Mauldin v. Worldcom Inc.

• Decision Date: 28 August 2001
• Docket Number: No. 00-5134,00-5134
• Citation: 263 F.3d 1205
• Parties: (10th Cir. 2001) BILLY MAULDIN, Plaintiff-Appellant, v. WORLDCOM, INC., Defendant-Appellee
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1205

263 F.3d 1205 (10th Cir. 2001)

BILLY MAULDIN, Plaintiff-Appellant, v. WORLDCOM, INC., Defendant-Appellee.

No. 00-5134

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

August 28, 2001

Appeal from the United States District Court for the Northern District of Oklahoma. (D.C. No. 98-CV-0307-K(M)) [Copyrighted Material Omitted]

[Copyrighted Material Omitted] Julie E. Heath, Dallas, Texas, (Christopher S. Thrutchley, Tulsa, Oklahoma, with her on the brief), for Plaintiff-Appellant.

Steven A. Broussard (William D. Fisher with him on the brief), of Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., Tulsa, Oklahoma, for Defendant-Appellee.

Before TACHA, Chief Circuit Judge, McKAY, Circuit Judge, and CUDAHY, Circuit Judge.^*

CUDAHY, Circuit Judge.

Between 1994 and 1996, Billy Mauldin entered into four stock option agreements with his employer, MFS Intelenet, Inc. (MFS). Each agreement provided that Mauldin's options would vest immediately if he suffered diminished responsibility or pay within two years of a change of control of MFS. Thus, after WorldCom, Inc. (WorldCom) acquired MFS in 1996 and allegedly altered the terms of Mauldin's employment, Mauldin requested that he be allowed to exercise all of his options immediately. When WorldCom denied his request, Mauldin sued. The district court granted summary judgment in favor of WorldCom; we reverse and remand for further proceedings consistent with this opinion.

I.

In May 1994, MFS, which is in the business of providing telecommunications services, hired Mauldin into the position of city operations manager for Houston, Texas. One month later, Mauldin transferred to Los Angeles, California, but he returned to Texas in June 1996 as the city operations manager for Dallas. Mauldin's responsibilities in Dallas included the design and maintenance of MFS's telecommunications system. Mauldin also supervised three engineers, as well as a staff of unspecified size, who assisted him with his duties.

Throughout Mauldin's employment with MFS, MFS had in place a stock plan known as the MFS Communications Company, Inc. 1993 Stock Plan, which MFS created with the purpose of "enabl[ing] Employees and Outside Consultants to share in the growth and prosperity of the Company by encouraging stock ownership by Employees and outside Consultants and . . . assist[ing] the Company to obtain and retain skilled personnel and consultants." Under the Plan, a Compensation Committee selected from members of MFS's board of directors was permitted to award stock options to MFS employees. Importantly, the Plan granted the Compensation Committee broad discretion in exercising the powers vested in it:

The Plan shall be administered by the [Compensation] Committee. A majority vote of the Committee . . . shall be the valid acts of the Committee for the purposes of the Plan . . . .

The Committee shall have plenary authority in its discretion, but subject to the express provisions of the Plan, to determine the terms of all Benefits granted under the Plan including, without limitation . . . to interpret the Plan and to make all other determinations deemed advisable for the administration of the Plan. The Committee may designate Employees of the Company to assist the Committee in the administration of the Plan and may grant authority to such persons to execute option agreements or other documents on behalf of the Committee.

* * *

The Committee may make such rules and regulations and establish such procedures as it deems appropriate for the administration of the Plan. In the event of a disagreement as to the interpretation of the Plan or any amendment hereto or any rule, regulation or procedure thereunder or as to any right or obligation arising from or related to the Plan, the decision of the Committee shall be final and binding.

MFS Stock Plan, Article X.

During his employment with MFS, Mauldin entered into four stock option agreements dated September 30, 1994, December 30, 1994, December 29, 1995, and December 31, 1996. Each agreement was entitled "Stock Option Agreement/1993 Stock Plan" and was entered into "to carry out the purposes of [MFS's] 1993 Stock Plan." Each option agreement provided that Mauldin would forfeit all unvested options if he voluntarily resigned, but also provided that in the event of a "change in control" followed by his involuntary termination within two years, the full number of options would immediately vest (a phenomenon known as "accelerated vesting"). The agreements defined "involuntary termination" to include "the constructive involuntary termination of the Employee's employment with the Company and its subsidiaries after a Change of Control." In turn, the agreements defined "constructive involuntary termination" to "include (x) a material reduction in the Employee's compensation (including applicable fringe benefits) or (y) the demotion or diminution in the Employee's position, authority, duties or responsibilities without cause." Importantly, each of the agreements states, "The Options may be exercised by written notice to the Company, addressed to its Stock Option Administrator." Only the last two agreements--dated December 29, 1995 and December 31, 1996--designate a stock option administrator, stating that "[t]he Stock Option Administrator shall mean that person designated by the Company as such, or his or her successor, initially Robert J. Ludvik, MFS Communications Company . . . ."

On December 31, 1996, WorldCom acquired MFS, effecting a "change in control" as that term is defined in Mauldin's four stock option agreements. Mauldin believed that his responsibilities were substantially reduced following the merger because WorldCom removed three engineers from his direct supervision and placed them in a newly established Planning and Implementation Group. In addition, Mauldin believed that he suffered reductions in his compensation and fringe benefits because of changes in his bonus plan, reduction of health care benefits and loss of ability to accrue stock options.

Mauldin notified WorldCom that he considered the above-noted reductions to constitute a "constructive involuntary termination" under his option agreements, and threatened to resign if his responsibilities and benefits remained unchanged. In response, WorldCom asserted that it did not consider the terms of Mauldin's employment to have been altered following the merger, and that it thus would not increase his responsibility or pay as requested. As a result, Mauldin resigned, accepted a more lucrative position with another employer and petitioned WorldCom's human resources department for the immediate vesting of the remainder of his stock options on the basis of his alleged "constructive involuntary termination."

Roseanne Dickerson, vice president of human resources at WorldCom, received Mauldin's request and initiated an investigation of his claim by contacting Don Davenport, a manager under whom Mauldin had worked. Davenport expressed his opinion that Mauldin's duties had not been diminished, because although Mauldin's three engineers had been moved into the Planning and Implementation Group, they continued to interact with Mauldin as they had before MFS's merger with WorldCom. (Unlike Davenport, Mauldin's direct supervisor--who, Mauldin notes, was not contacted by Dickerson--believes that Mauldin's responsibilities were diminished following the merger). Dickerson reported Davenport's opinion to Margaret Coons, another human resources employee. In turn, Coons gathered further, unspecified information, which, together with the information from Dickerson, she forwarded to Dennis Sickle, WorldCom's senior vice president of human resources. Sickle reviewed the evidence relating to Mauldin's request for accelerated vesting and made the ultimate decision to deny Mauldin's claim.

At the time of Sickle's decision, no member of the Compensation Committee had reviewed Mauldin's claim. However, on September 10, 1997, the WorldCom Compensation and Stock Option Committee¹ convened and considered the various requests for acceleration that MFS employees had presented to WorldCom. The minutes of the meeting reflect that the board approved Sickle's actions, but do not indicate that the board specifically considered Sickle's handling of Mauldin's claim:

Following a discussion of previous actions, the Committee ratified and approved the prior appointment of, and delegation of the Committee's authority to . . . Dennis Sickle . . . to review, approve or deny, or take other actions with respect to requests for acceleration of vesting of stock options and other benefits of directors, employees, agents or consultants of MFS Communications Company, Inc. and its subsidiaries ("MFS") pursuant to the plans and programs of MFS, subject to oversight by and direction of the Chairman of this Committee, and ratified and approved all previous actions of such individuals in that regard.

After learning of the Committee's action, Mauldin brought this suit to obtain accelerated vesting of his outstanding unvested stock options. On cross-motions for summary judgment, the district court found that genuine issues of fact existed with regard to Mauldin's claim of constructive involuntary termination. Among the disputed facts noted by the court were whether Mauldin suffered a material reduction in his compensation following the merger and whether Mauldin suffered a material reduction in his duties following the merger. However, because the stock plan gave the Compensation Committee "plenary authority" to make "final and binding" decisions regarding plan interpretation, the district court applied the rule of Weir v. Anaconda Co., 773 F.2d 1073 (10th Cir.1985), under which, in the absence of arbitrary behavior, bad faith or fraud, a court defers to a Committee's decision. Because it did not find any evidence that the denial of Mauldin's claim was arbitrary or capricious the district court granted summary judgment in...