Source: https://www.executiveloyalty.org/lit---stock-awards--claims-by-execs-.html
Timestamp: 2019-04-20 07:09:25+00:00

Document:
Under Texas jurisprudence, if one party prevents another from performing a condition precedent or renders its fulfillment impossible, then the condition may be considered fulfilled.7 Here, if Defendants effectively terminated Sellers’s employment in December 2014 (as opposed to in February 2015), as they suggest, then they unilaterally prevented fulfillment of the condition at issue and cannot rely on nonfulfillment to deny the LTI benefits otherwise contractually due to Sellers.
Read literally, this seems to say that a service-based vesting schedule can be deemed satisfied when an employer frustrates vesting through a without cause termination. While that seems wrong on cold contract grounds, it seems to reflect the court's sense of equity and justice on the facts before it. Overall, employers should be extremely careful when pursuing, structuring, and implementing executive terminations at or near vesting events. Further case references appear below under "Eve of Vesting Terminations" but the list there is merely representative. The 5th Circuit’s decision is not an aberration: equity does seem to tip the scales of justice in cases of this kind.
2017.02.07 Stock Award Web Process Works: Non-compete Enforced. As a general matter, employers “win” when they seek to enforce stock plan terms that have been fairly disclosed -- and accepted -- by award recipients. ADP recently had such a victory. In a case decided under New Jersey Law, the 3rd Circuit upheld the granting of a preliminary injunction against two former employees who had joined a competitor in violation of restrictive covenants set forth in their stock awards. The former employees argued that ADP’s web-based system for issuing stock awards did not adequately alert them to the consequences of the stock awards they accepted. They lost because . . . continued at New Jersey Law.
2017.01.21 Equity Awards - ISO Tax Claims from Shortened Vesting Schedule . . . Employers often assume that they will avoid litigation when acting in what they believe will be the best interests of their employees. For instance, shortening a vesting schedule from 4 years to 6 months would seem favorable to stock option holders. Until they sue. That's what Uber faces from a complaint alleging that the shorter schedule deprived them of the tax benefits available for incentive stock options.
2016.06.06 Spin-Merger Procedural Stumbles. See "Merger-related Cashouts" below for a case involving $16 million of recovery by optionees due to flaws in the valuation and cash-out of their stock options.
2012.Jul.05 Executives Prevail in Stock Award Litigation due to Mis-step in Claims Procedures. In disputes between employers and executives, the courts commonly enforce applicable contract or plan provisions according to their terms, but resolve ambiguities against the employers (as drafters of the documents). The 8th Circuit's decision in Schaffart v. ONEOK provides a healthy reminder because the employer's decision -- by its authorized representative and fiduciary for its benefits committee -- "is not entitled to deference because the agreements and plans grant discretionary authority only to the ECC [Executive Compensation Committee], and the ECC neither decided appellee's claims nor delegated any authority."
While what qualifies under § 1002(2)(A) appears to be a matter of first impression in this circuit, we agree with our sister circuits that have determined that the paramount consideration is whether the primary purpose of the plan is to provide deferred compensation or other retirement benefits.
2011.Feb.14 No Exhaustion of Remedies. Claims by former employees under ERISA may proceed, without exhausting plan procedures that employer added after the litigation ensued -- see England v. Marriott Int'l (D.MD).
2010.Aug.30 No ERISA Claims re Stock Option Misrepresentations. The Second Circuit ruled that Pfizer's alleged misstatements about the expiration of an executive's stock options did not breach Pfizer's fiduciary duties under the Employee Retirement Income Security Act (aka ERISA) because the stock option plan was not subject to ERISA. “In essence, Bell seeks to extend the ERISA fiduciary duty to unintentional misstatements regarding collateral, non-ERISA plan consequences of a retirement decision. The language of the statute weighs against such an extension.” (Bell v. Pfizer Inc., 2010 U.S. App. LEXIS 18111).
2013.Aug.13 Option Claims Waived - Covered by Broad Terms of Separation Agreement. The 6th Circuit's decision in Soddu v. Procter & Gamble dismissed a former employee's claims relating to his stock options because the "separation agreements' clear contractual language establishes that the agreements were intended to address every aspect of the employment relationship and broadly waive Soddu's rights against P&G." Employers may want to take note of two contributing factors to the litigation.
First, the claims release omitted any reference to the stock options (or any other benefits), and instead merely referred to waiver of "any right or claim resulting from, or for any reason connected with, the employment relationship."
Second, after executing the separation agreements, the employer corresponded about the stock options in a manner that the employee considered to be an acknowledgement of their preservation.
2012.Jan.12 Option Claims Survive - Not "Unambiguously" Released. Executive's claims relating to his stock options avoided dismissal in Rawat v. Navistar (ND Ill), because "the Release does not unambiguously demonstrate Rawat's intent to release the claims alleged" with respect to his inability to exercise stock options due to a blackout period in effect after execution of the claims release.
1998.08.31 Damages for Wrongful Termination include Lost Stock Options. See Knox v Microsoft (Wash. Sup. Ct), holding that --​ The issue on appeal is whether the employee was entitled to seek money damages in his wrongful termination case for “lost” stock options, where the stock option agreements provided that if the employee was terminated, he would lose any unvested stock options and would be required to exercise any vested stock options within a certain time period. We conclude that the employee was entitled to pursue such damages. Accordingly, we reverse.
​In business transactions, the parties generally address the target company's stock awards in a manner that honors the contractual rights of employees. Costly lessons come, however, when deal terms run afoul of the change-in-control provisions within the target's stock award plan and/or award agreements.
2016.06.22 Employees Win Spin/Merge Stock Option Litigation. Delaware's Supreme Court awarded over $16 million to a private company's optionees in Fox v. CDX Holdings. The court upheld trial court findings that Plan terms (and the associated contractual rights of optionees) were violated both because (1) management, rather than the Board as plan administrator, determined "fair market value" in the step one spin-off, and (2) option proceeds were improperly held-back as part of the post-closing escrow arrangement that was built into the second-step merger agreement.
2007 Out-of-the-Money Stock Options Improperly Cashed-out. In Lillis v. AT&T (Del.Ch. 2007), optionees recovered $21M because they had not consented to the unilateral cash-outs of their underwater stock options in merger transaction.
We find no merit in Porkert’s contention that the parties did not reach a “meeting of the minds” regarding the particular LTIP term that his vested stock options had to be exercised within three months of his retirement. Porkert unequivocally accepted each stock option grant on an annual basis from 1999 until 2004, and did so knowing that each grant was expressly governed by the LTIP terms and rules.
2012.Jul.03 Private Company's Sale and Stock Value at Issue in Stock Award Litigation. When private employers sponsor stock award plans, valuation becomes a common source both for tax issues and for disputes with award recipients. In Fried v. Stiefel Labs, a S.D. Florida court denied the employer's motion to dismiss securities fraud and fiduciary breach claims against controlling shareholders. Those claims traced to valuation issues in the context of both a private equity investment and a later corporate sale.
2011.Nov RSU Valuation and Code 409A: Because employer allegedly overpaid executive and sought to recover on the premise of a mistaken payment arising from a § 409A six-month holding period, Delaware law relating to deference to the Comp. Committee's decision was inapplicable, with employer losing because "Graphic Packaging must produce evidence showing why one valuation date is correct and the other date is incorrect" - and that showing was not made ("there is no historical practice that speaks directly to the proper valuation date for RSUs" under this circumstance). Graphic Packaging v. Humphrey, 2010 U.S. App. LEXIS 23718 (11th Cir. 11/2010).
Note that this decision includes a solid discussion of the Delaware case law relating to broad deference to stock plan committees when they are making initial determinations.

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