Fredericks v. Georgia-Pacific Corporation

• Decision Date: 10 September 1971
• Docket Number: Civ. A. No. 70-3418.
• Citation: 331 F. Supp. 422
• Parties: Robert FREDERICKS v. GEORGIA-PACIFIC CORPORATION.
• Court: U.S. District Court — Eastern District of Pennsylvania

331 F. Supp. 422

Robert FREDERICKS v. GEORGIA-PACIFIC CORPORATION.

Civ. A. No. 70-3418.

United States District Court, E. D. Pennsylvania.

September 10, 1971.

Jerome Groskin, Philadelphia, Pa., for plaintiff.

John H. Leddy, Philadelphia, Pa., for defendant.

OPINION AND ORDER

EDWARD R. BECKER, District Judge.

This is a three-count civil action brought by plaintiff Robert Fredericks ("Fredericks") against Georgia-Pacific Corporation ("Georgia-Pacific"), his former employer. The first count seeks damages for Georgia-Pacific's failure to permit Fredericks to exercise options under a written stock option contract. The second count seeks recovery of Fredericks' forfeited distributable interest in Georgia-Pacific's stock bonus trust. The third count, pleaded in the alternative to the second count, seeks to recover the forfeited distributable interest on the basis of quasi-contract should the contractual allegations (Count II) fail.

The case comes before us on Georgia-Pacific's Rule 12 motion to dismiss all three counts of the complaint for failure to state a claim upon which relief can be granted. For the reasons hereinafter stated, Georgia-Pacific's motion to dismiss is granted as to Count I (the stock option contract), but is denied as to Counts II and III (the stock bonus trust).

The well-pleaded facts are as follows: Fredericks was the president of Bestwall Gypsum Company ("Bestwall"), a Pennsylvania corporation. On April 29, 1965, Georgia-Pacific acquired and merged with Bestwall. In an effort to effect a smooth assimilation of Bestwall, Georgia-Pacific hired Fredericks as a division general manager. There was no written employment contract between the parties, and the employment relationship was for no fixed term and was terminable at will by either party.¹ Frederick's employment with Georgia-Pacific terminated on November 30, 1969. The circumstances of termination are a material issue in the controversy because of their legal effect upon Fredericks' rights in the instruments in question.

When Fredericks commenced employment with Georgia-Pacific on April 29, 1965, he became a member of Georgia-Pacific's non-contributory stock bonus trust, which the complaint alleges was an inducement to him to enter into employment. Under the terms of the trust instrument, a certain percentage (dependent upon the number of years contributions were made) of an employee's distributable interest in the fund would be forfeited if, inter alia, the employee voluntarily left the defendant's employ, or if he was discharged with or without cause.

On July 27, 1965, after having been employed by Georgia-Pacific for approximately three months, Fredericks and Georgia-Pacific entered into a written stock option contract whereby Fredericks agreed to remain in Georgia-Pacific's employ for a two-year period in consideration of Georgia-Pacific's grant to Fredericks of an option to purchase 1,000 shares of Georgia-Pacific stock, exercisable at the rate of 20% per year over a five-year period. Although the stock option plan contains Fredericks' agreement to remain in Georgia-Pacific's employ for at least two years, the stock option plan states that "this Agreement shall not be deemed to limit or restrict the right of the Company to terminate the Optionee's employment at any time, for any reason, for or without cause." In addition, the contract provided that the option would terminate and be of no force or effect upon "the termination of the Optionee's employment by the Company * * *."

On June 27, 1967, the administrative and managerial functions of Georgia-Pacific's Gypsum Division (formerly Bestwall) were transferred to its main office in Portland, Oregon, and Fredericks thereupon relocated himself and his family at Portland. He remained in Georgia-Pacific's employ until November 30, 1969, when he resigned from the company by "mutual agreement". According to paragraph 7 of the complaint:

"Plaintiff had done and performed all things which by the aforesaid contract he covenanted to do and perform, and was at all times ready, willing and able to continue in defendant's employ but was wrongfully prevented and hindered from doing so by defendant which, after it had accomplished its purpose of effecting the transfer of the Gypsum Division under plaintiff's supervision, undertook to induce plaintiff's resignation from defendant's employ by a series of minor and major humiliations and harassments, thus making it impossible for the employment relationship to continue beyond November 30, 1969, as of which date the said relationship was severed by mutual agreement * * *" (emphasis added).

Prior to his termination of employment, Fredericks had exercised 80% of the stock options. On June 17, 1970, he tendered a check for $11,321.10 in exercise of the option to purchase the remaining shares of stock, but the tender was rejected by the defendant. The market value of the shares at that time was $29,201.25. On February 20, 1970, Georgia-Pacific declared that Fredericks' termination of employment also resulted in a forfeiture of 90% of the distributable interest (approximately $19,420) earned by him in the stock bonus trust according to a forfeiture schedule contained within the trust instrument.

Fredericks now sues to recover the difference between the market value and the option price of the tendered stock options, and the forfeited distributable interest. Before reaching the question of the sufficiency of the specific counts in the complaint, however, we must turn to a determination of the proper choice of law to be applied, and of the standards for disposing of a motion to dismiss.

I.

The threshold question is that of the proper choice of law to be applied in construing the stock option plan and stock bonus trust. The stock option plan is silent as to the applicable state law that governs, and in such a case the courts have uniformly held that the validity and construction of stock options are determined by the laws of the state of incorporation. Rogers v. Guaranty Trust Co., 288 U.S. 123, 53 S.Ct. 295, 77 L.Ed. 652 (1933); Ellis v. Emhart Mfg. Co., 150 Conn. 501, 191 A.2d 546 (1963); Beard v. Elster, 39 Del.Ch. 153, 160 A.2d 731 (Sup.Ct.1960). In this case, Georgia-Pacific is incorporated under the laws of the State of Georgia. The stock bonus trust specifically provides that it is to be governed by, and construed in accordance with, the laws of the State of Oregon. However, the paucity of cases in this area, and the fact that no Georgia or Oregon cases have been found on point, mutes the choice of law question. Accordingly, we have looked to cases in other jurisdictions, for we find no reason to believe that the Supreme Court of Georgia or Oregon would construe the stock options and bonus plans in question in a manner different from those of the courts upon whose decisions we draw for instruction.

In disposing of Georgia-Pacific's motion to dismiss, we, of course, make no determinations as to the truthfulness of Fredericks' allegations or the probability of success of his case. We are bound by the allegations contained in the complaint, and, unless it appears to a certainty that Fredericks would be entitled to no relief under any state of facts, the action may not be dismissed for failure to state a claim. Supchak v. United States, 365 F.2d 844 (3d Cir. 1966); Melo-Sonics Corp. v. Cropp, 342 F.2d 856 (3d Cir. 1965); Hughes v. Local No. 11 of International Assn. of Bridge, Structural & Ornamental Ironworkers, 287 F.2d 810 (3d Cir.), cert. denied, 368 U.S. 829 (1961).

Having set forth Georgia-Pacific's difficult burden on a motion to dismiss, we will now deal with the counts in the complaint seriatim.

II.

In Count I of the complaint, Fredericks seeks damages for Georgia-Pacific's failure to permit him to exercise the remaining 20% of the stock options. Under the terms of the option contract, any unexercised options terminated upon the termination of the optionee's employment, except in the case of death. Furthermore, the contract specifically provided that "this Agreement shall not be deemed to limit or restrict the right of the Company to terminate the Optionee's employment at any time, for any reason, for or without cause."

Citing this language in the option contract, Georgia-Pacific asserts that Fredericks cannot exercise his stock options after his employment with the company terminated. It adds that Fredericks was an astute businessman who entered into an open-ended employment relationship with the full knowledge that any benefits of employment could be terminated at any time. In Georgia-Pacific's view, the fact that Fredericks was "forced to resign," rather than having been discharged, is of no consequence, because in either event, the option contract terminated upon any termination of employment (other than death).

Fredericks, seeking to avoid the termination provisions in the option contract, rests his case upon the hornbook principle that one who hinders performance cannot take advantage of the other's failure to perform all the terms of the contract. See, e. g., 5 S. Williston, Law of Contracts § 677A (3d ed. 1961); Restatement of Contracts § 295 (1932). Applied here, he contends that the deliberate humiliations and harassments which made it impossible for the employment relationship to continue, leading to the severance by mutual agreement, constitutes such a hindrance. Fredericks admits that Georgia-Pacific had the right to discharge him with or without cause, and that this course of action would have terminated all his rights in the stock option contract. But, he argues, Georgia-Pacific's position must be measured, not by what it had a right to do and did not do (i. e., discharge him), but by what it did do, and that by forcing him to resign by "major and minor humiliations," defendant acted wrongfully and outside the terms of the contract, thereby excusing him from having to be in the defendant's employ when he...