Opinion ID: 1401512
Heading Depth: 2
Heading Rank: 1

Heading: sale bonus

Text: ¶ 13 Whether Dixon is entitled to the sale bonus under the employment agreement is a matter of contract interpretation. In interpreting a contract, the intentions of the parties are controlling. Winegar v. Froerer Corp., 813 P.2d 104, 108 (Utah 1991). If the contract is written and the language employed is not ambiguous, the parties' intentions are determined from the plain meaning of the language. See id. ¶ 14 Whether contract language is ambiguous is a question of law. See Willard Pease Oil & Gas Co. v. Pioneer Oil & Gas Co., 899 P.2d 766, 770 (Utah 1995). An ambiguity exists where the language `is reasonably capable of being understood in more than one sense.' R & R Energies v. Mother Earth Indus., Inc., 936 P.2d 1068, 1074 (Utah 1997) (quoting Black's Law Dictionary 73 (5th ed.1979)). [W]hen a contract provision is ambiguous ... extrinsic evidence is admissible to explain the intent of the parties. Willard Pease, 899 P.2d at 770; see also Interwest Constr. v. Palmer, 923 P.2d 1350, 1359 (Utah 1996). If a contract is unambiguous, however, a court may interpret [it] as a matter of law. Willard Pease, 899 P.2d at 770. In so doing, a court must attempt to construe the contract so as to harmonize and give effect to all of [its] provisions. Nielsen v. O'Reilly, 848 P.2d 664, 665 (Utah 1993); see also Willard Pease, 899 P.2d at 770 (noting that each contract provision should be considered in relation to all others). ¶ 15 Here, the sale bonus provision of the employment agreement states: [I]f during the Term of this Agreement Rentrak or [Pro Image], as the case may be, enters into a definitive agreement with respect to a Sale, then [Dixon] shall be entitled to a bonus (the Sale Bonus) equal to the greater of (x) Fifty Thousand Dollars ($50,000) or (y) one percent (1%) of the net sale proceeds.... This language provides that Dixon is entitled to a Sale Bonus if, during the Term of the agreement, Rentrak or Pro Image entered into a definitive agreement with respect to a Sale. ¶ 16 The employment agreement defines its Term as follows: Employment shall commence on the date hereof and shall end on October 31, 1996 (the `End Date') or until [Dixon's] employment under this Agreement is terminated pursuant to this Section 2 (the `Term'). Thus, the Term of the agreement spanned from May 1, 1996, until December 3, 1996, the date on which Dixon's employment was terminated. [3] If a Sale occurred during this period, Dixon is entitled to the sale bonus. ¶ 17 The word Sale, however, is less straightforward and is the center of the parties' dispute concerning the sale bonus. The employment agreement defines Sale as a definitive agreement to sell [Pro Image], a controlling interest in [Pro Image] or the business of [Pro Image] (whether by asset sale, stock sale, merger, consolidation or otherwise, and in each case a Sale) to its management or an independent third party purchaser (in each instance, a Buyer).... (Parentheses in original.) Hence, a Sale occurred if Rentrak entered into a definitive agreement to sell (1) Pro Image, (2) a controlling interest in Pro Image, or (3) the business of Pro Image in the enumerated ways or otherwise. ¶ 18 Dixon relies primarily on the third definition of Sale in contending that he is entitled to the sale bonus. He argues that use of the words or otherwise in describing how a Sale of the Pro Image business may occur allows for the sale of individual stores or portions of the business, not just a single sale of the entire business as the district court found. Thus, he contends, when 18 franchise stores and 8 corporate stores were sold during October and November of 1996  while he was still employed as president of the company  for a combined total of over $1.6 million, he became entitled to the $50,000 sale bonus. ¶ 19 In support of his position, Dixon notes that the amount of the sale bonus is $50,000 or one percent of the net sale proceeds, whichever is greater. Dixon reasons that because one percent of any sale proceeds of less than $5 million would result in less than $50,000, the parties must have contemplated sale proceeds of less than $5 million; and since Pro Image had over $13.6 million in assets prior to execution of the employment agreement, it can reasonably be inferred that the parties considered liquidating the business in a piecemeal fashion. ¶ 20 Dixon further argues that the district court's interpretation of the sale bonus provision ignores the underlying purpose of the provision. Dixon explains that the sale bonus was provided as an incentive for him to keep Pro Image afloat, preserving and enhancing its financial appeal to prospective buyers. Dixon submits that under the district court's decision, however, even if the entire business had been sold while he was employed, but in two different transactions, he would not be entitled to the sale bonus despite the fact that his performance in preserving the company would have been the same had the entire business been sold in one transaction. Dixon concludes that the district court therefore erred in ruling that the sale bonus provision required a single sale of the whole company. ¶ 21 Finally, Dixon points out that under the employment agreement, a Sale is defined as a definitive agreement to sell. Dixon contends that a definitive agreement had been entered into between Rentrak and P.I. Acquisitions to sell the remaining franchise stores of Pro Image as of the date his employment was terminated, December 3, 1996. Dixon postulates that although the asset purchase agreement consummating that transaction was not executed until December 6, 1996, the parties to that sale had agreed upon all the key terms beforehand, and Rentrak simply postponed execution of the deal to avoid paying him the sale bonus. In support of his position, Dixon relies on evidence that in November of 1996, during the week prior to Thanksgiving, a representative of Rentrak informed him that an agreement had been reached to sell the remaining franchise stores to P.I. Acquisitions. Dixon calculates that given the combined prices for which all of Pro Image's various assets were eventually liquidated, approximately 58 percent of the value of Pro Image's assets, or a majority of the business, had either been sold or was under agreement to be sold by the date his employment ended. Thus, Dixon argues, even if he is not entitled to the sale bonus by virtue of the sales that were actually completed during his employment, those sales coupled with the definitive agreement that had been reached (but not formally executed) to sell the remaining franchise stores necessarily entitle him to the sale bonus. ¶ 22 Rentrak responds that under the plain meaning of the employment agreement, the sale bonus is triggered only by a single sale of the entire Pro Image business. Rentrak points out that the agreement speaks of a Sale in the singular, not the plural, refers to a definitive agreement to sell Pro Image rather than multiple agreements, and states that the sale bonus will be paid on the closing date relating to the Sale, not on different closing dates of distinct sales. ¶ 23 Rentrak also argues that certain provisions of the employment agreement cannot be harmonized under Dixon's interpretation. Rentrak points to a provision stating that following a Sale, [Dixon's] employment may [be] terminated by a Buyer at any time without cause upon ten (10) days['] written notice to [Dixon]. Rentrak explains that under Dixon's theory that the parties contemplated partial sales of the business to various buyers, whenever such a sale occurred, as in October of 1996 when one corporate store was sold, the buyer would have been authorized to terminate Dixon's employment as president of Pro Image. Rentrak also identifies a provision stating that [Pro Image] may assign its rights under this Agreement ... to any Buyer in a Sale. Rentrak argues that under Dixon's theory, this provision would have allowed Pro Image to assign Dixon's employment agreement to the buyer of the first Pro Image store. Rentrak contends that such results are contrary to what the parties reasonably could have contemplated in entering into the employment agreement and, as a result, Dixon's proposed interpretation of the sale bonus provision must be rejected. ¶ 24 Rentrak finally asserts that Dixon, by accepting the severance pay, acknowledged that there had been no sale during his employment and that he was not entitled to the sale bonus. According to Rentrak, the parties anticipated that if a sale of the entire business occurred, the buyer would replace Dixon with a new president and Dixon's only compensation in addition to his salary would be the sale bonus. If, on the other hand, such a sale did not occur and Dixon's employment was not renewed, Dixon would be entitled to the severance pay. Rentrak contends that Dixon's acceptance of the severance pay precludes him from seeking the sale bonus as well. ¶ 25 The parties' arguments highlight the ambiguities that should have prevented the district court from granting summary judgment against Dixon on his claims concerning the sale bonus. The parties have presented contrary, tenable interpretations. See Plateau Mining Co. v. Utah Div. of State Lands & Forestry, 802 P.2d 720, 725 (Utah 1990) (noting that ambiguity exists where contrary positions are tenable). It is unclear from the language of the employment agreement whether the parties intended the sale bonus to apply only in the event of a single, completed sale of the entire Pro Image business, as the district court found. ¶ 26 Indeed, the language of the employment agreement indicates that the parties contemplated a Sale to consist of less than the entire company. The agreement states that a Sale is a definitive agreement to sell [Pro Image], a controlling interest in [Pro Image] or the business of [Pro Image]. (Emphasis added.) The agreement does not define controlling interest. However, in certain contexts, the term controlling interest means less than a totality of a business's assets. In corporate law, for instance, a controlling interest references dominant ownership of a corporation's stock, not necessarily all of the stock. See, e.g., Zetlin v. Hanson Holdings, Inc., 48 N.Y.2d 684, 421 N.Y.S.2d 877, 397 N.E.2d 387, 388 (1979) (describing purchase of controlling interest as acquisition of dominant ownership of corporation); Perlman v. Feldmann, 219 F.2d 173, 174-75 (2d Cir.1955) (same); 18A Am.Jur.2d Corporations §§ 762-63, 795 (1985) (same); see also Joshua Ronen, Sale of Controlling Interest: A Financial Economic Analysis of the Governing Law in the United States and Canada, 37 Case. W. Res. L.Rev. 1, n.1 (1986) (noting that controlling interest does not depend upon the ownership of any specific percentage of shares and may be highly factual). Given the parties' use of the term controlling interest, a reasonable inference exists that a Sale of less than the entire Pro Image business would have entitled Dixon to the sale bonus. Thus, extrinsic evidence is necessary to determine what the parties intended a Sale triggering the sale bonus to be. ¶ 27 On remand, it must also be determined whether Rentrak and P.I. Acquisitions had reached a definitive agreement concerning the sale of the remaining franchise stores to P.I. Acquisitions as of December 3, 1996, the date Dixon's employment was terminated. Under the employment agreement, a Sale is defined as a definitive agreement to sell. What the parties intended by the phrase definitive agreement to sell and whether Rentrak and P.I. Acquisitions had reached such an agreement are factual issues. Dixon's entitlement to the sale bonus must be assessed in light of the sales that had been completed as of December 3, 1996, as well as whatever definitive agreements to sell, if any, had been reached as of that date. If Dixon ultimately is entitled to the sale bonus, it must be determined whether the parties intended the sale bonus and severance pay to be mutually exclusive.