Opinion
Civil Action No. 20-628
12-06-2020
PATRICK R. VIANCOURT Plaintiff, v. PARAGON WHOLESALE FOODS CORP. Defendant.
District Judge Fischer
ECF No. 33
REPORT AND RECOMMENDATION
I. RECOMMENDATION
It is respectfully recommended that the Motion for Judgment on the Pleadings filed by Defendant (ECF No. 33) be denied. II. REPORT
A. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff is a former employee of Defendant Paragon Wholesale Foods, Corp. ("Paragon"), serving as Paragon's President from January 2019 until his termination without cause on November 29, 2019. First Amended Complaint, ECF No. 25 ¶ 12, 20. On January 28, 2019, the parties entered into an Employment Agreement. Id. ¶ 12. The parties have stipulated that this employment agreement "is a valid, enforceable contract." Stipulation, ECF No. 13. In Count 1 of Plaintiff's First Amended Complaint, Plaintiff alleges that he is entitled to payments pursuant to a Long Term Incentive Plan ("LTIP") as discussed in the Employment Agreement (ECF No. 25-1), and that Defendant's failure to make those payments upon and after his termination constitutes a breach of contract. ECF No. 25 ¶¶ 45-50.
The Employment Agreement contains the following clause: "Employee shall be eligible to participate in a long-term incentive payment in accordance with the Plan as set forth in the attached Exhibit B . . . ." ECF No. 25-1 at 5. Unfortunately, no Exhibit B was ever attached to the Employment Agreement. Plaintiff's Brief in Opposition, ECF No. 38 at 10.
As extrinsic evidence of the parties' intent for Plaintiff to receive LTIP payments, Plaintiff points to a valuation of Paragon that was performed in August 2019, as well as his meetings concerning that valuation with Paragon's CEO, Ms. Bellin. ECF No. 25 ¶¶ 16-19. Plaintiff asserts that the valuation was performed with the intention of securing a "baseline" that would allow the relative increase in value of the company to be accurately measured, enabling Paragon to calculate his LTIP payments, which themselves were offered in consideration of his employment. Id.
The following are the portions of the Employment Agreement upon which the parties' arguments focus:
"Plan" — means the Long-Term Incentive Plan entered into between Employer and Employee.ECF No. 25-1 at 4.
Compensation
. . .
3.3 Long-Term Incentive Plan. During the Employment Period, Employee shall be eligible to participate in a long-term incentive payment in accordance with the Plan as set forth in the attached Exhibit B and as modified [sic] time to time in the future by mutual written agreement between the Employer and Employee. All payments under the Plan will be subject to applicable withholding requirements. In drafting the "Stock Appreciation Rights Plan" to be attached hereto as Exhibit B, Employer and Employee agree that it shall include, but not be limited to, the following:
[table omitted]
Baseline for value creation to the Employer from the Effective Date
off of 2018 financials and company value. Employee's right to trigger, in whole or part, vested equity payouts after 72 months from Effective Date if change of control (as generally defined by federal tax law) has not occurred, or in the event of termination as expressly set forth in Section 5.2. This also accounts for upside of the value creation on strategic value, not appreciation value. If earnings results are ahead of plan consistent with the next time bound threshold, the % payout jumps to that next threshold. Except for Cause, would receive the vested % of value creation up to the date of termination] [sic].Id. at 5-6.
5.2 Termination Pay.Id. at 7-8.
. . .
(c) Termination by Employer Without Cause. If Employer terminates Employee's employment without Cause then . . . (iv) pay Employee any payments owed to Employee as of the termination of the Employment Period under the Plan as set forth in Section 3.3 . . . .
8.8 Entire Agreement; Amendments. This Agreement, as it may be amended from time to time, contains the entire agreement between the parties with respect to the subject matter hereof and other agreements or understandings, oral or written, between the parties hereto with respect to the subject matter hereof. This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto.Id. at 14.
This is Defendant's second motion for judgment on the pleadings, as Plaintiff filed an Amended Complaint in response to the first. Plaintiff filed his Response on October 8, 2020 (ECF No. 38) and Defendant's Reply and exhibits in support were filed on November 19, 2020. ECF Nos. 41, 42.
The Court notes for future reference that its Practices and Procedures state that Reply briefs are to be limited to 5 pages. Defendant's brief is 13 pages.
B. LEGAL STANDARD
"After the pleadings are closed — but early enough not to delay trial — a party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c).
"A motion for judgment on the pleadings under Rule 12(c) 'is analyzed under the same standards that apply to a Rule 12(b)(6) motion.'" Wolfington v. Reconstructive Orthopaedic Assocs. II PC, 935 F.3d 187, 195 (3d Cir. 2019) (quoting Revell v. Port Auth. of N.Y. & N.J., 598 F.3d 128, 134 (3d Cir. 2010)).
"[U]nder Rule 12(c), judgment will not be granted unless the movant clearly establishes that no material issue of fact remains to be resolved and that he is entitled to judgment as a matter of law." . . . As with a motion to dismiss, we view the facts presented and draw inferences therefrom in the light most favorable to the nonmoving party.Mid-Am. Salt, LLC v. Morris Cty. Coop. Pricing Council, 964 F.3d 218, 226 (3d Cir. 2020) (quoting Jablonski v. Pan Am. World Airways, Inc., 863 F.2d 289, 290-91 (3d Cir. 1988)).
"[I]n deciding a motion for judgment on the pleadings, a court may only consider 'the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents.'" Wolfington, 935 F.3d at 195 (quoting Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010)).
C. ANALYSIS
1. Parol Evidence Rule
"[T]he parol evidence rule bars only prior or contemporaneous oral agreements, not subsequent ones." Nicolella v. Palmer, 248 A.2d 20, 23 (Pa. 1968). However, where ambiguity is present, evidence of prior or contemporaneous oral agreements "is admissible to explain or clarify or resolve the ambiguity, irrespective of whether the ambiguity is patent, created by the language of the instrument, or latent, created by extrinsic or collateral circumstances." Kripp v. Kripp, 849 A.2d 1159, 1163 (Pa. 2004). "A contract is ambiguous if it is reasonably susceptible of different constructions and capable of being understood in more than one sense." Allegheny Intern., Inc. v. Allegheny Ludlum Steel Corp., 40 F.3d 1416, 1424 (3d Cir. 1994) (quoting Hutchinson v. Sunbeam Coal Corp., 519 A.2d 385, 390 (Pa. 1986)).
Apart from oral agreements, evidence of the parties' course of performance is not barred by the parol evidence rule and may be considered in contract interpretation even in the absence of ambiguity. Langer v. Monarch Life Ins. Co., 879 F.2d 75, 81 (3d Cir. 1989) ("[E]ven if the contract was not patently ambiguous, we would consider the parties' course of performance . . . ."); Pennsylvania Eng'g Corp. v. McGraw-Edison Co., 459 A.2d 329, 332 (Pa. 1983) ("[It is] an erroneous belief that a writing must be ambiguous in order to justify consideration of the parties' post-agreement conduct. Under recent case law, 'course of performance is always relevant in interpreting a writing.'" (quoting Atl. Richfield Co. v. Razumic, 390 A.2d 736, 741 n.6 (Pa. 1978))).
Defendant argues that, because the Employment Agreement contains a merger clause in § 8.8, Plaintiff's allegations concerning conversations with Ms. Bellin and the valuation are inadmissible parol evidence. In support, Defendant cites Haywood v. University of Pittsburgh, 976 F. Supp. 2d 606 (W.D. Pa. 2013). In Haywood, the District Court allowed extrinsic evidence to establish the existence of an oral agreement for the defendant to buy out the plaintiff's prior employment contract where the defendant had conceded that the written employment agreement, despite containing an integration clause, was not representative of the entire agreement between the parties. Defendant argues that, absent this "admission exception," the parol evidence rule would have barred evidence of the oral buyout agreement, and that it should similarly work to exclude evidence beyond the four corners of the Employment Agreement in this case.
While it is true that no analogous admission has been made by Defendant here, that does not yield the result Defendant desires, as the cases are further distinguishable along other grounds. Plaintiff notes that the admission of the defendant in Haywood was established not by the pleadings, but through discovery, and argues that were the instant motion to be granted he would be denied that same opportunity. This argument, while not erroneous, seems somewhat beside the point. Haywood involved two entirely distinct contracts: a written employment agreement, and an oral buyout agreement. The buyout was not contemplated by or referenced in the written agreement at all. In contrast, the Employment Agreement herein contains multiple references to the LTIP, and therefore the contested extrinsic evidence is not offered to prove the existence of an entirely new contract or term, but rather to explain or supplement an existing one. Perhaps more importantly, the oral agreement in Haywood occurred before the execution of the written one, whereas at least a large portion of the evidence at issue here occurred in the months following the parties' execution of the Employment Agreement.
In it's Reply Brief, Defendant attempts to characterize Plaintiff's evidence of an LTIP as an oral modification of the employment agreement. ECF No. 41 at 7-8. Plaintiff's argument is not one of modification of the agreement, but rather that the subsequent exchanges and course of employment between him and Ms. Bellin were consistent with the LTIP being operational. The Court finds that Defendant's cited case, C.I.T. Corp. v. Jonnet, 214 A.2d 620 (Pa. 1965) is inapplicable.
On the matter of the parol evidence rule generally, Plaintiff responds effectively on three fronts: that the parol evidence rule does not exclude evidence of conduct or activities that occurred after the execution of a fully integrated written agreement; that where ambiguity exists, parol evidence is admissible to explain ambiguous terms and clarify the intent of the parties; and that the parol evidence rule does not exclude evidence of the parties' course of performance.
Plaintiff's offered Pennsylvania Supreme Court precedent in Nicolella v. Palmer—as well as the basic terms of the parol evidence rule—support the first argument, which Defendant has failed to address entirely. Throughout its brief, Defendant argues that the Employment Agreement creates no obligation to make LTIP payments to Plaintiff, and that any obligation would be contingent on the creation of a separate written "plan" that does not exist. Defendant points to no additional action required by Plaintiff in order for the obligation to take effect, merely that the plan needed to be created and attached to the Employment Agreement as Exhibit B. Were Defendant's reading of the Employment Agreement to be given effect, any future obligation of LTIP payments to Plaintiff would be unsupported by consideration. Reasonable parties would not intentionally form an invalid contract, and therefore such a reading seems to be at odds with basic principles of contract interpretation.
Plaintiff's second response, that parol evidence is admissible to resolve ambiguity both patent and latent, is also well founded, Kripp, 849 A.2d at 1163; and while neither party squarely identifies the ambiguity contained in the Employment Agreement, perhaps it should be made explicit here: the Employment Agreement is silent on what will happen if "the Plan as set forth in Exhibit B" is not set forth in Exhibit B. Defendant appears to maintain that any obligations pursuant to the Plan are contingent on its creation and attachment, while Plaintiff argues that even absent any attachment the Employment Agreement contains terms sufficient to form an enforceable contract. The truth may be somewhere in the middle. The wording of § 3.3 and § 5.2(c)(iv) fails to contemplate the nonexistence of Exhibit B at all and reads as if the creation and attachment of the "plan" is a foregone conclusion—and yet, here we are. Therefore, a plain reading of the Employment Agreement yields a latent but nonetheless clear ambiguity as to how it will operate in the event of Exhibit B's non-attachment. See Allegheny Intern., 40 F.3d at 1424 ("A latent ambiguity arises from extraneous or collateral facts which make the meaning of a written instrument uncertain although the language thereof be clear and unambiguous." (quoting Easton v. Washington Cty. Ins. Co.,137 A.2d 332, 336 (Pa. 1957))).
The Court struggles to apply the "parable" in Defendant's Reply Brief (ECF No. 41 at 1-2) to the present situation and instead offers the following analogy, which it believes to be more on point with the present contract. Suppose there were an employment agreement containing the provision "Employee shall accrue vacation time in accordance with the schedule set out in Exhibit A, to be attached." Were there no Exhibit A, that agreement would be ambiguous, and would certainly not be solely susceptible to a reading in which Employee had agreed to receive no vacation at all should her employer, on a whim, not attach an Exhibit A.
Defendant additionally argues in its Reply that the LTIP was a future agreement and therefore not actionable, citing, inter alia, Bethlehem Steel Corp. v. Litton Industries, Inc. 488 A. 2d 581 (Pa. 1985). ECF No. 41 at 2. However, this is not an "agreement to agree" scenario. Section 3.3 of the Employment Agreement reads "Employee shall be eligible to participate in a long-term incentive payment in accordance with the Plan as set forth in the attached Exhibit B...." (emphasis added). An agreement to agree would say "to be set forth" or perhaps "to be memorialized in Exhibit B, once negotiated." It's omission/non-existence appears more likely to be a mistake and makes the contract, at best, ambiguous.
Finally, Plaintiff argues that the parol evidence rule does not apply to evidence of the parties' course of performance. Under both Third Circuit and Pennsylvania Supreme Court precedent, parties' course of performance is always relevant to interpreting a writing, even when the writing is not patently ambiguous. See Langer, 879 F.2d at 81. Plaintiff argues that the evidence at issue here—conversations between him and Ms. Bellin as well as completion of the valuation—constitutes course of performance because the valuation was a necessary prerequisite to the LTIP's functioning (i.e., without the initial valuation, it would be impossible to measure how much the value of Paragon increased under Plaintiff's leadership). It is conceivable that Paragon had reasons for completing the valuation that were unrelated to the Employment Agreement, and therefore this evidence will not necessarily corroborate Plaintiff's claim. Plaintiff does not specifically assert that the valuation was only completed for purpose of facilitating his LTIP, nor does he state that his conversations with Ms. Bellin about the valuation even included any discussion of the LTIP. See ECF No. 25 at 7. Nevertheless, these conversations and the valuation itself are not excluded by the parole evidence rule.
2. Existence of a Plan
Defendant argues that the creation of the LTIP via the elusive Exhibit B is a "necessary prerequisite to plaintiff's entitlement to payment under the Plan" and that therefore no obligation or intent to be bound can exist in its absence. Defendant's Brief in Support, ECF No. 36 at 10. In support, Defendant cites the Western District's observation that "[i]t is black letter law that no breach of contract claim can stand where the operative document states that it does not create a binding legal obligation and where the future contract is contingent upon other events coming to pass." Power Contracting, Inc. v. Stirling Energy Sys., Inc., No. 2:09-cv-00970, 2010 WL 4854072, at *5 (W.D. Pa. Nov. 22, 2010). This support is once again inapposite. The document the plaintiff in Power Contracting sought to characterize as an enforceable contract was a Memorandum of Understanding containing a provision explicitly stating that "no legal obligation . . . will exist unless it is reduced to a definitive executed agreement." No analogous provision is present here, nor does Defendant attempt to identify one.
Again, the language of the Employment Agreement is ambiguous as to which party bears the risk of Exhibit B's non-attachment, and while it is conceivable that ultimately no LTIP payments are owed or calculable, Defendant's claims that the attachment of Exhibit B was a "clear" and "necessary prerequisite" of its obligation to Plaintiff is unsupported by even the most cursory reading of § 3.3. For an obligation to be contingent, the writing would necessarily need to contemplate the non-occurrence of the triggering event, and as mentioned above, the Employment Agreement spoke of the attachment of Exhibit B as if it were a certainty.
Plaintiff responds by arguing that not only was the obligation not contingent on the creation of a separate plan, but that the language that does exist in the Employment Agreement is sufficient to bind the parties. Plaintiff's strongest support comes from the Pennsylvania Supreme Court: "If the parties agree upon essential terms and intend them to be binding, a contract is formed even though they intend to adopt a formal document with additional terms at a later date." Shovel Transfer & Storage, Inc. v. Pa. Liquor Control Bd., 739 A.2d 133, 136 (Pa. 1999).
Defendant contends that Exhibit B's absence is not, as Plaintiff claims, simply a failure to formalize the agreement, but a substantive omission from the parties' negotiations, demonstrating that no meeting of the minds occurred with regard to the LTIP. In support, Defendant cites a Western District case in which the court held that an oral agreement to engage in lease negotiations was not binding on either party, as it lacked definiteness in its essential terms and was merely an "agreement to agree." Landan v. Wal-Mart Real Estate Bus. Tr., No. 2:12cv 926, 2015 WL 1491257, at *5 (W.D. Pa. Mar. 31, 2015). Plaintiff correctly notes that Landan was decided at the summary judgment stage, allowing for interpretation of the agreements at issue to be informed by discovery.
It is also worth noting that, despite Defendant's assertion that the issues are "virtually identical," Landan was a very different kind of case. Notably, it involved a draft lease that contained eighteen placeholders for exhibits that were never attached, motivating the court to find that it was "not in a form which appears ready for execution" and that it merely "reflects ongoing negotiations between the parties." Landan, 2015 WL 1491257, at *11.
Both parties discuss this issue further, but any continued exploration would put the cart before the horse. The writing is clearly ambiguous as to what obligations Defendant owes Plaintiff in the event that no Exhibit B is created or attached. Therefore, the relevant inquiry is not what a third party may divine from a four-corners reading of the Employment Agreement, but what the parties themselves understood that agreement to mean. Plaintiff has carried its burden of raising "a reasonable expectation that discovery will reveal evidence of the necessary element," here, the intention of the parties. Fowler v. UPMC Shadyside, 578 F.3d 203, 213 (3d Cir. 2009) (quoting Graff v. Subbiah Cardiology Assocs., Ltd., No. 08-207, 2008 WL 2312671, at *4 (W.D. Pa. June 4, 2008)); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007) ("a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable").
Finally, Defendant's Reply Brief argues that Plaintiff admitted under oath that the LTIP was never finalized. ECF No. 41 at 10-11. This "admission" stems from an email attached to the initial Complaint. This email, Plaintiff argues, was not attached to the First Amended Complaint and therefore, is not properly before the Court. ECF No. 38 at 17, citing Palakovic v. Wetzel, 854 F.3d 209, 220 (3d Cir. 2017) (The first amended complaint "supersedes the earlier pleading and renders the original pleading a nullity."). The Court agrees and further finds that, at a minimum, whether the LTIP was finalized is a disputed issue of fact.
Therefore, at this early stage, and lacking effective argument by the movant to render any issues of fact moot, judgment on the pleadings would be premature.
3. Is Specific Enforcement Possible?
Defendant argues that even if the parties intended to be bound, the Employment Agreement as it relates to the LTIP is unenforceable for indefiniteness. In support, Defendant cites an Eastern District case in which the court held that a written compensation plan lacked "sufficient specificity to be enforced." Quinn v. Traditions of Am., L.P., No. 10-2462, 2010 WL 3239325, at *3 (E.D. Pa. Aug. 16, 2010). Here again Defendant's argument founders on factual distinctions, as the plaintiff in Quinn did not attempt to "point to any conduct . . . that would give any structure to the otherwise completely amorphous written agreement." Quinn, 2010 WL 3239325, at *3. The extrinsic evidence the Quinn court said could have lent structure to the agreement there, is precisely the sort of evidence, facilitated by discovery, that may serve to either bolster or invalidate Plaintiff's claims here.
Separately, Defendant makes the more pragmatic argument that an LTIP or Stock Appreciation Rights Plan is "an intricate vehicle." ECF No. 36 at 23. Defendant raises many questions—entirely unaddressed by the Employment Agreement—that it claims would be answered by a typical plan of this sort. In essence, Defendant argues that these plans are immensely complicated and that therefore the perfunctory nature of § 3.3 is inadequate to create any sort of enforceable agreement. Tellingly, Plaintiff's brief is silent on this matter, and in general, light on any sort of illustration of how the LTIP should actually function given § 3.3's paucity of detail. However, under the 12(c) standard's mandate that all reasonable inferences must be viewed in the light most favorable to the nonmoving party, Defendant's point should not carry the day, at least not at this early stage. Defendant's argument that, lacking the further creation of a typically very complex document, no reasonable party would expect to be bound to an LTIP by its mere mention in § 3.3 is undoubtedly appealing, but implicates circumstantial issues—such as the parties' level of familiarity with agreements like this—that could reasonably resolve in favor of either party. Therefore, Defendant is not entitled to judgment on the pleadings alone.
4. Should the contract be construed against Plaintiff as the drafter?
Defendant is entirely correct in positing that it is a well-settled principal of contract law that ambiguities should be construed against the contract's drafter. However, there appears to be a factual dispute between the parties as to whether the Employment Agreement was drafted by Plaintiff's attorney alone, or jointly with Paragon's. Therefore, it is impossible to say as a matter of law against which party, as drafter, any ambiguity should be construed. Furthermore, as Plaintiff correctly notes, because the pleadings are silent as to which party drafted the Employment Agreement, this issue is not properly before the Court on a motion for judgment on the pleadings. See Wolfington, 935 F.3d at 195.
5. Is Defendant entitled to judgment on Count 3 of Plaintiff's First Amended Complaint?
Count 3 of the First Amended Complaint alleges that, by failing to pay Plaintiff LTIP payments, Defendant violated Pennsylvania's Wage Payment and Collection Act. Defendant observes that judgment on the pleadings on Count 1 would render Count 3 moot. Because Defendant is not entitled to judgment on the pleadings as to Count 1, this issue is not reached. III. CONCLUSION
The language of the Employment Agreement, taken together with Exhibit B's absence, yields a definite ambiguity. Given that ambiguity, parol evidence as well as evidence of the parties' course of performance will be necessary to determine if Plaintiff is owed any compensation pursuant to an LTIP as alleged in Count 1 of the First Amended Complaint.
Plaintiff has "raise[d] a reasonable expectation that discovery will reveal evidence of the necessary element." Fowler, 578 F.3d at 213. Because Defendant's arguments for that evidence's inadmissibility are unfounded, Defendant has failed to carry its burden of establishing that no issues of material fact remain. Defendant's additional arguments pertaining to intent to be bound and indefiniteness of terms revolve around the same ambiguities and issues of fact. Therefore, for the reasons discussed above, it is respectfully recommended that the Motion for Judgment on the Pleadings filed by Defendant (ECF No. 33) be denied.
In accordance with the Magistrate Judges Act, 28 U.S.C. §636(b)(1)(B) and (C), and Rule 72.D.2 of the Local Rules of Court, the parties are allowed fourteen (14) days from the date of service of a copy of this Report and Recommendation to file objections. Any party opposing the objections shall have fourteen (14) days from the date of service of objections to respond thereto. Failure to file timely objections will constitute a waiver of any appellate rights. Dated: December 6, 2020
BY THE COURT
/s/_________
LISA PUPO LENIHAN
United States Magistrate Judge