Opinion
No. 5:03-cv-03038-RS.
August 27, 2004
ORDER GRANTING EBAY'S MOTION FOR SUMMARY JUDGMENT AND DENYING KRUSE'S MOTIONS FOR SUMMARY JUDGMENT
I. INTRODUCTION
Plaintiff eBay Inc. ("eBay") filed a motion for summary judgment on its Complaint for Declaratory Relief, as well as on the claims against it advanced in the Third Amended Counterclaim filed by defendant Dean Kruse ("Kruse"). Kruse opposed eBay's motion for summary judgment and filed a cross-motion for summary judgment on eBay's counterclaims for relief based on fraud, declaratory judgment and unjust enrichment. Kruse also filed a motion for summary adjudication on his ultra vires counterclaim. All motions were fully briefed and heard by the Court on August 11, 2004. At the hearing, Kruse presented additional caselaw in support of his "subsidiary employee" argument. Therefore, the Court permitted eBay to file a supplemental letter addressing that issue. Based on all papers filed to date, including the supplemental letters submitted by the parties, as well as on the oral argument of counsel, the Court grants eBay's motion for summary judgment and denies Kruse's motions for summary judgment and summary adjudication.
Kruse submitted a response to eBay's supplemental letter on August 20, 2004.
Both parties also filed motions to strike various evidentiary submissions filed in conjunction with those motions and eBay filed a request that the Court take judicial notice of certain materials. For the reasons explained in Section C, infra, the Court denies each party's motions to strike and grants eBay's request to take judicial notice.
II. BACKGROUND
In May of 1999, Kruse sold his Indiana-based auction company and its related businesses to eBay for over $150,000,000 in eBay stock. See Kruse Declaration at ¶ 3. In conjunction with the sale of his business to eBay, Kruse assumed the position of Vice President of eBay and Chief Executive Officer ("CEO") and President of its new subsidiary, Kruse, Inc. Id. at ¶ 4. In that connection, on May 18, 1999, Kruse entered into an Employment Agreement ("Agreement") with eBay. Id. The Agreement provided for a term of four (4) years and granted Kruse an option to purchase 100,000 shares of eBay common stock. Kruse signed an agreement acknowledging that the options were governed by an "eBay 1998 Equity Incentive Plan" ("1998 plan") and an "eBay 1998 Equity Incentive Plan Stock Option Agreement" ("SOA"). Id. at ¶ 8. The SOA addressed the deadline by which Kruse would be obliged to exercise his options following either his termination or disability. See Levey Declaration at ¶ 30; Exhs. Q and R. Under the SOA, following a termination from employment at eBay, Kruse would be afforded three months from the date of separation from the company within which to exercise his vested options. Id. However, if Kruse became disabled and was no longer able to fulfill his job responsibilities for eBay, the SOA provided Kruse with a twelve month option exercise period. Id. On July 26, 1999, eBay issued Kruse the 100,000 stock options. Kruse Decl. at ¶ 4. As the result of a May 2000 stock split, the number of these options doubled. See eBay Memorandum at p. 5, fn. 2.The 1998 plan also invested eBay's Compensation Committee with full power to implement, construe, and interpret the plan and to make all necessary determinations for its administration. Levey Decl., Exh. Q. This power included the authority to make disability determinations. Id.
In October 2002, Kruse traveled to eBay to discuss the prospect of repurchasing his business from eBay. Kruse Depo. at p. 65, lines 7-12. One month later, in November 2002, prior to the conclusion of repurchase negotiations, Kruse sought chiropractic treatment for pain in his back, neck, and shoulder. Kruse Depo. at p. 79, lines 17-23. The following week, Kruse asked eBay, through his counsel, to accelerate the vesting of all of his unvested stock options. Kruse Depo. at pp. 141-142, lines 13-24; Levey Decl. at ¶¶ 5, 6. On December 4, 2002, Kruse's counsel sent a draft of a consulting agreement to eBay, requesting that eBay grant Kruse an extension of time, from May 1999 to May 2009, to exercise his options. See Exh. 5 to C. Heiny Deposition. Kruse also requested that eBay release his options from the exercise time limits arising out of the 1998 plan and the SOA. Levey Decl. at ¶¶ 5,6. eBay declined all of Kruse's requests. Exh. 8 to C. Heiny Deposition.
At that time, Kruse had seven option grants, resulting in a total of over 350,000 shares after stock splits.
On December 6, 2002, Kruse underwent an MRI of his left shoulder. Exh. K to Segil Deposition. The following day, Kruse had surgery to repair his C5 nerve root, located in his neck, to address the pain in his shoulder and arm. Kachmenn Depo. at p. 12, lines 10-20. eBay was aware of Kruse's surgery and sent flowers to him in the hospital. Kruse was discharged from the hospital on December 9, 2004, placed on pain medication, and told to participate in physical therapy for his left arm over the next three weeks. Id. at pp. 22, 23, 36, and Exh. 3. Kruse did not file any claim for disability benefits. Kruse Depo. at p. 264, lines 21-24.
On December 18, 2002, following Kruse's discharge from the hospital, the parties reached an agreement regarding the repurchase of Kruse's business. Levey Decl. at ¶¶ 3, 4. As part of the sale by eBay to Kruse, a "Separation and Consulting Agreement" ("SCA"), as well as a "Stock Purchase Agreement" ("SPA"), were executed by the parties. Id. Under the SCA, Kruse agreed to provide consulting services to eBay from December 18, 2002 to January 15, 2003. Id. It was understood by the parties that these services were to be non-physical in nature and Kruse would not be required to perform any actual auctioneering duties as a consultant. Kruse Depo. at pp. 129, 150-152, 309. At the time of the parties' agreement, approximately 179,166 of Kruse's 200,000 May 1999 options had vested. Levy Decl. at ¶ 20, Exh. C. The SCA provided that Kruse's options would continue to vest and that he would have an additional month in which to exercise his vested options. Kruse Depo. at p. 149, lines 10-18, Exh. 8.
Once Kruse acquired his business back from eBay, he became the principal decision-maker for all its operations. Sprague Depo. at pp. 20, 21. In fact, Kruse performed to a limited extent some actual auctioneering activities for Kruse, Inc. in Fort Lauderdale, Florida on January 3, 4, and 5, 2003, and in Scottsdale, Arizona on January 10, 11, and 12, 2003. Kruse Depo. at pp. 89, 90, 92, 95, 98.
On January 14, 2003, one day before the SCA expired by its own terms, Kruse's counsel asked eBay if it would agree to extend Kruse's consulting agreement beyond January 15, 2003. Levey Decl. at ¶ 12. eBay responded that it would not do so. Id. Later that same day, Kruse's counsel faxed a letter to eBay's counsel stating that Kruse was terminating his services under the SCA because he was disabled and no longer in a position to perform his obligations thereunder. Levey Decl. at Exh. D. The next day, eBay requested that Kruse provide medical documentation to support his claim of disability. Levey Decl. at ¶ 15, Exh. E.
On February 27, 2003, Kruse forwarded his medical records to eBay, along with a letter from his surgeon, Dr. Kachmann. The letter stated that Dr. Kachmann considered Kruse to be disabled from work due to his inability to use his left arm properly. Kachmann Depo. at p. 37, Exh. 5. Despite Dr. Kachmann's letter, Kruse issued a newsletter that same month telling his customers that, since he repurchased Kruse, Inc. from eBay he has been "working 18 hours a day and loving every minute of it." Riechert Decl. at Exh. 10.
On March 26, 2003, eBay informed Kruse that his medical condition failed to meet the disability definition "under Section 23 of eBay's 1998 Equity Incentive Plan that has been adopted by the Compensation Committee of our Board of Directors." Levey Decl. at Exh. K. More specifically, Kruse was informed that his medical condition failed to meet the following standard: "the inability, by reason of any medically determinable physical or mental impairment, to engage in any services for more than nominal renumeration for a period that is expected to be of a continuous duration of at least three (3) months." Id. Upon further inquiry, Kruse learned that the eBay Compensation Committee, on March 25, 2003, the day before it rejected his claim for disability, had adopted a new definition of disability, to wit, the definition recited to Kruse.
On April 7, 2003, Kruse's counsel objected to eBay's decision on the basis that the Board applied the definition of disability contained in the March 25, 2003 Resolution rather than the definition of disability contained in the 1998 plan itself. Levey Decl. at ¶ 25. Thereafter, eBay decided that the Compensation Committee should review Kruse's claim and make its determination based on the definition of disability contained in the 1998 plan, as well as on the March 25, 2003 Resolution. Id. at ¶ 26. Accordingly, on April 14, 2003, the Compensation Committee met and decided "based upon careful review and consideration of the factual background concerning Mr. Kruse's asserted disability, the findings of the independent orthopedic surgeon retained by the Company, and the application of the definition of `Disability' under the 1998 Plan, the Compensation Committee hereby determines that Mr. Kruse's particular medical condition does not satisfy the definition of `Disability' under the Company's 1998 Plan." Levey Decl. at Exh. O. The Committee also stated that, "[A]lthough not required as part of its final determination of this matter, the Committee also found that, Mr. Kruse's medical condition does not constitute a `temporary' or `partial' disability for purposes of the 1998 Plan." Id. Based on this determination, eBay notified Kruse that it would not extend the three month window under the 1998 Plan under which Kruse could exercise his stock options.Id.
The 1998 Plan defines "disability" as a "disability, whether temporary or permanent, partial or total, as determined by the Compensation Committee." Levey Decl., Exh Q at Section 23.
eBay then filed this declaratory relief action, seeking a judicial determination that its Compensation Committee did not act arbitrarily or in bad faith and requesting that the Court affirm the decision to deny Kruse's claim that he was disabled as of January 14, 2003. eBay also seeks a determination that it properly rescinded the stock options granted to Kruse since such options were not exercised on or before April 15, 2003. In opposition, Kruse contends that he met the 1998 plan definition of disability on January 14, 2003, and that, therefore, he had twelve (12) months from such date to exercise his stock options. In addition, eBay seeks summary judgment on Kruse's counterclaims for relief based on breach of contract, breach of the implied covenant of good faith and fair dealing, ultra vires, estoppel, conversion, and common counts. Kruse opposes eBay's motion and seeks summary judgment in his favor on his counterclaim for ultra vires, as well as on eBay's counterclaims for relief based on fraud, declaratory judgment, and unjust enrichment.
III. STANDARDS
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The purpose of summary judgment "is to isolate and dispose of factually unsupported claims or defenses." Celotex v. Catrett, 477 U.S. 317, 323-324 (1986).
The moving party "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any' which it believes demonstrate the absence of a genuine issue of material fact." Id. at 323. If it meets this burden, the moving party is then entitled to judgment as a matter of law when the non-moving party fails to make a sufficient showing on an essential element of his case with respect to which he bears the burden of proof at trial. Id. at 322-23.
The non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The non-moving party cannot defeat the moving party's properly supported motion for summary judgment simply by alleging some factual dispute between the parties. To preclude the entry of summary judgment, the non-moving party must bring forth material facts, i.e., "facts that might affect the outcome of the suit under the governing law. . . . Factual disputes that are irrelevant or unnecessary will not be counted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The opposing party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 588 (1986).
The court must draw all reasonable inferences in favor of the non-moving party, including questions of credibility and of the weight to be accorded particular evidence. Masson v. New Yorker Magazine, Inc., 111 S.Ct. 2419, 2434-35 (1991) (citingAnderson, 477 U.S. at 255); Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 588 (1986); T.W. Elec. Service v. Pacific Elec. Contractors, 809 F.2d 626, 630 (9th Cir. 1987). It is the court's responsibility "to determine whether the `specific facts' set forth by the nonmoving party, coupled with undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence." T.W. Elec. Service, 809 F.2d at 631. "[S]ummary judgment will not lie if the dispute about a material fact is `genuine,' that is if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. However, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial.'" Matsushita, 475 U.S. at 587.
IV. DISCUSSION
A. eBay's Motion for Summary Judgment
As noted, eBay moves for summary judgment as to both its own claim for declaratory relief, as well as on Kruse's counterclaims for relief based on breach of contract, breach of the implied covenant of good faith and fair dealing, ultra vires, estoppel, conversion, and common counts. Accordingly, each claim is addressed separately below.
1. Declaratory Relief
eBay seeks a declaratory judgment that its Compensation Committee properly exercised its discretion in concluding that Kruse was not disabled because: (1) Kruse was not required to provide physical auctioneering services to eBay under the terms of his consulting agreement; (2) the consulting services provided by Kruse were completed at the time he notified eBay that he was disabled; (3) Kruse never disclosed to eBay that he could not perform the services required of him prior to January 14, 2003; and, (4) had Kruse been required to auctioneer for eBay under the SCA, the undisputed evidence shows that he was able to, and, in fact did, perform such services during the relevant time period on behalf of Kruse, Inc. Even assuming that Kruse was disabled, eBay argues that he is estopped from claiming benefits based on such disability since Kruse failed to disclose it at the time he entered into the Consulting Agreement with eBay on December 18, 2002.
Kruse contends that he satisfied the eBay 1998 Plan definition of disability as of January 14, 2003, because he was unable to perform his accustomed work as an auctioneer. In support of his claim, Kruse submits the opinion of his orthopedic surgeon, Dr. Kachmann, who opined on February 10, 2003 that Kruse was considered "disabled for work because of the inability to properly use the left arm. He can not elevate the left arm over his head; certainly he could not work as an auctioneer, which involves the use of both arms." See Exh. I to Levey Declaration.
As previously noted, the 1998 Plan defines "disability" as a "disability, whether temporary or permanent, partial or total, as determined by the Compensation Committee." Levey Decl., Exh. Q at Section 23. This definition, standing alone, affords the Compensation Committee the sole discretion to determine whether an applicant suffers from a disability. However, as noted by Kruse, Section 4.2 of the 1998 Plan limits such discretion to determinations made in accordance with the express terms of the plan. Id. at Section 4.2. In other words, if the Committee acts in contravention of any express term of the Plan, then its decision is not final and binding. Section 4.2 provides in relevant part:
Any determination made by the Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and all persons having an interest in any Award under this Plan.
eBay argues that, because the Compensation Committee, in its sole discretion as contemplated under the 1998 Plan, determined that Kruse was not disabled, the decision is final and binding and may not be set aside by this Court, absent a finding that the Committee acted arbitrarily or in bad faith. Oracle Corp. v. Falotti, 187 F.Supp.2d 1184 (N.D. Cal. 2001). Kruse counters that, since the Committee acted in contravention of an express term of the Plan, its decision is not final and binding and may, therefore, be overturned. Kruse contends that the Committee did so by applying the March 25, 2003 Resolution definition to his claim for disability rather than the 1998 Plan definition. The record presented to the Court, however, refutes this contention.
The undisputed testimony presented by the members of the Compensation Committee establishes that the Committee expressly considered and applied the 1998 Plan definition of disability to his claim for disability. See Riechert Decl. at Exh. 13, p. 74, lines 20-24; Exh. 17, pp. 89-91; Exh. 18, pp. 72-73. This fact is further demonstrated by the Committee's Minutes and Resolution, dated April 14, 2003. Levey Decl. at Exh. O. The material reviewed by the Committee specifically quotes the 1998 Plan definition of disability and confirms the application of such definition to Kruse's claim. Id. at Exh. N, p. 9. Moreover, the sole reason for the Committee meeting on April 14, 2003, was in response to Kruse's request that his disability claim be reviewed in accordance with the 1998 Plan definition of disability. Levey Decl. at ¶ 25.
Based on this record, it is clear that the eBay Compensation Committee, exercising the discretion afforded to it under the 1998 Plan, applied the 1998 definition of disability to Kruse's claim for benefits. Accordingly, since the Committee acted in accordance with the terms of the Plan, eBay is entitled to summary judgment on its claim for declaratory relief.
Kruse makes the additional argument that the 1998 Plan disability definition empowers the Compensation Committee only to determine if a claimed disability is "temporary or permanent, partial or total." As eBay points out, such a truncated reading of the authority vested in the Compensation Committee would simply make no sense, for to adopt it would mean that no official or group would have the responsibility of making the ultimate "disability" determination.
Even assuming that the Committee had not applied the 1998 Plan definition of disability to Kruse's claim, eBay argues that Kruse is estopped from asserting that he is disabled because he concealed the fact of such disability from eBay when he entered into the Consulting Agreement on December 18, 2002. In order to establish a defense based on estoppel, eBay must show: (1) a representation or concealment of material facts; (2) made with actual or virtual knowledge of the true facts; (3) to a party who is actually and permissibly ignorant of the truth; (4) with the actual or virtual intention that the latter party act on the representation or concealment; and, (5) in fact, the latter party was induced to act to his detriment. Hill v. Kaiser Aetna, 130 Cal.App.3d 188, 195 (1982); Thompson, Curtis, Larson Parrish v. Thorne, 21 Cal.App.3d 797, 803 (1971); Cal.Evid. Code § 623. Equitable estoppel prevents one party from taking unfair advantage of another. Meyer v. Glenmoor Homes, Inc., 246 Cal.App.2d 242, 267 (1966).
The parties agree that California law governs all disputes regarding the terms of the 1998 Plan and SOA. See Levey Decl., Exhs. Q, R.
The record is undisputed that Kruse underwent surgery on December 7, 2002, to repair his C5 nerve root, located in his neck, in order to address the pain in his shoulder and arm. Kachmann Depo. at p. 12, lines 10-20. Kruse was discharged from the hospital on December 9, 2002, placed on pain medication and told to participate in physical therapy for his left arm over the next three weeks. Id. at pp. 22, 23, 36, and Exh. 3. Kruse did not file any claim for disability benefits prior to his claim on January 14, 2003. Kruse Depo. at p. 264, lines 21-24. Based on these facts, eBay contends that Kruse knew, prior to December 18, 2003 when he entered into the Consulting Agreement, that he could not lift his arm and/or perform auctioneering services. See Exh. 3 to Riechert Decl., Kruse Depo. at p. 195, lines 5-11. eBay argues that Kruse did not disclose this information to it. But Kruse contends that he was not required to disclose such information because eBay knew of his surgery and pain problems. In fact, eBay sent flowers to Kruse while he was in the hospital.
eBay responds that, while it knew Kruse had undergone surgery, it was unaware that he was suffering from any disability. In fact, it was eBay's understanding that Kruse was fully recovered and running his company Kruse, Inc., at the time of his alleged disability. The record supports eBay's contention. As noted, once Kruse reacquired his business from eBay, he took over control of all of its activities. Sprague Depo. at pp. 20, 21. Kruse also admits that he performed at least some limited auctioneering for Kruse, Inc. in Fort Lauderdale, Florida on January 3, 4, and 5, 2003 and in Scottsdale, Arizona on January 10, 11, and 12, 2003. Kruse Depo. at pp. 89, 90, 92, 95, 98. In addition, Kruse issued a newsletter in February 2003, telling his customers that, since he re-purchased Kruse, Inc. from eBay he has been "working 18 hours a day and loving every minute of it." Riechert Decl. at Exh. 10.
Kruse also concedes that he was disabled at the time he entered into his consulting agreement with eBay on December 18, 2002.See Kruse Depo. at p. 192, lines 5-11. However, Kruse failed to disclose this fact to eBay. Accordingly, the record submitted establishes that Kruse: (1) knew he was disabled on December 18, 2002; (2) concealed this fact; (3) from eBay; (4) in order to induce eBay to (5) enter into the Consulting Agreement with him, thereby enabling an additional 8,106 options to vest for a gain of $118,000.00. Thus, all of the elements of equitable estoppel are satisfied. Hill v. Kaiser Aetna, 130 Cal.App.3d at 195;Thompson, Curtis, Larson Parrish v. Thorne, 21 Cal.App.3d at 803; Cal.Evid. Code § 623.
Based on this record, even assuming that the eBay Compensation Committee had applied an erroneous definition of disability to Kruse's claim for benefits, he is estopped from asserting such disability since he failed to disclose its existence to eBay on December 18, 2002. Therefore, eBay is entitled to judgment in its favor as to its claim for declaratory relief.
2. Breach of Contract
eBay also moves for summary judgment on Kruse's counterclaim based upon breach of contract. Under that claim for relief, Kruse avers that eBay breached its contract with him by prohibiting him, while disabled, from exercising his stock options within twelve months from his date of separation from eBay. Alternatively, Kruse argues that he was entitled to additional time to exercise his stock options because he was either a subsidiary employee and/or an independent contractor for eBay and, therefore, continued to provide services to that company.
With respect to Kruse's argument that eBay breached its contract of employment with him by concluding he was not "disabled," the Court has found, as set forth above, that eBay's decision was consistent with its contractual obligations and supported by the undisputed facts. Therefore, eBay is entitled to judgment as a matter of law with respect to Kruse's counterclaim for breach of contract to the extent that Kruse was a regular eBay employee.
Kruse's alternative argument, that he either remained as an employee of an eBay subsidiary and/or as an eBay independent contractor, is inconsistent with the undisputed facts. Kruse became an employee of an eBay subsidiary when he sold Kruse, Inc. to eBay in May 1999. However, when Kruse repurchased Kruse, Inc. on December 18, 2002, his regular employment with eBay came to a close. Levey Decl. ¶ 8, Exh. Q. By the terms of the SOA, as previously noted, Kruse's exit from eBay's employ triggered the three month window within which to exercise his vested stock options. As Kruse correctly notes, he was granted an additional month to exercise his options, pursuant to the terms of the Consulting Agreement which he signed on December 18, 2002. Based on that Agreement, Kruse agreed to provide consulting services to eBay until January 15, 2003. Exh. 8 to Riechert Decl. By his own admission, Kruse provided no consulting services to eBay beyond this date. Kruse Depo. at pp. 150-151.
Therefore, Kruse was no longer employed by either eBay or an eBay subsidiary as of January 15, 2003. The case supplied by Kruse at oral argument, Dearlove v. Genzyme Transgenics Corporation, 2003 WL 21544489 (Pa.Com.Pl. July 9, 2003), fails to support his contention that he remained employed by an eBay subsidiary. In Dearlove, plaintiff class members worked for subsidiaries of defendant Genzyme for a number of years and, as a result of their employment, received various stock options. However, when defendant's subsidiaries were sold, plaintiffs were told that they must exercise their vested stock options within three months of termination from employment. Those options that were not exercised within that time frame were cancelled. The plan in that case failed, however, to define the term "termination." Based on the absence of a definition, coupled with the fact that plaintiffs remained employed and continued to receive paychecks, the Pennsylvania court held that plaintiffs' employment had not necessarily been "terminated" and, therefore, that they were still entitled to exercise their stock options. In this instance, by contrast, the undisputed evidence reflects that, after January 15, 2003, Kruse discontinued his employment with any eBay subsidiary. Rather, the record is clear that Kruse, Inc. ceased to be an eBay subsidiary on December 18, 2002, when Kruse re-acquired the company.
Finally, Kruse argues that, because he agreed not to compete with eBay in the sale of late model cars online and agreed to use eBay as his exclusive online marketplace for online auctions, he became an independent contractor for eBay. California Labor Code § 3353 defines an independent contractor as "any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished." See also, Wilson v. County of San Diego, 91 Cal.App.4th 974, 983 (2001). The record is devoid, however, of evidence of any services provided by Kruse to eBay after January 14, 2003. Moreover, the agreements upon which Kruse relies to establish his "independent contractor" theory were entered into between eBay and Kruse, Inc., not with Kruse on an individual basis. See Kruse Decl., Exhs. C, D. As a result, the agreements do not require that Dean Kruse do anything for or with eBay.Id. Rather, the contracts provide that Kruse, Inc. will not compete with eBay and will use eBay as its exclusive online marketplace, if it chooses to use such resource. Id. For these reasons, Kruse cannot prevail on his counterclaim that he was either a "subsidiary employee" or an "independent contractor" for eBay after the expiration of his consultation agreement with that company on January 15, 2003. Accordingly, eBay is entitled to judgment as a matter of law with respect to Kruse's counterclaim for breach of contract.
3. Breach of the Implied Covenant of Good Faith and Fair Dealing
Similarly, eBay moves for judgment in its favor as to Kruse's claim that it breached the covenant of good faith and fair dealing by determining that he was not disabled under the eBay 1998 Plan definition. Based on the Court's rulings in eBay's favor on the issue of Kruse's disability, as well as on Kruse's breach of contract claim, eBay cannot be liable for breaching the covenant of good faith and fair dealing. Therefore, it is appropriate to enter judgment in favor of eBay on this claim.
4. Ultra Vires
Kruse alleges that the eBay Compensation Committee did not have the authority to adopt the March 25, 2003 Resolution since such Resolution changed the 1998 Plan definition of disability and, therefore, constituted an amendment to the Plan which required shareholder approval or ratification under Delaware law. Accordingly, he contends that the eBay Compensation Committee acted ultra vires, or beyond the scope of power allowed or granted by a corporate charter, when it adopted the March 25, 2003 Resolution. See Waltzer v. Billera, 1973 WL 393 (S.D.N.Y. 1973) (holding that shareholder approval required to amend stock option plan since Committee had sought shareholder approval to adopt plan).
eBay is incorporated in the state of Delaware.
eBay responds that the Committee had the authority to "clarify" the definition of disability contained in the 1998 Plan and argues that it engaged in precisely such clarification when it adopted the March 25 Resolution. Therefore, since no amendment of the Plan was involved, eBay reasons no shareholder approval was required. Moreover, eBay notes that it may amend the plan without shareholder approval. See National Association of Securities Dealers ("NASD"), Rule 4350(i)(1)(A) (stating that shareholder approval required only when stock option plan established). In any event, eBay argues that, since the Committee denied his claim for disability under the 1998 Plan definition of disability, Kruse's ultra vires argument is irrelevant. Both parties move for summary judgment as to this counterclaim.
The record in this case establishes that the eBay Committee reconvened on April 14, 2003 and reviewed Kruse's claim under the 1998 Plan definition of disability. It then denied Kruse's claim under the 1998 Plan definition. As discussed above, that decision was proper and within the authority of eBay. Therefore, Kruse cannot now complain that eBay improperly applied the 2003 disability definition to his claim and that such application exceeded the authority of the Committee. Accordingly, eBay is entitled to judgment as a matter of law with respect to Kruse's ultra vires claim.
In light of the record reflecting that the Compensation Committee applied the 1998 Plan definition, the Court need not and does not reach the question of whether or not shareholder approval was required for the March 25, 2003 Resolution.
5. Estoppel
Kruse also alleges that eBay is estopped from relying on a definition of disability other than the 1998 Plan definition, since that is the definition which it promised to rely upon when making any disability determination as to Kruse. eBay moves for entry of judgment in its favor as to this counterclaim since the record is clear that eBay did apply such definition to Kruse's claim for disability, his arguments to the contrary notwithstanding. See Levey Decl. at Exh. O. As discussed above, the undisputed facts support the conclusion that the 1998 definition of disability was applied to Kruse's claim. Therefore, eBay is entitled to judgment as a matter of law with respect to Kruse's counterclaim based on estoppel.
6. Conversion
Kruse contends that eBay improperly cancelled his unexercised stock options in April 2003 and, therefore, seeks relief under the theory of conversion. He also requests that the Court award punitive damages as a result. eBay responds that it was entitled to cancel Kruse's unexercised stock options on April 15, 2003, since that is the date by which Kruse was obliged to exercise such options under his agreements with eBay. Accordingly, it requests that judgment be entered in its favor as to this counterclaim.
As discussed above, the agreements between eBay and Kruse provided that all vested stock options must be exercised within three months after separation from the company, unless an employee is disabled at the time of separation. In cases of disability, an employee is afforded twelve months within which to exercise his stock options. Since Kruse contends he was disabled as of January 14, 2003, he attempted to exercise his options as of January 2004. eBay refused such exercise, however, based on its contention that Kruse's options had expired on April 15, 2003, three months after his separation from the company.
Based on the finding that Kruse was not disabled as of January 14, 2003 under the 1998 plan definition, eBay is entitled to judgment in its favor as to Kruse's counterclaim based on conversion. Since he was not disabled in this context, Kruse had until April 15, 2003 to exercise his eBay stock options. Since he did not timely exercise such options, they expired. Accordingly, Kruse's request for punitive damages also fails as a matter of law. Ferraro v. Pacific Fin. Corp., 8 Cal.App.3d 339 (1970).
7. Common Counts
Kruse's counterclaim for relief against eBay pleads a "common count" claim for relief. eBay contends that, since Kruse is unable to establish his entitlement to relief on any of his legal claims, he is likewise not entitled to relief under common law.Harris v. Kessler, 124 Cal.App. 299, 303 (1932). Kruse does not oppose eBay's request for summary judgment as to his "common count." Therefore, eBay is entitled to judgment as a matter of law as to this counterclaim.
B. Kruse's Motions for Summary Judgment/Adjudication
As noted, Kruse filed a motion for summary judgment as to his ultra vires counterclaim against eBay. That claim has been adjudicated in favor of eBay. Kruse also filed a motion for summary judgment as to eBay's counterclaims for relief, seeking judgment in his favor as to eBay's three claims based on fraud, declaratory relief and unjust enrichment. These claims arise from eBay's contention that, based on Kruse's own admissions, at the time that he entered into the Consulting Agreement with eBay on December 18, 2002, he knew he was disabled and failed to disclose such disability to eBay. Had it been aware of such disability, eBay asserts that it would not have entered into such agreement with Kruse. Accordingly, eBay opposes the motion for summary judgment and argues that Kruse is not entitled to judgment as a matter of law and that its counterclaims for relief must proceed to trial.
1. Fraud
eBay alleges that Kruse falsely promised it that he would perform consulting services for eBay from December 18, 2002 to January 15, 2003, knowing that he was either: (1) unable to perform such agreement; (2) did not intend to perform such services; or, (3) intended to claim that he was disabled and, therefore, unable to perform such services. See Counterclaim at ¶ 14. eBay alleges that Kruse falsely promised to perform such services so that his stock options would continue to vest. As a result of this alleged fraud, eBay seeks to void its Consulting Agreement with Kruse. To support its claim for fraud, eBay relies on Kruse's own deposition testimony wherein he admits that, at the time that he signed the Consulting Agreement with eBay, he was disabled. See Kruse Depo. at p. 192, lines 5-11.
Kruse denies eBay's allegations and contends that he never misrepresented the status of his health at any time. Moreover, he notes that the Consulting Agreement contains an integration clause which specifically states in pertinent part that:
This Agreement is entered into without any reliance on any promise or representation, written or oral, other than those expressly contained herein. It may not be modified except in a writing signed by you and the Associate General Counsel of eBay. Each party has carefully read this Agreement, has been afforded the opportunity to be advised of its meaning and consequences by his or its respective attorneys, and signed the same of his or its own free will.
Exh. A to Kruse Memorandum of Points and Authorities at ¶ 15.
Accordingly, based on this integration clause, Kruse argues that eBay cannot rely on his subsequent deposition testimony to prove fraud in the inducement since Indiana courts strictly enforce integration clauses in commercial contracts. See Circle Centre Development Co. v. Y/G Indiana, L.P., 762 N.E.2D 176 (Ind.App. 2002). Moreover, Kruse notes that the parol evidence rule bars admission of evidence of oral representations which contradict a written contract. Ruff v. Charter Behavioral Health Sys. of Northwest Indiana, 699 N.E.2d 171, 174 (Ind.App. 1998).
The SCA provides that it will be construed and enforced in accordance with the laws of the state of Indiana. See Exh. A to Kruse's Memo. at ¶ 17. Although eBay believes that California law should govern since it is not seeking to "construe or enforce" the Agreement, but, rather, to void it, it acknowledges that Indiana law may apply and opposes the motion based on such law.
eBay acknowledges that Circle Centre reflects Indiana policy favoring strict enforcement of integration clauses in commercial contracts. It argues, however, that the decision does not support Kruse's argument here because the clause at issue in Circle Centre contained not only an integration clause but a further specific representation, known as a "no reliance" clause, that the tenant had independently investigated whether the shopping mall would be successful and, therefore, was not relying on any prior oral representations made by the landlord. Although the tenant agreed that it had performed such investigation prior to signing the agreement, it sought to renounce such statement once it realized it had made a poor business decision. In other words, the plaintiff tenant sought to contradict directly the written terms of a contract which stated that it had performed an investigation by subsequently testifying that it had lied and that it had not, in fact, performed such an investigation. Under such circumstances, the Indiana Appellate Court held that it would be unjust to permit plaintiff to rely on its prior misrepresentation to avoid its contract. Id. at 180.
In this instance, eBay is not seeking to rely on a misrepresentation it made in its Agreement with Kruse. Rather, it is seeking to introduce sworn testimony by Kruse wherein he admits that he was disabled at the time that he entered into the Consulting Agreement with eBay. In addition, eBay points out that the Indiana parol evidence rule bars admission of evidence of representations that contradict the terms of a written contract.See Paulson v. Centier Bank, 704 N.E.2d 482, 492 (Ind.Ct.App. 1998). As Kruse concedes, the Consulting Agreement contains no representation as to his health or ability to perform services. See Kruse Memo. at p. 5, ¶ 2. Therefore, eBay argues that by the admission of Kruse's deposition testimony it does not seek to contradict a written term of the contract and that such evidence is, therefore, admissible.
Similarly, the Vigortone AG Products v. PM AG Products, 316 F.3d 641 (7th Cir. 2002) decision fails to support Kruse's argument because the Seventh Circuit in that case, applying the rule adopted by a majority of state courts, held that an integration clause does not bar a claim for fraud based on statements not contained in the contract. Although Kruse correctly notes that the fraud claim was disallowed in that case, he fails to note that such claim was rejected based on the court's conclusion that the purchaser's reliance on the seller's representations was not reasonable and, therefore, could not support a fraud claim. It was not dismissed based on the fact that the contract contained an integration clause. In this instance, eBay contends that Kruse committed fraud by concealing the existence of his disability. Since the SCA is silent as to any disability, eBay seeks to prove Kruse's fraud by introducing his deposition statements, despite the fact that the SCA contains an integration clause. Under Indiana law, Kruse's deposition testimony may be admitted to prove eBay's claim that, at the time he entered into his consulting agreement with eBay, Kruse knew he was disabled. Based on the foregoing authorities as well as on the record presented, Kruse is, therefore, not entitled to judgment as a matter of law with respect to eBay's claim for fraud.
2. Declaratory Relief and Unjust Enrichment
In its counterclaims for declaratory relief and unjust enrichment, eBay seeks a judgment that the SCA entered into on December 18, 2002 is void because Kruse entered into such agreement with fraudulent intent to deceive eBay. Relying on the arguments and authorities noted above regarding eBay's counterclaim for fraud, Kruse moves for judgment in his favor as to these claims. For the reasons just discussed, however, Kruse is not entitled to judgment as a matter of law with respect to eBay's counterclaims for declaratory relief and/or unjust enrichment.
C. Motions to Strike and Request for Judicial Notice
1. eBay's Motion to Strike
eBay moves to strike portions of the declarations of Dean Kruse, Charles Heiny, Robert Ted Parker, and Rudy Kachmann, M.D., all of which were submitted by Kruse in support of his motions for summary judgment and/or adjudication, as well as in opposition to eBay's motion for summary judgment. eBay complains that various portions of these declarations either misstate the evidence, contradict the declarant's deposition testimony, and/or are not based on the personal knowledge of the declarant. Kruse did not file an opposition to eBay's motion to strike. Based on all papers filed to date, eBay's objections are sustained. In determining the motions filed, the Court did not consider those portions of the declarations to which eBay objected.
2. Kruse's Motion to Strike
Kruse moves to strike portions of the Brian Levey, Simon Rothman and Garrett Price declarations, submitted by eBay in support of its motion for summary judgment, on the bases that they contain statements which are either contrary to each declarant's prior sworn testimony or are not based on the declarant's personal knowledge. eBay's opposes the motion to strike and argues that none of the declarations contradict prior sworn testimony and all are based on the personal knowledge of each declarant. Based on all papers filed to date, the Court grants Kruse's motion to strike and again notes for the record that only those portions of the declarations which were not objected to were considered in determining these motions.
3. eBay's Request for Judicial Notice
eBay requests that the Court take judicial notice of the declaration filed by Kruse on August 6, 2003 in support of his motion to dismiss this case. Kruse does not oppose the request. Pursuant to Fed.R.Evidence 201, the request is granted.
V. CONCLUSION
For the reasons set forth above, the Court grants eBay's motion for summary judgment on its declaratory relief complaint, as well as on Kruse's counterclaims for relief. The Court denies Kruse's motions for summary judgment with respect to eBay's counterclaims for relief based on fraud, declaratory relief, and unjust enrichment. In addition, the motions to strike filed by each party are granted, as is eBay's request for judicial notice.
Based on this order, and as discussed previously with counsel, the trial date of September 14, 2004 is vacated and eBay's motion to quash a civil trial subpoena, noticed for hearing on September 29, 2004, is, therefore, moot. Trial is scheduled to commence on eBay's counterclaims on November 15, 2004 at 9:00 a.m. A final pretrial conference will be held with all trial counsel on October 20, 2004 at 2:30 p.m. In the interim, the parties are ordered to contact Magistrate Judge Lloyd's chambers at (408) 535-5411 to schedule a settlement conference.