Coll v. PB Diagnostic Systems, Inc.

Decision Date06 December 1994
Docket NumberNo. 94-1680,94-1680
Parties130 Lab.Cas. P 57,874 William G. COLL, Plaintiff-Appellant, v. PB DIAGNOSTIC SYSTEMS, INC., Defendant-Appellee. . Heard
CourtU.S. Court of Appeals — First Circuit

David Rapaport, with whom Rapaport & Rapaport, was on brief, for appellant.

Scott C. Moriearty, with whom Laurie F. Rubin and Bingham, Dana & Gould, were on brief for appellee.

Before TORRUELLA, Chief Judge, COFFIN, Senior Circuit Judge, and STAHL, Circuit Judge.

TORRUELLA, Chief Judge.

This appeal comes to us on the basis of diversity jurisdiction. The parties agree that it is governed by the substantive law of the state of Massachusetts. The plaintiff is the former chief executive officer of the defendant corporation, and his claims stem from an alleged breach of his employment agreement with the defendant. Specifically, the plaintiff maintains that the district court improperly granted the defendant's summary judgment motion because there were genuine issues of material fact as to whether 1) the defendant breached its agreement to create a long-term incentive plan and communicate its goals to the plaintiff; 2) the doctrine of promissory estoppel required that the defendant create a long-term incentive plan; 3) the defendant fired the plaintiff in bad faith, in order to deprive him of a benefit to which he was entitled; and 4) the defendant deceived the plaintiff concerning its intention to establish a long-term incentive plan. For the following reasons, we affirm the district court's grant of summary judgment.

I. BACKGROUND

Plaintiff William G. Coll ("Coll") sued defendant PB Diagnostic Systems, Inc. ("PB") in the United States District Court for the District of Massachusetts. Coll asserted various claims regarding PB's alleged promise to develop a long-term incentive bonus program in connection with Coll's employment as PB's Chief Executive Officer ("CEO"). After extensive discovery, the court granted PB's motion for summary judgment.

Although the parties heatedly dispute many of the issues on appeal, the facts central to our inquiry are largely uncontroverted. 1 The defendant, PB, was founded in 1985 to develop and market medical diagnostic instruments. PB was started as a joint venture owned in equal shares by Polaroid Corporation ("Polaroid") and a German company called Behringwerke, A.G. ("Behring"). In 1987, PB representatives contacted the plaintiff, Coll, and informed him that PB was looking for a CEO to run the start-up company.

A. Pre-hire statements

Coll agreed to an interview to discuss the position, and met with PB Board Chairman Peter Kliem ("Kliem") and Polaroid's Donald Fronzaglia ("Fronzaglia") at the Pillar House restaurant. Coll expressed concern that PB would not be able to offer him an equity share in the company because it was a "50/50" joint venture. Kliem confirmed that PB could not offer an equity share in the company, but explained that PB intended to create a Long Term Incentive Plan ("LTIP") that would give the CEO the opportunity to earn up to $1,000,000 provided that PB met certain performance goals. Kliem indicated that PB did not yet have the LTIP in place, but that the company looked forward to developing it with the new CEO. In his deposition, Coll admits that he understood this to mean that any payout under the LTIP would be contingent upon the achievement of yet-to-be-defined performance goals. Coll also testified that he understood that PB had not yet extended him an employment offer.

B. The offer letters

After meeting with several other PB representatives, Coll determined that he was interested in managing PB. On December 4, 1987, Kliem sent Coll a letter offering Coll the CEO position at PB (the "First Offer Letter"). The First Offer Letter set forth the salary and annual bonus to be paid Coll, and further stated: "It is our intent, that in 1989, we would jointly engage in establishing criteria to appropriately reflect your direct contribution to the success of the venture in 1990." Coll called Fronzaglia and expressed his concern that the First Offer Letter did not adequately address the LTIP or what would happen in the event that the venture failed.

In response to Coll's concerns, Kliem sent Coll another offer letter, dated December 14, 1989 (the "Second Offer Letter"). This letter stated:

As we have discussed, we are pleased to confirm our offer of employment as General Manager, PB Diagnostic Systems, Inc. (PBDS, Inc.)....

You will be an employee of PBDS, Inc. at a starting salary of $160,000.00 per year, with a guaranteed bonus of $40,000.00 per year for 1988 and 1989, payable on your first and second anniversary of employment. You must be an employee of PBDS, Inc. on those dates to receive payment of these bonuses.

During 1989, we intend to jointly explore with you appropriate methods of compensation to reflect your contribution to the success of the venture in 1990 and beyond.

In the event PBDS, Inc. initiates your termination of employment in the period between your employment date and December 31st, 1989, PBDS, Inc. will provide you one year's base salary.

Further, in the event of your separation, for any reason, you will refrain from working directly or indirectly for a competitor in the field of medical diagnostics for a period of one year. This provision, of course, will not apply if PBDS, Inc. has chosen to cease this joint venture.

For purposes of administration only, Polaroid Corporation will provide benefits in areas of medical and dental insurance, life insurance and 401K savings plans.

We are enthusiastic about your contribution and leadership as we look forward to the long-term success of PBDS, Inc.

(emphasis added).

After Coll received the Second Offer Letter, he telephoned Fronzaglia and accepted the offer. During this conversation, Fronzaglia said: "Does that take care of it?" Coll replied, "You and I understand what it is, so I guess it's O.K." Coll admitted in his deposition that at that time he believed that the Second Offer Letter incorporated all the terms and conditions of his employment, and that he believed that there was no material difference between the First and Second Offer Letters with regard to the LTIP.

C. Coll's tenure at PB

In October 1988, the PB Board of Directors formed a Compensation Committee to develop compensation packages for PB's senior executives. In April 1989, the Compensation Committee developed an executive compensation proposal which included an Annual Bonus Plan and a LTIP. The proposal, which was shown to Coll prior to being presented to the Board of Directors, included a payout package that gave Coll the opportunity to earn over $1,000,000 in incentive compensation.

On April 20, 1989, PB's Board of Directors met and unanimously approved both the Annual Bonus Plan and the LTIP. Payout under the LTIP was contingent upon the achievement of certain long term goals, described in the LTIP as:

Milestones as developed by PBDS in accordance with the business plan and subject to approval of the Board. Evaluation of business progress made by the Board prior to the 1992 and 1994 payouts.

On July 18, 1989, in response to the Board's request, Coll submitted a written memorandum suggesting payout milestones for the LTIP:

The Board of Directors has approved conceptually a LTIP for PBDS senior staff (7 persons). The Board has also approved specific funding for this Plan, 1/3 payable in 1992 and 2/3 payable in 1994. Per your request, we have considered targets appropriate to such a long term plan and our recommendation follows.

Since the Annual Bonus Plan has targets approved each year which are tactical and short-term in nature, we believe that the company's interests can be best served by emphasizing strategic and results-oriented goals in the Long Term Plan.

For 1992 (year end), criteria should include

--entrance into US market

--entrance into European market

--profitability

--positive cash flow

Criteria for 1994,

--profitability at "x" level or better

--internal rate of return at "y%" or better

I look forward to discussing with you the utilization of these strategic goals.

PB claims that in October 1989, its Board of Directors considered and approved the goals proposed by Coll for the LTIP. The relevant minutes from this meeting read: "Various compensation and incentive matters were discussed and approved."

In April 1990, Coll presented his revised five-year business plan for PB, projecting "profitability" and "positive cash flow" by the end of 1992. A year later, it became clear that PB would not meet the profitability and positive cash flow goals embodied in the revised five-year plan. To the contrary, PB suffered tremendous losses in the years 1989, 1990, 1991, and 1992. On April 4, 1991, Coll wrote to the Compensation Committee, proposing to lower the original goals of the LTIP:

This memo will address several issues related to the [LTIP] and to the discussion points raised at the Compensation Committee meeting on March 27, 1991....

1. The goals originally established for the 1992 payout of the [LTIP] are conceptually satisfactory. The goal of "entrance into the US market" is already met and the goal of "entrance into the European market" is well underway. Perhaps the more critical goals are, however, "profitability" and "positive cash flow." I believe that we should use the concepts of profitability and positive cash flow, but that we should look at these numbers not as absolute dollar amounts within absolute time-frames, but as measures of progress against marketplace, product and business goals. To state that "our goal is to become profitable and to have positive cash flow by Q4, 1992" is an excellent tool to motivate managers and their organizations and we have communicated profitability and cash flow goals and responsibilities to our employees....

Certainly, we will not use these tools indiscriminately and without the concurrence of the Board....

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