Opinion
No. C9-02-636.
Filed November 12, 2002.
Appeal from the District Court, Hennepin County, File No. 9913759.
Michael R. Cunningham, (for appellant)
Kristen M. Ludgate, (for respondents)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
Appellant Mike Hurd sued his former employer, respondent Spine-Tech, alleging that Spine-Tech failed to pay him commissions and refused to permit him to exercise certain stock options under an employee stock option incentive plan. In the course of the litigation, this court previously heard an appeal regarding arbitrability of the commissions issue. In deciding whether Hurd could demand arbitration, we ruled that the 1994 contract, which contained the arbitration clause and is also the basis for the commissions claim, was integrated into the 1996 contract and had no continuing validity. Hurd v. Spine-Tech, Inc., No. C4-00-1785 (Minn.App. 5 Jun. 2001), review denied (Minn. 15 Aug. 2001) ( Hurd I). The district court, in granting summary judgment to Spine-Tech on the commissions issue, ruled that Hurd was collaterally estopped from asserting the validity of the 1994 contract based on our decision.
Respondents Spine-Tech, Inc., Sulzer Medica, and Sulzer Spine-Tech, Inc., will be referred to collectively as "Spine-Tech." Sulzer Medica acquired Spine-Tech in 1998; the merged company is Sulzer Spine-Tech, Inc.
Because the district court did not abuse its discretion in holding that Hurd is collaterally estopped from relitigating the validity of the 1994 contract, which is the sole basis for Hurd's commissions claim, we affirm and because the district court did not err in interpreting the stock option agreement, we also affirm as to that issue.
FACTS
Breach of Contract Claim
Appellant Mike Hurd began selling Spine-Tech products in 1993, when Spine-Tech was a new medical device manufacturer with almost no sales. The company specialized in the design and manufacture of implantable medical hardware used to stabilize the spine. In 1994, Hurd entered into a formal sales representative contract with Spine-Tech. Under the agreement, Hurd was an independent contractor for Spine-Tech, earning set commissions. The contract contained the usual terms involving commission, territory, product, and a delineation of responsibility for such things as expenses, promotional materials, and advertising.
In 1996, Spine-Tech decided to convert most of its independent sales staff to company employees. Hurd was informed about the pending change and he made an offer to the company that included enhanced compensation and commission overrides; this offer was rejected. On 16 July 1996, Spine-Tech presented Hurd with a letter outlining an offer to work as a sales employee for Spine-Tech, which Hurd formally accepted by letter on 17 July 1996. In this letter, he agreed to sign the employment agreement once Spine-Tech provided him with an agreement to pay a 4% override on commissions for 22 listed accounts for one year. On 30 August 1996, a document entitled "Termination Agreement with MTH Associates," signed by Spine-Tech managers, gave Hurd a 4% override on commissions for 22 accounts.
MTH Assoc. is the sole proprietor corporation that Hurd used as an independent contractor.
Hurd testified in a deposition that, on receipt of this termination agreement, he signed and forwarded the 1996 employment agreement to Spine-Tech. Neither party has located the signed copy of the 1996 employment agreement, although both parties acknowledge that it was signed and forwarded at about the same time as the termination agreement. Under the terms of the 1996 employment agreement, Hurd is clearly an employee of Spine-Tech. The agreement includes clauses governing duties, compensation, term, territory, payment of expenses and benefits, and confidentiality matters. The agreement also contains an integration clause that states:
This Agreement supersedes all previous and contemporaneous oral negotiations, commitments, writings and understandings between the parties concerning the matters in this Agreement, including without limitation any policy or personnel manuals of the company.
Hurd acknowledged that he received the 4% override on commissions as set forth in the termination agreement. At all times material, the parties conducted themselves in accordance with the 1996 employment agreement.
Hurd claims in this lawsuit that the 1994 sales representative agreement remains in effect simultaneously with the 1996 employment agreement and that Spine-Tech owes him the commissions payable under the terms of the 1994 agreement. Spine-Tech argues that Hurd is collaterally estopped from asserting the continuing validity of the 1994 agreement because in Hurd I we determined that Hurd could not demand arbitration.
Stock Option Agreement
At the same time as the 1996 employment agreement, Hurd also signed an Incentive Stock Option Agreement. Under the terms of this agreement, Hurd could purchase up to 5,000 shares of Spine-Tech stock. Options were exercisable according to a vesting schedule. On 22 July 1997, 1,250 shares vested and were exercisable; likewise, for the three years following, 1,250 shares would vest on each anniversary date of 22 July (1998, 1999, 2000). The option agreement required that Hurd be employed on the date of exercise, but added:
The Optionee may exercise this Option during the ninety (90) day period following termination of employment, but only to the extent that it was exercisable immediately prior to termination of employment (i.e., he/she shall not progress on the exercise schedule) * * *.
The option agreement contained an acceleration clause that stated: "This option may be exercised in full (notwithstanding the exercise schedule) if a Change in Control shall have occurred."
The option agreement is governed by the Omnibus Stock Plan, which provided that:
If a Participant's employment terminates for any reason other than death, Disability or Retirement, the unvested or unexercised portion of any Award held by such Participant shall terminate at the date of termination of employment.
On 31 October 1997, Hurd's employment was terminated, at which point only the first block of 1,250 shares had vested. On 15 December 1997, Spine-Tech's Board approved a merger agreement, permitting Spine-Tech to be acquired by Sulzer Medica Ltd. On 30 January 1998, the merger became effective.
On 8 January 1998, Hurd sought to exercise his option to purchase the remaining 3,750 shares that had not vested prior to his termination. He claimed that the merger was a change of control that effectively vested all the options under the acceleration provision and that the post-termination provision permitted him to exercise his vested options for 90 days after termination. The district court granted summary judgment to Spine-Tech, finding that Hurd's unvested options had been eliminated when his employment was terminated. This appeal followed.
DECISION
1. Collateral Estoppel
This court reviews the availability of collateral estoppel as a mixed question of fact and law, subject to de novo review. Falgren v. State, Bd. of Teaching, 545 N.W.2d 901, 905 (Minn. 1996). The district court, having decided that collateral estoppel applies in a given instance, has considerable discretion and will be reversed only for an abuse of discretion. Saudi Am. Bank v. Azhari, 460 N.W.2d 90, 92 (Minn.App. 1990).
The doctrine of collateral estoppel "precludes a party from relitigating a legal or factual issue that was actually litigated in a prior proceeding and was essential to the judgment rendered." Mandich v. Watters, 970 F.2d 462, 465 (8th Cir. 1992). Collateral estoppel is appropriate when (1) the issue is identical to one decided in a prior adjudication; (2) there is a final judgment on the merits; (3) the estopped party was a party or was in privity with a party to the prior adjudication; and (4) the estopped party had a full and fair opportunity to be heard. Kaiser v. N. States Power Co., 353 N.W.2d 899, 902 (Minn. 1984). The issue determined must have been necessary and essential to the prior adjudication. Hauser v. Mealey, 263 N.W.2d 803, 808 (Minn. 1978).
Here, the prior adjudication is Hurd's motion to compel arbitration. The 1994 agreement contained an arbitration clause; the 1996 agreement did not. Both the district court, in its order and memorandum of 15 August 2000, and this court, in Hurd I, acknowledged that, in order to rule on the motion to compel arbitration, the issue of whether the 1994 agreement had been integrated into the 1996 agreement had to be decided. Both courts concluded that the 1994 agreement was integrated into the 1996 agreement and thus Hurd could not compel arbitration; the supreme court denied review.
Hurd's claim for commissions is based on the continuing viability of the 1994 agreement, the issue already determined in the motion to compel arbitration. Plainly, the issue is the same; Hurd was a party to the prior adjudication, and he was given a full and fair opportunity to be heard, thus satisfying elements one, three, and four of the doctrine of collateral estoppel. Hurd asserts that there was no final adjudication on the issue of the validity of the contract until the entry of judgment on 8 April 2002.
Minnesota law states that an arbitration award is a "prior adjudication" for the purposes of collateral estoppel. Mandich, 970 F.2d at 465; Aufderhar v. Data Dispatch, Inc., 452 N.W.2d 648, 651 (Minn. 1990). Although Hurd's claim deals with a denial of arbitration rather than the effect of an arbitration decision, in principle there is no difference. The issue of the continuing viability of the 1994 contract was necessarily determined in order to deny the motion to compel arbitration; this is the identical issue on which Hurd bases his request for commissions. The denial of a motion to compel arbitration is an appealable order. Minn. Stat. § 572.26, subd. 1(1) (2000). Hurd appealed the denial to this court and the supreme court. Thus, there is a final adjudication for the purpose of collateral estoppel, particularly in light of the detailed analysis undertaken by both the district court and this court.
The district court did not abuse its discretion by finding that Hurd was collaterally estopped from raising the validity of the 1994 contract. The sole basis for Hurd's claim for commissions is the 1994 contract; there is no basis for the claim in the 1996 employment agreement.
We conclude that the district court did not err in granting summary judgment to Spine-Tech on this issue.
2. Stock Option Agreement
Hurd argues that the district court erred in granting summary judgment on his stock option claim. An employee is bound by the terms and conditions set forth in a stock option agreement. Knudsen v. N.W. Airlines, Inc., 450 N.W.2d 131, 133 (Minn. 1990). Because there is no dispute as to the facts surrounding this issue, but only as to the interpretation of the contract, a legal question, this is an appropriate matter for summary judgment. See Art Goebel, Inc. v. N. Suburban Agencies, 567 N.W.2d 511, 515 (Minn. 1997).
At issue here is the reconciliation of three provisions. The option agreement states that an optionee must be an employee in order to exercise the option, but
[t]he Optionee may exercise this Option during the ninety (90) day period following termination of employment, but only to the extent that it was exercisable immediately prior to termination of employment (i.e., he/she shall not progress on the exercise schedule) * * *.
A subsequent section states: "This option may be exercised in full (notwithstanding the exercise schedule) if a Change in Control shall have occurred."
The option agreement is the contract between the individual participant and the company. It is governed by the Omnibus Stock Plan (plan), which is the overall enabling document for the plan. The option agreement acknowledges this arrangement by providing that "[i]f there is any inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan shall govern."
The plan states:
If a Participant's employment terminates for any reason other than death, Disability or Retirement, the unvested or unexercised portion of any Award held by such Participant shall terminate at the date of the termination of employment.
Hurd argues that he had 90 days after termination to exercise his vested options; that because a change in control accelerates vesting, and such a change occurred within 90 days, his unvested rights became vested and he was permitted to exercise the options for 90 days following termination. Spine-Tech asserts, and the district court agreed, that unvested rights are cut off on the date of termination and that Hurd, therefore, had nothing to exercise despite the change in control.
Hurd was not vested in the remaining 3,750 shares immediately prior to termination; therefore on that date, he had nothing to exercise. The language of the plan provides that unvested and unexercised rights end as of the date of termination.
The acceleration provision can be reconciled with the other two provisions if read as accelerating the rights of those still employed at the company. A basic rule of contract interpretation is that words and phrases must not be interpreted in isolation, but rather with the apparent purpose of the contract as a whole in mind. Art Goebel, 567 N.W.2d at 515; Cement, Sand Gravel Co. v. Agric. Ins. Co., 225 Minn. 211, 216, 30 N.W.2d 341, 345 (1947). When construed as a whole, there is no conflict among these provisions.
We conclude that the district court did not err in finding that termination of employment cut off Hurd's unvested option rights and thus did not err in granting summary judgment on this issue.