Opinion
Civ. File No. 99-2048 (PAM/JGL)
March 23, 2002
MEMORANDUM AND ORDER
This matter is before the Court on cross-Motions for Summary Judgment. For the reasons that follow, Plaintiff's Motion is denied and Defendant's Motion is granted.
BACKGROUND
Defendant Bruce Wohlfeld was employed by Plaintiff Medtronic, Inc. ("Medtronic") from 1982 until 1998. He began as a sales representative and was promoted several times until, at the time of his departure from Medtronic, he was the National Director of Marketing for products that treat bradycardia, namely pacemakers and defibrillators. In January of 1998, he resigned from Medtronic and shortly thereafter began working for Guidant Corporation ("Guidant"), which is one of Medtronic's biggest competitors. There is no dispute that in his employment at Guidant he is selling products that treat bradycardia.
On December 17, 1997, approximately one month before Wohlfeld left Medtronic, he exercised stock options that Medtronic had awarded him during his employment. These options were subject to the terms of two different stock option plans, the 1979 Plan and the 1994 Plan. Both Plans allowed Medtronic to buy back stock from employees who terminated their employment and who went to work for a competitor within six months of exercising their option to buy Medtronic stock. Wohlfeld does not seriously dispute that Medtronic's buy-back rights were triggered by his leaving Medtronic to work for Guidant.
There is some dispute as to whether Medtronic could properly attempt to buy back 5,184 shares that Wohlfeld received pursuant to a November 9, 1989, option. According to Wohlfeld, Medtronic informed employees in 1992 that it would not exercise its buy-back rights with respect to options granted before December 1989. (Def.'s Opp'n Mem. at 19.) Medtronic does not address this contention.
On February 11, 1998, Carol Malkinson, who is Medtronic's Director of Shareholder Services, sent a letter to Wohlfeld purporting to exercise Medtronic's buy-back rights. According to Medtronic, Wohlfeld has refused to tender the stock as requested in that letter. Wohlfeld's attorney responded to Ms. Malkinson on March 6, 1998, seeking more information about the buy-back rights, but Medtronic did not answer. More than 20 months later, in November 1999, Medtronic instituted this lawsuit.
Medtronic asks the Court to force Wohlfeld to return the stock to Medtronic through the equitable remedies of restitution and specific performance. In addition, Medtronic seeks a damage award in the amount of the highest price that the stock has achieved since Wohlfeld exercised his options, despite the clear language in the stock plans limiting recovery to the price at the time the option was exercised. According to Medtronic, such relief is necessary to deter other employees from forcing their former employers to resort to litigation to recover stock options.
Wohlfeld contends that he cannot be required to disgorge the stock because (1) the purported exercise of Medtronic's buy-back rights did not comply with the terms of either Plan and was thus ineffective; (2) as a result of Medtronic's delay in responding to his request for more information, he transferred the stock to a trust to benefit his wife; and (3) before he resigned Medtronic promised that it would not pursue the buy-back right. The parties agree that no material facts are in dispute and that summary judgment is appropriate.
DISCUSSION
Summary judgment is appropriate if there is no genuine issue of material fact and a party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Unigroup, Inc. v. O'Rourke Storage Transfer Co., 980 F.2d 1217, 1219-20 (8th Cir. 1992). As the Supreme Court has stated, "[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole." Celotex, 477 U.S. at 327.
A. Equitable Estoppel
Wohlfeld contends that Medtronic should be equitably estopped from exercising its buy-back rights because, before he left Medtronic, he was promised that Medtronic would not attempt to buy back the stock. According to Wohlfeld, when he told his supervisor of his intention to resign from Medtronic and join Guidant, he asked his supervisor whether Medtronic would take any legal action against him for joining Guidant. The supervisor assured him that Medtronic would not take any action against him. Wohlfeld also contends that two other individuals at Medtronic made similar promises. Under the doctrine of equitable estoppel, the party to be estopped must knowingly make a misrepresentation of material fact, and the party asserting the estoppel must have relied on that misrepresentation to his detriment. Transam. Ins. Group v. Paul, 267 N.W.2d 180, 183 (Minn. 1978). Assuming for the purposes of these cross-Motions that Medtronic did make the statements described above, it can be precluded from asserting its rights that are contrary to those statements, but only if Wohlfeld can show that he relied on the statements to his detriment.
Wohlfeld's deposition testimony refutes his contention that he would not have left Medtronic, or that he would not have gone to work for Guidant, if he had known that Medtronic intended to exercise its buy-back rights. Wohlfeld admitted in his deposition that at the time he left Medtronic and had these conversations, he was not aware of Medtronic's buy-back rights. (Parritz Aff. Ex. 1 at 90.) Moreover, although Wohlfeld attempts to blunt the effect of this admission, it is clear from his testimony that during these conversations he was thinking only about his non-compete agreement and not about any stock buy-back. (Id. at 91.) Wohlfeld could not rely on a promise that he did not know was being made. Thus, as a matter of law, the doctrine of equitable estoppel does not apply. State v. Ramirez, 597 N.W.2d 575, 577 (Minn.Ct.App. 1999) (noting that application of equitable estoppel is a question of law).
B. Propriety of Buy-Back
The February 11, 1998, letter, stated that it was to serve "as notice to you that Medtronic is exercising [its buy-back] rights with respect to" the stock options Wohlfeld exercised on December 17, 1997. (Ness. Aff. Ex. 8 at 1.) Wohlfeld claims that this letter was an ineffective exercise of Medtronic's buy-back rights because, under the terms of the Plans, Ms. Malkinson could not properly exercise those rights.
Wohlfeld has moved to strike the Ness affidavit, claiming that the affidavit is not based on personal knowledge. The affidavit meets the requirements of Rule 56, and the Court will deny Wohlfeld's Motion.
The 1979 Plan provides that the exercise of Medtronic's buy-back right "shall be based solely on the judgment of the Chairman or the Chief Executive Officer." (Ness Aff. Ex. 1 at § VII(A)(g).) The 1994 Plan provides that the Compensation Committee, which delegated its duties to the Internal Stock Committee, "in its sole discretion, may require the Employee to return or forfeit the . . . stock received." (Id. Ex. 2 at § 14(j).) Wohlfeld argues that because Ms. Malkinson is not the Chairman or Chief Executive Officer of Medtronic, nor has she served on either the Compensation or the Internal Stock Committee, she did not have the authority to exercise Medtronic's buy-back rights under either Plan. It is undisputed that neither the Chairman/CEO nor the Internal Stock Committee specifically considered whether to exercise the buy-back rights with respect to Wohlfeld's options until November 1999, more than 21 months after Ms. Malkinson's letter.
Medtronic responds that its Chairman and CEO, William George, and its Internal Stock Committee properly, if impliedly, delegated the exercise of buy-back rights to Ms. Malkinson. In support of this assertion, Medtronic points to affidavit statements and deposition testimony. For example, David Ness, Secretary of Medtronic's Board of Directors' Compensation Committee and Vice President for Compensation and Benefits, avers that "it was my understanding that the task of timely exercising Medtronic's buy-back rights . . . had been delegated by Mr. George and the Stock Committee to Medtronic's Human Resources and Shareholder Relations staff." (Ness Aff. ¶ 13.) Ms. Malkinson testified that she and Mr. Ness "were essentially delegated to act as the people who are effectuating the [buy-back] decision." (2d Parritz Aff. Ex. 2 at 128 (Malkinson Dep.).) Although Wohlfeld does not state this directly, his contention is that a vote of the Board of Directors is required for any delegation of authority under the Plans. This is clearly not the case. As Medtronic argues, the approval of the Board of Directors was not necessary to effectuate the implied delegations at issue here. Medtronic's by-laws provide the authority for the CEO to delegate his duties without the approval of the Board. (2d Parritz Aff. Ex. 5, at Art. 3.13). Moreover, the 1994 Plan explicitly allows the Internal Stock Committee to delegate "any part of its authority under this Plan. . . ." (Ness Aff. Ex. 2, at § 3(b).) The evidence establishes that the CEO and the Internal Stock Committee properly impliedly delegated the authority to exercise Medtronic's buy-back rights to Ms. Malkinson and Mr. Ness. See Maudlin v. WorldCom, Inc., 263 F.3d 1205, 1213 (10th Cir. 2001) ("`No particular language is necessary for an effective delegation of performance,' III E. Allan Farnsworth, Farnsworth on Contracts § 11.10 at 124, and delegation may be express or implied.") Because the delegation was proper, Ms. Malkinson's letter to Wohlfeld was an effective exercise of Medtronic's buy-back rights.
C. Equitable Relief
At the conclusion of the February 11, 1998, letter, Ms. Malkinson requested that Wohlfeld or his attorney contact her "to discuss and make arrangements for completion of this transaction." (Ness. Aff. Ex. 8 at 2.) Wohlfeld's attorney responded on March 6, 1998, seeking more information about the options Medtronic intended to buy back. (Parritz Aff. Ex. 4.) Medtronic did not respond to that letter. Instead, more than 14 months later, in May 1999, Medtronic's attorney wrote to Wohlfeld's attorney demanding the return of the stock. Then, in November 1999, more than 20 months after Wohlfeld first requested more information, the Board of Directors voted to institute this lawsuit. In the interim, after many months had elapsed with no response from Medtronic, Wohlfeld transferred the stock to a trust to benefit his wife.
The relief Medtronic seeks in its Complaint is the equitable relief of restitution and specific performance. (Compl. ¶¶ 22, 27.) A party seeking to recover in equity may not itself have unclean hands. Medtronic quotes the following test of unclean hands: "where the result induced by [the party's] conduct will be unconscionable either in the benefit to [the party] or the injury to others." (Pl.'s Reply Mem. at 11, quoting Hruska v. Chandler Assocs., Inc., 372 N.W.2d 709, 715 (Minn. 1985).) In this case, Ms. Malkinson's letter invited further communication from Wohlfeld or his attorney. However, Medtronic did not respond to Wohlfeld's legitimate request for more information, and instead waited almost two years to institute this lawsuit. The result induced by Medtronic's inexplicable delay is unconscionable both in the benefit Medtronic claims, namely damages in the amount of the highest price the stock achieved since Wohlfeld exercised the options, and in the injury caused to Wohlfeld. Thus, although Medtronic properly exercised its buy-back rights, it had an obligation to respond to Wohlfeld's legitimate inquiry regarding those rights, especially in light of Medtronic's request that Wohlfeld contact Medtronic to discuss the buy-back. By failing to respond to Wohlfeld in a timely manner, Medtronic created an unconscionable situation, and thereby waived its right to recover in equity.
CONCLUSION
Neither party should consider itself vindicated by the Court's holding in this matter. Absent Medtronic's inexplicable delay, Wohlfeld clearly would have been required to forfeit the stock to Medtronic. The fact that this lawsuit was necessary is a testament more to bungled administrative duties than to the need for resolution of important legal principles. Medtronic asked this Court to sit in equity and judge the merits of the dispute, and equity requires the Court to evaluate the fairness of the situation and of the proposed remedies. In the Court's opinion, equity dictates the result reached. For the foregoing reasons, and upon all of the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1. Defendant's Motion to Strike (Clerk Doc. No. 40) is DENIED;
2. Plaintiff's Motion for Summary Judgment (Clerk Doc. No. 33) is DENIED; and
3. Defendant's Motion for Summary Judgment (Clerk Doc. No. 43) is GRANTED.
LET JUDGMENT BE ENTERED ACCORDINGLY.