Court Opinion

ID: 66746
Source: CourtListenerOpinion
Date Created: 2010-04-26 06:13:48+00
Date Added: 2024-06-11T17:20:48.685757
License: Public Domain

[DO NOT PUBLISH]

               IN THE UNITED STATES COURT OF APPEALS

                        FOR THE ELEVENTH CIRCUIT
                         ________________________
                                                                        FILED
                                                              U.S. COURT OF APPEALS
                                No. 08-11242                    ELEVENTH CIRCUIT
                            Non-Argument Calendar                  November 4, 2008
                          ________________________               THOMAS K. KAHN
                                                                       CLERK
                     D. C. Docket No. 06-00980-CV-J-25JRK

K.C. TROWELL,

                                                  Plaintiff-Appellant-Cross-Appellee,

                                       versus

SOUTH FINANCIAL GROUP, INC.,
a South Carolina corporation,

                                                Defendant-Appellee-Cross-Appellant.

                          ________________________

                   Appeal from the United States District Court
                       for the Middle District of Florida
                        _________________________

                               (November 4, 2008)

Before ANDERSON, MARCUS and WILSON, Circuit Judges.

PER CURIAM:

      Plaintiff-Appellant K.C. Trowell appeals the district court’s partial

dismissal of his amended complaint for failure to state a claim for breach of
contract and the district court’s denial of his motion to file a second amended

complaint to add a claim for contract reformation. On July 16, 2004, CNB Florida

Bankshares (“CNB”) merged with Defendant-Appellee The South Financial

Group, Inc. (“TSFG”). TSFG assumed all of CNB’s existing assets and liabilities.

Prior to the merger, Trowell served as president of CNB. As a substantial

component of his compensation package, he received options for the purchase of

CNB stock. Trowell acquired both Incentive Stock Options (“ISOs”) and Non-

Incentive Stock Options (“Non-ISOs”). Under the Internal Revenue Code, an ISO

receives special tax treatment if it is exercised during an employee’s term of

employment or within three months of his or her termination. See 26 U.S.C. §§

421-22.

      In contemplation of the merger, Trowell and CNB entered into an agreement

extending the time for Trowell to exercise his stock options (“Agreement”). The

relevant paragraph states:

      Options: Attached as Exhibit A is a spreadsheet detailing all of the
      options to acquire CNB common stock held by Executive. Under the
      CNB Long Term Incentive Plan, upon Executive’s termination of
      employment, options must be exercised within either 90 days or one
      year of termination. CNB agrees that immediately prior to the
      consummation of the Merger, it will cause the 90 day and one year
      limitation provisions in the Plan to be modified or waived with
      respect to the Executive’s stock options and replaced with a five year
      termination. This modification or waiver shall not affect the

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      expiration date of each option as shown on the second page of Exhibit
      A.

      On July 16, 2004, the day the merger was completed, Trowell’s employment

with CNB terminated. On September 1, 2005, a little over thirteen months later,

Trowell sought to exercise his ISOs. Due to the expiration of more than three

months from the date of his termination, TSFG informed Trowell that his stock

options could only be exercised as Non-ISOs. Shortly thereafter, Trowell brought

a breach of contract suit against TSFG in Florida state court.

      TSFG removed to federal court and filed a motion to dismiss for failure to

state a cause of action. On February 26, 2007, the district court entered an order

finding that the complaint failed to allege that TSFG breached the Agreement or

that Trowell suffered any damages. Trowell was given leave to amend his

complaint within thirty days. Thereafter, Trowell filed an amended complaint

setting forth his claims in greater detail. TSFG filed a partial motion to dismiss all

claims premised upon on the assertion that Trowell should receive the benefits of

favorable ISO tax treatment. On May 18, 2007, the district court granted the

motion finding that the Agreement extended only Trowell’s ability to exercise the

options, not his ability to obtain favorable tax treatment for the ISO’s under the

Internal Revenue Code. Furthermore, the court determined that the Agreement

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neither explicitly nor implicitly indemnified Trowell against such a loss. Trowell

sought leave to file a second amended complaint to add a claim for reformation of

the Agreement and attorney’s fees. The district court determined that amendment

would be futile, finding that the Agreement could never be reformed to provide tax

favorable status to the ISOs under the Internal Revenue Code because more than

three months had elapsed since Trowell’s termination.

      We review the grant of a motion to dismiss under Rule 12(b)(6) for failure

to state a claim de novo, accepting the allegations in the complaint as true and

construing them in the light most favorable to the plaintiff. Henderson v.

Washington Nat. Ins. Co., 454 F.3d 1278, 1281 (11th Cir. 2006). We review the

district court’s denial of a motion to amend a complaint for an abuse of discretion,

although the underlying legal conclusion of whether a particular amendment to the

complaint would be futile is reviewed de novo. Corsello v. Lincare, Inc., 428 F.3d
1008, 1012 (11th Cir. 2005), cert. denied, 127 S. Ct. 42 (2006).

      Upon careful review of the record and consideration of the parties’ briefs,

we discern no reversible error. The elements of a breach of contract action are (1)

a valid contract; (2) a material breach; and (3) damages. Beck v. Lazard Freres &

Co., LLC, 175 F.3d 913, 914 (11th Cir. 1999). Trowell has not asserted facts

sufficient to allege breach of the Agreement. Trowell explicitly concedes that he

                                          4
is not challenging his ability to exercise the options in general. The Agreement

does not discuss the taxation of the stock options. There is no provision explicitly

or implicitly agreeing to indemnify Trowell for the loss of favorable tax status.

Under Florida law, where the contract “language is plain a court should not create

confusion by adding hidden meanings, terms, conditions, or unexpressed

intentions.” Key v. Allstate Ins. Co., 90 F.3d 1546, 1549 (11th Cir. 1996). Thus,

the district court did not err in finding that Trowell failed to state a claim for

breach of contract and dismissing the amended complaint.

      Furthermore, the district court did not abuse its discretion in denying leave

to file a second amended complaint. Leave to amend should be freely given when

justice so requires. Fed. R. Civ. P. 15(a)(2). However, a district court need not

allow amendment where it would be futile. Bryant v. Dupree, 252 F.3d 1161,

1163 (11th Cir. 2001). Trowell argued that the Agreement was intended to

provide him with the ability to exercise tax preferred options at any time within

five years of termination. Due to this mistake, Trowell sought leave to amend to

add a claim for reformation. Assuming that there was a mutual mistake, there are

no circumstances under which the Agreement could be reformed to provide tax

preferred status to those options for five years after Trowell’s termination. Under

the Internal Revenue Code, an employee must exercise an ISO within three

                                            5
months after termination in order to receive preferential tax treatment. See 26

U.S.C. §§ 421-22. A court cannot give effect to a proposed reformation that

would result in an invalid or illegal contract. See Hedges v. Dixon County, 150
U.S. 182, 192, 14 S. Ct. 71, 74-75, 37 L.Ed 1044 (1893).

       In an attempt to avoid this conclusion, Trowell characterizes his claim as a

request for reformation of the Agreement to provide the cash equivalent of the loss

of these tax benefits. However, a mutual mistake regarding the tax consequences

of exercising the options at a particular time does not imply that the parties

intended TSFG to bear the burden of that mistake. Thus, the proposed amendment

was futile and the district court did not err in denying leave to amend.

According, we affirm.1

       AFFIRMED.2

       1
         Rule 11 sanctions are warranted when a party “files a pleading in bad faith for an
improper purpose.” Didie v. Howes, 988 F.2d 1097, 1104 (11th Cir. 1993) (internal quotations
omitted). “Improper purpose may be shown by excessive persistence in pursuing a claim or
defense in the face of repeated adverse rulings.” Indus. Risk Insurers v. M.A.N.
Gutehoffnungshutte GmbH, 141 F.3d 1434, 1448 (11th Cir. 1998). “The decision whether to
impose Rule 11 sanctions is left to the district court's sound discretion.” Id. at 1447-48. We
conclude that the district court did not abuse its discretion in determining that there was no
evidence that Trowell filed his complaint in bad faith for an improper purpose and denying
TSFG’s motions for sanctions.
       2
           Appellant’s request for oral argument is DENIED.

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