Opinion
No. CV02 039 23 93S
September 20, 2004
MEMORANDUM OF DECISION
The plaintiff, Jeffrey Saye (Saye), initiated this action to recover monies allegedly due him pursuant to an employment agreement with the defendants, John Howe (Howe) and Old Hill Partners, Inc (OHP). By amended complaint dated July 24, 2002, Saye alleged four counts against OHP: (1) violation of Connecticut General Statutes § 31-72 (the "Wage Act"); (2) breach of contract; (3) wrongful discharge from employment; and (4) promissory estoppel. One count was also asserted by Saye against Howe individually: violation of the "Wage Act."
The defendants pled three special defenses in their Answer dated September 4, 2002 and the Amended Answers dated November 14, 2003 and March 5, 2004: (1) failure to state a claim; (2) accord and satisfaction; and (3) a breach by Saye of the Employee Confidentiality and Non-Compete Agreement. This matter was tried before this court between April 21-28, 2004, and trial briefs were submitted by both parties on July 1, 2004. Final argument was heard on August 6, 2004, and reply briefs submitted on August 13, 2004.
Facts
After considering the testimony of the witnesses and the exhibits marked into evidence the court finds the following facts. In February 2000, the plaintiff commenced employment with Old Hill Partners, an investment management company started by the defendant, Howe, in 1996. At that time and continuing to the present, Howe was president and the major shareholder of OHP. The plaintiff, who received his IRS in Physics from Pamona, and a MBA from Stanford University in 1990, held various positions at six different financial management companies before starting at OHP. His experience included reviewing, structuring and negotiating complex transactions in the securities market. Immediately preceding his employment at OHP, Howe was working for the Fortress Investment Group. When Howe's position at Fortress became tenuous, he contacted Howe to inquire about work at OHP.
On a number of occasions, Howe and Saye discussed a possible role for Howe at OHP. By late January 2000, Howe and Saye had agreed that the plaintiff would be hired as a portfolio manager at OHP. The terms of his employment were memorialized in a document titled Summary of Terms (Ex. 10), which Saye signed after requesting changes in paragraphs 4 and 5b, to which Howe agreed. Saye also reviewed and executed the OHP Shareholder Agreement (Ex. 8), which had previously been drafted by OHP's counsel. This document included two exhibits: (A) the Voting and Non-Voting Shareholders and Contributions, and (B) the Employee Confidentiality and Non-Compete Agreement.
The salient provisions of the Summary of Terms defined the compensation Saye was to receive from OHP. Paragraph 5 provides:
a. Mr. Saye will be granted shares in Old Hill Partners, Inc. (OHP) equaling 15% of the company stock. The stock will vest in equal amounts of 5% beginning in the 10th, 20th and 30th month respectively from the date his employment commences. These shares will not be diluted by the next sale or grant additional shares to another party. After the occurrence of such an event, Mr. Saye's shares will be fully dilatable upon the transfer of additional shares.
The court does not credit the plaintiff's statement that he and Howe orally agreed at this time that he would receive 15% of the net profits as compensation.
b. In addition, provided that assets under management exceed $80,000 prior to the first anniversary of his employment, Mr. Saye will be granted options equaling 5% of the shares of OHP at the time those options are effective. These options are subject to dilution. The exercise price of the shares will be $250,00.00 and Mr. Saye may borrow up to $125,000.00 to purchase the shares at a rate of 12% per annum for 1 year. To the extent that Mr. Saye is entitled to distributions as shareholder of OHP and or the Fund, such money will be used to defease any debt outstanding to OHP.
Originally, the amount was $100,000.00; however, at the request of Saye it was reduced to $80,00.00. The change was handwritten on the document and initialed by the parties.
Mr. Saye did not exercise this option, which would have increased his equity in the company.
c. Mr. Saye will be paid salary of $100,000.00 per annum.
Paragraph 4 of the Summary of Terms addresses Saye's financial obligation to OHP:
Mr. Saye agrees to invest a minimum of $200,000.00 to purchase shares in the Fund at the time his employment commences. OHP will lend Mr. Saye up to $125,000.00, for a period of 1 year at a rate of 1%. The loan is a personal loan guaranteed by Mr. Saye and secured by his shares in the Fund. The shares are not redeemable unless and until 6 months after Mr. Saye leaves the firm.
The Fund refers to Footbridge Limited Trust, the exclusive hedge fund managed by OHP at the time Saye began employment. A second fund, the FLT Opportunity Fund, was started in January 2001, under the direction of Saye.
Originally, the amount was $100,000.00; however, at the request of Saye it was increased to $125,000.00. Again the change was handwritten on the agreement and initialed by the parties.
The Shareholder Agreement (Ex. 8) also articulated terms of compensation for shareholders. Per the terms of the Shareholder Agreement all management decisions were to be made by a majority vote of the Voting Shareholders. ¶ 2.6(a). This included any disbursement of funds of the Company, dismissal of other shareholders, the payment of bonuses and shareholder distributions. ¶¶ 2.6, 2.7, 2.10. Because John Howe held the vast majority of voting shares in the Company, by virtue of the Shareholder Agreement these decisions were made by him. Paragraph 2.7 also provided for the rate of compensation for the shareholders, including the provision that a shareholder's annual income would be increased to $150,000.00 for any month in which the Equity [of PHP] exceeded 50 million dollars. In accordance with this provision, Saye's annual salary was increased to $150,000.00 on or about June 2000.
Compensation to shareholders is also addressed in paragraph 2.8 of the Agreement which states: "[e]ach shareholder shall share in the Company income, gains, losses, deductions and credits to the extent of his, her ownership of interest in the Company." Paragraph 3.6 states, inter alia, that "each Shareholder's interest in the profits and losses of the Company shall be determined by reference to his or her Sharing Percentage (as defined herein) and otherwise provided herein."
Three additional provisions of the Shareholder Agreement are relevant to the issues here:
Par. 4.4 Sharing Percentages: Allocations of Profits and Losses
(a) Allocations of the Company's net profits or net losses (including unrealized gains or losses in securities, if any) for a fiscal year or other period shall be allocated among Shareholders in accordance with their Sharing Percentages. In general, no Shareholder can be allocated net losses in excess of the positive balance in his Capital Account; however, in the event net losses exceed Company capital, allocations made be made among the Shareholders, if any, who bear such losses as provided in the Regulations.
(b) Items of income, gain, loss, deduction and credit that are recognized by the Company for tax purposes shall be allocated among the Shareholders in such a manner as equitably reflects amounts credited or debited to the Shareholders' Capital Accounts pursuant hereto. To the extent profits or losses have been reflected in Capital Accounts prior to their recognition for tax purposes, allocations may be made consistent with the principles of Code Section 704(c).
Par. 4.5 Distributions
Distribution to or among the Shareholders to the extent to the positive balances in their Capital Accounts may be made from time to time as the Voting Shareholders determine.
Par. 7.8 Amendments
This Agreement may be modified or amended by unanimous written agreement of the Voting Shareholders, provided that, except as provided herein no amendment may modify the economic interest of a Shareholder without such Shareholder's written consent . . .
In October 2000, Saye told Howe that he wanted to renegotiate the terms of his employment at OHP. Howe agreed to explore this possibility, and discussions between the parties ensued. Saye's primary interest was to increase and insure his compensation through a new written agreement, which, inter alia, provided for a mandatory distribution of profits; Howe wanted to solidify and enlarge Saye's commitment to the company. Howe agreed to award Saye a bonus for the year 2000, representing 25% of the net profits of OHP the majority of which was deferred income. To Saye, this represented a concession by Howe that Saye was entitled to this amount per an oral modification to the original agreement that they had reached in the fall of 2000. The court credits Howe's testimony on this point and finds that the bonus was discretionary, rather than mandatory or the result of a modification of the original agreement. Howe was acting in good faith to reward Saye's efforts, but also attempting to encourage Saye's commitment to the company.
Transcript, April 22, 2004, p. 182.
Howe had expressed concern about Saye's propensity to change jobs from the beginning of their relationship. Moreover, in ¶ 6 of the plaintiff's Amended Complaint dated July 24, 2002, it is asserted that "Howe agreed that Saye would be entitled to receive 25% of OHP's net income for the year 2000 . . ." (Emphasis added.)
In January 2001, Saye told Howe that he wanted a new, written comprehensive agreement; Howe agreed to work towards that end. Movement towards the new agreement was slow; however, by spring or early summer, 2001, discussions and negotiations began in earnest. Mark Samuel, the third shareholder of OHP, also participated in the negotiations. While various verbal and written proposals were exchanged for months, an integrated agreement which satisfied both parties' interests was never achieved. Throughout this time period it was unclear as to whether Saye was going to remain physically with the company which was relocating from Darien to Norwalk, Connecticut. There were also discussions about the plaintiff relocating to California "for personal reasons." At one point Saye was insisting on a provision which would permit the minority shareholders to terminate Howe. He also threatened to quit on a number of occasions.
A written document was never executed which memorialized any of the points discussed between the parties. This is in stark contrast to the initial executed Shareholder Agreement and Summary of Terms, which contained handwritten changes, initialed by the parties. In July 2001, the parties appeared to agree on one point: the fee split between them as to the Footbridge and FLT accounts. When this point was incorporated into a comprehensive written agreement, encompassing the non-compete and other provisions which were important to Howe, Saye rejected the agreement. Saye disagreed with the discretion the contract afforded Howe which, in essence, was a restatement of the original Shareholder Agreement. The plaintiff was also outraged at the expanded non-compete provisions applicable to him. Attempts to reach concurrence continued until early 2002.
Frustrated by the inability to reach an accord, and fearing the negative impact continued attempts would have on the company and investors, Howe terminated Saye on March 6, 2002. Saye received his annual salary of $150,000 for the year 2001 and a pro rata portion for the beginning of 2002; however, no other payment by way of bonus, or Shareholder distributions. The company paid bonuses to other employees and shareholders for the year 2001.
The Company did compensate Saye $27,000.00 for IRS payments, the responsibility for which are allocated to the individual Shareholders in an S-Corporation in accordance with their percentage of ownership in the company. This payment was made in error, however. The plaintiff was not entitled to a K-1 distribution for the year 2001 because until February 1, 2002, his shares were subject to a forfeiture provision. Nonetheless, OHP never requested the money returned. Saye also received a contribution of $24,500 to his 401K account. By the time of his termination, 10% of Saye's shares of stock had vested. Per the Shareholder's Agreement, OHP must compensate the plaintiff for these shares, although there is litigation pending in Federal Court concerning the value of this stock.
Discussion Count III
The plaintiff's primary position is that the defendants breached two oral modifications of the original Shareholder Agreement and Summary of Terms, which constitute the contract defining Saye's employment, at least initially. Whether the parties to a contract intended to modify the contract is a question of fact. Three S. Development Co. v. Santore, 193 Conn. 174, 177-78, 474 A.2d 795 (1984). "For a valid modification to exist, there must be mutual assent to the meaning and conditions of the modification and the parties must assent to the same thing in the same sense . . ." Herbert S. Newman Partners, P.C. v. CFC Construction Ltd. Partnership, 236 Conn. 750, 761-62, 674 A.2d 1313 (1996).
The first modification according to the plaintiff was the result of conversations he had with Howe in the fall of 2000. Saye alleges that Howe promised him 25% of the net income of OHP, a significant change in the original compensation provisions, both as to amount and the compulsory nature of the payment. Saye further contends his bonus for the year 2000, which amounted to approximately 25% of OHP's net profit, supports this position. Modification of a contract may be inferred from the attendant circumstances and conduct of the parties, see Rowe v. Cormier, 189 Conn. 371, 372-73, 456 A.2d 277 (1983). Howe vehemently disputes that this was an agreement to alter the original contract. Rather, he states that he agreed to 25% as a discretionary bonus which he felt Saye deserved. Howe also wanted to demonstrate to Saye his willingness to negotiate a new Shareholder Agreement which would be beneficial to Saye. Howe was adamant, however, that any increase to Saye contractually must be met by a stronger commitment from Saye to OHP.
The court credits Howe's testimony in this regard, there was no meeting of the minds concerning a modification of the original contract at this time. It is illogical to think that Howe, who had established the company from scratch, invested much of his own money into the enterprise, and had undertaken the vast majority of risk, would hand over a significant percentage of the company to the plaintiff without expecting additional consideration from Saye. Nor, is it acceptable under contract law. For modifications of a contract to be enforceable, there must be new consideration. Harris Calorific Sales Co. v. Manifold Systems, Inc., CT Page 14087 18 Conn.App. 559, 564, 559 A.2d 241 (1989). The plaintiff performed his duties as portfolio manager very well. In fact, a second fund was created under his supervision and the profits of the company increased significantly. While Saye contends that he established the second fund because he was promised additional compensation, these functions fall within the purview of the job that Saye contracted to perform initially. "[A] promise to do that which one is already bound by his contract to do is not sufficient consideration to support an additional promise by the other party to the contract." New England Rock Services, Inc. v. Empire Paving, 53 Conn.App. 771, 776, 731 A.2d 784 (1999). OHP rewarded Saye's success with a significant bonus for the year 2000. Saye wanted a new comprehensive agreement which included, inter alia, significantly increased compensation and mandatory distributions. To support such an accord, additional consideration was required of Saye, i.e., a greater commitment to the company. Saye had a history of job changes and was discussing moving back to California. Howe's concerns that Saye would benefit from the company, then leave, were legitimate. It was reasonable for Howe to require a stronger non-compete agreement from Saye before committing a greater share of the company to him.
"[T]he basic principle of contract law [is] that in order to form a binding contract there must be an offer and acceptance based on a mutual understanding by the parties." (Internal quotation marks omitted.) Lembo v. Schlesinger, 15 Conn.App. 150, 154, 543 A.2d 780 (1988). The evidence and inferences reasonably drawn therefrom indicate that Howe did not intend the 25% to be a contractual obligation; rather he intended to pay the plaintiff a discretionary bonus to compensate Saye for his efforts in the year 2000. Accordingly, the plaintiff has failed to prove that the 25% represented an oral modification of the compensation provided for Saye in the existing agreement.
The second oral modification that the plaintiff seeks to have enforced is the 25/69 fee split the parties agreed to in the summer of 2001. The plaintiff is extracting this specific point from negotiations attempting to secure a comprehensive agreement, which was never reached by the parties. The plaintiff points to Exhibit 15, an e-mail from Howe to Saye dated July 20, 2001, which the plaintiff characterizes as an "offer" on the economics of the company. Saye claims that he unequivocally accepted this "offer," although there is no written evidence to that effect. The weight of evidence demonstrates that the information contained in this e-mail is a reiteration by Howe of a number of issues discussed by the parties during their efforts to reach a comprehensive agreement. To cull one item from this e-mail and label it as an "offer" is untenable. An offer is a clear, unambiguous expression of the terms under which someone is willing to enter into a contract. 1 A. Corbin, Contracts (Rev. Ed. 1996) § 1.11, p. 28.
At best, Howe is describing a potential fee arrangement on one of the sources of income to OHP, the Opportunity Fund. Numerous other conditions intended by the parties to be defined by the contract are absent, for example: what expenses would be subtracted to achieve net profit; mandatory distributions, which were important to both Saye and Samuel; as well as the terms of the non-compete, which was important to Howe. Howe did not intend this document to be an "offer"; it was a summary of one point in a potential contract, which the parties intended to execute before any of the terms were to take effect. The evidence demonstrates that Howe's desire to extract a greater commitment to the company from Saye was integral to achieving a new agreement, and known by the parties from the commencement of the discussions.
Even if the court credits Saye's testimony that he accepted the arrangement described in this e-mail, this does not create an enforceable agreement. "The law does not make a contract when the parties intend none nor does it regard an arrangement as completed which the parties thereto regard as incomplete." Birney v. Barretta, Superior Court, Judicial District of New Haven, No. CV-NH-5079, (1993, Riddle, J.), citing New Haven Tile Floor Covering Co. v. Roman, 137 Conn. 462, 464, 78 A.2d 336 (1951). "[M]ere representations indicating an intent to enter into another employment contract at some time in the future do not support contractual liability." Geary v. Wentworth Laboratories, 60 Conn.App. 622, 626, 760 A.2d 969 (2000), citing D'Ulisse-Cupo v. Board of Directors of Notre Dame High School, 202 Conn. 206, 214, 520 A.2d 217 (1987).
Again, the court credits Howe's testimony, as well as the testimony of Mark Samuel. The plaintiff, the defendants and Samuel were vigorously attempting to reach a meeting of the minds concerning a new comprehensive Shareholder Agreement; these efforts were unsuccessful. Various points of agreement which may have been reached along the arduous way do not constitute an enforceable contract. "In determining whether the parties entered into a contractual agreement and what were its terms, it is necessary to look, rather, to the objective manifestations of the intent of the parties as gathered by their expressed words and deeds. In doing so, disproportionate emphasis is not to be put on any single act, phrase or other expression, but, instead, on the totality of all of these, given the attendant circumstances, the situation of the parties, and the objectives they were striving to attain (citations omitted.) Brown Bros. Electrical Contractors Co. v. Beam Construction Corporation, 41 N.Y.2d 397, 399, 361 N.E.2d 999 (1977). The one paragraph in the e-mail authored by Howe, marked exhibit 15, was not intended as an offer to contract, isolated from the other points of negotiation. The plaintiff has failed to meet his burden of proving by a preponderance of the evidence that there was a second oral modification of the original contract in July 2001.
The gravamen of the plaintiff's action is that OHP breached oral modifications to the Shareholder Agreement and Summary of Terms; thus, deprived him of significant income. (Plaintiff's Complaint, Count III, Breach of Contract.) The plaintiff's brief and oral argument address these issues both as substantive claims and as a basis of damage calculation. "What is in issue is determined by the pleadings . . ." Telesco v. Telesco, 187 Conn. 715, 720, 447 A.2d 752 (1982); Vinchiarello v. Kathuria, 18 Conn.App. 377, 383-84, 558 A.2d 262 (1989). "The principle that a plaintiff may rely only upon what he has alleged is basic." Kelley v. Bonney, 221 Conn. 549, 590, 606 A.2d 693 (1992). "The purpose of the complaint is to limit the issues to be decided at the trial of a case . . . Only those issues raised by the plaintiffs in the latest complaint can be tried . . ." (Citations omitted.) Farrell v. St. Vincent's Hospital, 203 Conn. 554, 557-58, 525 A.2d 954 (1987).
Based on the above, the court finds in favor of the defendants on Count III.
Counts I and II
In Counts One and Two the plaintiff alleges that the defendants wrongfully withheld wages from him in violation of Connecticut General Statute § 31-72:
Sec. 31-72. Civil action to collect wage claim, fringe benefit claim or arbitration award.
When any employer fails to pay an employee wages in accordance with the provisions of sections 31-71a to 31-71i, inclusive, or fails to compensate an employee in accordance with section 31-76k or where an employee or a labor organization representing an employee institutes an action to enforce an arbitration award which requires an employer to make an employee whole or to make payments to an employee welfare fund, such employee or labor organization may recover, in a civil action, twice the full amount of such wages, with costs and such reasonable attorneys fees as may be allowed by the court, and any agreement between him and his employer for payment of wages other than as specified in said sections shall be no defense to such action.
The wages to which the plaintiff is referring is the bonus to which he feels he is entitled for the work he performed in 2001 based on the 25/69 fee split. The court has already determined that there were no enforceable oral modifications to the original Shareholder Agreement or Summary of Terms; accordingly, the plaintiff is not entitled to the 25/69 fee split he claims as profit sharing. While the original Shareholder Agreement does provide for discretionary bonuses or distributions of profits, these awards would not constitute wages under Connecticut Law. Hackett v. Marguardt, Superior Court Judicial District of Waterbury, at Waterbury, Docket No. 106681 (September 17, 2002, Schuman, J.). As in Hackett, Saye's contribution to OHP was important; however, it did not stand alone. There were other individuals in 2001 working synergistically to advance the company. Any bonus did not accrue "as a result of the plaintiff's personal efforts alone; in simplest terms it was not as the statute requires `compensation for labor or services rendered' by this plaintiff . . ." Ziotas v. The Reardon Law Firm, P.C. Superior Court, Judicial District of New London, Docket No. 550776 (October 23, 2000, Corradino, J.).
As to Counts I and II the court finds in favor of the defendants.
Count IV
The plaintiff claims in Count IV that the defendant discharged him in part to avoid paying him the 25% of the net income of Footbridge Fund and the 69% of the net income of the FLT Fund that he had been promised for 2001. Because the court has determined that there were no enforceable agreements concerning the fee split as to these Funds, OHP had no obligation to pay the plaintiff these amounts.
As to Count IV, the court finds in favor of the defendants.
Count V
In Count V the plaintiff seeks equitable relief through the theory of Unjust Enrichment, claiming that he relied on the defendants' promise of a 25/69 fee split, to his detriment. It is unclear how or why the plaintiff "relied" on this particular point when the negotiations concerning the new Shareholder Agreement were protracted, contentious and, at best, uncertain. It was the plaintiff who disagreed with the provisions sought by the defendants and refused to sign an agreement which contained the "economics" he desired. Moreover, Saye threatened to quit several times, an indication that he was not convinced a meeting of the minds would ever be achieved.
"Unjust enrichment applies wherever justice requires compensation to be given for property or services rendered under a contract, and no remedy is available by an action on the contract. 5 S. Williston, Contracts (Rev. Ed.) § 1479. A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another. Franks v. Lockwood, 146 Conn. 273, 278, 150 A.2d 215. Under the facts of this case the court cannot conclude that the actions of the defendants were unjust or inequitable. They negotiated with the plaintiff in good faith; it was the plaintiff who refused the terms propounded by the defendants, conditions not unreasonable given the plaintiff's history. Moreover, the plaintiff received salary and other forms of compensation for this period. While a discretionary bonus was not awarded to the plaintiff for the year 2001, he will be paid an amount by OHP, yet to be determined, from the sale of his OHP stock. This entitlement would not have accrued had OHP terminated Saye prior to February 1, 2002, which OHP was free to do.
In light of all the circumstances, the court finds that the plaintiff has failed to meet his burden of proof on Count V.
Judgment may enter for the defendants.
CAROL A. WOLVEN, J.