Jaffe v. Paramount Communications Inc.
Decision Date | 18 June 1996 |
Citation | 644 N.Y.S.2d 43,222 A.D.2d 17 |
Parties | Stanley R. JAFFE, Plaintiff-Appellant, v. PARAMOUNT COMMUNICATIONS INC., et al., Defendants-Respondents. |
Court | New York Supreme Court — Appellate Division |
Louis A. Craco, of counsel (Joseph T. Baio, Martin Klotz and Colin F. Bell, on the brief, Willkie Farr & Gallagher, attorneys) for plaintiff-appellant.
Stuart J. Baskin, of counsel (Jerome S. Fortinsky and Edwina F. Martin, on the brief, Shearman & Sterling, attorneys) for defendants-respondents.
Before SULLIVAN, J.P., and KUPFERMAN, NARDELLI and WILLIAMS, JJ.
The plaintiff was an executive who received a large salary, bonuses and stock options as part of his employment contract with defendant Paramount. Unlike many of his contemporaries, when he and the corporation finally parted ways, he did not receive a "golden parachute." However, he did receive exactly what he had bargained for. If he had tendered his 30-day notice of termination, he would have been entitled to exercise his remaining options as of the date of the notice.
Plaintiff Jaffe was the President and Chief Operating Officer of defendant Paramount Communications, Inc. ("Paramount") under an employment agreement dated March 18, 1991 (the "Agreement"). Pursuant to the Agreement, besides his salary and bonuses, plaintiff received 100,000 shares of Paramount common stock outright. He also was given 700,000 options for Paramount common stock which were exercisable at a rate of 116,666 shares per year through February 22, 1997, the term of the Agreement. Plaintiff's right to exercise the options could also be accelerated upon the occurrence of certain events. Thus, his right to accelerate his unexercised options was defined under Section 9.2 of the Agreement as follows:
9.2 Accelerated Exercisability of Options.
If, at any time during the Employment Term, the Company notifies the Executive of termination of employment for any reason other than Cause or Permanent Disability, or if, after a Change in Control, the Executive notifies the Company of termination of his employment for Good Reason as provided in Section 14, then all Stock Options which have not previously become exercisable shall immediately vest and become exercisable in accordance with the 1989 Stock Option Plan upon the giving of such notice by the Company or the Executive, as applicable.
Accordingly, Jaffe's right to accelerate the options would vest under two circumstances: 1) a termination without cause initiated by Paramount, or 2) a termination of the Agreement "for Good Reason" initiated by Jaffe himself in the event of a "Change in Control".
A termination "without cause" could be effected by Paramount pursuant to Section 4 of the Agreement which, pursuant to Section 13, was amended in the event of a "Change in Control of the Company" to provide, in relevant part:
Notwithstanding any other provisions of this Agreement, prior to the end of the Employment Term the Company may terminate the Executive's employment only by giving not less than 5 days advance written notice to the Executive.... (emphasis added)
Jaffe's right to terminate the Agreement "for Good Reason" was set forth pursuant to Section 14 of the Agreement which became effective "only after a Change in Control of the Company". Section 14 provided that Jaffe himself could terminate his employment upon 30 days' written notice for "Good Reason" which was defined to include, inter alia:
(i) The assignment to the Executive by the Company of duties inconsistent with the Executive's then position, duties, responsibilities, titles or offices or any reduction in his duties or responsibilities ...
Section 14 of the Agreement additionally stated:
(vii) Any purported termination of the Executive's employment which is not effected pursuant to a notice of termination satisfying the requirements of Sections 5 (sic) or 6 of this Agreement, and, for purposes of this Agreement, no such purported termination shall be effective. (emphasis added).
There were also several other situations which were deemed under the Agreement to be terminations "without cause" by Paramount under Article 1 of the Agreement which were not self-executing in relation to Jaffe's right to accelerate the options, but required Jaffe to give written 30-day notice of termination in order to accelerate his right and acquire a vested interest in the options. These provisions, which appeared at Sections 1.4, 1.5, 1.6, and 1.7 of the Agreement dove-tailed with the provisions of Section 14, and included: a transfer of the Executive outside of the New York City metropolitan area (Section 1.4); the assignment of duties other than those of President and Chief Operating Officer (Section 1.5); the Company's failure to obtain a specific assumption of the Agreement by any successor or assign or any person acquiring substantially all of the Company's assets (Section 1.6); and a material breach of contract by the Company (Section 1.7). Each of these provisions stated that the triggering event entitled Jaffe to:
.... terminate his employment hereunder upon 30 days advance written notice to the Company, which termination shall be deemed for all purposes under this Agreement to be a dismissal of the Executive by the Company without Cause and Executive shall be entitled to receive the payments provided for in Section 4; the Stock Options shall immediately vest and become exercisable upon the giving of such notice ...
Accordingly, Jaffe's right to accelerate his options under these provisions would vest upon the giving of the notice, and not at the end of the 30 day notice period.
In or around September 1993, Viacom and QVC Network Inc. ("QVC") started a bidding war for Paramount. Viacom won in a two-step bid, consisting of an offer to acquire 50.1% of Paramount's common stock for a cash price of $107 per share, to be followed by a merger in which the remaining shares of Paramount's common stock would be exchanged for a package of Viacom securities with an estimated value of less than $50 per share. On or about February 14, 1994, Viacom acquired 50% of Paramount, sealing its victory over QVC. However under the terms of the "auction", Paramount shareholders, including Paramount employee shareholders, were permitted to tender their Paramount shares until midnight of March 1, 1994 to participate on a pro rata basis in the $107 per share "first step" or "front load" of Viacom's two-step bid. After that date, shareholders who tendered shares would receive only the lesser-valued package of Viacom securities.
Jaffe's complaint alleged, inter alia, that prior to February 1994, Paramount had announced to the media that Jaffe would be replaced as Chief Operating Officer of Paramount, and that Paramount misled him by informing him that no such decision had yet been made. The complaint asserted that commencing in or around mid-February 1994, Jaffe's duties were materially reduced in that, among other things, he was excluded from meetings that would normally be attended by Paramount's President and Chief Operating Officer, and was not advised of when these meetings were scheduled. The complaint goes on to state that on or about February 20, 1994, Marvin Davis, Paramount's Chairman and Chief Executive Officer, met with Viacom executives, including defendant Redstone, and that during this meeting it was decided that Davis should inform Jaffe of the Board's decision to terminate his employment. According to the complaint, Davis orally notified Jaffe on February 28, 1994 that his employment would be terminated, and that effective immediately, he would have no role in Paramount's ongoing business or operations.
Plaintiff took the position that his right to accelerate his remaining stock options vested as of that date, and that he should, therefore, have been entitled to tender his shares for the front-end buy-out price of $107 per share. In fact, Jaffe's attorney did attempt to exercise the remaining stock options on February 28, 1994 but his tender was refused by Paramount. Jaffe's complaint alleged that Paramount's refusal to honor the options constituted a breach of the Agreement, and of Paramount's 1989 Employee Stock Option Plan, and that Viacom and Redstone tortiously interfered with Paramount's contractual obligation to honor the exercise of his stock options.
The IAS court granted defendants' motion pursuant to CPLR 3211(a)(1) and (7) and dismissed the complaint.
Section 4 of the Agreement provided that termination of the Executive could be effected only by giving 5 days' written notice. Pursuant to Section 16, all notices or communications had to be in writing, sent certified or registered mail, return receipt requested, etc. Thus, written notice was clearly required and therefore, no matter what Marvin Davis said or how unequivocally he purported to "fire" plaintiff, Mr. Jaffe could not be, and was not terminated by the Company prior to...
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