Opinion
Case No. 02 B 13533 (AJG).
September 9, 2004
DECISION AND ORDER DISALLOWING AND EXPUNGING CLAIM # 23165 — OBJECTED TO IN THE DEBTORS' 16th OMNIBUS OBJECTION TO CLAIMS
On July 21, 2002 and November 8, 2002, WorldCom, Inc. ("WorldCom") and certain of its direct and indirect subsidiaries (collectively, the "Debtors") filed petitions under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). On October 31, 2003, this Court entered an order (the "Confirmation Order") confirming the Debtors' Modified Second Amended Joint Plan of Reorganization (the "Plan"). Pursuant to its terms, the Plan became effective on April 20, 2004.
Pre-petition, the Debtors had entered into individual letter agreements (the "Letter Agreements") with certain employees to induce those employees to remain with the company during the period that the Debtors wound-down their wireless resale business. As consideration for their remaining during this transition period, and subject to certain other conditions, the employees were to receive a transition bonus (the "Transition Bonus") at the end of a specified period of employ. Subsequent to entering into the Letter Agreements, the Debtors accelerated the wind-down of the wireless business and by the time they filed for bankruptcy protection, the Debtors determined that the wind-down was not critical to the Debtors reorganization. The Debtors asserted that based upon this assessment, they did not seek to assume the Letter Agreements. Rather, on September 10, 2003, the Debtors sent the employees who were parties to the Letter Agreements a memorandum indicating that the Debtors were unable to proceed with the Transition Bonus program and that the Debtors had determined to reject the Letter Agreements. In the memorandum, the Debtors released the employees from any obligation to remain as employees through the originally agreed upon transition dates. The employees were, however, offered the option of remaining employees of the Debtor and qualifying for continued receipt of salary and for severance benefits, in accordance with the Debtors' severance plan, upon termination of their employment. Certain of those individuals who opted to remain employed by the Debtors and whose employment was subsequently terminated accepted severance benefits and, in conjunction therewith, executed a General Release Agreement. Those employees signatory to a General Release Agreement agreed that in consideration for the severance payment, aside from certain specifically retained rights, the employee released the Debtors from claims of any nature related to that individual's employment or the cessation of its employment with the Debtors.
Certain of the employees (the "Transition Employees") who were party to a Letter Agreement filed a motion (the "Transition Bonus Motion") seeking to compel payment of their Transition Bonus as an administrative expense, which relief the Debtors opposed. After a hearing on the issue, on July 15, 2003, the Court issued its Decision and Order Denying Request for Administrative Priority Status for Claims Based on Transition Bonus (the "Transition Bonus Decision"). In the Transition Bonus Decision, the Court concluded that the Transition Employees were not entitled to an administrative expense priority for the bonuses as severance payments and that the Transition Employees had not established the elements for an administrative expense priority under 11 U.S.C. § 503(b)(1)(A) in that they had not met their burden to show that, post-petition, either (a) the debtor-in-possession induced their performance to assist in the wind-down of the wireless business, or (b) that any performance by them under the Letter Agreements benefitted the estates. Further, the Court concluded that the Transition Employees and individual objectors who signed a General Release Agreement were barred from pursuing causes of action against the Debtors related to their employment, including actions under the Letter Agreements. With respect to the claims of the Transition Employees who had not executed a General Release Agreement, the Court concluded that any claims they had arising from their respective Letter Agreements were pre-petition, general unsecured claims.
On June 18, 2003, the Debtors filed their 16th Omnibus Objection With Respect to Employment Claims, which included certain proofs of claim filed by claimants based on the Letter Agreements (the "Employee Bonus Claims"). Based on the Courts' Transition Bonus Decision which resolved the issues relating to the allowability and status of claims predicated on the Letter Agreements, on September 15, 2003, the Debtors filed a Motion for Summary Judgment With Respect to Wireless Transition Bonus Employee Claims (the "Summary Judgment Motion"). In the Summary Judgment Motion, the Debtors seek an Order setting forth the treatment to be afforded the various Employee Bonus Claims in accordance with the Court's Termination Bonus Decision. Specifically, the Debtors seek an order (i) disallowing and expunging those Employee Bonus Claims filed by claimants who executed General Release Agreements, and (ii) treating as general unsecured claim, those Employee Bonus Claims where the claimant did not execute a General Release Agreement.
On October 14, 2003, the Court held a hearing (the "Hearing") on the Debtors' Summary Judgment Motion. Although no responses had been filed to the Summary Judgment Motion, one of the claimants asserting an Employee Bonus Claim, Mr. Roger Beckman, made an appearance at the Hearing. In the Summary Judgment Motion, the Debtors seek to disallow and expunge Mr. Beckman's Employee Bonus Claim, as he is one of the employees who signed a General Release Agreement, pursuant to which he received a severance package.
At the Hearing, Mr. Beckman opposed the relief sought by the Debtors with respect to his claim. Mr. Beckman contends that although he signed a General Release Agreement pursuant to which he received a severance package, his Employee Bonus Claim should be allowed as a general unsecured claim similar to the relief afforded those employees who did not sign a General Release Agreement. Mr. Beckman argues that this is appropriate because he only signed the General Release Agreement because he felt economic pressure under the 10-day time limitation to sign it.
Mr. Beckman asserted that after receiving the initial form of general release agreement from the Debtors, he added a provision to the form that stated that he was not relinquishing any claims related to his "rights toward any unpaid commissions and/or bonuses earned during and for that period" and that, as altered, he signed the general release form on February 4, 2003. [Hearing Transcript, October 14, 2003 (Hearing Tr.), p. 42, lines 2-10]. According to Mr. Beckman, this additional sentence was added on the advice of counsel. [Hearing Tr., p. 46, lines 8-13]. Mr. Beckman states that he subsequently received a call from the resource department telling him that the form had been received with his "qualifier" on it and that a new agreement addressing his concerns would be sent for his signature. [Hearing Tr., p. 42, lines 11-16]. Mr. Beckman asserts that the revised form of general release agreement that he received from the Debtors had been modified with a "new last sentence" which only had a reference to commissions in it but no reference to a bonus. [Hearing Tr., p. 42, lines 16-22]. Mr. Beckman contends that he "felt compelled" to sign the agreement for financial reasons, as he was only afforded 10 days to execute the General Release Agreement in order to receive his approximately $40,000 severance payment and, therefore, he signed it on February 21, 2003. [Hearing Tr., p. 42, lines 22-25, p. 43, line 2-4]. Mr. Beckman urges the Court to afford him "special consideration" and allow his claim as if he had not signed the General Release Agreement inasmuch as he had previously raised the issue of pursuing the Transition Bonus. [Hearing Tr., p. 43, lines 4-11]. Therefore, it is Mr. Beckman's contention that under the pressure of the time constraint to qualify for receipt of the severance package and for financial reasons, he found himself compelled to sign the General Release Form.
The Debtors argue that Mr. Beckman signed the General Release Agreement which did not exclude the Transition Bonus from the release. The Debtors note that, at the time of signing the Agreement on February 21, 2003, Mr. Beckman had counsel who was representing him along with the other employees. Therefore, the Debtors contend that no one took advantage of Mr. Beckman. Rather, the Debtors argue, Mr. Beckman was presented with an agreement that gave him a choice either sign the General Release Agreement to qualify for the severance package or relinquish the severance package and pursue the Transition Bonus awaiting the Court's determination as to the treatment to be accorded such Transition Bonus claims. The Debtors assert that Mr. Beckman chose to sign the General Release Agreement and he is bound by its terms which preclude Mr. Beckman from pursuing a claim based on the Termination Bonus.
Further, the Debtors maintain that the proper procedural mechanism for Mr. Beckman to have pursued the relief he currently seeks was to have sought reconsideration or modification of this Court's Order concerning the Transition Bonus Decision or to have filed an appeal of that Order. However, no claimant holding a Transition Bonus Claim sought reconsideration or modification of the Order or filed an appeal of that Order. Rather, the Order has become final with no appeal having been taken. Therefore, the Debtors maintain that the issues Mr. Beckman now seeks to raise are foreclosed by the final unappealable Order.
Mr. Beckman responded to the Debtors arguments concerning his representation by an attorney. The transcript of the Hearing, however, is not entirely clear and it appears that Mr. Beckman argues that the attorney represented the employees either (1) only to the point where the attorney informed the employees to add the sentence concerning the retention of rights related to the commissions and bonus; or (2) up until the time the Transition Bonus Decision was rendered. Mr. Beckman also argues that certain employees did raise the issue of the treatment of the Transition Bonus in the General Release Agreement because he asserts that certain employees, including himself, made individual submissions to the Court addressing the issue. Mr. Beckman contends that because those employee submissions were made on the same day that the Court's Transition Bonus Decision was issued, it appears that the Court did not consider them.
Mr. Beckman neither sought reconsideration of nor directly appealed the Court's Transition Bonus Decision even though his own argument makes clear that he was aware of the issue at that time, as he maintains that he made a submission to the Court on the issue which he states was received on the same date that the Court's Transition Bonus Decision was issued. Nevertheless, the Court does not reach the issue of whether Mr. Beckman is procedurally foreclosed from raising the substantive argument he is presenting because the Court concludes that even considering his substantive argument, Mr. Beckman's claim should be disallowed and expunged.
Mr. Beckman's claim is that he signed the General Release Agreement because he only had 10 days to accept the severance package under the terms proposed and that he "felt compelled" for "financial" reasons to sign it. Pursuant to paragraph k of the General Release Agreement, it is governed by Georgia law. Under Georgia law, Mr. Beckman does not allege the type of duress that would permit the avoidance of a contract.
To avoid a contract based on duress, the duress "must consist of threats of bodily or other harm, or other means amounting to coercion, or tending to coerce the will of another, and actually inducing him to do an act contrary to his free will." Tidwell v. Critz, 248 Ga. 201, 203, 282 S.E.2d 104, 107 (1981). A contract cannot be voided based on duress merely because a party "entered into it with reluctance, the contract is very disadvantageous to him, the bargaining power of the parties was unequal or there was some unfairness in the negotiations preceding the agreement." 248 Ga. at 204, 282 S.E.2d 104. Therefore, even if a party is experiencing economic distress, such financial considerations do not constitute legal duress. Miller v. Calhoun/Johnson Co., 230 Ga.App. 648, 649(4), 497 S.E.2d 397, 399 (1998). The fact that a party's financial circumstances may have caused that party to make concessions does not establish the type of legal duress sufficient to avoid a contract.
The Court recognizes that Mr. Beckman is attempting to avoid application of the General Release Agreement and, therefore, might argue that the provision in that agreement making Georgia law the governing law should not apply to the issue. However, Mr. Beckman has not set forth the legal basis for his argument or referenced any specific jurisdiction's law that should apply notwithstanding the fact that in the Court's Transition Bonus Decision, the Court specifically noted the application of Georgia law to the dispute concerning the General Release Agreement. Nevertheless, the only other jurisdiction that is even referenced in any of the documents that have been brought to the Court's attention in this matter is the District of Columbia, as that is the location of Mr. Beckman's address listed in the proof of claim he filed which the Court.
In any case, application of the law of Washington, D.C. would result in the same conclusion. See Akbarieh v. Bluestone, 1994 WL72406 at *3 (D.D.C. 1994) (noting that the type of economic duress that the District of Columbia would recognize as sufficient to void a contract "must be the result of the other party's illegal coercive conduct, not merely the stress of market conditions or the victim's financial exigencies."). See also, American Sec. Vanlines, Inc. v. Gallagher, 782 F.2d 1056, 1061, 251 U.S.App.D.C. 198, 203 (D.C. Cir. Jan 31, 1986) (noting that under District of Columbia law, duress is "any wrongful threat of one person by words or other conduct that induces another to enter a transaction under the influence of such fear as precludes him from exercising free will and judgment. . . ."). Mr. Beckman has not alleged that the Debtors precluded him from exercising his free will or judgment.
Here, Mr. Beckman only alleges the type of economic distress that does not constitute the legal duress that would afford him a basis to avoid the General Release Agreement. Mr. Beckman was given the choice to sign the General Release Agreement under the proposed terms and accept the severance package or to refuse to sign it and forego the severance package while preserving any Transition Bonus claims. The terms proposed by the Debtors did not deprive Mr. Beckman of his free will to determine whether or not to sign. Mr. Beckman voluntarily signed the General Release Agreement to benefit from the severance package as he viewed such action in his best interest. Thus, Mr. Beckman is bound by the terms of the General Release Agreement and may not pursue his claim seeking payment for the Transition Bonus.
Based upon the foregoing, it is hereby
Ordered, that the Debtors' Summary Judgment Motion is granted with respect to Mr. Beckman's claim and that the claim is disallowed and expunged.