Opinion ID: 2976706
Heading Depth: 2
Heading Rank: 2

Heading: Enforceability of Release

Text: Goulson contends the district court erred in holding that the release contained in the Option Exercise Notice form bars this action. He contends the validity of the release is contingent on promised consideration which he never received, i.e., the vesting of 1,198 shares of restricted stock that he had been awarded. Goulson concedes that his ownership of these shares was not disclosed in the attachment to the notice. Yet, he insists this “mistake” by Yorkshire, and his mistake in failing to detect Yorkshire’s error, did not alter the facts that he had been awarded the shares, he never relinquished them in writing, and Yorkshire remained obligated to repurchase them under the terms of the notice. Under Michigan law, as the district court correctly observed, the release executed by Goulson is presumed to be valid. Stefanac v. Cranbrook Educ. Cmty., 435 Mich. 155, 164-65 (1990). Goulson is presumed to have executed the release knowingly and to have received the recited -7- No. 07-2232 Goulson v. Yum! Brands, Inc., et al. consideration. Id. To repudiate the release, and bring suit in avoidance of it, it is incumbent on Goulson to show, by a preponderance of the evidence, “that the release is unfair or incorrect on its face.” Id. at 165. “A release is invalid if (1) the releasor is dazed, in shock, or under the influence of drugs, (2) the nature of the instrument was misrepresented, or (3) there was other fraudulent or overreaching conduct.” Skotak v. Vic Tanny Int’l, Inc., 203 Mich. App. 616, 618 (1994). The district court correctly concluded that the language of the release is unambiguous and undisputably broad enough to bar claims seeking to enforce obligations relating to the restricted stock. Order p. 9, JA 72. The district court summarily rejected Goulson’s claim of mistake, noting that Goulson acknowledged having read the form before signing it, and holding that he would be bound by its terms even if he had not read them, citing Rowady v. K Mart Corp., 170 Mich. App. 54, 60 (1988) (“[A] person cannot avoid a written contract on the ground that he did not attend to its terms, did not read it, supposed it was different in its terms, or that he believed it to be a matter of mere form.”). Id. at 9-10, JA 72-73.
In attempting to repudiate the release, Goulson does not rely on a theory that he was under the influence of any drug or medication when he read and signed the form. Nor does he contend that his consent was influenced by fraud or overreaching conduct by Yorkshire. Nor has he argued that the nature of the document was misrepresented to him. Goulson has not even argued, in the language of Stefanac, “that the release is unfair or incorrect on its face.” Rather, in asserting his mutual mistake theory, he has relied on two contract cases in which rescission was granted based on the parties’ mutual mistake. -8- No. 07-2232 Goulson v. Yum! Brands, Inc., et al. Before even discussing the two cases, we recognize that the law of “compromise and release is not to be confused with the law of contract, in which equivalents are exchanged, for the very essence of a release is to avoid litigation, even at the expense of strict right.” Stefanac, 435 Mich. at 164 (quoting Kirl v. Zinner, 274 Mich. 331, 334-35 (1936)). In other words, the two cases cited by Goulson, neither of which involves a release, have only marginal relevance to the question posed in this case. Yet, to the extent they are instructive at all, they afford little support for Goulson’s position.
The first case is Lenawee County Bd. of Health v. Messerly, 417 Mich. 17, 24 (1982). It recognizes that “a contract may be rescinded because of a mutual misapprehension of the parties, but this remedy is granted only in the sound discretion of the court.” Id. at 26 (emphasis added). Although Goulson relies on Messerly for its discussion of mutual mistake, he fails to recognize that the opinion, as a whole, works strongly against him. In fact, Messerly poses three distinct problems for him. First, whereas Messerly recognizes the appropriateness of rescission as a potential remedy in the case of a mutual mistake, Goulson is not seeking rescission. He is quick to disavow any desire to rescind the agreement in which the release appears. That is, although Goulson’s right to bring this action depends on his successful repudiation of the release itself, he does not want to rescind the whole agreement in order to repudiate the release. Goulson recognizes that rescission would require him to surrender to Yorkshire the consideration he received in exchange for the release, i.e., the estimated $238,389.50 in after-tax income generated by Yorkshire’s repurchase of his 2,391 option -9- No. 07-2232 Goulson v. Yum! Brands, Inc., et al. shares. Stefanac, 435 Mich. at 176 (holding “that a plaintiff must, in all cases where a legal claim is raised in contravention of an agreement, tender the consideration recited in the agreement prior to or simultaneously with the filing of suit.”).3 Goulson would prefer to repudiate the release only to the extent necessary to enforce Yorkshire’s supposed obligation to repurchase the restricted shares not included in the attachment listing. Such an argument was specifically rejected in Stefanac, where the court held that until the party who would repudiate the release puts the other party in statu quo, a precondition to setting aside the release, the release remains a good defense, barring actions in contract and in tort. 435 Mich. at 166. Hence, Goulson’s insistence that he doesn’t mean to rescind the parties’ agreement, but rather to enforce it, is a futile exercise in semantics. He cannot even begin to enforce any part of the agreement until he first carries his burden of proving that the release should be set aside. The second problem posed by Messerly relates to the mutual mistake requirement. In Messerly, the court concluded that, irrespective of whether the asserted mutual mistake goes to the essence of the consideration or goes merely to its quality or value, rescission will be an appropriate remedy only “when the mistaken belief relates to a basic assumption of the parties upon which the contract is made, and which materially affects the agreed performances of the parties.” 417 Mich. at 28-29. We do not have this sort of mutual mistake in this case. Goulson identifies Yorkshire’s mistake as consisting of its failure to list the 1,198 restricted shares awarded to him in 1998 and 1999 in the listing attached to the notice. Yet, the record does 3 Goulson’s failure to tender this consideration back to Yorkshire by the time he commenced this action was held by the district court to be a second ground for dismissal of his claims. - 10 - No. 07-2232 Goulson v. Yum! Brands, Inc., et al. not support the notion that Yorkshire views this failure as a mistake at all. Yorkshire’s position is that Goulson forfeited the restricted shares on separation, September 30, 2000, when he failed to expressly accept the offer of accelerated vesting. Ragsdale letter, July 3, 2001, JA 310; Allen dep. pp. 60-61, 66-68, JA 557, 559. Hence, Yorkshire sees no incorrectness or mistake in the listing indication that Goulson held zero restricted shares on April 23, 2002. According to Yorkshire, the listing accurately reflects what Yorkshire’s records then showed. The asserted “mistake” was not, therefore, a mutual misapprehension, but a unilateral one. Moreover, even accepting Goulson’s characterization, his asserted mistake is different than the mistake he attributes to Yorkshire. Goulson identifies his mistake as consisting of his failure to examine the attachment listing carefully, which resulted in his failure to discover the erroneous listing of zero restricted shares. This characterization is at odds with Goulson’s own deposition testimony, where he conceded that, by the time he received the April 23, 2002 notice, he had forgotten he owned the restricted stock. Goulson dep. p. 51, JA 648. Hence, if Goulson had forgotten all about the restricted shares, it is unlikely that correction of his mistake through a more careful review of the attachment listing would have revealed the supposed incorrectness. Yet, even accepting Goulson’s characterization as credible, it is still not the sort of mistake for which relief would be available under Messerly. His failure to read the notice carefully did not give rise to a misapprehension regarding a basic assumption of the parties affecting their promised performances. Moreover, as the district court recognized, Goulson’s failure to read the notice carefully is not a mistake that Michigan law is prepared to excuse in any event. See Rowady, 170 Mich. App. at 60. - 11 - No. 07-2232 Goulson v. Yum! Brands, Inc., et al. Messerly presents yet a third problem for Goulson. Messerly recognizes that “rescission is an equitable remedy which is granted only in the sound discretion of the court.” 417 Mich. at 31. “Rescission is not available, however, to relieve a party who has assumed the risk of loss in connection with the mistake.” Id. at 30. Here, Goulson was urged by the Option Exercise Notice to read the notice and attachment carefully and to contact Yorkshire if the information in the attachment was incorrect. JA 182. By executing the release, he forever and irrevocably released and discharged Yorkshire from any all claims and causes of action whatsoever, known or unknown, suspected or unsuspected, relating to the restricted stock. JA 185. In broad, explicit, unambiguous language, the parties thus clearly allocated the risk of loss associated with any mistake to Goulson. Under these circumstances, per Messerly, even if there were a “mutual mistake,” equity would not come to Goulson’s aid and permit him to repudiate the release.
The second case cited by Goulson in connection with his mutual mistake theory is Garb-Ko, Inc. v. Lansing-Lewis Servs., Inc., 167 Mich. App. 779 (1988). While Goulson cites the case for its discussion of mutual mistake, Garb-Ko, too, does not help him. In Garb-Ko, the court followed the teaching of Messerly. Finding a mutual mistake relating to a basic assumption of the parties, the court allowed the seller to rescind the contract for sale of land. The court noted that the parties’ agreement had allocated the risk of loss to the purchaser. Because the seller, not the purchaser, was the party adversely affected by the parties’ mistake, the purchaser’s assumption of the risk of loss was held not to preclude rescission by the seller and the contract was deemed voidable by the seller. Here, in contrast, Goulson is both the party adversely affected by the asserted mistake and the party - 12 - No. 07-2232 Goulson v. Yum! Brands, Inc., et al. who assumed the risk of loss by releasing Yorkshire from liability for any potential claim. Under these circumstances, per Garb-Ko, Goulson cannot repudiate the agreement even if he were adversely affected by a significant mutual mistake, because he expressly and indisputably bore the risk of the mistake. 167 Mich. App. at 785 (“when a legally significant mutual mistake has occurred, the contract is voidable by the adversely affected party unless he bears the risk of the mistake”) (emphasis added). Goulson attempts to distinguish Garb-Ko by again insisting that he does not want to rescind the parties’ agreement, but enforce it. In other words, Goulson’s mutual mistake theory is founded on his steadfast refusal to acknowledge that the release exists as an integral part of the very agreement he purports to enforce. Unless and until he carries his burden of demonstrating the invalidity of the release (rather than its imagined nonexistence), he is barred from enforcing any other part of the Option Exercise Notice agreement. Goulson’s mutual mistake theory, finding practically no substantive support in the very cases he relies on, fails to carry this burden for him.
Goulson also argues that the release is not enforceable because Yorkshire did not pay him the full promised consideration. He contends that he is not bound by the release because Yorkshire first breached the Option Exercise Notice agreement by failing to repurchase his shares of restricted stock. That is, in the words of Stefanac, “the release is unfair.” 435 Mich. at 165. According to the April 23, 2002 Option Exercise Notice, “all restricted stock granted by the Company” was to become “fully vested” immediately before the “effective time” of the thenimminent merger between Yorkshire and TRICON Global Restaurants, Inc. JA 182. In ¶ 3 of the - 13 - No. 07-2232 Goulson v. Yum! Brands, Inc., et al. accompanying form which Goulson executed on April 24, 2002, Goulson expressly understood that “all my shares of Restricted Stock” would become fully vested immediately before the effective time, that he would receive payment for them, less withholding taxes, in conjunction with the closing of the merger, and that his shares would then cease to be outstanding. JA 185. As Goulson argues, the release contained in ¶ 5 of the same form is expressly conditioned on the vesting of his restricted stock and receipt of payment therefor. Id. Since he had never submitted any written notice of his intent to relinquish or forfeit the 1,198 shares awarded to him in 1998 and 1999, as required by § 9 of the RSA Agreements, see JA 145, 152, Goulson contends he had necessarily retained ownership of the shares. And since he did not receive the promised repurchase payment for his 1,198 shares as they vested in conjunction with the Yorkshire-TRICON merger, Goulson contends Yorkshire breached the condition precedent to enforcement of the release. There are several obvious flaws in this argument. First, the terms of the RSA Agreements, at § 7, see id., make it clear that Goulson’s interests in the 1,198 restricted shares would have been automatically forfeited at the time of his separation from Yorkshire, September 30, 2000, but for the severance package, which offered him accelerated vesting of the restricted shares. In other words, notwithstanding the § 9 general written notice requirement, Goulson did not have to give written notice to relinquish his interests in the restricted shares; if he separated from Yorkshire for any reason other than death, disability or retirement, he would forfeit them automatically. In the severance package, in what amounted to a permissible written amendment of the RSA Agreements however, Yorkshire offered to rescue him from this automatic forfeiture. The severance package offered accelerated vesting. JA 157. - 14 - No. 07-2232 Goulson v. Yum! Brands, Inc., et al. The terms of the severance package are silent on whether and how Goulson needed to expressly accept or decline the offered vesting. Nonetheless, considering the record as a whole, there is no genuine issue of material fact as to whether some further communication from Goulson was mutually understood to have been required in response to the offer. According to Michael Allen, Yorkshire’s former Senior Vice President of Human Resources, when interests in restricted shares vested, Yorkshire needed to know whether the recipient was going to exercise the option of accepting vesting because of the income tax liability incurred at the time of vesting. Allen dep. pp. 46-48, JA 554. Consistent with this understanding, Allen expected that Goulson would advise him whether he intended to exercise his option to accept vesting of his restricted shares prior to September 30, 2000. Id. p. 60, JA 557. Allen believed that Goulson “most certainly” understood this. Id. p. 66, JA 559.4 Indeed, Goulson’s September 26, 2000 letter to Allen, requesting an extension of time “relative to the acceptance of the stock” pending Yorkshire’s decision on whether to shoulder his income tax liability, evidences his understanding that he needed to accept the vesting to make the conveyance complete. JA 160. Yet, despite this manifest understanding, even as his request for extension was not granted and he received notice that Yorkshire would not be assuming responsibility for his potential tax liability, Goulson did nothing “relative to the acceptance of the 4 In fact, Allen further testified that George specifically told him “he was not going to elect his restricted stock award.” Id. p. 66-68, JA 559. This testimony is controverted, as Goulson denies making any such statement. Goulson dep. pp. 121, 125, 132, JA 665, 666, 668. The district court appropriately refrained, therefore, from relying on this statement in its analysis, as do we. - 15 - No. 07-2232 Goulson v. Yum! Brands, Inc., et al. stock.” He “essentially filed it [i.e., the notice that Yorkshire would not assume responsibility for the tax liability] and didn’t think another thing about it.” Goulson dep. p. 119, JA 665. Against this backdrop, Goulson’s present argument that, despite his silence in September 2000—a silence that continued unabated until the summer of 2003—he believes he retained some undefined interest in the restricted shares in April 2002, rings hollow. So forgotten were the restricted shares that even when Goulson received the Option Exercise Notice on April 23, 2002, advising him that Yorkshire’s records indicated he held zero shares of restricted stock, he did not question it. Further, in relation to whether Goulson received full consideration for the release, there is no dispute that Goulson received the full promised compensation for all options and restricted shares of record, as set forth in the notice, which incorporated the attachment listing. This is the promised consideration in exchange for which he executed the release. Pursuant to the attachment listing, the ¶ 3 term “all my shares of Restricted Stock,” for which Goulson could expect to receive payment, was defined as consisting of zero shares. Though he was expressly urged to read the notice and attachment carefully, he did not question Yorkshire’s statement that he held zero shares of restricted stock. Instead, he executed the release the next day, expressly giving up his right to enforce any claim, “known or unknown,” and undisputedly got what he bargained for—just not what he much later hoped he was entitled to. Hence, Goulson’s lack-of-full-consideration argument falls far short of demonstrating by a preponderance of the evidence that “the release is unfair.” Nor is the evidence sufficient to create a genuine issue of material fact. - 16 - No. 07-2232 Goulson v. Yum! Brands, Inc., et al.