the expectation of future profits--essentially a discounted earnings stream. But there is a critical distinction between a theoretical discounted income stream into the indefinite future and a promised fixed aggregate return-of-profit over 2 1/2 years in a more direct sense. The PPUs were a return of actual earnings; the future earnings component theoretically encompassed in common stock is a prediction, not a return of actual earnings, as guaranteed by the agreement. In this limited sense, the term " earnings" has some significance.
The plaintiff's interpretation is that the valuation was limited to the PPUs, with the potential for a premium as an extra inducement for plaintiff to join the company at a potentially advantageous time. The court also must note that there is nothing in the agreement, itself, relating to the IPO premium--it was discussed as an expectation and an added inducement to join the defendant.
The parties did not use internally consistent or unambiguous terms, and the court has concluded that the proper way to harmonize the terms used with the intent of the party is to treat the guarantee as separate from the possible premium associated with going public, which is the same as saying that the guarantee related to PPUs (correlated with but not dictated by ownership of GH shares) and not the actual GH shares themselves.
This is consistent with a non-standard application of another rule of contract interpretation--construing the terms against the person who drafted the language. Although the plaintiff actively participated (through counsel) in drafting some of the language, the plaintiff had no practical way of knowing, certainly at the time of negotiating an agreement to work for the defendant, that the language being proffered by the defendant was at best ambiguous.
Our conclusion is in the first further supported by the doctrine of contra proferentem, whereby ambiguities in a contract are construed against the party who had drafted the contract. The premise behind the rule is simple. The party who actually does the writing of an instrument will presumably be guided by his own interests and goals in the transaction. He may choose shadings of expression, words more specific or more imprecise, according to the dictates of these interests . . . A further, related rationale for the rule is that [s]ince one who speaks or writes, can by exactness of expression more easily prevent mistakes in meaning, than one with whom he is dealing, doubts arising from ambiguity are resolved in favor of the latter. Although the contra proferentem rule traditionally has been applied in the context of insurance contracts, we see no reason to distinguish between insurance companies and other drafters with superior knowledge. (Internal quotation marks and citations, omitted.) David M. Somers and Associates, P.C. v. Busch, 283 Conn. 396, 405 n.10, 927 A.2d 832 (2007).
Although in recent years, the principle has been identified as a rule of last resort (when other rules are insufficient to resolve an ambiguity), Chiulli v. Chiulli, 161 Conn.App. 638, 652, 127 A.3d 1146, 1154 (2015), the circumstances make it appropriate to note that the rule confirms the conclusion that the court has reached--assuming that the circumstances don't make it appropriate to give it somewhat higher status in the process. Here, the plaintiff would have had no idea that certain terminology was ambiguous as opposed to conveying a precise meaning as suggested by the context--the defendant was proposing terminology relating to its internal corporate procedures relating to profit participation to be used in the agreement by which he became employed by the defendant. Emphasizing the extent to which the defendant kept matters close to its metaphorical vest--the plaintiff was given an opportunity to look at, but not copy, some of the important documents prior to agreeing to work for the defendant.
Still further along these lines, the plaintiff would have had no reason to foresee the issues presented by the company going public, issues that the company could have foreseen and addressed at the outset.
The defendant notes that the plaintiff did not " say anything" until long after the company had gone public, but until December 31, 2012 had passed, there was no reason to have made any inquiry, for the guarantee would not come into operation until after that benchmark date. (It might have been prudent to have asked, but the reverse is true as well, i.e. the defendant could have explained the consequences of going public more promptly, after it had occurred.)
Accordingly, the court concludes that the proper interpretation of the guarantee language is that it pertains to the PPUs and other quasi-earnings received by the plaintiff or to his benefit, through December 31, 2012. It does not include the capital value of the GH shares, before or after conversion to the investor shares in the publicly-traded post-IPO entity.
Damages as to the Guarantee
As a result of the IPO, as memorialized in various agreements including the Agency Agreement and other documents, the interests in the company and the value of profit participation accounts were converted into shares in the now-publicly-traded company. The accumulated cash value of the PPUs was converted into stock (what the plaintiff refers to as " rabbi shares" and those shares were sold. Plaintiff received a much larger number of shares (investor shares) attributable to non-PPU interests, i.e., the 75 GH shares, and those shares also have been sold. The proceeds from the sale of the rabbi shares and the dividends received as a result of ownership of the investor shares have been incorporated into the plaintiff's calculation of the amount he received against the $4 million guarantee. The plaintiff has not included the value of the investor shares in his calculation--the rationale is that the dividends during ownership of shares was a form of " earnings" that should be credited against the $4 million guarantee, but the GH shares were separate and apart from any concept of deferred compensation or earnings. Again, the defendant contends that all proceeds of shares--dividends and capital value or proceeds of sales--need to be considered in calculating the benchmark for the guarantee, and therefore the guarantee does not need to be invoked. The court has rejected the defendant's position, and so the task is now calculation of the relevant damages.
The plaintiff has conceded that the rabbi shares as well as the dividends from the investor shares should be credited against the $4 million. As will be discussed below, the court also has concluded that the dividends that would have been paid, had the rabbi shares not been sold prior to the December 31, 2012 deadline, also should be charged against the guarantee.
The plaintiff claims, as an element of damages, $136,117, his calculation as to the higher federal income taxes he will be required to pay with respect to the guarantee shortfall, comparing the tax rates in 2012 when he claims the amount was payable, and the applicable rates in 2016. The court is not convinced that this is a proper element of damages, but even if it were, the plaintiff would not be entitled to receive such damages under the circumstances of this case. (The analysis, immediately below, also is relevant to the interest claim.)
The essential premise of the plaintiff's claim in this regard is that he was entitled to payment in 2012. On a number of levels, the 2012 date for payment is in question. The starting point, of course, is the language of the agreement.
Glencore will also be granting you 75 Profit Participation Shares which will begin accumulating value with an effective date of July 1, 2010. Those shares have a two year vesting period. Additionally, we will guarantee that until the end of 2012, those shares will return a minimum of $4,000,000 in earnings. If we decide to terminate your employment at any time until that date, you will receive a minimum of $4,000,000 in share value or cash upon departure.
Nothing in the agreement between the parties entitled plaintiff to any payment relating to the guarantee in 2012. The guarantee provided that the value of his account, as of December 31, 2012, would be at least $4 million, and if it were not, the company would make good on the discrepancy. The company could do so either by increasing the value of the account or by giving the plaintiff cash (if his employment were to be terminated by the defendant prior to that date). The plan that was guaranteed to be worth $4 million was a deferred compensation plan, with payments not starting until after the plaintiff were to leave employment (assuming his rights had vested, i.e. he had not quit prior to vesting). Under the contract, then, he was not entitled to receive payments until after he left employment or otherwise was contractually entitled to receive benefits. To be sure, the plan was terminated early, in connection with the IPO, and the then-value of the PPUs was converted to stock (rabbi shares) subject to certain conditions, but there is a substantial--and seemingly unbridgeable--gap between entitlement to $4 million in value as of 12/31/12 as part of a deferred compensation program and entitlement to payment of that amount while still an employee . An additional overlay is that the plan provided for payment over 5 years starting with termination of employment, such that the vestigial contract rights seemingly did not entitle plaintiff to a lump sum payment but rather payments over time, which actually would extend into 2018. As a consequence of the corporate reorganization, the defendant may have been required to distribute the rabbi shares and investor shares prior to December 31, 2012, but to the extent that the plaintiff is asserting a breach of contract, there was no contractual obligation to pay the guaranteed amount, or any shortfall in the guaranteed amount, on or before December 31, 2012.
As foreshadowed earlier, this also has implications for the claim of statutory interest (General Statutes § 37-3a). An award of interest under the statute is discretionary, both as to " whether" and the appropriate rate; see, DiLieto v. County Obstetrics & Gynecology Group, P.C., 316 Conn. 790, 114 A.3d 1181 (2015) (and prior DiLieto decisions); see, also, Alarmax Distributors, Inc. v. New Canaan Alarm Co., 141 Conn.App. 319, 336-37, 61 A.3d 1142 (2013). In an earlier DiLieto decision, the Supreme Court had made clear that the " wrongful detention" standard set forth in § 37-3a does not require wrongfulness in a tortious or blameworthy sense; it only required a determination that the money should have been paid as of (or before) the date that the interest is deemed to commence running. DiLieto v. County Obstetrics & Gynecology Group, P.C., 310 Conn. 38, 48, 74 A.3d 1212, 1218 (2013).
Therefore, although the plaintiff had no contractual right to any payments relating to the profit participation shares/units until after he no longer was employed, he received an equivalence of the value as of the date of the IPO--which he liquidated--while still employed and prior to the December 31, 2012 guarantee period expiration date. Under the deferred compensation plan (PPUs) that was terminated, he would have been entitled to receive the payments over five years, after he left his position with the defendant in the spring of 2013, which as noted above, would have resulted in payments extending into 2018. The termination of the profit participation program, the early receipt of some benefits, the liquidation of shares, and the plaintiff's eventual departure, all are factors that must be weighed in terms of evaluating whether there has been a " wrongful detention" of the money payable to the plaintiff under the guarantee, with the overlay of payments expected over time rather than in one lump sum. In theory, the court could do a present value calculation as of the plaintiff's resignation from his position with the defendant, but again, the court would still need to take into account the early payments actually received by the plaintiff before that " present value" date. Under the circumstances, then, the court does not believe that it would be equitable to award any prejudgment interest with respect to the guarantee shortfall.
The fact that the court has concluded that prejudgment interest is not warranted on an equitable basis, does not foreclose postjudgment interest. The plaintiff has acknowledged that this court often relies upon the analysis in the trial court decision in Alarmax, and for postjudgment purposes, the court believes that an interest rate of 4% is appropriate.
This would seem to be an appropriate point to segue to the plaintiff's expert and his approach to timing-related issues. The plaintiff's economics expert chose to ignore and downplay any direct timing-related issues. The guarantee was to be measured as of December 31, 2012, but plaintiff cashed out the stock he had received in exchange for the value of his deferred compensation plan (rabbi shares) prior to that date. Consideration of the dividends that would have been earned had the stock been held until December 31, 2012 would allow for some level of correction for that early payment/withdrawal (answering the question--what would the company-provided substitute for the PPUs have generated as of the deadline date?), but Dr. Dodle took a dismissive attitude towards any consideration of events after distribution to the plaintiff. (See, Exhibit 43.) Dr. Dodle is correct in stating that what the plaintiff chose to do with the funds is irrelevant in a direct sense, but what amounted to an early withdrawal of a deferred compensation account cannot be ignored, however modest the actual adjustment might be. (Even then, in attempting to trivialize the adjustment attributable to foregone dividends (0.44% of the guaranteed $4 million), Dr. Dodle chose an inappropriate benchmark--the issue would be not how much of the $4 million guarantee is represented by such a correction but rather how much of the claimed shortfall is represented by such an adjustment.) The value of the dividends that could have been received may not be the only way in which an adjustment could be made for the premature nature of the payment represented by the rabbi shares but the methodology has the advantage of being somewhat objective. The plaintiff's expert did more than ignore it; he rejected the notion that any adjustment might need to be made.
This can be demonstrated quite easily--a $3 million adjustment would be 75% of the guaranteed amount, but would totally eliminate the claimed shortfall.
Further refinements to the adjustment process were possible. For example, since the value as of December 31, 2012 was the benchmark, the value of the rabbi shares, as of that measurement date, might be a more accurate basis for determining any shortfall. No evidence was provided in that regard, and there is an a priori equal likelihood that the value might have gone down, so there is no basis for the court to consider further adjustments to the value of the converted PPUs as of that end-of-term date.
Related, he also did not give any consideration to the fact that December 31, 2012 was a contractual valuation date, not a payment date. Under the deferred compensation program (PPUs), the plaintiff would begin to receive the benefits only after his employment ceased; under the terms of the agreement, he was not entitled to payment on December 31, 2012, only an account value as of that date. While interpretation/application of the contractual obligations relating to the guarantee in a post-IPO context may have been a legal and not economic issue--and therefore, beyond the scope of his expertise--he did not appear even to recognize the existence of the question, much less the possible need for an answer. (Note that this might exacerbate the premature payment quality of the sale of the rabbi shares; under the guarantee as set forth in the agreement executed in 2010, until the plaintiff ended his employment in the spring of 2013, there would not have been a right to any payout of the benefits. Whether the IPO implicitly modified that aspect of the agreement has not been addressed by the parties, and need not be answered, definitively, at this point.)
Indeed, in Exhibit 43, Dr. Dodle seems to mis-state the nature of the agreement: " The date 31 December 2012 is significant because it is the date by which Glencore guaranteed to pay Mr. Goldberg $4 million of earnings on his shares." Under the explicit terms of the agreement, only in the event that the plaintiff were to be terminated prior to that date might the plaintiff have been entitled to receive part or all of that $4 million on or before December 31, 2012; otherwise, the agreement required the shortfall amount to be credited to his account. Again, while it could be argued that the IPO effectively converted that valuation-deadline date to a payment date, that is not a necessarily-correct interpretation, and it is outside the expertise of an economics expert.
Conversely, because at some point after the plaintiff had resigned his position with the defendant the plaintiff had chosen to move from Connecticut to New York, and because New York has higher local income tax rates than does Connecticut, the expert opined (for purposes of the PJR hearing; see, Exhibit 18 from that proceeding) that the plaintiff should be compensated for that increased tax burden. In trial Exhibit 43, Dr. Dodle correctly observed that the plaintiff's use of funds, once received, was not germane, but in this context, he opined that the plaintiff's fortuitous decision to move his residence should be deemed to have a material impact on the damages the plaintiff sustained (and that therefore the court should compensate the plaintiff accordingly). (PJR Exhibit 18 is captioned " Damages Summary" and the amount of damages claimed, based on the tax differential, is $410,488.)
The plaintiff has not pursued this claim at trial. It is not clear whether that effective-abandonment was due to the lack of authority for the claim or because of the court's expressed reluctance to entertain that claim for purposes of the PJR proceeding (in the absence of authority), or for some other reason.
Taking all of these and other factors into account, the court is satisfied that Dr. Dodle was more of an advocate for the plaintiff than an objective analyst trying to explain facts and economic principles not readily comprehended by the court. Alerion Inv. Partners I, L.P v. Valassis Communs., Inc., No. HHDX04CV126030522S, 2013 WL 5969059, at *13 (Conn.Super.Ct. Oct. 15, 2013) [57 Conn.L.Rptr. 77, ]. He provided sometimes-useful numbers, but the analyses and theories he advanced either were relatively obvious or lacking a sufficient legal basis for acceptance, and always from the perspective of advancing the plaintiff's claims.
Therefore, with respect to the guarantee shortfall the court has rejected the claims that the plaintiff is entitled to compensation for varying tax burdens (years or states), and has rejected--based on a balancing of the equitable considerations--his right to prejudgment interest under § 37-3a. He is entitled to recover his shortfall of $2,941,509, with interest at 4% commencing with the date of filing of this decision.
$4 million (guarantee)--$621,089 (proceeds from sale of rabbi shares)--$419,874 (dividends from investor shares prior to 12/31/12)--$17,528 (dividends in rabbi shares that would have been received if shares held through 12/31/12) = $2,941,509.
Bonus Claim
The situation with respect to the disputed discretionary performance bonus is less convoluted, as it does not implicate the IPO in any direct sense. The language recited in the final version of the offer letter (Exhibit 10 to #151.00) provided: " In addition, a discretionary performance bonus having a target consistent with our previous discussion is payable in cash approximately April of the following year." The phrase " having a target consistent with our previous discussion" was intended to be an intentionally imprecise reference to a target of 10% (inadvertently specifically recited in an earlier version of the offer letter, corrected in the final version by the defendant), the defendant not wanting to put the target in writing. There does not appear to be any dispute, however, as to that being the intended meaning, and there is no apparent dispute that the performance bonus was a major component of the plaintiff's intended compensation, and there does not appear to be any serious dispute that the plaintiff considered it highly important that it be paid in cash.
To repeat the key facts: The plaintiff's total performance bonus for 2012, received in 2013, nominally totaled $3.4 million, consisting of a cash bonus of $2,244,000 or approximately 9.3% of his net profits, plus additional unvested stock nominally worth an additional $1,156,000 or approximately 4.8% of his net profits.
The defendant is correct in stating--emphasizing--that the bonus was intended to be discretionary. The defendant also is correct that the defendant could have given the plaintiff a gold watch or some other non-monetary item. The issue, however, that is not squarely addressed by the defendant is whether the defendant could have given the plaintiff a gold watch (or other non-monetary items of value) as part of his contractually-entitled performance bonus as opposed to giving him a gold watch as some other discretionary form of remuneration.
In denying defendant's motion for summary judgment, the court focused on the perceived need for line-drawing, a task not within the scope of summary judgment. The court was faced with a history--brief as it may have been--of +/- 3% or more, relative to the target of 10%, such that an aggregate bonus of approximately 14% might well be perceived as within that range or exceeding that range--and unless the court were to rule that the plaintiff had free reign in that regard (e.g., could have given a cash bonus of about 7% with the balance in stock), the court would not be able to grant summary judgment without some level of line-drawing.
The court perceives line-drawing still to be an issue, but for purposes of this decision, the court believes it is best characterized as a reinforcing consideration or alternative basis for the result. While the court may be reluctant to exalt form over substance, form sometimes is important. The defendant appears to interpret the applicable provision as implicitly bifurcated--as long as there is a cash bonus in the area of the target of 10%, the defendant can provide a non-cash component as well. The court has concluded that that is not the proper interpretation of the language actually used by the parties. The court believes that the proper interpretation of this provision, particularly in light of the discussions of the parties leading up to the adoption of the precise wording, is that the performance bonus paid annually would be in an amount determined by the defendant within its discretion; that the expectation is that the annual performance bonus would be in the vicinity of the target which, based on the discussions of the parties, was in the range of 10%; and that the performance bonus would be paid in cash. Whether the agreement is ambiguous in this regard or not, the evidence surrounding the pre-execution discussions of this concept makes it clear that the plaintiff was concerned about payment in cash, and the defendant reassured him in that regard; see, e.g. Ray Bartoszek's email of April 21, 2010 in which, after explaining the need to delete a specific reference to the 10% target in the agreement, he stated: " The performance bonus is paid in cash and I will put that in a revised letter."
Somewhat simplified, the agreement spoke in terms of a performance bonus; the defendant's arguments are in terms of a (or any) bonus, treating the characterization of the bonus as a performance bonus as almost superfluous. The court, however, must give meaning to each provision in the agreement, and the only " bonus" that was identified in the agreement, and the bonus that currently is in dispute, specifically was the " performance bonus." There was no reservation of discretion as to the manner in which the defendant would perform its obligation relating to the performance bonus.
If the defendant had chosen to give the plaintiff a discretionary performance bonus of 10% for a particular year, could it have allocated 9% to cash and 1% to unvested stock, arguing that 9% is within the general range of the implicitly-required target of 10%? Would an 11% bonus be perceived as within the target range and therefore necessarily paid in cash, or could it be characterized as 9% payable in cash (also in the target range) plus an additional 2% of unvested stock (or gold watches or . . .)? Note that the parties agree that the bonus for 2011 had been just under 14% (approximately 13.8%), paid all in cash--could the defendant have split that into (approximately) 7% cash and 7% unvested stock (with 7% still exceeding the 6.2% cash bonus of 2010)?
The relevant point for purposes of this discussion is that as something of a corollary to the line-drawing problem, and indeed superseding it, the language used necessarily gave the defendant discretion with respect to the total amount of the bonus, but the explicit reference to cash, as confirmed by evidence relating to contemporaneous discussions (to the extent it is necessary to resort to such external indicia), precluded the bifurcated performance bonus that the defendant claims it was entitled to provide, for 2012.
The defendant is correct in taking the position that it could have given the plaintiff anything it wanted--a car, a Rolex, etc. The issue, however, is not whether it could have given the plaintiff any kind of bonus it chose but rather whether any performance bonus had to be in cash. Under the language of the agreement, the defendant could have given the plaintiff a 10% performance bonus in cash plus an additional bonus for being " trader of the year" or it could have given him an " incentive to stay" bonus--anything except a non-cash performance bonus. Of course, if there were a transparent effort to circumvent the obligation by simply renaming a portion of the performance bonus, that might not necessarily be successful, but contractually, the plaintiff was entitled to an all-cash performance bonus in the general 10% range--plus or minus. The fact that, post-going-public, the company chose to modify its manner of paying performance bonuses does not--cannot--be an excuse for failing to comply with contractual obligations.
There was evidence that post-IPO, the company had modified its practices relating to bonuses, increasing the aggregate amount but making non-vested stock a component (above a certain level). There also was evidence and implications that the personnel responsible for awarding/determining bonuses probably were not aware of the precise terms of the plaintiff's employment agreement as pertains to performance bonuses (at least as of the time that the bonus was being determined). This may explain, but not justify, the conduct being challenged by the plaintiff.
Indeed, in a sense, the non-cash bonus component can be perceived to have been a form of " incentive to stay" bonus, to the extent that continued employment was a precondition to realization of the value of that portion of the bonus. For that same reason, however, although nominally a bonus of a designated percent and dollar value, the then-present-value of the non-cash portion of the bonus was almost certainly substantially less than the " face value" of that component of the bonus, both because of its contingent nature and the delayed opportunity to realize any value from it. The fact that the corporate structure had changed, and therefore the company had decided to alter its methodology for bonuses, does not alter the relatively unambiguous nature of the contractual obligation to provide a cash bonus--all cash--with a target in the area of 10%. The target, itself not clearly specified, was not intended to be a cap and cannot be converted into a cap. The court cannot lose sight of the fact that it was the defendant that insisted on a lack of precision with respect to the promised level of bonus, instead providing off-contract assurances that it would be in the 10% range--but now it wants to rely on a formula to which the plaintiff did not agree and as already noted, treating the target as something of a cap on its obligation to provide a cash performance bonus.
Recognizing that ambiguity (or lack of ambiguity) can be in the eye of the beholder, the court is discussing this issue as if the bonus language were ambiguous with respect to the cash requirement. The court does not believe that a reasonably plausible argument can be made that the language used unambiguously authorized the defendant to bifurcate a performance bonus as it did for plaintiff for 2012; at best (from the defendant's perspective), the language was ambiguous.
Returning to labels: The defendant could have given plaintiff the not-quite-10% performance bonus in cash, and some other separately-labeled non-cash bonus, but it did not do so, presumably for good reason. If plaintiff had received a less-than-10% performance bonus (albeit all in cash), and everyone else was receiving an almost-15% (aggregate) performance bonus, some explanation might have been needed. Conversely, if the defendant were to have paid the plaintiff some otherwise-denominated non-cash bonus, other employees might have asked why they were not eligible for a similar bonus. Labels and characterizations may be important to an employer, but cannot justify disregard of a contract provision that is contrary to otherwise generally-applicable internal protocols.
All of this, of course, is against the already-noted factual background that the evidence indicated that in awarding bonuses, it is probable that no one involved in the bonus-awarding process had been aware of the specific provisions of the plaintiff's contract that might/did require individualized treatment. The court has inferred that the plaintiff's bonus for 2012 had been calculated and apportioned based on new protocols that had been developed after the IPO, without any regard to any possible special requirements as set forth in the agreement between the plaintiff and the defendant. The evidence strongly suggests that from the time that the agreement was reached in the spring of 2010, until the spring of 2013 when the plaintiff was vigorously complaining about noncompliance with his individual employment agreement (and starting to consider departure), no one at the defendant seemed to be aware, or recognized, that the plaintiff's agreement might be something out of the ordinary, and therefore require special attention; see, e.g., Exhibit 63, an email from Mr. Beard to H.R. in late April of 2013, requesting a copy of the plaintiff's letter agreement (" offer letter").
Thus, based on the court's interpretation of the bonus provision in the letter agreement, the court concludes that the plaintiff was entitled to an all-cash performance bonus, with the amount of the bonus subject to the discretion of the defendant but expected to be in the range of 10%--and historically that range was +/- 3-4% of the unarticulated 10% target. Conversely, the defendant did not have authority under the agreement to allocate the discretionary performance bonus as between cash and non-cash components. The defendant having concluded that the plaintiff was entitled to a performance bonus of approximately 14% of his profit and loss results for 2012 (adjusted for overhead)--$3.4 million--the plaintiff was entitled to an all-cash performance bonus in that amount. The plaintiff only received $2,244,000, leaving a bonus shortfall of $1,156,000, and the plaintiff is entitled to damages on this aspect of his claim in that amount.
Again, the question of prejudgment interest is based on an equitable determination. Bonuses were typically paid sometime around April of the year subsequent to the year in which the bonus had been earned, meaning that for 2012, the bonus reasonably was expected to be paid in April 2013. Allowing for time for the plaintiff to complain about the deficiency in cash bonus, and a reasonable opportunity for the defendant to have responded, taking into account the timing of the plaintiff's complaints; see, e.g., Exhibit 31 (email to Alex Beard dated 4/22/13); interest at 4% is awarded, starting on May 2, 2013.
Implied Covenant
The plaintiff has claimed that there was a breach of the Implied covenant of good faith and fair dealing. That claim does not inherently duplicate the breach of contract claim nor is it precluded by the existence of a " standard" breach of contract claim. Rather, it starts with the existence of a contract, and focuses on the manner of performance.
The common-law duty of good faith and fair dealing implicit in every contract requires that neither party [will] do anything that will injure the right of the other to receive the benefits of the agreement . . . Essentially it is a rule of construction designed to fulfill the reasonable expectations of the contracting parties as they presumably intended . . . To constitute a breach of [the implied covenant of good faith and fair dealing], the acts by which a defendant allegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith . . . (Citations and internal quotation marks omitted; brackets as in cited case.) Welch v. Stonybrook Gardens Cooperative, Inc., 158 Conn.App. 185, 200, 118 A.3d 675 (2015).
The covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application or interpretation of a contract term. (Internal quotation marks and citation, omitted.) De La Concha of Hartford v. Aetna Life Insurance Co., 269 Conn. 424, 433, 849 A.2d 382 (2004)
The plaintiff is claiming that the defendant has attempted to interpret the relevant aspects of the agreement (and especially the cash requirement aspect of the discretionary performance bonus) in the narrowest and most technical manner possible, which comes within the scope of an attempt to rely upon " a party's discretionary application or interpretation of a contract term" so as to " impede the plaintiff's right to receive benefits that he . . . reasonably expected to receive under the contract."
The validity of this claim is buttressed by the evidence indicating that the bonus given to the plaintiff for 2012 was done without regard to the actual contract terms, based on a new procedure, and inferentially only later, when the plaintiff complained, was there a contention that the language of the contract supported or allowed the practice.
Although close, the court cannot conclude that the defendant's conduct crossed the line into " bad faith." Especially with respect to the guarantee, the IPO created issues that the parties had not considered, even though the IPO itself was seen as having a substantial likelihood of occurring. If the defendant truly believed, in April of 2010, that the guarantee included any IPO premium, it was incumbent on the defendant to make that clear rather than keeping it as a private and unobvious interpretation. With respect to the bonus, it was not bad faith to have assumed that everyone was subject to new protocols established after the IPO. By the time the plaintiff had complained that his agreement required separate treatment, the relationship had soured--followed relatively quickly by the plaintiff's resignation.
Conclusion
The defendant may well be correct that the plaintiff was compensated handsomely for his not-quite three years of work for the defendant, particularly if the premium resulting from the IPO is taken into account. The issue, however, is not whether he received in those three years more than most people will see in a lifetime, but whether the defendant lived up to its obligations. Perhaps the defendant was over-eager in trying to bring the plaintiff on board, and as quickly as possible. (In its haste, the defendant sent out a version of the letter agreement reciting the 10% bonus target in explicit terms, only to have to rescind and replace that version of the agreement.)
The defendant is correct in stating that the court should give little or no weight to the statements of the plaintiff to the effect that he would not have joined the defendant but for his understanding (as articulated at trial) of the meaning of the two disputed portions of the agreement. But neither is the court inclined to accept the defendant's after-the-fact explanations. The defendant generally argues that the reference to profit participation shares was intended to mean both the PPUs and the GH shares, but that is hardly the only possible interpretation. For example, when Exhibit 1 talks about " awarding" shares and the letter agreement talks about " granting" shares, GH shares were not awarded or granted but rather were required to be purchased--but PPUs were awarded/granted. PPUs and not GH shares accumulated value over time, based on earnings. The informal or imprecise language used at the time is hardly unusual when parties reach an agreement that is perceived to be mutually beneficial without consideration of what might go wrong; but the court is not bound to accept the defendant's interpretations, especially when it was aware of technically-appropriate terminology that could have been used to avoid any problems. If the court should be leery of the plaintiff's private beliefs or understanding of the meaning of the agreement, first expressed shortly before the time of his resignation, why should the court be any less leery of the defendant's similarly private beliefs and understanding, when there is an overlay of the defendant acting without attention to the actual language of the agreement, checking the language of the agreement only after complaints of non-compliance had been registered (especially as to the performance bonus)?
In the reply brief, the defendant treats the IPO as if it had been a certainty, as of the time of the plaintiff's agreement to start working for the defendant. For example, at page 6 of #188.00, it states " Likewise, it would have made no sense for Glencore to guarantee to match $4 million using private equity shares when it knew perhaps only $1 million in value would be realized during the private equity program prior to its termination in the IPO." Just as the defendant correctly states that the court should give little or no weight to after-the-fact self-serving statements of the plaintiff to the effect that he would not have agreed to work for the defendant but for his understanding of the meaning of the agreement, why should the court credit statements such as this from the defendant, when the evidence did not support this seeming level of certainty? (And does use of the term " private equity shares" or " private equity program" add or detract from the clarity of the issue, where imprecise nomenclature already has been identified as a problem?)
Whatever sophistication the plaintiff may have had with respect to finances and the business of oil derivatives, there is no way that he could have been privy to the details of the corporate structure, and corporate operations, underlying the terms of the letter agreement to the extent it contained custom language for his situation. He could not have known that " profit participation shares" was not a term of art but rather an informal term of imprecise meaning. He reasonably could have and did rely upon assurances that his performance bonus would be paid in cash, as embodied in the agreement ultimately executed by the parties.
In a very loose sense, both parties are asking the court to do similar things: parse a benefit that the other side claims was not intended to be subject to parsing. The plaintiff was promised that by the end of 2012, the value of his profit participation would be at least $4 million in order to replace the $4 million he had left behind when he came to work for the defendant--a floor on his actual profit participation over that period of time. While the money was intended to be derived from company earnings, the whole point of the guarantee was that if the earnings fell short, the plaintiff would still get at least the promised $4 million. Or, to put it another way, in addition to all of the other forms of compensation to be paid to the plaintiff (base salary, performance bonus, etc.) he was guaranteed that his profit participation interest, by the end of December 2012, would provide at least another $4 million in benefits. The problem is that the agreement used terms that were more colloquial than technical, and the language used is open to varying interpretations as to what amounts were to be used in determining whether the $4 million target was achieved, or the corresponding shortfall that needed to be made up. Under the defendant's interpretation, if the company had gone public the day after the plaintiff started working, the plaintiff would have received only the IPO premium, with the $4 million guarantee effectively illusory--or at most, the $4 million guarantee would have been that the IPO would be worth at least $4 million. (More cynically, the defendant's interpretation would be equivalent to a guarantee that as of December 31, 2012, the combined value of the PPUs and any premium realized from GH shares from an IPO would be at least $4 million.) That is not a reasonable interpretation, under the circumstances. (The IPO premium would not be " in addition" to anything related to the guarantee.)
On the other hand, the defendant had promised the plaintiff that his performance bonus would be payable in cash. The discretionary aspect of that promise related to amount, not manner of payment. The defendant could have given the plaintiff a performance bonus of 9.3% or some other figure, with an additional bonus characterized as " something else, " but it didn't. While it is not a frivolous argument to claim that a bonus beyond the target range (approximately 10%) might not be subject to the mandatory cash mechanism, or that the " something else" could be blended into a singular bonus, that is not what the plaintiff bargained for and reasonably believed was part of his contract. The court has concluded that the language used and the intent of the parties mandate that the bonus provision be interpreted as discretion-as-to-amount but mandatory-as-to-cash. The defendant lacked authority to disregard the plaintiff's contract when it chose to implement a new post-IPO protocol for performance bonuses.
For all of these reasons, then, judgment enters in favor of the plaintiff in the amount of $1,156,000 + $2,941,509 = $4,097,509, with prejudgment interest on $1,156,000 at 4% per annum commencing May 2, 2013 ($169,546.36 through January 2, 2017 with a per diem of $128.44). Interest at 4% per annum on the $2,941,509 commences on the date this decision is filed in the clerk's office.
An offer of compromise was filed (#118.00) on October 10, 2014, with a stated offer amount of $4 million. As the amount of the judgment as recited above is in excess of that offer, the plaintiff also is entitled to offer of judgment interest. The offer having been filed less than 18 months after filing of the complaint (November 7, 2013), offer of compromise interest at 8% per annum is to be calculated from that date.
Pursuant to General Statutes § 52-192a(c): " The interest shall be computed from the date the complaint in the civil action or application under section 8-132 was filed with the court if the offer of compromise was filed not later than eighteen months from the filing of such complaint or application."
Costs will be taxed by the clerk.