Opinion
A142391 A143550
10-30-2017
DAVID VESPREMI, Plaintiff and Respondent, v. TESLA MOTORS, INC., Defendant and Appellant. DAVID VESPREMI, Plaintiff and Appellant, v. TESLA MOTORS, INC., Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Mateo County Super. Ct. No. CIV-474656)
Defendant Tesla Motors, Inc. (Tesla) appeals from a judgment entered against it after a bench trial on a single breach of contract claim by its former employee, David Vespremi. Vespremi contended Tesla breached a provision of the offer letter that became the parties' employment contract by requiring him, when Tesla terminated his employment, to surrender shares of Tesla stock he had purchased some months earlier through the exercise of his stock options. Vespremi did not claim his termination was pretextual, to prevent him from keeping his Tesla stock; he and 25 other Tesla employees lost their jobs in a layoff driven by financial difficulty, two-and-a-half years before Tesla's eventual public offering. The central dispute below was whether Vespremi's right to own the stock had vested by the time he was terminated, which was less than a year into his new job. After a four-day trial, the trial court resolved that issue in Vespremi's favor and entered the judgment from which Tesla has appealed. Vespremi separately appeals from the trial court's denial of his request for an award of prevailing party attorney fees under Labor Code section 218.5.
This is the third time this case has come before us. Of relevance here, we previously reversed a judgment dismissing Vespremi's breach of contract cause of action after the trial court sustained Tesla's demurrer to it without leave to amend, and remanded the case for further proceedings concerning that claim. (Vespremi v. Tesla Motors, Inc. (May 5, 2011, A127008) [nonpub. opn.].) We affirmed the trial court's dismissal of Vespremi's defamation claims in the prior appeal, but we reinstated Vespremi's claim for breach of contract because we held the employment contract was ambiguous as to when Vespremi's right to purchase and hold Tesla stock would vest. (Ibid.)
In a subsequent appeal, we reversed a grant of summary judgment entered for Tesla on a similar breach of contract claim made by Vespremi's co-plaintiff, another former Tesla employee who contended Tesla wrongfully denied him his vested stock options too. (See Vespremi v. Tesla Motors, Inc. (Apr. 15, 2015, A138126) [nonpub. opn.].) That contract claim is not at issue here, and Vespremi's co-plaintiff is not a party to this appeal.
We now reverse the judgment entered against Tesla after the bench trial on Vespremi's breach of contract claim. We conclude the stock option provision of the offer letter that the trial court concluded Tesla had breached, which we previously held is ambiguous, was superseded by later agreements; thus, it was inoperative and could not support a claim against Tesla for breach of contract. We also affirm the order denying Vespremi's request for attorney fees since he is no longer the prevailing party.
BACKGROUND
Tesla is a San Mateo County-based automobile manufacturer, founded in 2003. On February 1, 2007, Tesla and Vespremi executed a 3-page letter agreement in which Tesla extended, and Vespremi accepted, an offer of employment as Tesla's Director of Public Relations, terminable at will by either party. The trial court referred to this agreement as the "[o]ffer letter," and we will do the same. The letter specified that the effective date of Vespremi's employment would be February 19, 2007, which is approximately when he began working there.
At the time Tesla and Vespremi executed the offer letter, Tesla had in place a stock incentive program, which its board of directors had approved in 2003 shortly after the company was incorporated, that was set forth in an 18-page document entitled, "Tesla Motors, Inc. 2003 Equity Incentive Plan" ("Plan"). The Plan's purpose was to enable Tesla to secure and retain the services of employees, directors and consultants, and to incentivize them to exert maximum efforts toward the company's success, by providing a means for them to benefit from increases in the company's stock value. The Plan set forth the terms and conditions upon which Tesla's board of directors could grant various types of stock awards, including incentive stock options and nonstatutory stock options. We refrain from summarizing its provisions because they are not at issue; the trial court determined that Vespremi's position as to when his stock would vest "is not inconsistent with the terms of the Plan," Tesla does not contend otherwise, and neither party's position relies on the vesting parameters prescribed by the Plan. (Italics omitted.)
These are the two types of employee stock options recognized by the Internal Revenue Code. (See Falkowski v. Imation Corp. (2005) 132 Cal.App.4th 499, 515, fn. 16.) "If an employee stock option satisfies the conditions specified in title 26 United States Code section 422(b), thereby qualifying as an 'incentive' or 'statutory' stock option, the employee is not required to recognize taxable income upon either the grant or exercise of the option; the employee recognizes income only upon sale of the purchased stock, generally at favorable capital gains rates. [Citations.] Recipients of 'nonstatutory' stock options—i.e., those that do not satisfy the requirements of section 422(b)—must recognize income at the time of either grant or exercise of the stock options, as well as any capital gain upon sale of the stock." (Ibid.)
The Plan requires stock options to provide for vesting of employee stock at least as quickly as 20% per year over five years from the date the option was granted, but does not mandate any particular vesting schedule beyond that.
Pursuant to Tesla's stock option program, Vespremi's offer letter contained a stock option provision. It stated: "Subject to the approval of Tesla's Board of Directors, you will be granted a stock option to purchase an aggregate of 40,000 shares of Tesla's Common Stock pursuant to Tesla's Equity Incentive Plan then in effect. Your stock options will vest commencing upon your first day of employment (1/4th of the shares vest one year after the Vesting Commencement Date, and 1/48th of the shares vest monthly thereafter over the next three years.)" (Italics added.) The vesting language we have italicized lies at the heart of the parties' dispute.
Referencing yet a second agreement, another provision of the offer letter stated, "You further represent and warrant that you have read, understand, and accept the terms of your Stock Option Agreement, in particular the vesting schedule of the shares of Tesla's Common Stock thereof."
The offer letter also contained an integration clause. It states: "This letter agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and Tesla with respect to the terms and conditions of your employment, and it supersedes any other agreements or promises made to you by anyone, whether oral or written. This Agreement cannot be changed, amended, or modified except in a written agreement signed by an officer of Tesla. This letter agreement shall be construed and interpreted in accordance with the laws of the State of California."
Vespremi is a graduate of Hastings Law School. His wife, who would later assist him during severance negotiations by reviewing and revising another proposed agreement with Tesla, is a lawyer too. Vespremi signed the offer letter without actually having received either of the two documents referenced in the letter, the Equity Incentive Plan or the Stock Option Agreement, the terms of which he represented and warranted he was "accept[ing]."
Earlier during his interviews with Tesla, Vespremi had been asked if he would be willing to accept a lower salary than his current one but receive stock options, but there had been no discussion about any vesting terms, a grant notice, or a stock option agreement.
Vespremi began working for Tesla on February 19 or 20, 2007. The following month, on March 20, 2007, Tesla's board of directors authorized and approved a grant to Vespremi of 40,000 stock options at $.30 per share. Cross-referencing the same two agreements as Vespremi's earlier offer letter, the board's resolution authorized and approved "the grant of incentive stock options or nonstatutory stock options to purchase Common Stock pursuant to and under the terms set forth in the Company's 2003 Equity Incentive Plan (the 'Plan')" for Vespremi and 22 other employees, and stated that "the terms of the above grants shall be in accordance with the terms of the Company's standard Stock Option Agreement, vesting over four (4) years, with 25% of the shares subject to the option vesting one (1) year from the vesting commencement date, and thereafter, 1/48th of the shares subject to the option vesting monthly for the next three (3) years . . . ." (Italics added.) The resolution also states that the "vesting start" date for Vespremi was "2/20/2007."
The May 8 , 2007 Agreements
About two months later, on or about May 8, 2007, Vespremi executed three more documents pertaining to his stock options (which we will collectively refer to hereafter as "the later agreements"). The trial court found he did this at a mass meeting with Tesla's Human Resources personnel where documents were presented to employees en masse for signing, without negotiation or explanation.
At oral argument, Tesla contended this finding is not supported by the evidence. We will not delve into that question, however, because it is immaterial to our decision and the parties have not briefed it.
The Option Grant Notice. The first of the three documents he executed was an "Option Grant Notice" ("Grant Notice"), also signed by Tesla's CEO, Martin Eberhard, which granted Vespremi an option to purchase 40,000 of Tesla's shares at $0.30 per share (for a total exercise price of $12,000), and characterized the option as an incentive stock option. (See footnote 2, ante.) The notice specified March 20, 2007, as the date of the incentive option grant, and the option expired on March 19, 2014. The Grant Notice described the "Vesting Schedule" as follows: "1/4th of the shares vest one year after the Vesting Commencement Date," which the Grant Notice defined as February 20, 2007, and "1/48th of the shares vest monthly thereafter over the next three years." (Italics added.) And it stated that the option's "Exercise Schedule" was, "[s]ame as Vesting Schedule. Early Exercise of your option is permitted." (Italics added.)
The final paragraph of the notice, entitled "Additional Terms/Acknowledgements," provided as follows: "The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Grant Notice, the Stock Option Agreement and the [2003 Equity Incentive] Plan. Optionholder further acknowledges that as of the Date of Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of (i) options previously granted and delivered to Optionholder under the Plan, and (ii) the following agreements only: [¶] OTHER AGREEMENTS: [¶] __________." No other agreements were listed.
The Stock Option Agreement. Attached to the Grant Notice was the second document Vespremi signed at the meeting, entitled "Stock Option Agreement." Several provisions addressed the timing of Vespremi's right to exercise his stock options and the vesting of his stock, including terms upon which he was permitted to exercise his stock options before all of his shares had vested.
Paragraph 1 was entitled "Vesting." It stated: "Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service." (Italics added.)
"Continuous Service" was defined in the Equity Incentive Plan to "mean[] that the participant's service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated."
Paragraph 7, entitled "Term," stated: "You may not exercise your option before the commencement of its term or after its term expires. The term of your option commences on the Date of Grant and expires upon the earliest of" five enumerated circumstances.
Paragraph 8 was entitled "Exercise." It specified the means by which "You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term . . . . " (Italics added.)
Finally, Paragraph 16 was entitled "Exercise Prior To Vesting (' Early Exercise ')." In full it stated: "If permitted in your Grant Notice (i.e., the 'Exercise Schedule' indicates that 'Early Exercise' of your option is permitted) and subject to the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the nonvested portion of your option; provided, however, that: [¶] (a) a partial exercise of your option shall be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock; [¶] (b) any shares of Common Stock so purchased from installments that have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Company's form of Early Exercise Stock Purchase Agreement; and [¶] (c) you shall enter into the Company's form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred." (Bolding omitted; italics added.)
Paragraph 3 of the Stock Option Agreement was substantively identical to Paragraph 16, except that Paragraph 3 contained another subdivision, not pertinent here, that established a $100,000 annual maximum for purposes of treatment as an incentive stock option, which is required for an option to qualify as an incentive stock option under federal tax law (see 26 U.S.C. § 422 (d)).
The Early Exercise Stock Purchase Agreement. Vespremi wanted to exercise his stock option promptly, and so he paid Tesla $12,000 by check that same day, May 8, to pay for 40,000 shares at the specified price of $0.30 per share. And he executed the third and final document presented to him that day, the "Early Exercise Stock Purchase Agreement" ("Early Exercise Agreement"), pursuant to which Tesla sold him 40,000 shares of stock at the aggregate purchase price of $12,000 as of May 8, 2007.
Paragraph 2 of the Early Exercise Agreement acknowledged that none of Vespremi's shares had yet vested, and it gave Tesla the right to buy back unvested shares in the event Vespremi stopped working there. In relevant part, it stated: "In accordance with the provisions of Section 408(b) of the California General Corporation Law, the Stock to be purchased by the Purchaser pursuant to this Agreement shall be subject to the following option (the ' Repurchase Option '): [¶] (a) In the event that Purchaser shall cease to be an employee of the Company or the Purchaser's relationship is terminated for any reason (including Purchaser's death), or no reason, with or without cause, the Repurchase Option may be exercised. The Company shall have the right at any time within (90) days after the cessation of employment or relationship, or such longer period as may be agreed to by the Company and Purchaser (for example, for the purpose of satisfying the requirements of Section 1202(c)(3) of the Internal Revenue Code), to purchase from Purchaser or Purchaser's personal representative, as the case may be, at the Exercise Price paid by Purchaser pursuant to the Agreement, up to but not exceeding the number of shares of the Stock subject to the Stock Option which have not fully vested on the Effective Date in accordance with the vesting schedule in the Stock Option. [¶] (b) Shares of the Stock that vest, and for which the Repurchase Option hereunder terminates, constitute ' Vested Shares ,' while all shares that are not Vested Shares constitute ' Unvested Shares .' As of the date hereof, none of the shares of the Stock are Vested Shares." (Bolding omitted; italics added.)
That statute provides, in relevant part, that "a stock option plan or agreement may include, among other features, . . . an option or obligation on the part of the corporation to repurchase the shares upon termination of employment, subject to the provisions of Chapter 5 . . . ." (Corp. Code, §408, subd. (b); see also id., § 500 et seq. [stock dividends and reacquisitions].)
Its "Effective Date" was May 8, 2007.
The language in Paragraph 2(b) stating that, "[s]hares of the Stock that vest, and for which the Repurchase Option hereunder terminates, constitute ' Vested Shares ,' " is the agreement's only reference to the duration of Tesla's right to buy back early purchased stock. Presumably, its intent is that the repurchase option terminates for shares of stock as they vest (i.e., under the vesting schedule set forth in the Grant Notice), which would be consistent with the Stock Option Agreement's proviso that the Early Exercise Agreement would contain "a vesting schedule that will result in the same vesting as if no early exercise had occurred."
The Early Exercise Agreement also prohibited Vespremi from selling or transferring any stock that was subject to Tesla's repurchase option, and required the early purchased shares to be held in an escrow that would terminate "upon the exercise in full or expiration of the Repurchase Option, whichever occurs first." Under the escrow instructions, shares were to be delivered to Tesla should it exercise its Repurchase Option, and otherwise to Vespremi upon termination of the escrow.
In connection with his execution of the Early Exercise Agreement, for tax purposes, Vespremi also executed an election under section 83(b) of the Internal Revenue Code, attached as an exhibit to the agreement, stating that the 40,000 shares "are subject to the following restrictions: The Company may repurchase all or a portion of the shares at the Taxpayer's original purchase price under certain conditions at the time of Taxpayer's termination of employment or services."
After Vespremi exercised all of his stock options in May 2007, Tesla did not issue the shares directly to Vespremi but, rather, held them in escrow.
On December 18, 2007, roughly ten months into Vespremi's job, Tesla involuntarily terminated him in a company lay-off. Thereafter, Tesla tendered $12,000 to buy back the shares he had purchased, and Vespremi accepted the payment under protest.
He then initiated this litigation in July 2008. The early procedural history of the case is recounted in our prior opinion on the demurrer, and is unnecessary for us to repeat. (Vespremi v. Tesla Motors, Inc. (A127008), supra.) By the time the case arrived to us on Vespremi's appeal from the demurrer ruling, the operative complaint was the Third Amended Complaint, filed in 2009, which pled nine causes of action including breach of contract. The only written agreement Vespremi attached to that pleading, and hence the only one we considered in our prior appeal, was the February 2, 2007 offer letter. In reversing the trial court's dismissal of Vespremi's breach of contract claim, we ruled that the offer letter contained a latent ambiguity, which could not be addressed on demurrer, as to whether the right to purchase and hold Tesla stock vested before or after the passage of one year from the letter's effective date. We ruled that there was an apparent inconsistency in its key sentence, quoted above. We explained that, "[t]he first clause of that sentence states that the stock options 'will vest commencing upon your first day of employment,' but the parenthetical clause following it seems contradictory in saying that '1/4 of the shares will vest one year after the Vesting Commencement Date' (the latter phrase presumably referring to the 'first day of your employment' ). " Accordingly, we ruled that the trial court had erred in sustaining Tesla's demurrer to the contract cause of action, "because there was a latent ambiguity in the pertinent clause of the stock option provision in [Vespremi's] employment agreement[]."
On remand, Vespremi filed a substantially narrowed Fourth Amended Complaint, which became the operative pleading at trial. He alleged a single cause of action for breach of contract, alleging there was an "express employment agreement" evidenced by the February 2, 2007 offer letter, which Tesla breached by "denying [him] the option to vest stocks of Tesla Motors [he was] granted during [his] employment with the company."
Thereafter, Tesla moved for summary judgment on the ground the offer letter had been superseded by later agreements that unambiguously provide that no options would vest until one year after Vespremi's date of hire, but the trial court denied its motion.
The case then proceeded to a four-day bench trial. At its conclusion, the trial court rendered a 40-page statement of decision, finding in Vespremi's favor on his sole cause of action for breach of express contract and awarding him $110,050.
After judgment was entered, Tesla moved for a new trial and for judgment notwithstanding the verdict, and both motions were denied.
Thereafter, Vespremi filed a motion requesting $827,105 in attorney fees under Labor Code section 218.5, which governs prevailing party fee awards in actions for the nonpayment of wages and fringe benefits. The court denied the motion, and Vespremi timely appealed. On our own motion, we subsequently consolidated the two appeals for argument and decision.
DISCUSSION
I.
The Judgment in Vespremi's Favor Must Be Reversed.
In its appeal from the judgment, Tesla argues the stock option provision of the offer letter is unenforceable, and therefore could not support a viable claim for breach of contract, because it was superseded by the terms of the Stock Option Agreement and Grant Notice, which together became the operative agreement governing Vespremi's stock options as a matter of law. We agree, and therefore we do not reach any other issues Tesla has raised.
Tesla also argues the stock option provision of the offer letter is unenforceable because it lacks essential terms, including a stock option exercise price. It contends, too, that even if the offer letter's stock option provision is enforceable, the trial court misinterpreted it and that, properly construed, it required Vespremi to work for one full year before his stock would vest. Tesla also contends that, in all events, the damages award is excessive because the trial court employed the wrong measure of damage.
A. Standard of Review
The principles governing our review of this issue are well-settled. "Interpretation of a contract is solely a question of law unless the interpretation turns upon the credibility of extrinsic evidence. [Citations.] Even where extrinsic evidence is admitted to interpret a contract, unless it is conflicting and requires a determination of credibility, the reviewing court is not bound by the trial court's interpretation." (Badie v. Bank of America (1988) 67 Cal.App.4th 779, 799; see also Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866 (Parsons).) On the other hand, "[w]hen the competent parol evidence is in conflict, and thus requires resolution of credibility issues, any reasonable construction will be upheld as long as it is supported by substantial evidence." (Winet v. Price (1992) 4 Cal.App.4th 1159, 1166 (Winet).) These principles apply equally to the question of whether a particular contract is a complete and final embodiment of the terms of the parties' agreement (i.e, integrated), including the effect to be given an integration clause. (See Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 954 (Founding Members) ["Whether a contract is integrated is a question of law when the evidence of integration is not in dispute"]; accord, Haggard v. Kimberly Quality Care, Inc. (1995) 39 Cal.App.4th 508, 518, fn. 4 (Haggard).) In short, if the relevant, competent extrinsic evidence was in conflict as to whether the offer letter was superseded by a later agreement, the more deferential substantial evidence standard of review would govern here.
The parties are in sharp disagreement on this point. Tesla contends there was no conflict in the relevant extrinsic evidence, and that our review therefore is de novo. Vespremi, for his part, contends the appropriate standard of review is substantial evidence. He asserts repeatedly that the trial court weighed the credibility of witnesses and considered conflicting evidence as to the meaning of the offer letter, but cites no conflicting evidence even as to that question. Nor does he discuss or cite any evidence that was in conflict as to the meaning and impact of the later agreements he signed on May 8, 2007. Discerning no conflict in the relevant extrinsic evidence as to the meaning of those later agreements, we must independently review this question. (See Parsons, supra, 62 Cal.2d at p. 866 ["[s]ince there is no conflict in the extrinsic evidence in the present case we must make an independent determination of the meaning of the contract"].)
Vespremi quotes the trial court's observation that "the subject documents—drafted by Tesla— are imprecise and in conflict" on the question whether Tesla had the right to repurchase 10,000 shares. But the trial court did not identify any specific conflict in the documents, nor has Vespremi done so on appeal. In any event, the agreements themselves are not extrinsic evidence but, rather, the very contracts the court was called upon to interpret in order to determine their legal effect.
Vespremi perhaps has in mind his own trial testimony that he believes he is entitled to restoration of his 40,000 share of stock, which seems to be referenced at page 57 of his brief. But if so, his subjective intent testimony would not require us to defer to the trial court's determination of the meaning of any of the contracts because it is incompetent evidence. (See Winet, supra, 4 Cal.App.4th at p. 1166, fn. 3.) As Vespremi himself puts it at page 39 of his brief, "the subjective, unexpressed beliefs of the parties do not serve as the basis for whether or not a contract is formed." (See, e.g., King v. Stanley (1948) 32 Cal.2d 584, 591-592, disapproved on another ground, Patel v. Libermensch (2008) 45 Cal.4th 344, 351 fn. 4; 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 116, p. 155.)
B. Analysis
As the trial court noted in its statement of decision, the sole contract Vespremi alleged Tesla breached was the February 1, 2007 offer letter. And the reason appears to be self-evident. As we previously held, the offer letter's vesting schedule, on its face, is ambiguous and is reasonably susceptible to two different meanings. (Vespremi v. Tesla Motors, Inc., supra, A127008, at pp. 21-23.) By contrast, as Vespremi admitted (in deposition testimony admitted into evidence at trial), the Grant Notice required twelve months of continuous service before any stock would vest (and his admission as to that document was effectively an admission regarding the Stock Option Agreement too because, as noted above, the Stock Option Agreement stated his options would vest "as provided in your Grant Notice"). Since Vespremi was employed by Tesla for less than a year, he had no prospect of prevailing on a claim of contractual entitlement to any Tesla stock under these later agreements he signed. Thus, the question is whether the offer letter upon which he brought suit is the operative agreement between the parties concerning his stock options or was superseded by the later agreements. (And, of course, only if the offer letter was not superseded must we resolve its meaning.)
This is not a close question. As noted, the Grant Notice has an integration clause, stating in pertinent part: "as of the Date of Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of (i) options previously granted and delivered to Optionholder under the Plan, and (ii) the following agreements only: [¶] OTHER AGREEMENTS: [¶] __________." (Italics added.) Relying on Grey v. American Management Services (2012) 204 Cal.App.4th 803 (Grey), Tesla argues the effect of this provision is that the Grant Notice and Stock Option Agreement together supersede the offer letter's stock option language as a matter of law. That conclusion is only bolstered, it contends, because the offer letter itself specifies that it could be "changed, amended, or modified" by a written agreement signed by an officer of Tesla which, it says, is exactly what those later agreements accomplished because both parties expressed their assent by signing the later agreements. We agree.
At issue in Grey was the enforceability of an arbitration clause contained in an agreement the plaintiff had signed when applying for his job. (Grey, supra, 204 Cal.App.4th at p. 805.) The trial court enforced the arbitration clause, compelling the plaintiff to arbitrate his discrimination claims against his former employer, but the Court of Appeal reversed and held the job application agreement (including its arbitration clause) had been superseded by a written employment agreement the plaintiff signed later when he accepted his job. (See id. at pp. 805-809.) The court reasoned that the plain language of an integration clause contained in the subsequent employment agreement stated that the latter agreement superseded the earlier job application agreement. (See id. at p. 808.)
The integration clause in Grey stated: "This Agreement is the entire agreement between the parties in connection with Employee's employment with [defendant], and supersedes all prior and contemporaneous discussions and understandings." (Grey, supra, 204 Cal.App.4th at p. 807.)
Reciting familiar rules of contract interpretation, Grey explained that " ' "[w]hen a contract is reduced to writing, the parties' intention is determined from the writing alone, if possible" ' " and " ' "the words of a contract are to be understood in their ordinary and popular sense." ' " (Grey, supra, 204 Cal.App.4th at pp. 806-807; see also Civ. Code, §§ 1639, 1644.) Furthermore, Grey noted, "[t]he court determines whether the parties intended the contract to be a final and complete expression of their agreement." (Id. at p. 807, citing Code Civ. Proc., § 1856, subd. (d).) It then explained that, " '[t]he crucial issue in determining whether there has been an integration is whether the parties intended their writing to serve as the exclusive embodiment of their agreement,' " noting that " '[t]he instrument itself may help to resolve that issue' " and that "[t]he existence of an integration clause is a key factor in divining that intent." (Grey, at p. 807.) It further explained that " '[t]his type of clause has been held conclusive on the issue of integration.' " (Ibid.) Applying these principles, the court interpreted the integration clause of the later employment agreement as reflecting the parties' intent to supersede the earlier written job application agreement. "We find the clause's express language that it is the 'entire agreement' and supersedes all prior 'understandings' to mean that the parties intended the contract to be the final and exclusive embodiment of their agreement." (Id. at p. 808.) Since the arbitration clause had been superseded, Grey held the trial court had erred by enforcing it and compelling the parties to arbitration. (See id. at p. 809.)
The decision in Grey, of course, embodies the principles of the parol evidence rule, which is that "the terms contained in an integrated written agreement may not be contradicted by prior or contemporaneous agreements." (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 344; see also Grey, supra, 204 Cal.App.4th at p. 809.) Although the parol evidence rule often results in the exclusion of evidence, it is not a rule of evidence but a principle of substantive contract law. (See Casa Herrera, Inc., at p. 343.) " 'The rule as applied to contracts is simply that as a matter of substantive law, a certain act, the act of embodying the complete terms of an agreement in a writing (the 'integration') becomes the contract of the parties.' " (Id. at p. 344.)
The integration clause in the Grant Notice dictates the same result as in Grey. Like the one in Grey, it both states that the Grant Notice, Stock Option Agreement and Plan "set forth the entire understanding" between the parties and that they "supersede" all prior agreements. (See Grey, supra, 204 Cal.App.4th at p. 808.) To be sure, the clause is narrower than the one in Grey, insofar as it is limited to superseding prior agreements regarding "the acquisition of stock in [Tesla]," and does not more broadly pertain to all prior agreements concerning Vespremi's "employment with" Tesla. (See Grey, at p. 807.) But there can be no question that the stock option provision of the offer letter falls within the scope of the integration clause's plain language: the stock option provision obviously concerns "the acquisition of stock in [Tesla]." If anything, the integration clause here is even more explicit on its face than the integration clause in Grey, because it applies to "all prior . . . written agreements" and not just, as in Grey, to "all prior . . . discussions and understandings." (See ibid.) Moreover, as Tesla points out, the parties expressly contemplated that the offer letter could be "changed, amended, or modified" by a subsequent written agreement. The later agreements, which contain unambiguous language and more specificity than the offer letter regarding stock options and the vesting of shares purchased pursuant to them, were in writing and were signed by both Vespremi and Tesla in compliance with the modification terms of the offer letter. (See Civ. Code, § 1698, subd. (a) ["A contract in writing may be modified by a contract in writing"].) As such, they constitute a valid modification of the ambiguous terms of the offer letter relating to stock options.
The trial court did not address this integration issue in its statement of decision, despite Tesla having brought it to the court's attention in its request for a statement of decision and in subsequent objections. Vespremi contends the offer letter was not superseded, but his brief does not discuss (or even cite) Grey or address the integration clause in the Grant Notice. Instead, Vespremi makes a number of arguments, none of which is persuasive.
Tesla also raised this issue earlier, in a summary judgment motion, and again later in its motion for judgment notwithstanding the verdict and/or a new trial.
First, Vespremi stresses that the offer letter itself contains an integration clause, and contends this precluded the later "paperwork" (as he calls it) from superseding the offer letter. But he cites no authority for the proposition that a contract with an integration clause may not be superseded by a subsequent integrated agreement. On the contrary, the parol evidence rule is "simply inapplicable" to claims that an integrated agreement has been varied by a later agreement; it applies only to prior or contemporaneous agreements. (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 186; see also Marani v. Jackson (1986) 183 Cal.App.3d 695, 699, fn. 2 [the rule "does not relate to future agreements and does not bar extrinsic evidence that proves that the parties subsequently modified their integrated writing"].) Relatedly, Vespremi also cites his own trial testimony about his subjective understanding of the offer letter's integration clause, his belief that "[t]he offer of employment really laid out for me the entire universe of working expectations between myself and Tesla Motors," and his testimony that "kind of everything else that followed afterwards I just figured was administrative reinforcement of what was in that document." That testimony is plainly incompetent. (See Winet, supra, 4 Cal.App.4th at p. 1166, fn. 3.)
It came in over an objection and a motion to strike by Tesla referencing "motion in limine number 8", which was a motion in limine Tesla filed and the trial court granted to exclude evidence of plaintiff's subjective, unexpressed intent.
Next, Vespremi cites trial testimony by Tesla founder and former CEO, Martin Eberhard, to the effect that the later agreements were not intended to change the terms of the offer letter but simply "follow[] up on what was agreed in the offer letter." Eberhard's testimony concerning his undisclosed contractual intentions is no more competent than Vespremi's. (See footnote 12, ante.) In any event, his testimony is not inconsistent with the conclusion that the offer letter itself was no longer the operative agreement. Agreements can be superseded for purposes other than to change their material terms, such as to clarify terms or to add new terms that do not contravene the parties' original intent. In this case, as we previously held, the offer letter was ambiguous. Eberhard testified that the subsequent documents (the Grant Notice and Stock Option Agreement) were "clarifying" and "executing on" the stock option provision in the offer letter. And, as Tesla has argued in another context, the offer letter lacked specificity in important respects: perhaps most critically, it contained no exercise price for Vespremi's stock options, nor did it specify the time period within which the options could be exercised. Those terms were added to the later agreements. We needn't decide whether the offer letter itself was fatally uncertain and unenforceable without such terms, as Tesla urges us to do. But their absence from the offer letter goes a long way toward explaining why the parties would agree later to supersede the stock option portion of the offer letter with a set of integrated agreements covering the subject of employee stock options more comprehensively and with greater specificity.
Many of Vespremi's record citations are inscrutable, but we have examined the relevant portions of Eberhard's testimony. The difficulty results from the fact that the reporter's transcript of trial prepared in Tesla's appeal from the judgment is deficient and violates the rules. Portions consist of a haphazardly prepared "rough," uncertified transcript of trial in ".txt" format, bound and paginated with more than one page number appearing on each page (which are not even sequential). The transcript lacks required indices at the first volume, the court reporter's original certification and, most notably, intelligible pagination. (See generally Cal. Rules of Court, rules 8.130, 8.144; Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group) ¶¶ 4.93.11, 4.105-4:114, pp. 4-25, 4-32 to 4-33.) These rule violations have made our job considerably more difficult, and we do not condone them. But for the fact that the record in Vespremi's related appeal of the attorney fees ruling contains a properly prepared reporter's transcript of trial proceedings, we would have ordered Tesla to correct these problems at the outset after it did not on its own initiative discharge its responsibility as the appellant to ensure that an adequate record in its appeal was prepared.
Next, Vespremi alludes to the trial court's observation that the "subject documents—drafted by Tesla—are imprecise and in conflict" on the vesting issue. We have examined the documents independently (see Parsons, supra, 62 Cal.2d at pp. 865-866) and discern no conflict. And, as we have explained, the offer letter's ambiguity on the subject of vesting, far from counseling against a construction of the later agreements as superseding the offer letter's stock option provision, counsels in favor of it.
Vespremi next argues the Stock Option Agreement "could not reasonably operate to modify" his "binding employment agreement" comprised by the offer letter, because the Stock Option Agreement states in paragraph 12 that it "is not an employment or service contract." But there is nothing in the Grant Notice or Stock Option Agreement purporting to address any terms of employment other than with respect to stock options. Read in its entirety, paragraph 12 of the Stock Option Agreement is simply a disclaimer by Vespremi and Tesla of any intention in that agreement to promise continued employment (no such promise having been previously made in the offer letter, which provides for an at-will employment relationship.). And, of course, contracts may be partially integrated. That is, "[t]he parties may intend that a writing finally and completely express only certain terms of their agreement rather than the agreement in its entirety." (Founding Members, supra, 109 Cal.App.4th at p. 953; see, e.g., Haggard, supra, 39 Cal.App.4th at pp. 517-519 [employment contract held integrated with respect to subject of employee's at-will status].) Here, the express language of the Grant Notice's integration clause reflects that the only terms of the offer letter the parties intended to supersede were those "regarding the acquisition of stock in the Company." In other words, those later agreements were integrated with respect to that subject matter only and not other aspects of Vespremi's compensation or employment.
In full, paragraph 12 of the Stock Option Agreement states: "Your option is not an employment or service contract, and nothing in your option shall be deemed to create, in any way whatsoever, any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate."
Finally, Vespremi argues the trial court "found that the subsequent documents lacked the hallmarks of an enforceable contract." The trial court made no finding that those later agreements were not enforceable. In so characterizing the court's decision, Vespremi simply cites the court's observations that "[t]here was no negotiation and the employees (including [Vespremi]) did not draft any of these documents," and also that "[n]o new or additional consideration or benefits were given to [Vespremi] for signing these stock option documents in May 2007." Neither argument provides a basis to conclude the later agreements did not supersede the offer letter's stock option language.
First, to the extent Vespremi is suggesting the trial court's decision may be upheld on the ground the later agreements weren't enforceable contracts because the parties didn't negotiate them, he has waived the point because he asserts it in only a conclusory manner, without any argument or legal authority. (See Sporn v. Home Depot USA, Inc. (2005) 126 Cal.App.4th 1294, 1303 ["Contentions on appeal are waived by a party who fails to support them with reasoned argument and citations to authority"].)
Even if not waived, we would reject Vespremi's "no negotiation" argument. The absence of negotiation is simply a factor bearing on whether a court may deem a contract, or contract provision, unenforceable on the ground of unconscionability. (See generally 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 322 et seq.; Civ. Code, § 1670.5.) As Witkin summarizes it, "a standardized agreement imposed on the subscribing party without an opportunity to negotiate the terms . . . is nonetheless valid and existing," and merely " 'begins another inquiry—whether a particular provision within the contract should be denied enforcement on grounds that it defeats the expectations of the weaker party or it is unduly oppressive or unconscionable.' " (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 323, p. 353, italics added; see, e.g., Koehl v. Verio, Inc. (2006) 142 Cal.App.4th 1313, 1338-1340 [employee compensation plan held not unconscionable]; Yeng Sue Chow v. Levi Strauss & Co. (1975) 49 Cal.App.3d 315, 325-326 [upholding enforceability of employer's option to repurchase corporate stock pursuant to stock option plan upon employee's death].) Vespremi has not argued the later agreements he signed on May 8, 2007, were unconscionable, and the trial court made no such findings. So that entire issue has been waived. (See Koehl, at p. 1339 ["whether attempted to be used affirmatively or defensively, the issue of unconscionability must be put before the trial court or it will be waived"].) And Vespremi would have been hard pressed to argue those later agreements were unenforceable on the ground of unconscionability. The stock option terms he agreed to when he signed those later agreements, including their vesting schedule, were not "so one-sided as to " 'shock the conscience." ' " (Id. at p. 1340.)
We also disagree with Vespremi's argument concerning consideration. Even if the later agreements had modified the offer letter to Vespremi's detriment in some fashion, we agree with Tesla the modifications were supported by consideration because Vespremi gained valuable new rights in return. Among them, Tesla points to the fact that Vespremi was given the right to exercise his options for a limited time after his employment ended (specifically, for 30 days after his employment terminated, or 6 months if his employment terminated due to a disability). Vespremi also was given the right to exercise his options early, before they vested. In addition, the Grant Notice reflects that his option was structured as an incentive stock option which affords him certain federal income tax advantages (see footnote 2, ante), alluded to in section 7 of the Stock Option Agreement. None of these features were included in the offer letter's stock option provision.
Vespremi contends that Tesla abandoned and/or waived certain arguments concerning the sufficiency of consideration by not making them in its opening brief. But Vespremi himself has raised the issue of consideration and addressed it on the merits in his respondent's brief. In these circumstances, we will consider the arguments Tesla makes in its reply brief on this question. (See, e.g., Jameson v. Desta (2009) 179 Cal.App.4th 672, 674, fn. 1.)
It stated, in relevant part: "If your option is an incentive stock option, note that, to obtain the federal income tax advantages associated with an "incentive stock option," the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your option's exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an 'incentive stock option' if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment terminates." --------
Finally, elsewhere in his brief Vespremi argues that as of the date of the offer letter he had a "property right" in his 40,000 stock options that Tesla could not "extinguish," citing dictum that an option is irrevocable and cannot be terminated without the optionee's consent. (See Kaneko v. Okuda (1961) 195 Cal.App.2d 217, 233.) But Vespremi's stock options were not extinguished or terminated when he executed the May 8, 2007 agreements; on the contrary, he was granted his stock options on that date, and he exercised them. Furthermore, even if one could characterize those later agreements as somehow negatively impacting his stock options, Vespremi did consent: he signed an integrated agreement superseding the stock option provision of his offer letter. These weren't unilateral dictates imposed by an employer who simply refused to honor a past promise, but comprehensive written agreements executed by both parties—one of whom, Vespremi, was a trained lawyer.
In sum, we conclude that the meaning of the integration clause of the stock option Grant Notice is clear and unequivocal, and fatal to Vespremi's breach of contract claim. Its express language stating it is the "entire understanding" between the parties and supersedes "all prior oral and written agreements" concerning "the acquisition of stock in [Tesla]" means the parties intended the Grant Notice, together with the Stock Option Agreement, to be the final and exclusive embodiment of their agreement concerning the subject of Vespremi's stock options, and those agreements taken together supersede the stock option provision of the offer letter as a matter of law. (See Grey, supra, 204 Cal.App.4th at p. 808; see also Malmstrom v. Kaiser Aluminum & Chemical Corp. (1986) 187 Cal.App.3d 299, 315 [written employment contract stating it "supersede[s] all previous agreements" between the parties held integrated as a matter of law and supersedes alleged prior oral promises; "The meaning of this paragraph is clear on its face and [plaintiff] offers no alternative meaning"].) Tesla therefore could not breach the stock option provision of the offer letter, whatever its meaning, and the trial court erred as a matter of law in concluding otherwise.
Finally, after the close of briefing, Vespremi asked us to take judicial notice of a final statement of decision the trial court entered in September 2017 on his co-plaintiff's claims, contending the ruling is relevant because it is the "Final Decision for a party in this same action and it was made for substantial [sic] similar claims and based on similar [sic] set of facts." We deny the request, because the decision is not relevant. In addition, as Vespremi acknowledges, it was entered "well after" the judgment was entered on his claims. Matters occurring after rendition of an appealed judgment are normally disregarded, and Vespremi has not argued that any relevant exception applies here. (See generally Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2016) ¶ 8:176, p. 8-152.)
II.
Vespremi Is Not Entitled To An Award of Attorney Fees.
Given our reversal of the judgment, it is unnecessary to address the issues Vespremi raises on appeal from the trial court's denial of his request for an award of attorney's fees under Labor Code section 218.5. As a matter of law, he is not entitled to an award of attorney fees under that statute which, in relevant part, mandates an award of reasonable attorney fees and costs to an employee who is a "prevailing party," "[i]n any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions, . . . if any party to the action requests attorney's fees and costs upon the initiation of the action." Since Vespremi is no longer a prevailing party, the statute does not apply.
Vespremi's request for judicial notice in the attorney fees appeal, filed January 27, 2016, which we previously took under submission, also is denied.
DISPOSITION
The judgment is reversed. The order denying attorney fees is affirmed. Tesla shall recover its costs on appeal.
/s/_________
STEWART, J. We concur. /s/_________
KLINE, P.J. /s/_________
RICHMAN, J.