WILLIAM L. HADDEN, JR., Judge Trial Referee.
The plaintiff is a former employee of the defendant. In this civil action the plaintiff is seeking to enforce a promise alleged to have been made by representatives of the defendant during the negotiations which led up to the plaintiff being hired as the defendant's Director of Quality Assurance. It is alleged that the defendant issued an offer letter to the plaintiff which included the terms of employment and that one of the provisions was a representation that the defendant would grant 10,000 shares of stock options in the defendant corporation to the plaintiff. The plaintiff was hired as Director of Quality Assurance but the stock options were never issued.
The operative second amended complaint was filed on or about January 12, 2009 and includes three counts: breach of contract, breach of the duty of good faith and fair dealing, and a statutory wage claim pursuant to Connecticut General Statutes Section 31-72. By way of relief the plaintiff is seeking compensatory and punitive damages, and attorneys fees.
The trial of this case was conducted by this court on September 21, 2010. Three witnesses testified. The plaintiff was the sole witness offered by the plaintiff. The defendant offered two witnesses: the defendant's former director of human resources, Brian Perlini, and the defendant's chief financial officer, Jeffrey Baird. A briefing schedule was set and each party has filed a post-trial brief and a reply brief.
The court finds the following facts and reaches the following conclusions. In the Spring of 2004 the plaintiff submitted an application for employment with the defendant for the newly created position of Director of Quality Assurance. He was unemployed because the company he had previously worked for had gone out of business in November 2003. The plaintiff was on a job search from November 2003 until he was interviewed in July 2004 by the defendant. He had one offer of employment as a quality assurance director with a salary of $105,000 to 110,000. He did CT Page 14686 not identify the prospective employer.
The plaintiff had two interviews in connection with the position with the defendant. The initial interview took place at the defendant's place of business in Branford and it involved a meeting with Chief Operating Officer (COO) Andrew Kersey, the Director of Regulatory and Quality Assurance, Ron Jeffrey, Human Resources Director, Brian Perlini, and Director of Operations, Zack Curello. The defendant had decided to reduce Mr. Jeffrey's responsibilities by hiring someone to handle quality assurance and the plaintiff was being interviewed for the new position. Compensation for the job was not discussed at the initial interview.
A few days later the plaintiff had a luncheon meeting with COO Kersey in which there was a full discussion of compensation for the new position. After some discussion Mr. Kersey said he would recommend that the plaintiff be paid a base salary of $95,000.00 and that he would receive a grant of 20,000 stock options. The plaintiff said that offer was acceptable. Mr. Kersey indicated that he would have to get Chief Executive Officer Lou Schep's approval of the compensation package. A few days later Mr. Kersey told the plaintiff that Mr. Scheps would approve only a grant of 10,000 stock options. The plaintiff accepted the offer. There was no discussion about the terms of the grant or the vesting schedule. On August 18, 2004 the plaintiff signed a hiring letter which also was signed by Mr. Perlini and included the following: "You will be granted 10,000 shares of CAS stock options, Employee Stock Option Plan, (subject to the approval of the Board of Directors)." The plaintiff contacted Mr. Perlini and inquired about the approval by the Board of Directors of the 10,000 stock options. Mr. Perlini told the plaintiff that the Board of Directors had never rejected a recommended stock option grant to a new employee, and that the proposed grant would be taken up at the next Board of Directors meeting. There was no further discussion about any of the terms of the grant.
The plaintiff commenced his employment for the defendant on August 23, 2004. Although it was the standard practice of the defendant to submit all of the pending new employee's stock option grants to the next Board of Directors meeting, inadvertently the plaintiff's proposed grant of 10,000 stock options was never presented to the Board of Directors, and therefore the plaintiff did not receive the usual grant letter setting forth the terms of the grant and the vesting schedule.
While the plaintiff never received a grant letter with respect to the hiring grant of 10,000 stock options, he, and some other employees, in February 2005, received a letter awarding each of them stock options to purchase 5000 shares of CAS common stock in recognition of a good CT Page 14687 performance by the employees and the company. The grant letter spelled out the date of the grant as February 17, 2005, the strike or purchase price of $2.30 on the day of the grant, the expiration date of the options on February 17, 2015, the tax status of the grant, and the vesting schedule. 2500 of the options vested on February 17, 2006, and the balance vested on February 17, 2007. In addition, the plaintiff had been awarded some stock options by a former employer and the award provided for a vesting schedule of 50% after one year employment and the balance after two years.
The defendant has hired between 12 and 15 employees since 2001 where the employment package included a grant of stock options. All such options given to new employees were approved by the Board of Directors and had a vesting schedule of fifty percent after one year's service and the other fifty percent after two years service. No new employee has ever been hired where the grant of the stock options vested immediately upon the commencement of employment.
In the summer of 2005 the defendant determined that, for financial reasons, it had to reorganize and eliminate six or seven positions, including the plaintiff's. On August 4, 2005 Mr. Perlini and Mr. Kersey met with the plaintiff and advised him that his position was being eliminated. The plaintiff inquired about the 10,000 stock options which were in his offer letter. Mr. Perlini was under the impression that the Board of Directors had approved that offer with the usual one-year and two-year vesting period, and he advised the plaintiff that none of the options had vested because the plaintiff had not been employed for the required one-year period. Mr. Perlini advised the plaintiff that the options, which Mr. Perlini mistakenly believed had been approved by the Board of Directors, had not vested because he knew that the Board of Directors had never approved an award of stock options to a new employee that vested in less than one year of employment. Mr. Perlini gave the plaintiff a check for his unpaid one-week salary and his severance pay. The plaintiff has not cashed that check. Mr. Perlini did not notice that the plaintiff was only three weeks away from his one-year anniversary of employment.
The plaintiff retained counsel who wrote to the defendant making a claim for the 10,000 stock options. Mr. Perlini, still believing that the Board of Directors had approved the award with the usual one-year and two-year vesting restrictions, advised plaintiff's counsel that none of the shares of stock had vested because the plaintiff had not been employed for one year. Thereafter this suit was brought by the plaintiff, and during the litigation preparation Mr. Perlini discovered that the Board of Directors had never approved the 10,000 shares option CT Page 14688 award for the plaintiff.
The first count claims a breach of contract. The plaintiff claims that the offer letter which was signed by the plaintiff and a representative of the defendant is a valid contract, that the plaintiff has performed all of his obligations under the contract, that the defendant has breached the contract by not granting the 10,000 stock options, and that the plaintiff has been damaged on the first count by the difference between the cost of purchasing the options at the strike price, which was the value of the shares on the day he commenced work for the defendant, and the increased value of the stock between February 21 and February 24, 2006, which is when the plaintiff claims he would have sold the stock.
The defendant makes several claims in opposition to the plaintiff's claim of a breach of contract. First, the defendant claims that since there was no meeting of the minds of the parties at the time the contract allegedly was formed with respect to whether there was a delayed vesting period, which is an essential term in a contract to award stock options, that therefore there was no valid contract agreed upon. Second, the defendant claims that it is undisputed that the Board of Directors never approved the proposed grant of 10,000 options to the plaintiff, that the defendant is a Delaware corporation which is controlled by Delaware law, and that Delaware law requires that the Board of Directors approve, in writing, any grant of stock options. Third, apart from the requirements of Delaware law, the offer letter itself stated that the proposed award of 10,000 stock options is subject to the approval of the Board of Directors, which was never done, and fourth, even if the Board had approved the grant it is clear that the Board would have imposed a vesting period of one year from the onset of employment for 50% of the grant, and a two-year vesting period for the balance, neither of which the plaintiff completed, so that he would not be entitled to exercise his options.
"The rules governing contract formation are well settled. There must be a meeting of the minds with respect to the essential terms. "To form a valid and binding contract in Connecticut, there must be a mutual understanding of the terms that are definite and certain between the parties . . . To constitute an offer and acceptance sufficient to create an enforceable contract, each must be found to have been based on an identical understanding by the parties . . . If the minds of the parties have not truly met, no enforceable contract exists . . . [A]n agreement must be definite and certain as to its terms and requirements . . . So long as any essential matters are left open for further consideration, the contract is not complete." Geary v. Wentworth Laboratories, Inc., 60 Conn.App. 622, 627. CT Page 14689
"To be enforceable, an agreement must be definite and certain as to its terms and requirements . . . Whether and on what terms a contractual commitment has been undertaken are ultimately questions of fact for the trier of facts . . . A fact finder's determination of whether a contract existed must be based on all of the evidence. Furthermore, [t]o form a valid and binding contract in Connecticut, there must be a mutual understanding of the terms that are definite and certain between the parties . . . To constitute an offer and acceptance sufficient to create an enforceable contract, each must be found to have been based on an identical understanding by the parties." LeBlanc v. New England Raceway, LLC, 116 Conn.App. 267, 283.
"In order for an enforceable contract to exist, the court must find that the parties' minds had truly met . . . if there has been a misunderstanding between the parties or a misapprehension by one or both so that their minds have never met, no contract has been entered into by them and the court will not make for them a contract which they themselves did not make . . . [A]n agreement must definite and certain as to its terms and requirements." (Citations omitted; internal quotation marks omitted.) Fortier v. Newington Group, Inc., 30 Conn.App. 505, 510, 620 A.2d 1321, cert. denied, 225 Conn. 922, 625 A.2d 823 (1993), Electrical Wholesalers, Inc. v. M.J.B. Corp., 99 Conn.App. 294, 302.
This court finds that in this case the vesting period was an essential term in a contract providing for stock options to be awarded to the plaintiff by the defendant. The plaintiff claims that he would not have accepted the job if he knew that the stock options would not vest immediately. The defendant claims that it has never offered a stock option award to a new employee that did not have a delayed vesting period, and that no such award was offered in this case. The parties did not have a meeting of the minds on the subject of vesting, which is an essential term in a contract of this type, and the court finds that no enforceable contract exists.
The plaintiff started working for the defendant on August 23, 2004. There was no discussion between the parties concerning the vesting of the plaintiff's rights to the stock options. Even when in February 2005 the plaintiff and some other employees were given 5000 stock options in a letter from the defendant which included all of the details of the grant, including a vesting schedule that awarded 2500 options one year after the date of the grant and the balance vesting in two years, the plaintiff did not inquire about the vesting schedule of his 10,000 share options. If the plaintiff believed that he had an agreement by which he was entitled to receive a grant of 10,000 stock options on August 23, CT Page 14690 2004 it would seem that he would have made a specific inquiry about his grant when he received the letter with the terms of the February 2005 grant. Mr. Perlini and Mr. Baird said that the plaintiff made no such inquiry which the court accepts as factual.
The additional basis for the defendant claiming that no contract for the grant exists is that the Board of Directors did not approve the proposed 10,000 share grant. While the defendant operates in Connecticut, it is a Delaware Corporation and Connecticut law provides that the corporate powers of a Delaware Corporation are controlled by Delaware law. "The issuance of stock option plans by the defendant involves its internal affairs, and any controversy resulting therefrom is controlled by Delaware law," Ellis v. Emhart Mfg. Co., 150 Conn. 501, 508.
Under Delaware law stock cannot be issued unless the Board of Directors is authorized to issue the stock and approves the issuance in conformity with the law. See Liebermann v. Frangiosa, 844 A.2d 992. Section 157(a) of the Delaware Code provides that corporation may issue shares of stock or options entitling one to acquire shares of stock. "A writing is required for the issuance of corporate stock to be valid" Anderson v. Dobson, 627 F.Sup.2d 619, 626. The writing includes a grant of a stock option that purports to bind the corporation to issue the stock. See Grimes v. Alteon, Inc., 804 A.2d 256, 261 (Del. 2002); First Marblehead Corp. v. House, 473 F.3d 1, 6-7 (1st Cir. 2006).
The plaintiff claims that he had a valid contract with the defendant by which the defendant was obligated to issue 10,000 stock options to the plaintiff on the first day of his employment. The court has found that no enforceable contract existed because the parties never had a meeting of the minds on an essential term of such a contract. An additional basis for finding that such a contract would be unenforceable is that the alleged contract was never approved in writing by the Board of Directors as is required by Delaware law.
The defendant concedes that the proposed grant was never submitted for approval to the Board of Directors through an oversight by the defendant's chief financial officer, and that if it had been submitted it would have been approved. However, the approval would have been reflected in a grant letter to the plaintiff. It is clear to the court that if such a grant had been approved it would have contained the same details as were contained in the February 15, 2005 grant given to the plaintiff, and other employees, for exemplary work. The court finds that included in the details of the grant would have been a vesting schedule of 50% of the options vesting after one year of employment and the remaining 50% vesting after two years of employment. Since the plaintiff was employed by the CT Page 14691 defendant for less than one year none of the options would have been vested and the plaintiff would have suffered no loss.
The second count seeks damages for an alleged breach of the covenant of good faith and fair dealing. This claim is premised on the proof of the existence of a contract, and every contract carries an implied covenant of good faith and fair dealing. The plaintiff claims that he has proven the existence of a contract and a violation of the covenant of good faith and fair dealing. The violation of the covenant is claimed to have been proven by the failure of the defendant to submit the offer letter to the Board of Directors for approval, and for terminating the plaintiff when he was only three weeks shy of his one-year anniversary.
The court has found that the plaintiff has failed to prove the existence of a contract. The existence of a contract is a "necessary antecedent" to a claim of a breach of the covenant of good faith and fair dealing. See Macomber v. Travelers Property Casualty Corp., 261 Conn. 620, 628 (2002).
The evidence offered to prove the bad faith by the defendant consists of the failure by the defendant to submit the offer letter to the Board of Directors for approval, and the termination of the plaintiff when he was only three weeks shy of reaching his one-year anniversary of employment. The plaintiff claims that he spoke to Mr. Perlini three times about seeking board approval. Mr. Perlini does not recall any such conversations. Based on all of the evidence the court accepts Mr. Perlini's testimony in this regard. The court finds that the failure of the defendant to submit the grant for stock options to the Board of Directors for approval was an honest mistake and does not demonstrate bad faith. See, 19 Perry Street, LLC v. Unionville Water Co., 294 Conn. 611, 637 (2010).
Both Mr. Perlini and Mr. Baird testified that the fact that the plaintiff was approaching his one-year anniversary when he was terminated was not noticed by either of them and was not a factor in the termination. The plaintiff claims that it was "inconceivable" that Mr. Perlini would not have noticed how close the plaintiff was to his one-year anniversary. Mr. Baird testified that there was no economic motivation for the defendant to deprive the plaintiff of his option rights shortly before they would have vested. The court accepts the testimony of Mr. Perlini and Mr. Baird explaining the decision of the defendant in terminating the plaintiff. The plaintiff has failed to prove the existence of a contract and that the defendant violated the covenant of good faith and fair dealing.
CT Page 14692 The third count of the second amended complaint alleges a violation of Connecticut General Statutes Section 31-72 in that the defendant failed to pay the plaintiff his 10,000 stock options. The plaintiff claims that the stock options are unpaid "wages" as contemplated by Section 31-72, and that the failure to award the options was in bad faith and unreasonable, and that by such conduct the defendant is liable to the plaintiff for double damages, costs and reasonable attorneys fees.
The basic issues raised by the defendant with respect to the third count are that the plaintiff has failed to prove the existence of a contract for the award of the stock options. Therefore, there is nothing owed to the plaintiff, and that, in any event, the award of the options in this case would not constitute wages as defined by statute.
General Statutes Section 31-73 provides that the employer shall not refuse to pay "any part of the wages agreed to be paid." This court has found that the plaintiff has failed to prove that he had an agreement by which he was entitled to be paid the stock options and therefore he cannot prevail on a claim based on such an agreement.
The term "wages" has been defined as "compensation for labor or services rendered by an employee" Ravetto v. Triton Thalassic Technologies, Inc., 285 Conn. 716, 724 (2008). The plaintiff claims that he was entitled to the 10,000 stock options on his first day of employment. It is clear that the options were not compensation for labor or service rendered by the plaintiff. The grant was a hiring inducement and not wages. The plaintiff has failed to prove the allegations of the third count.
For the foregoing reasons the court finds that the plaintiff has failed to prove the allegations of the complaint. A judgment may enter in favor of the defendant on all of the counts of the complaint.
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