Planning Technologies, Inc. v. Korman

• Citation: 290 Ga. App. 715,660 S.E.2d 39
• Decision Date: 17 March 2008
• Docket Number: No. A07A2023.,A07A2023.
• Parties: PLANNING TECHNOLOGIES, INC. et al. v. KORMAN.
• Court: Georgia Court of Appeals

290 Ga. App. 715

660 S.E.2d 39

290 Ga.App. 715

PLANNING TECHNOLOGIES, INC. et al. v. KORMAN.

No. A07A2023.

Court of Appeals of Georgia.

March 17, 2008.

Reconsideration Denied April 3, 2008.

L. Matt Wilson, Dustin R. Thompson, Atlanta, for appellants.

Doffermyre, Shields, Canfield, Knowles & Devine, Everette Doffermyre, Jr., Samuel W. Wethern, Atlanta, for appellee.

BERNES, Judge.

Defendants Planning Technologies, Inc. ("PTI"), Arturo H. Sanchez, and Ronald G. Spencer appeal the trial court's grant of partial summary judgment in favor of plaintiff Peter J. Korman on his claim for breach of a stock option agreement. For the reasons discussed below, we vacate the trial court's order granting summary judgment and remand with instruction.

On appeal from a grant of summary judgment, we review the evidence de novo, viewing it in the light most favorable to the nonmovant, to determine whether the trial court erred in concluding that no genuine issue of material fact remains and that the moving party was entitled to judgment as a matter of law.

(Citation omitted.) Briddle v. Cornerstone Lodge of America, 288 Ga.App. 353, 353-354, 654 S.E.2d 188 (2007).

So viewed, the record reflects that PTI is a Georgia corporation founded by Sanchez and Spencer that provides infrastructure consulting services to clients involved in e-business. In 1997, PTI hired Korman to serve as president of the corporation. Korman later assumed the roles of chief operating officer, secretary, and treasurer.

The Stock Option Plan and Agreement. In 1998, PTI adopted its Stock Incentive Plan (the "Plan") to secure for itself and its shareholders "the benefits of the incentive inherent in stock ownership in [PTI] by employees . . . who are responsible for its future growth and continued success." The Plan set out general terms and conditions for the grant of stock options and delineated how the Plan would be administered by PTI. Article 3.1 provided that "[t]he Plan shall be administered by the Board of Directors or by any other Committee appointed by the Board that is granted authority to administer the Plan." The Plan also contained several other articles addressing the administration of the Plan:

3.2 Authority of the Committee. Subject to the provisions of the Plan, the Committee shall have full power to . . . construe and interpret the Plan and any agreement or instrument entered into under the Plan. . . . Further, the Committee shall make all other determinations which may be necessary or advisable in the Committee's opinion for the administration of the Plan.

3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Board shall be final, conclusive and binding on all Persons, including [PTI], the shareholders, Employees, Participants and their estates and beneficiaries.

. . .

6.5 Exercise of Options. Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve. . . .

Korman and PTI subsequently executed the Stock Option Agreement (the "Agreement"), which awarded Korman options on 2,500,000 shares of PTI common stock. The options awarded to Korman were scheduled to vest over three years, one-third each in August 1998, August 1999, and August 2000. Significantly, however, there was an exception to the three-year vesting schedule set out in Section 6.1 of the Agreement, which stated that "[u]pon a Change in Control (as defined in the Plan), all outstanding unvested Options shall become immediately and fully exercisable." Article 13.1(b) of the Plan defined a "Change in Control" as, among other things, "[t]he approval by the shareholders of [PTI] of a reorganization, merger, consolidation, complete liquidation or dissolution of [PTI], the sale or disposition of all or substantially all of the assets of [PTI] or similar corporate transaction."

The Agreement also contained several sections addressing how it would be interpreted and how disputes involving the Agreement and the Plan would be resolved. Specifically, the Agreement recited that Korman "hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof" and provided that "[t]he legal construction and interpretation of this Agreement . . . shall be governed by the Plan." The Agreement further provided:

19. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on [Korman] and [PTI] for all purposes.

Finally, the signature page of the Agreement stated that Korman "hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board of Directors of [PTI] . . . upon any questions arising under the Plan."

The Transaction. On March 31, 2000, PTI closed a deal with the Enterprise Network Systems ("ENS") division of the iGate Corporation that was approved by PTI's shareholders via written consent (the "ENS Transaction"). The terms of the ENS Transaction were memorialized in an indexed binder of documents entitled "Conversion of Series A Preferred and Contribution Agreement" (the "Contribution Agreement"). In general terms, the ENS Transaction involved ENS contributing $5,500,000 in cash and substantially all of its assets to PTI in return for 32,402,137 shares of PTI common stock. Both before and after the closing, PTI's Board of Directors determined that the ENS Transaction did not constitute a change in control under the Plan and Agreement and, therefore, would not accelerate the vesting of employee stock options.¹

On April 10, 2000, Korman attempted to exercise his remaining stock options that were scheduled to vest in August 2000. Korman contended that the ENS Transaction was a change in control that had accelerated the vesting of his remaining stock options under the Plan and the Agreement. PTI's Board disagreed and refused to issue the shares to Korman. On April 19, 2000, PTI informed Korman that he was being terminated for cause based on alleged acts of fraud and insubordination.

The Litigation. Following his termination, Korman brought the present suit in which he asserted numerous claims, including that PTI had breached the Agreement by refusing to issue him shares of PTI common stock when he exercised his remaining stock options in April 2000. Korman later moved for partial summary judgment on his claim for breach of the Agreement, and appellants cross-moved for partial summary judgment on the same claim. The trial court thereafter ruled that the ENS Transaction was a change in control that accelerated the vesting of Korman's stock options as a matter of law, granted partial summary judgment in favor of Korman and against appellants, and certified the order as a final judgment pursuant to OCGA § 9-11-54(b). This appeal followed.

1. Appellants contend that the trial court improperly treated the change of control issue as a matter to be analyzed de novo, rather than properly deferring to the determination by PTI's Board of Directors that the ENS Transaction did not constitute a change in control under the Plan and the Agreement. According to appellants, the Plan and the Agreement gave the Board absolute and uncontrolled discretion in making the determination of whether a particular transaction constituted a change in control, such that Korman has no contractual basis for challenging the Board's determination. Alternatively, appellants argue that the determination of the Board must be treated as final and conclusive as to all parties unless the Board acted in bad faith or failed to exercise honest judgment, which appellants contend did not occur in this case.

Where an agreement gives a party discretionary decision-making authority, the question is not whether the decision was erroneous; rather, the sole question for a court in reviewing whether the agreement has been breached is whether the decision was made in good faith and involved the exercise of honest judgment. See MacDougald Constr. Co. v. State Highway Dept., 125 Ga.App. 591, 593(1), 188 S.E.2d 405 (1972); State Highway Dept. v. MacDougald Constr. Co., 189 Ga. 490, 502(2), 6 S.E.2d 570 (1939); Grant, Alexander & Co. v. Savannah etc. R. Co., 51 Ga. 348, 357 (1874). But, "[i]f an agreement by its express terms grants a party absolute or uncontrolled discretion in making a decision, then no duty of good faith is implied as to that decision,"...