Opinion
C.A. No. 98C-08-161 RRC.
Submitted: March 24, 2000.
Decided: June 21, 2000.
UPON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT. GRANTED.
David A. Jenkins, Esquire and Kathleen M. Miller, Esquire, Smith, Katzenstien and Furlow LLP, Wilmington, Delaware, Attorneys for Plaintiff.
John E. James, Esquire, Wendy K. Voss, Esquire, Potter Anderson and Corroon LLP, Wilmington, Delaware and Cheryl A. Cook, Esquire, Conrail, Inc., Philadelphia, Pennsylvania; and Ellen M. Fitzsimmons, Esquire, CSX Corporation, Richmond, Virginia, Attorneys for Defendants.
MEMORANDUM OPINION
I. INTRODUCTION
Donald M. Tutko (Plaintiff) is a former employee of Consolidated Rail Corporation, a subsidiary of Defendant Conrail, Inc., (Conrail), who has sued Conrail under a contractual theory that he was entitled to receive approximately $ 1 million dollars in benefits pursuant to the terms and conditions of a Change of Control Agreement program that Conrail had instituted for senior management in that company. Plaintiff also alleges that Defendant CSX Corporation (CSX), one of the entities that acquired Conrail, tortiously interfered with his contract with Conrail without justification by ordering Conrail to renege on its implied promise to him to award him a Change in Control Agreement. Defendants Conrail and CSX have moved for summary judgment. For the reasons set forth below, the Defendants' Motion for Summary Judgment is GRANTED.
II. SUMMARY OF FACTS AND PROCEDURAL HISTORY
The factual record developed to date is extensive. Although there are many facts in dispute, the relevant facts related to the motion for summary judgment are, for the most part, not in dispute. Only those facts material to the pending motion for summary judgment have been set forth in this opinion. They have been taken largely from Plaintiff's Answering Brief.
A. Plaintiff's Promotion
Plaintiff was hired by Conrail in February 1993. Initially, Plaintiff was hired as the Superintendent of Motor Power, but was subsequently promoted to Managing Director of Car Maintenance (salary grade 8) in the spring of 1994. In December 1996, Conrail reassigned management responsibilities in its operating department to the Car Inspection and Repair unit which was under the supervision of John Samuels (Samuels), vice president of Operating Assets. Following the reassignment, Samuels, who was Plaintiffs supervisor at that time, proposed to have Plaintiff officially take over the responsibilities relating to this reorganized unit on January 1, 1997. Plaintiff believed that this promotion would include substantial additional responsibilities and a promotion to salary grade 9 which, as he had understood, included a Change of Control Agreement.
Tutko Dep. at 35-39, 48, 61-62.
Conrail required an administrative process for the approval of changes in management positions, salaries, and salary grade levels which involved a form known as RD-1. The process was customarily initiated by the immediate superior of an employee who was to receive the promotion, which in Plaintiff's case was Samuels, who was then to discuss the promotion with that supervisor's immediate superior, in this case Ronald J. Conway (Conway) and after obtaining his approval, the RD-1 was then submitted for approval to Richard Huffman (Huffman) of the Human Resources Department at Conrail. Although some exact (but non-material) facts are in dispute regarding this process, it appears that either Huffman or his immediate supervisor Frank Nichols (Nichols) contacted CSX to obtain CSX's approval for the promotion of Plaintiff. CSX approved Plaintiff's promotion from salary grade 8 to 9 in April 1997 which was then made retroactive to March 1, 1997. However, CSX did not approve the Change of Control Agreement component of Plaintiff's promotion.
See facts in II B, infra.
The purpose of a Change of Control Agreement is to "provide key members of management with some security so that they could stay focused on their jobs in the event of a change in control at Conrail." LeVan Dep. at 7. For this Agreement to take effect, there first needs to be a change in control and second, the employee must be separated from Conrail. At that point, "the Change of Control Agreement provide[s] the covered employee with substantial benefits — three times his then current salary; three times the employee's highest recent incentive award; a stay bonus; medical and dental coverage for 3 years; tax benefits; and other additional benefits." John E. James Affidavit at Exhibit 12.
B. CSX and Conrail Merger
On October 14, 1996, CSX and Conrail announced a merger agreement (the Merger Agreement). Subsequently, Conrail became the object of a hostile takeover by Norfolk Southern (NS). The October 14, 1996 Merger Agreement set forth certain actions that were prohibited by CSX and Conrail and other actions which required approval by CSX. Pursuant to sections 4.1(a)(x) and 4.1(a)(xi) of the Merger Agreement, Conrail agreed that, unless it had obtained the approval of CSX, it would not:
enter into . . . any . . . agreement, plan or policy involving [Conrail] . . and one or more of its directors, officers, or employees . . . on increase the compensation of any director, executive officer or other key employee or pay any benefit or amount not required by a plan or arrangement as in effect on the date of this Agreement to any such person.
The language of the Merger Agreement remained in effect until March 7, 1997 when Contrail entered into a Third Amendment to the Merger Agreement. However, the Third Amendment did not affect the pertinent provisions of the October 14, 1996 Merger Agreement as it related to the CSX approval requirements with respect to Conrail's employment promotions or agreements. The Third Amendment's chief significance is that it included NS in the merger. With respect to the provisions of the October 14, 1996 Merger Agreement, the Third Amendment continued to enforce the requirement that CSX had the approval rights to certain employment promotions and agreements.
Conrail's request for Plaintiff's promotion to the salary grade 9 position had been submitted to the Vice President of Human Resources at CSX, Sally Basso (Basso) who had then, on behalf of CSX, rejected the request for the Change of Control Agreement for Plaintiff, although she had approved Plaintiff's promotion with respect to the additional responsibilities and the increase in salary from grade 8 to 9. Samuels then advised Plaintiff that the salary and salary grade increases had been approved but that he would not be receiving a Change of Control Agreement. Plaintiff then spoke with Huffman, Nichols, and eventually David LeVan (LeVan), then President, CEO and Chairman of Conrail, regarding CSX's lack of approval of the Change of Control Agreement. LeVan, at Plaintiff's request, then wrote a letter to CSX to request that CSX reconsider its denial of the Change of Control Agreement. However, Basso again denied Plaintiff's request for the Change of Control Agreement.
Plaintiff then filed a claim in this Court against Conrail alleging 1) that he had entered into an implied contract with Conrail which guaranteed a Change of Control Agreement when he had been promoted from salary grade 8 to 9 and that Conrail's refusal to award Plaintiff the Change of Control Agreement constituted a breach of contract; 2) that CSX tortiously interfered with the contractual relationship between Plaintiff and Conrail; and 3) that Plaintiff is entitled to punitive damages. After discovery, Defendants filed this motion for summary judgment.
This Court does not reach the tortious interference claim, the punitive damages claim, or Defendant's claim that Plaintiff's lack standing because of this Court's finding that there was not an enforceable contract between Plaintiff and Conrail with respect to the Change of Control Agreement.
III. CONTENTIONS OF THE PARTIES
In the motion for summary judgment, Defendants argue that 1) "Plaintiff's breach of contract claim against Conrail should be rejected because Plaintiff cannot meet his burden of demonstrating that he entered into a contract with Conrail for the Change of Control Agreement;" 2) that "Plaintiff has failed to state a claim for relief as a matter of law with respect to his tortious interference claims;" and 3) that "there is no basis for the award of punitive damages against Conrail or CSX." Defendants contend that there are no issues of material fact and that they are entitled to summary judgment as a matter of law.
Defendants' Opening Brief at 20.
Id. at 24.
Id. at 34.
Plaintiff alleges that there are material facts in dispute and that therefore summary judgment should not be granted. Specifically, Plaintiff claims 1) that there was an implied contract between Conrail and Plaintiff because a) "Conrail's past practice of giving Change of Control Agreements constitutes an offer;" b) "Conrail intended to be bound by its policy of providing Change of Control Agreements;" c) "Conrail's policy was communicated to [Plaintiff];" and d) the "agreement between the parties was sufficiently definite to form a contract" and that CSX had no right to veto changes in employment with respect to key employees prior to March 7, 1997. Plaintiff further claims 2) that "there are issues of material fact regarding CSX's interference with [Plaintiff's] contract with Conrail and therefore summary judgment is inappropriate;" and 3) that Plaintiff's alleged facts are "sufficient to support a claim for punitive damages."
Plaintiff's Answering Brief at 15.
Id. at 18.
Id. at 20.
Id.
Id. at 24.
Id. at 28.
IV. QUESTION PRESENTED
Whether, under Pennsylvania law (which both parties agree applies), a contract was in existence between Plaintiff and Conrail at the time of Plaintiff's promotion thus requiring Conrail to provide Plaintiff with a Change of Control Agreement despite any approval rights granted to CSX via the October 14, 1996 Merger Agreement.
V. STANDARD OF REVIEW
Summary judgment may be granted only when no material issues of fact exist. The moving party bears the burden of establishing the non-existence of material issues of fact. Once the moving party meets its burden, the burden then shifts to the non-moving party to establish the existence of material issues of fact. Where the moving party produces an affidavit or other evidence sufficient under Super. Ct. Civ. R. 56 in support of its motion and the burden shifts, then the nonmoving party may not rest on its own pleadings, but must provide evidence showing a genuine issue of material fact for trial. If, after discovery, the non-moving party cannot make a sufficient showing of the existence of an essential element of his or her case, then summary judgment must be granted. If, however, material issues of fact exist or if the Court determines that it does not have sufficient facts to enable it to apply the law to the facts before it, then summary judgment is inappropriate. The Court must view the facts in a light most favorable to the non-moving party.
Moore v. Sizemore, Del. Supr., 405 A.2d 679, 680 (1979).
Id. at 681.
Super. Ct. Civ. R. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
Burkhart v. Davies, Del. Supr., 602 A.2d 56, 59 (1991), cert. den., 112 S.Ct. 1946 (1992); Celotex Corp. v. Catrett, supra.
Ebersole v. Lowengrub, Del. Supr., 180 A.2d 467, 470 (1962).
Merrill v. Crothall-American, Inc., Del. Supr., 606 A.2d 96, 99-100 (1992).
VI. DISCUSSION
A. No Contract Was Formed Between Plaintiff And Conrail With Respect To The Change Of Control Agreement.
Under Pennsylvania law, in a breach of contract action, the plaintiff has the burden of proving by a preponderance of the evidence the existence of a contract that could be breached. To do so, the plaintiff must present evidence of an offer, acceptance, and consideration, and/or a mutual meeting of the minds. Further, the terms of the contract must be sufficiently definite to be enforceable.
Viso v. Werner, Pa. Supr., 369 A.2d 1185, 1187 (1977).
Jenkins v. County of Schuykill, Pa. Super., 658 A.2d 380, 383, app. denied, 666 A.2d 1056 (1995).
Burkett v. Allstate Ins., Pa. Super., 534 A.2d 819, 823-824 (1987), vacated on other grounds, Pa. Supr., 552 A.2d 1036 (1988).
Plaintiff argues that the following actions on the part of Conrail indicate that a Change of Control Agreement was part of an implied-in-fact contract established between Plaintiff and Conrail. With respect to the Change of Control Agreement, Plaintiff contends that Conrail had a "consistent policy of automatically providing a Change of Control Agreement to salary grade 9 employees . . . [and that] Conrail's actions manifested its intent to be bound by that policy." Plaintiff further contends that, based on the testimony of several Conrail employees, "when an employee reached salary grade 9, [that employee was] automatically entitled to a Change of Control Agreement . . . [and because] management knew that a promotion to a salary grade 9 included a Change of Control Agreement, the decision to promote someone to that level was considered very seriously." Plaintiff further alleges that an intention on the part of Conrail to promote Plaintiff to salary grade 9 impliedly was an intention to provide Plaintiff with a Change of Control Agreement.
Plaintiff's Answering Brief at 18.
Id.
The Pennsylvania Supreme Court, in Morosetti v. Louisiana Land and Exploration Co., also a breach of contract case, addressed the ability of certain former employees to obtain benefits in the nature of severance pay. In deciding whether a contract for those benefits existed, the Morosetti court stated that
Pa. Supr., 564 A.2d 151 (1989).
[i]t is basic contract law that one cannot suppose, believe, suspect, imagine or hope that an offer has been made. An offer must be intentional, definite in its terms and communicated, otherwise the minds cannot meet . . . [a]n offer must define its terms, specify the thing offered and be an intention of the present or the future to be bound.
Id. at 494 ( citing Bethlehem Steel Corp v. Litton Industries, Pa. Super., 468 A.2d 748 (1983), aff'd 488 A.2d 581 (1985); Restatement Second Contract § 33; Commonwealth v. Prep, Pa. Super., 142 A.2d 460 (1958). See also Commonwealth v. Monumental Properties, Pa. Supr., 329 A.2d 812 (1974)).
Id. at 495.
In that case, the plaintiffs' claims were based on their knowledge of the company's past practice in regard to such benefits although the specific plaintiffs had never been informed personally of the terms of the severance plan by the company. In Morosetti, the plaintiffs were unable to show that the practice of the company to give severance pay was sufficient to form a contract. The Morosetti Court stated that there must be more than a general awareness and stated that there must be an "intended, definite, and specific offer before any offer can be accepted or any enforceable contract can be created." The Morosetti Court further stated that "[a] company may indeed have a policy upon which they intend to act, given certain circumstances or events, but unless they communicate that policy as part of a definite offer of employment they are free to change as events may require."
Id. at 495.
Id. at 496 ( citing Richardson v. Charles Cole Mem. Hosp., Pa. Super., 466 A.2d 1084 (1984)).
Turning to the facts of this case, it appears to this Court that Plaintiff had assumed (at least for purposes of this summary judgment motion) that part of his promotion would include a Change of Control Agreement, but he acknowledged that he had never spoken to anyone about the Change of Control Agreement until he had been informed that he had not received that agreement. Plaintiff testified that a Change of Control Agreement had never been negotiated when discussions regarding his promotion had been ongoing and he had never been given a personalized copy of the document. Plaintiff further testified that he had only been given a copy of another Change of Control Agreement by an unidentified employee and admitted that he had not conditioned his acceptance of the promotion on the inclusion of a Change of Control Agreement. Plaintiff also testified that he had been told repeatedly that he would not be offered a Change of Control Agreement. There is no evidence that Conrail ever offered the Change of Control Agreement to Plaintiff and there was no evidence of an intent on the part of Conrail to be bound to Plaintiff by such an agreement.
Tutko Dep. at 48.
Id. at 103-104 and 106-108.
Id. at 65-66, 71-71, 76, 78, 80, 103-104, and 106-108.
Id. at 60-76.
There was no contract formed between Plaintiff and Conrail for the inclusion of a Change of Control Agreement in Plaintiff's promotion. This Court finds that Plaintiff's awareness (assumed for purposes of this summary judgment motion) of Conrail's past practice of offering Change of Control Agreements to salary grade 9 employees is not sufficient to establish an implied contract between Plaintiff and Conrail such that Plaintiff was entitled to a Change of Control Agreement. There is no evidence of an offer, acceptance, and consideration, or a mutual meeting of the minds. Plaintiff's claim that no negotiation was necessary is not supported by the evidence in the record. In fact, the evidence shows nothing more than the fact that a promotion to salary grade 9 makes an employee eligible for a Change of Control agreement. That eligibility is not sufficient to form an offer, or a mutual meeting of the minds necessary to become an enforceable contract. Moreover, it appears to this Court that it was made clear to Plaintiff that a Change of Control Agreement would not be part of his promotion. Additionally, no other Conrail employee who was promised a promotion after the October 14, 1996 Merger Agreement apparently received a Change of Control Agreement. This Court finds that Plaintiff has failed to show that an implied contract existed between Conrail and Plaintiff with respect to the Change of Control Agreement.
B. No Implied Contract Was Formed Between Plaintiff and Conrail Because the October 14, 1996 Merger Agreement Required the Approval of CSX.
A separate basis exists to grant Defendants' Motion for Summary Judgment. Plaintiff alleges that the award of a Change of Control Agreement to an employee who reached a salary grade 9 "attached automatically." Plaintiff contends that there is no evidence which supports the conclusion that "a Change of Control Agreement with respect to a promotion to salary grade 9 that was effective prior or March 7, 1997 Third Amendment had to be approved by CSX." Plaintiff further argues that "it was only for promotions effective after March 7, 1997 that certain changes in compensation for key employees had to be approved by CSX." Plaintiff argues that the facts show that the October 14, 1996 Merger Agreement was not the operative date when considering the requirement of CSX to approve changes in employment contracts. Plaintiff alleges that the evidence shows that it was not until the March 7, 1997 Third Amendment (after his promotion became effective) did changes in employment contracts require CSX approval. Plaintiff argues that the actions by LeVan, Nichols and Huffman support that the Third Amendment was the effective date requiring CSX approval for Change of Control Agreements and not the October 14, 1996 Merger Agreement. Specifically, Plaintiff contends that Nichols testimony with respect to the fact that he hadn't been informed of CSX's approval rights prior to the Third Amendment is evidence that the October 14, 1996 Merger Agreement had no effect on his right to receive a Change of Control Agreement with his promotion. Additionally, Plaintiff argues that the Third Amendment, not the October 14, 1996 Merger Agreement, affected his right to a Change of Control Agreement but that his promotion, although approved after the date of the Third Amendment, was made retroactive to March 1, 1997, a date prior to the Third Amendment taking effect.
Plaintiff's Answering Brief at 21.
Id.
Id.
Defendants rely on the language of the October 14, 1996 Merger Agreement which determined CSX's role in approving changes in employment contracts. Specifically, in section 4.1(a)(x) and 4.1(a)(xi), Conrail agreed that, unless it obtained the approval of CSX, it would not:
enter into . . . any . . . agreement, plan or policy involving [Conrail] . . . and one or more of their directors, officers, or employees . . . [or] increase the compensation of any director, executive officer or other key employee or pay any benefit or amount not required by a plan or arrangement as in effect on the date of this Agreement to any such person.
Defendants contend that the Merger Agreement "altered the manner in which Conrail was expected to handle virtually every aspect of its business," and that the March 7, 1997 Third Amendment was only "an amendment to the fundamental contractual obligations that Conrail incurred as of October 14, 1996."
Defendants' Reply Brief at 12.
Id.
Plaintiff has failed to explain why the Third Amendment applies to his promotion and the October 14, 1996 Merger Agreement does not. The Third Amendment had no effect on the provisions of the October 14, 1996 Merger Agreement with respect to Change of Control Agreements. At issue here is not whether Plaintiff's promotion occurred before or after the Third Amendment; rather, the issue is whether the October 14, 1996 Merger Agreement is valid in its effect on Plaintiff. This Court finds that the October 14, 1996 Merger Agreement required CSX's approval of a Change of Control Agreement such as Plaintiff argues he was entitled to.
The Merger Agreement specifically required the approval of CSX with respect to the promotion of someone in Plaintiff's position. Basso, CSX's Vice President of Human Resources, had been presented with the issue of whether to award Plaintiff a Change of Control Agreement. The decision on whether to award Plaintiff that agreement as part of his promotion had been submitted to her at CSX and it was denied. The October 14, 1996 Merger Agreement fundamentally changed the promotion procedure at Conrail to one where CSX had the final say. CSX had the right to not approve the inclusion of a Change of Control Agreement in connection with Plaintiff's promotion. Although LeVan had written a letter to CSX requesting reconsideration of CSX's decision to deny Plaintiff a Change of Control Agreement, it appears as though the letter was a request for reconsideration of CSX's decision and nothing more. Whether key employees at Conrail, such as LeVan, Huffman and Nichols, were made aware of CSX's approval rights has no effect on the validity of the October 14, 1996 Merger Agreement and its effect on Plaintiff.
VII. CONCLUSION
Plaintiff has failed to establish the existence of a contract between Plaintiff and Conrail with respect to the Change of Control Agreement. As of October 14, 1996, Conrail had entered into an agreement with CSX which required Conrail to obtain CSX approval when considering any employment contract changes that would include a Change of Control agreement. It follows that since no contract existed, no claim for tortious interference with contract may lie. This Court therefore grants Defendant's Motion for Summary Judgment as to both Counts I and II.
IT IS SO ORDERED.