Boyle v. Petrie Stores Corp.

• Decision Date: 19 December 1985
• Citation: 518 N.Y.S.2d 854,136 Misc.2d 380
• Parties: Michael J. BOYLE, Plaintiff, v. PETRIE STORES CORPORATION, Defendant.
• Court: New York Supreme Court

Page 854

518 N.Y.S.2d 854

136 Misc.2d 380

Michael J. BOYLE, Plaintiff, v. PETRIE STORES CORPORATION, Defendant.

Supreme Court, Trial Term New York County, Part 22.

Dec. 19, 1985.

Errors Revised, March 5, 1987.

Supplemental Decision, May 29, 1987.

Shearman & Sterling, by Charles C. Parlin, Jr. and Carol A. Jablonski, New York City, for plaintiff.

Phillips, Nizer, Benjamin, Krim & Ballon, by Louis Nizer and Neil A. Pollio, New York City, for defendant.

EDWARD J. GREENFIELD, Justice.

This is an action for wrongful discharge, but unlike many such cases which have besieged the courts of late, this one involves an executive employee who in fact had a carefully worked out written contract, and now, claiming a breach, insists on a literal application of that contract.

In 1982 Milton Petrie, Chairman of the Board of the Petrie Stores Corporation, was 79 years old. He had founded the company in 1927, and had built it up into a chain of 1,400 women's specialty stores (operating under a variety of names) in 45 states, Puerto Rico, the Virgin Islands, and the District of Columbia. For the fiscal year ended Jan. 31, 1982 the corporation had net sales of over $529 million and earnings before taxes of over $86 million. The company's stock was listed on the New York Stock Exchange, but Milton Petrie owned 63.2 percent of the common stock. At this stage, Mr. Petrie decided that possibly it was time for him to take a less active role, and put a younger man in charge of the company's day-to-day affairs, as the "heir apparent." A number of possibilities were considered before Mr. Petrie decided to sound out Michael J. Boyle.

Michael J. Boyle was approached about the possibility of running the Petrie stores. He was 38 years old, and was then chairman of the board of the F. & R. Lazarus Stores headquartered in Columbus, Ohio. Lazarus was a division of Federated Department Stores of which Boyle was executive vice-president. Boyle had worked at Bambergers from 1964 to 1973 and worked in retailing for the Melville Corporation until 1976, when he had joined Federated. As of May, 1982, Boyle had operating and merchandising responsibilities for 18 retail department stores with 10,000 employees. He was then earning $350,000 annually.

In the Spring of 1982, Mr. Petrie telephoned Mr. Boyle and asked to meet with him in New York City. They met on May 26, 1982. Petrie testified he "took a shine to him" and decided to hire him. Petrie told Boyle that he would like him to take over the running of the Petrie stores.

Mr. Boyle had admired the techniques and business skill of Mr. Petrie, who he acknowledged "was a legend in his field." The financial adviser of Mr. Petrie, and a partner of Sullivan & Cromwell well-versed in executive compensation agreements, met with Boyle. Boyle wanted to know why he should leave his current position and make a change, particularly since he had been informed that Mr. Petrie was a difficult man to deal with and could summarily dismiss an employee, not unlike George Steinbrenner of the New York Yankees who insisted on running the show his own way.

Boyle thereafter was presented with a draft of a proposed employment agreement which had been drawn up by Sullivan & Cromwell. Boyle then retained the firm of Shearman & Sterling to represent him in connection with the contract. The employment agreement went through additional drafts, and on Sept. 17, 1982 it was presented to the Board of Directors of Petrie Stores. Under the contract, Boyle was to become President and Chief Executive Officer of the corporation as of Nov. 1, 1982 and was to be awarded 50,000 shares of common stock then held in the corporate treasury, with options to purchase additional shares. The contract contained explicit provisions as to the grounds for and the consequences of termination of the contract, which will be referred to hereafter. The Board approved the agreement, which was duly executed, and amended the corporate by-laws to reflect the fact that Milton Petrie, the Chairman of the Board, was to preside at director's meetings, but that he was no longer to be the Chief Executive Officer. Boyle, as Chief Executive Officer and President was, subject to the control of the Board, to "have general supervision over the business of the corporation".

The contract was for a term of five years, and Mr. Boyle was to be compensated at the rate of $400,000 for the first three years, $425,000 for the fourth year, and $450,000 for the fifth. In addition, he was to receive performance bonuses of at least $50,000 for each full year. In addition to the 50,000 shares of stock to be awarded as of Nov. 1, 1982, he was given an option to purchase an additional 250,000 shares at a fixed price. He was also to be given all expenses and disbursements reasonably incurred in the performance of his duties, travel and moving expenses, temporary living expenses, counsel fees, a sum of up to $100,000 in lieu of benefits he would forfeit with his previous employer, and a loan of $750,000 (later increased to $875,000) at 10% interest for the acquisition of living quarters.

The other executives at Petrie Stores assumed that Boyle would operate under Mr. Petrie's tutelage. Petrie considered that he was still in charge of the business and had not relinquished his authority, and he intended to have Boyle subordinate to him. The problem was that Boyle and Petrie each construed the contract and the lines of authority differently, a fact which ultimately gave rise to this lawsuit and leaves to this court the responsibility of determining their respective responsibilities after the events played themselves out.

Boyle in fact reported for work at the corporate headquarters in Secaucus on Nov. 8, 1982. While Boyle informed the other Petrie executives that he was now the Chief Executive Officer, and they should take their directions from him, Petrie On January 6, a formal real estate meeting and review, with Petrie present, was held. As various items were taken up, Petrie said, "Leave it to me, I'll take care of it." When Boyle pressed him for details, Petrie repeated, "I'll take care of it". At the conclusion of the meeting Petrie confronted Boyle in his office. With mounting anger, he said, "Where the hell do you get off to question my authority on these leases and embarrass me in front of all my organization?" He told Boyle he was moving in too fast. Boyle challenged him, and impertinently replied, "If you didn't have 63 percent of this stock, I would take you to the Board of Directors and have you removed as Chairman." This was too much for Petrie. He exploded, "You're fired!"

continued to give operating directions just as he always had. Boyle observed his operations, treating the initial period as an orientation and training period. At the beginning of January, 1983, Boyle decided to assert himself as the chief, in fact as well as in name. He called a meeting of those in the company concerned with real estate and told them that he, and not Petrie, was to be consulted about all real estate decisions, that he was the boss, and that he could reprimand Petrie for getting involved in real estate decisions. The other employees were shocked and confused. He then proceeded to Petrie's office and dictated a memo to his secretary inquiring when Petrie would be moving out. The next day Boyle testified that Petrie told him that he would not be moving right away. Petrie testified that he told Boyle "It wasn't any of his God-damn business!"

A special meeting of the Board of Directors was held on January 13, 1983. Boyle was told to wait outside. Mr. Petrie presided at the meeting and told the Board that Boyle had been insubordinate, demoralizing and rude. He also complained about Boyle making cars available to employees and giving raises, and that three year contracts had been given to Boyle's proteges, without Petrie's approval. The Board did not discuss the terms of Boyle's employment agreement or ask to hear Mr. Boyle, but acceded to Mr. Petrie's demand that he be terminated effective immediately. Mr. Petrie retook the titles of Chief Executive Officer and President. A press release announced these changes and stated that "The reason for the change was due to policy differences on the way the business should be run."

Boyle had served but two months of his five year contract. Claiming that the contract had been improperly breached by Petrie Stores Corporation, he brought this action seeking recovery of over $2,000,000 as liquidated damages he is entitled to under the contract. Defendant's answer denies that it was responsible for the breach, and counterclaims for personal expenses incurred by Mr. Boyle and improperly charged to the corporation.

DISCHARGE--JUSTIFIED OR IMPROPER

This case presents the picture of a relationship which was probably doomed from the very beginning. The hiring of plaintiff created an inevitable confrontation between the Grand Old Man who had built a business empire virtually single handedly, who was somewhat tyrannical and whose employees regarded him with a mixture of awe, fear, respect and affection, and a brash young executive determined to assert his authority and shoulder aside the old man at the earliest opportunity. The younger was hot tempered and equally tyrannical, but in addition, for a newcomer, he demonstrated remarkable abrasiveness and lack of tact. The question in this case, however, is not whether he was excessively aggressive, rude, pushy and impolitic, but whether, having aroused the ire of the man who felt that he was still running the show, he was discharged for cause.

There is no question that Mr. Petrie, and the Board of Directors which he dominated, had the right to discharge Mr. Boyle. The question presented to the court is whether the discharge was "for cause" and what are the consequences of that discharge under the employment agreement. The 19 page agreement, which was carefully worked out by experienced and...