Fenoglio v. Augat, Inc.

Decision Date20 April 1999
Docket NumberNo. Civ.A. 97-10012-PBS.,Civ.A. 97-10012-PBS.
CourtU.S. District Court — District of Massachusetts
PartiesWilliam R. FENOGLIO, Plaintiff, v. AUGAT, INC. and Thomas & Betts Corporation, Defendants.

Michael Avery, Perkins, Smith & Cohen, Boston, MA, for William R. Fenoglio, plaintiff.

Carol R. Cohen, Davis, Malm & D'Agostine, P.C., Boston, MA, Scott E. Williams, Williams & Connolly, Washington, DC, Jonathan P. Graham, Washington, DC, for Augat, Inc., Thomas & Betts Corp., defendants.

MEMORANDUM AND ORDER

SARIS, District Judge.

I. Introduction

This case arises out of a protracted employment dispute between plaintiff, William Fenoglio, and co-defendants, Augat, Inc. ("Augat"), and Thomas & Betts Corporation ("T & B"). Fenoglio, the former Chief Executive Officer of Augat, asserts breach of an employment agreement (Count I); wrongful denial of benefits promised in a change in control agreement (Count II); wrongful denial of stock options to Fenoglio in violation of federal securities law (Count IV); and wrongful denial of stock options in violation of state securities law (Count V).1 The parties agree that, under the express terms of the various agreements, Massachusetts law applies.

Plaintiff has filed a motion for partial summary judgment on Counts I and II of the Amended complaint. Defendants have moved for summary judgment on Counts I, II, IV, and V. After hearing and review of the supplemental submissions, the Court ALLOWS plaintiff's motion for partial summary judgment on Count I (in part), and on Count II. The Court ALLOWS defendants' motion for summary judgment on Counts I (in part), IV, and V.

II. Factual Background

Augat was a Massachusetts corporation that manufactured electronics equipment and components. After being selected as Augat's president and chief operating officer, Fenoglio entered into an employment agreement with Augat, dated August 29, 1994. At a later point, Fenoglio also became a member of the board of directors and chief executive officer.

The employment agreement outlined salary and benefits, including Fenoglio's participation in Augat's bonus and stock option plans. Employment Agreement, ¶¶ 3.2 - 3.7. The contract provided that either party could terminate without cause, upon at least six months' prior written notification. Employment Agreement, ¶ 4.4.2 The contract further specified that, upon termination without cause, Fenoglio was entitled to "compensation which would otherwise be payable" up to the later of the third anniversary of the commencement date, or "twelve months from the date of termination of his employment." Employment Agreement, ¶ 5.1. However any of these payments would be reduced by any payments made under the Change of Control letter agreement dated September 6, 1994. Employment Agreement, ¶ 5.1.

On September 6, 1994, his first day of work at Augat, Fenoglio signed this change in control letter agreement which provided certain benefits to Fenoglio in the event he was terminated within three years of a change in control of Augat. Included among the change in control benefits were a lump sum payment of a multiple of Fenoglio's annual salary and highest bonus level, vesting of any outstanding stock options, and a prohibition on Augat's repurchase of outstanding restricted stock awards. Change in Control Agreement, ¶ 4(c). A clause in the change in control agreement provided that, if Fenoglio were "terminated for any reason and subsequently a Change in Control shall have occurred, [he] shall not be entitled to any benefits hereunder." Change in Control Agreement, ¶ 3(a).

Over the course of the employment relationship, Fenoglio received six Augat stock option grants pursuant to agreements under the company's 1994 and 1996 stock option plans. Two of these were incentive stock options; four were "non-qualified" options. The stock option plans and agreements all required that terminated employees exercise their options within three months of termination. The 1994 and 1996 stock option plans and all of Fenoglio's agreements (except the one dated December 20, 1994) also provided that members of Augat's board of directors have four-and-a-half years after termination or retirement from the board within which to exercise their options. See, e.g., Stock Option Plan, ¶ 6(f)(iv). Augat granted these stock options pursuant to stock option plans voted upon by the shareholders during annual shareholder meetings. Fenoglio presided over one such meeting on February 13, 1996, when the 1996 stock option plan was approved.

On July 16, 1996, Augat's Board of Directors voted to terminate Fenoglio's employment with the company. Fenoglio was informed orally by Augat board member John LeMasters, who replaced Fenoglio as CEO, that the Board had voted to terminate him. LeMasters offered him the opportunity to resign so that the separation would appear amicable from a public relations point of view. On the evening of July 16, 1996, Fenoglio was presented with a press release announcing his "resignation" that was to be distributed to media outlets. After a brief staff meeting on the morning of July 17, 1996, Fenoglio never returned to the Augat premises or performed any work for Augat. He did not publicly dispute the company's characterization that he had resigned.

After an exchange of letters regarding Fenoglio's severance from Augat, Fenoglio received a letter dated August 6, 1996, from LeMasters, which was accompanied by a "Schedule A" outlining the arrangements for the "separation compensation and benefits" approved by the board of directors. The letter states: "These arrangements are, of course, dependent on your timely agreement of [sic] the arrangements and receipt of one copy of the enclosed resignation letters concerning your former CEO and Board positions." (emphasis added). LeMasters concluded the letter on a friendly note, asking Fenoglio to get together so that "I can bring you up to date with activities of the company that I know you are still interested in as a shareholder."

The schedule contains three provisions relevant to this dispute. First, it states: "Although you have resigned as President and CEO effective July 16, 1996, Augat will pay your current compensation and benefits through your date of termination on January 16, 1997." Second, it provided that entitlement to change in control benefits "ends upon termination of your employment." Finally, and most significantly, the schedule stated: "This serves also as notice of termination of all other contracts between you and the Company requiring notice of termination, including the September 6, 1994 Change in Control Agreement." (emphasis added).

On October 6, 1996, Augat's board voted to pursue a merger with T & B, a Tennessee electronics firm. The merger, which qualified as a change in control for purposes of the change in control agreement, was finalized on December 11, 1996. Fenoglio filed this lawsuit on January 3, 1997. Through April 24, 1997, Augat paid Fenoglio his full salary, provided health coverage, reimbursed expenses, allowed Fenoglio to contribute to Augat's 401(k) pension plan, and made payments to that plan on his behalf. Fenoglio attempted unsuccessfully to exercise his stock options on May 20, 1997, and again on June 30, 1997.

III. Discussion
A. Standard

A motion for summary judgment shall be allowed if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

The moving party bears the initial burden, which may be satisfied by pointing to the absence of adequate evidence supporting the nonmoving party's case. See Hinchey v. NYNEX Corp., 144 F.3d 134, 140 (1st Cir.1998) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). Once the moving party has met this burden, the nonmoving party must present specific facts demonstrating a genuine issue for trial, see Serrano-Cruz v. DFI Puerto Rico, Inc., 109 F.3d 23, 25 (1st Cir.1997), and may not merely "rest upon mere allegation or denials of his pleading." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (citing Fed. R.Civ.P. 56(e)).

"The trial court must view all facts and draw all inferences in the light most favorable to the nonmoving party." Reich v. John Alden Life Ins. Co., 126 F.3d 1, 6 (1st Cir.1997) (citation omitted). "When deciding cross-motions for summary judgment, the court must consider each motion separately, drawing inferences against each movant in turn." Id. (citing Blackie v. Maine, 75 F.3d 716, 721 (1st Cir.1996)).

B. COUNT I: BREACH OF EMPLOYMENT CONTRACT
1. Contract Interpretation

Under Massachusetts law, interpretation of a contract is generally a question of law. See Coll v. PB Diagnostic Sys., Inc., 50 F.3d 1115, 1122 (1st Cir. 1995); Edmonds v. United States, 642 F.2d 877, 881 (1st Cir.1981); Freelander v. G. & K. Realty Corp., 357 Mass. 512, 516, 258 N.E.2d 786 (1970).

"[T]he question of whether a contract term is ambiguous is one of law for the judge." NASCO, Inc. v. Public Storage, Inc., 29 F.3d 28, 32 (1st Cir.1994) (citing FDIC v. Singh, 977 F.2d 18, 22 (1st Cir.1992)). "`When ... the words [of a contract] are plain and free from ambiguity they must be construed in their usual and ordinary sense.'" National Medical Care, Inc. v. Zigelbaum, 18 Mass.App.Ct. 570, 575, 468 N.E.2d 868, rev. denied, 393 Mass. 1104, 471 N.E.2d 1354 (1984) (construing a termination clause in an employment contract) (quotation omitted). In the absence of ambiguity, no question of material fact remains for the jury. See O'Connell Mgmt. Co. v. Carlyle-XIII Managers, Inc., 765 F.Supp. 779, 782-83 (D.Mass. 1991).

However, if the wording of a contract is ambiguous, a question of fact for the...

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