Summary
holding that stock options constituted wages under the Connecticut wage statutes where right to the stock options vested upon beginning work for the defendant corporation and the amount was not discretionary where the only fluctuation was the value of the fixed percentage of outstanding common stock
Summary of this case from Datto Inc. v. BrabandOpinion
No. HHD CV 090-5033428 S
August 9, 2010
MEMORANDUM OF DECISION ON DEFENDANTS' MOTION TO STRIKE SIXTH, SEVENTH EIGHTH COUNTS OF THE PLAINTIFF'S COMPLAINT
I. INTRODUCTION
In this case, plaintiff Keith Garner has sued four defendants — W.R. Berkley Corporation ("W.R. Berkley"), Berkley Capital, LLC ("Berkley Capital"), Berkley Aviation Investors, Inc. ("Berkley Aviation"), and Greenwich AeroGroup, Inc. ("Greenwich Aero") — to recover money damages on several theories of liability based upon the defendants' refusal to grant him stock options equal to one percent (1%) of the outstanding common stock of Greenwich Aero, in alleged violation of the express terms of the written employment agreement under which he served as President and CEO of Berkley Aviation, later renamed Greenwich Aero, from May 14, 2007 through October 31, 2008. In his ten-count Complaint dated August 28, 2009, the plaintiff has brought separate claims against the defendants sounding in breach of express contract (First Count), breach of implied contract (Second count), breach of the implied covenant of good faith and fair dealing (Third Count), promissory estoppel (Fourth Count), intentional misrepresentation (Fifth Count), violation of the Connecticut Wage Statute, General Statutes § 31-72 et seq. (Sixth Count), conversion (Seventh Count), statutory theft in violation of General Statutes § 52-564 (Eighth Count), negligent misrepresentation (Ninth Count), and unjust enrichment (Tenth Count).
The case is now before the Court on the Defendants' Motion to Strike Sixth, Seventh Eighth Counts of Plaintiff's Complaint dated October 22, 2009. The defendants initially supported their Motion with an accompanying Memorandum of Law. The plaintiff filed an Opposition to the defendants' Motion on December 7, 2009. Thereafter, the defendants responded to the plaintiff's Opposition by filing a Reply Brief on January 28, 2010. The Motion was argued on the Short Calendar on March 1, 2010.
CT Page 16031
II. STANDARD OF REVIEW
"The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any complaint . . . to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). "It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted." (Internal quotation marks omitted.) Violano v. Fernandez, 280 Conn. 310, 318, 907 A.2d 1188 (2006). "If any facts provable under the express and implied allegations in the plaintiff's complaint support a cause of action . . . the complaint is not vulnerable to a motion to strike." Bouchard v. People's Bank, 219 Conn. 465, 471, 594 A.2d 1 (1991).III. FACTS A. Common Allegations
Each of the plaintiff's challenged counts is based upon the following common allegations of fact, as incorporated therein from paragraphs 1-22 of the First Count, claiming breach of express contract.
The plaintiff is an expert in the business aviation field and has held numerous senior management positions with business jet manufacturers. The defendant, W.R. Berkley Corp., is an insurance holding company. Its unit responsible for managing private equity investments is Berkley Capital, LLC. Two of W.R. Berkley Corp.'s wholly-owned subsidiaries are also defendants in the present action: Berkley Aviation Investors, Inc., and Greenwich Aerogroup, Inc. At all relevant times, the operations and management of W.R. Berkley, Berkley Capital, Berkley Aviation and Greenwich Aero were interrelated and W.R. Berkley created, controlled and/or implemented the policies and practices of Berkley Capital, Berkley Aviation and Greenwich Aero, completely dominating their finances, policies and business practices.
In March 2006, the president of Berkley Capital, LLC, Frank Medici, advised the plaintiff, who was then affiliated with an aviation consulting firm, that W.R. Berkley Corp. was interested in investing in the aviation industry. Thereafter, the plaintiff developed a strategy for the defendants to invest in the "technical services" segment of the business aircraft industry. By January or February of 2007, the defendants formed a subsidiary known as Berkley Aviation Investors, Inc., which proceeded to acquire a North Carolina-based aircraft services provider.
After this acquisition, Mr. Medici asked the plaintiff if he would be interested in becoming president and chief executive officer of Berkley Aviation Investors, Inc. The plaintiff replied that he would be interested in serving in that capacity if the parties could reach an employment agreement.
By May 14, 2007, the plaintiff and the defendants had agreed in writing to the terms of an employment agreement ("Agreement"). Among its terms, the Agreement provided the plaintiff stock options "in the common stock of [Berkley Aviation] that equal one percent (1%) of the outstanding common stock." (Complaint, Count One, ¶ 18.) The plaintiff commenced employment with the defendants in reliance on the Agreement.
In September 2007, Berkley Aviation Investors, Inc. was renamed Greenwich Aerogroup, Inc. Thereafter, the plaintiff continued to perform his duties as President and CEO of the renamed corporation until October 31, 2008, when his employment was terminated without cause. Although the plaintiff fulfilled his duties to Berkley Aviation and Greenwich Aero pursuant to the Agreement, the defendants breached their duties to him thereunder by failing to grant him stock options equal to one percent (1%) of the outstanding common stock of Greenwich Aero. The present action seeks to recover this alleged equity interest in Greenwich Aero.
B. Additional Allegations in the Challenged Counts
In the Sixth Count, alleging a violation of the Connecticut Wage Statute, General Statutes § 31-72 et seq., the plaintiff further alleges that the stock options promised to him by the defendants were offered as part of an overall compensation package for the anticipated services he would render in the position of President and CEO of Berkley Aviation, later Greenwich Aero. On that basis, he claims that the stock options constituted "wages," as defined for the purpose of the Connecticut Wage Statute in General Statutes § 31-71a(3), and thus that the defendants' failure to grant them as promised constitutes a failure to pay wages, in violation of Section 31-72 et seq.
In the Seventh and Eighth Counts, alleging conversion and statutory theft, respectively, the plaintiff further alleges that the stock options promised to him by the defendants, but never actually granted to him, rightfully belong to him, and thus that the defendants' refusal to grant them to him has wrongfully deprived him of property belonging to him. Such wrongful deprivation of his property, without his authorization, allegedly constitutes conversion. The plaintiff claims in his Seventh Count that he is entitled to recover damages for such conversion because the resulting loss or deprivation of his property has caused him harm. He claims in his Eighth Count that, because such conversion was intentional, it also constitutes statutory theft, for which he is entitled to recover treble damages under General Statutes § 52-564.
IV. ANALYSIS A. Challenge to Claim Under the Connecticut Wage Statute, General Statutes § 31-72 et seq., as Pleaded in the Sixth Count
With respect to the plaintiff's claim that the defendants' failure and refusal to grant him the promised stock options violated the Connecticut Wage Statute, General Statutes § 31-72 et seq., the defendants argue that the stock options here at issue did not constitute wages, within the meaning of that statute, because they were unvested. Shafton v. DCL.Net, Inc., No. CV 00-0438890, 2001 Conn.Super. LEXIS 625, at *6 (Conn.Super.Ct. Feb. 28, 2001) (holding that "Unvested stock options do not qualify as wages under § 31-72") (citation omitted). They are unvested, claim the defendants, because, as alleged in the Complaint, they were never granted to him. Moreover, even if such stock options did somehow vest, they do not qualify as wages under the Connecticut Wage Statute because their value is speculative and wholly dependent on Greenwich Aero's future profitability. In support of the latter argument, the defendants rely upon our Supreme Court's determination in Weems v. Citigroup, Inc., 289 Conn. 769, 778 (2008) that the bonuses there at issue did not qualify as wages "because they were not linked to ascertainable work performed by an individual, but rather were discretionary and tied to the performance and profitability of the defendants' firms."
The plaintiff does not dispute the defendants' legal argument that unvested stock options do not constitute wages, within the meaning of the Connecticut Wage Statute. He argues, however, that as pleaded in his Complaint, the stock options promised to him became fully vested, under the Agreement, as soon as he started working thereunder as President and CEO of Berkley Aviation. On that score, the plaintiff notes that, as his claim has been pleaded, the stock options were offered to him as part of an overall package of compensation for the work he would perform as President and CEO of Berkley Aviation, without regard to the quantity, quality or duration of such work. His entitlement to the stock options, as alleged, was thus not subject to a vesting schedule or made to depend upon a discretionary determination by anyone, on any basis, as to whether he had truly earned them or whether the defendants could afford to grant them to him in light of the profitability of their business operations. Hence, while the value of the common stock of Berkley Aviation's or its successor, Greenwich Aero, would naturally fluctuate over time, the plaintiff's right to have and exercise the promised options as to one percent (1%) such outstanding common stock, whatever its value, was fully vested as soon as he started working under the Agreement for Berkley Aviation.
The parties have cited a number of Superior Court decisions considering this issue. The majority of the decisions follow the interpretation of § 31-71a(3) provided by Swihart v. Country Home Bakers, Inc., Superior Court, judicial district of Ansonia-Milford, Docket No. CV 97 060945 (December 3, 1998, Corradino, J.). In that case, the Court held that the plain language of the definition of "wages" precluded a claim under § 31-72 for bonus and fringe benefits that had not yet vested under the terms of an employment offer. Id. Under the statute, "wages" include "compensation for labor or services rendered by an employee . . ." (Emphasis added.) § 31-71a(3). The Court held that this language only permitted vested, as opposed to expected, benefits to be recovered under the statute because "`[r]endered' is a past tense word; it implies a claim against the employer has already vested." Id.
Subsequently, other courts have held that "unvested stock options are not wages" under § 31-72." Nofs v. Gemini Network, Inc., Superior Court, judicial district of Hartford, Docket No. CV 02 0818599 (February 4, 2003, Cohn, J.). In Nofs, the plaintiff's employment offer included a stock option plan that guaranteed that he would receive stock options over five years that would be worth at least one million dollars. Id. If the stock was worth less than one million dollars after five years, the plaintiff would receive cash compensation to cover the difference. Id. This agreement was later amended as the company's fortunes declined, and as a result, the plaintiff was no longer entitled to any guarantee regarding the value of the stock options. Id. The plaintiff disputed his employer's ending of the million-dollar guarantee, as one of the plaintiff's "key considerations" in working for the defendant was the guarantee value of the stock. Id. This conflict apparently led to his termination, though the plaintiff was hired as an independent consultant. Id. In considering the plaintiff's prejudgment remedy application, the Nofs Court held, without discussion, that the plaintiff could not enforce his right to "unvested stock options" or to the million-dollar guarantee under § 31-72. Id.
Similarly, in Shafton v. DSL Net, Inc., Superior Court, judicial district of New Haven, Docket No. CV 00 0438890 (February 28, 2001, Jones, J.), the Court held that an employee who sought the recovery of unvested stock options promised by an employment offer could not bring a claim for wages under § 31-72. The plaintiff had alleged that, at the time of his termination, the stock options had not vested under the terms of his employment offer. Id. The plaintiff alleged, however, that "he received these stock options immediately upon commencement of employment and they were scheduled to vest over a four-year period" and that his employer terminated him a few weeks before the first vesting date to prevent him from obtaining these options. Id.
By contrast, another judge of the Superior Court allowed an employee's claim to recover stock options under § 31-72 to survive a motion to strike. Randolph v. CAS Medical Systems, Inc., Superior Court, judicial district of New Haven, Docket No. CV 08 5020807 (December 22, 2008, Lager, J.) ( 46 Conn. L. Rptr. 843). The plaintiff in Randolph alleged that he received a written employment offer to work for the defendants that included stock options. Id. The stock options, he alleged, were given as inducement to work at a lower salary than competitors were offering. Id. The plaintiff alleged that the stock options vested upon his acceptance of the employment offer and that he had the vested right to exercise the options within three months of the termination of his employment. Id. The Court, while acknowledging that the plaintiff's Complaint was "inartfully pled," found that the plaintiff had alleged the existence of a bonus that was "specifically linked to the work he performed as an employee of CAS for almost a year within the meaning of the wage statute." Id. The plaintiff's right to exercise his stock options was "offered to Randolph in lieu of a higher salary and as part of an overall compensation package for the anticipated services he would render in the specific position for which he was hired." Id.
Unlike the employees in the other stock option cases, the plaintiff in Randolph categorized his right to exercise stock options as a bonus that was specifically linked to work he performed over the course of a year. Randolph v. CAS Medical Systems, Inc., supra, 46 Conn. L. Rptr. 843. The Randolph Court accepted this characterization and fit the plaintiff's allegations into the framework for analyzing bonus claims under Weems v. Citigroup, Inc., supra, 289 Conn. 782: Bonuses awarded solely on a non-discretionary basis and tied solely to the efforts of a particular employee can be considered "wages" under § 31-71a(3).
The Court agrees with the plaintiff that, as pleaded in his Complaint, his entitlement to the stock options here at issue may be shown to have become fully vested at the time he began to work for Berkley Aviation under the Agreement. This is so, as the plaintiff has argued, because his claimed entitlement to the stock options became complete and unconditional — not subject to a vesting schedule or to a discretionary determination by anyone as to whether he had earned them or the defendants could afford to grant them — as soon as he signed and started working under his Agreement. In this regard, the plaintiff's situation is analogous to that of the plaintiff in Randolph v. CAS Medical Systems, Inc., supra at note 1, whose wage claim was upheld over the defendant's motion to strike because it was provable under the complaint, as pleaded, that his entitlement to the promised stock options had vested once he started to work for the defendant.
Furthermore, as to the defendants' argument that the promised stock options did not constitute wages because their value was wholly dependent upon the defendants' future profitability, the Court rejects that argument because the quantity of stock they entitled him to acquire was at all times expressly fixed at one percent (1%) of all outstanding common stock of Berkley Aviation, later Greenwich Aero. Were the plaintiff's entitlement to stock options or the percentage of outstanding common stock to which they entitled him made dependent, under the Agreement, upon discretionary determinations by others as to the quantity or quality of his work, the defendants' profitability or any other factors, then the plaintiff would have no vested right to receive them at all, much less to receive any particular quantity of them, as compensation for his work and thus they would not qualify as wages under the Connecticut Wage Statute. But where, as here, all that would fluctuate was the aggregate value of the fixed percentage of outstanding common stock to which he was contractually entitled, his right to have and exercise such stock options, as an agreed-upon part of his total compensation package, was firmly established and unwavering, and thus they clearly constituted part of the wages for his work.
The Court concludes, for all of the foregoing reasons, that insofar as the defendants' Motion challenges the legal sufficiency of the plaintiff's claim of violation of the Connecticut Wage Statute, as pleaded in his Sixth Count, said Motion must be DENIED.
B. Challenges to Claims of Conversion and Statutory Theft, As Pleaded, Respectively, in the Seventh and Eighth Counts
With respect to the plaintiff's claims of conversion and statutory theft, as pleaded, respectively, in the Seventh and Eighth Counts of his Complaint, it must first be noted that both claims are based upon identical core allegations of fact. The defendants' legal challenges to those claims will thus be treated together, because they are addressed to the legal sufficiency of those core allegations to sustain either claim.
The defendants challenge the legal sufficiency of the plaintiff's claim of conversion on three grounds: first, that it purportedly arises under an express or implied contract, which is not permitted under Connecticut law; second, that the plaintiff never possessed the stock options at issue, and thus his possessory interest in them could not have been interfered with in such a manner as to constitute conversion; and third, that the stock options here at issue, like mere debts of money, are not subject to claims of conversion because they are not specific, identifiable chattels. For the following reasons, the Court agrees with the defendants that the plaintiff's claims of conversion and statutory theft must be stricken.
The law of this State clearly establishes that the tort of conversion is
an unauthorized assumption and exercise of the right of ownership over goods belonging to another, to the exclusion of the owner's rights . . . It is some unauthorized act which deprives another of his property permanently or for an indefinite time, some unauthorized assumption and exercise of the powers of the owner to his harm. The essence of the wrong is that the property rights of the plaintiff have been dealt with in a manner inconsistent with his right of dominion and to his harm.
Macomber v. Travelers Prop. Cas. Corp., 261 Conn. 620, 649 (2002) (citations omitted). "When an action arises from a claim under an express or implied contract, a claim in tort is inappropriate." Mystic Color Lab, Inc. v. Auctions Worldwide, LLC, 284 Conn. 408, 421 (2007) (citation omitted). To establish a valid claim of conversion, a plaintiff must establish "legal ownership or right to possession in the particular thing . . . that the defendant is alleged to have converted." Macomber, supra, 261 Conn. at 650; see also Mystic Color Labs, Inc., supra, 284 Conn. at 421 ("in order to establish a valid claim of conversion . . . for money owed, a party must show ownership or the right to possess specific, identifiable money, rather than the right to the payment of money generally.") (emphasis added) (citation omitted); Deming v. Nationwide Mut. Ins. Co., 279 Conn. 745, (2006) ("[a] mere obligation to pay money may not be enforced by a conversion action . . .").
The plaintiff's Complaint expressly alleges that he is entitled to stock options in the common stock of Greenwich Aero pursuant to his Agreement with the defendants. Complaint, Count VI, ¶¶ 17-18; Count VII, ¶¶ 17-18. For this reason alone, his claims of conversion and statutory theft fail as a matter of law and must be stricken.
In addition, the Court must note that the stock options to which the plaintiff claims he is entitled, though definite in quantity, measured as a fixed percentage (1%) of all outstanding common stock of Greenwich Aero, are not definite in identity. That is, they are not particular options for the acquisition of particular shares of Greenwich Aero stock which the plaintiff could somehow identify, by number, date of issuance or otherwise, and thus they are not property which the plaintiff had the right to possess in such a manner, like a specific, identifiable chattel, that another person's interference with that right of possession would constitute conversion. Instead, like a claim for the payment of money generally, the plaintiff's claimed right to be granted the promised stock options as to an undifferentiated quantity of common stock representing one percent (1%) of all outstanding common stock issued by Greenwich Aero was like a claim for the payment of money generally, which cannot serve as the basis for a conversion action.
For all of the foregoing reasons, the Court concludes that the plaintiff has failed to plead a proper claim of conversion, and thus that his Seventh Count, sounding in conversion, and his Eighth Count, sounding in statutory theft based upon alleged conversion, must both be stricken.
IV. CONCLUSION AND ORDER
Insofar as the defendants' Motion to Strike challenges the legal sufficiency of the plaintiff's claim in the Sixth Count of his Complaint that the defendants violated the Connecticut Wage Statute by not granting him the promised stock options, the Court concludes, for the foregoing reasons, that said Motion must be DENIED. However, insofar as the defendants' Motion challenges the legal sufficiency of the plaintiff's claims of conversion and statutory theft, as pleaded in the Seventh and Eighth Counts of his Complaint, the Court concludes, for the foregoing reasons, that said Motion must be GRANTED. Accordingly,
IT IS SO ORDERED this 9th day of August 2010.