Kinsey v. Cendant Corp.

• Citation: 521 F.Supp.2d 292
• Decision Date: 06 November 2007
• Docket Number: No. 04 Civ. 0582.,04 Civ. 0582.
• Parties: Douglas KINSEY, Plaintiff, v. CENDANT CORPORATION, Fairfield Resorts Inc., and FFD Development Company, L.L.C., Defendants.
• Court: U.S. District Court — Southern District of New York

521 F.Supp.2d 292

Douglas KINSEY, Plaintiff, v. CENDANT CORPORATION, Fairfield Resorts Inc., and FFD Development Company, L.L.C., Defendants.

No. 04 Civ. 0582.

United States District Court, S.D. New York.

November 6, 2007.

Crowell & Mating LLP, by: Jeffrey W. Pagano, Esq., Ira M. Saxe, Esq., New York, NY, for Plaintiff.

Skadden, Arps, Slate, Meagher & Flom LLP, by: Samuel Kadet, Esq., Timothy K. Giordano, Esq., New York, NY, for Defendant.

OPINION

ROBERT W. SWEET, District Judge.

The defendants Cendant Corporation ("Cendant"), Fairfield Resorts Inc. ("Fairfield") and FFD Development Company, L.L.C. ("FFD") (collectively the "Defendants") have moved pursuant to Rule 56, Fed.R.Civ.P. to dismiss Counts 2, 9 and 10 of the Amended Complaint of plaintiff, Douglas Kinsey ("Kinsey" or the "Plaintiff"). Upon the findings and conclusions set forth below, the motion is granted.

Kinsey, an employee of Fairfield, then FFD, and then Fairfield again, seeks to enforce his rights to stock options which the Defendants assert have expired. The resolution of Kinsey's rights requires a review of the granting documents and Kinsey's employment history. Understandable confusion resulting from corporate reorganization has been replaced by careful scrutiny by the Defendants in part as a consequence of Kinsey's acceptance of employment by one of Fairfield's competitors.

Prior Proceedings

Kinsey commenced this action on January 26, 2004. In his initial complaint (the "Original Complaint") against Fairfield, FFD, Cendant and the Cendant Corporation Employee Stock Purchase Plan (collectively, the "Initial Defendants"), Kinsey alleged that the Plan and Option Agreement constituted an employee benefit plan governed by ERISA and that, in connection with certain options awarded to Kinsey under a Fairfield Stock Option Plan (the "Options"), the Initial Defendants violated Kinsey's rights, breached their fiduciary duties and interfered with "protected rights," all supposedly in violation of the Employee Retirement Income Security Act (collectively, the "ERISA Claims"). He also asserted a claim for securities fraud under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and various common law claims concerning the Options, as well as a state law claim against the Initial Defendants for their purported failure to pay Kinsey for accrued, unused vacation benefits to which he was allegedly entitled to upon his resignation from Fairfield.

The Initial Defendants moved to dismiss the Original Complaint on March 2004, including the ERISA Claims and the claim for securities fraud. Rather than respond to that motion, Kinsey filed the Amended Complaint, in which he abandoned, inter alia, the ERISA Claims and dropped the Cendant Employee Stock Purchase Plan as a defendant. The Amended Complaint, however, retained a claim for securities fraud and various common law and state law claims.

On May 10, 2004, Defendants moved to dismiss the majority of the claims in the Amended Complaint, including the claims for securities fraud (Count 1), breach of fiduciary duty (Count 3), breach of implied duty of good faith and fair dealing (Count 4), fraud and deceit (Count 5), and unjust enrichment (Count 8). Defendants also moved to dismiss the negligence claim (Count 7) to the extent that claim was based on gross negligence.

In an Opinion and Order issued on November 16, 2004 the Court granted Defendants' motion in full, dismissing Counts 1, 3, 4, 5 and 8 of the Amended Complaint and Count 7 in part. See Kinsey v. Cendant Corp., No. 04 Civ. 0582, 2004 WL 2591946, at *19 (S.D.N.Y. Nov. 16, 2004). Pursuant to Rule 15(a), the Court also granted Kinsey leave to move to file a second amended complaint.

On December 16, 2004, Kinsey moved for leave to file a second amended complaint, which attempted to revive three of the claims that did not survive Defendants' motion to dismiss, specifically claims for breach of fiduciary duty, fraud and deceit, and gross negligence. The Court denied Kinsey's motion for leave to amend, finding that amendment would be futile because the proposed claims still failed as a matter of law.

The remaining claims are (i) breach of contract, alleging, breach of the Fairfield Stock Option Plan (the "Plan") under which the Options were awarded to Kinsey (Count 2); (ii) negligence and negligent misrepresentations, alleged to be erroneous advice Kinsey claims to have received regarding the time within which he was required to exercise the Options (Counts 5 and 6); (iii) failure to pay wages (vacation benefits) (Count 9); and (iv) declaratory judgment, in which Kinsey seeks a declaration that he exercise the Options at any time through and including May 21, 2007 (Count 10).

Kinsey seeks to recover damages related to the Options issued to him in 1997 under the Plan, as well as damages related to certain other stock options issued under other stock option plans, namely: (i) the value of 33,334 Cendant stock options, issued to Kinsey in 2001 under a Cendant option plan, and (ii) the value of 16,000 stock options granted to Kinsey in January 2002 under a Cendant option plan which were vested at the time Kinsey resigned from Fairfield in 2003, but were "underwater" (i.e., the strike price was above the market price of Cendant common stock) during the three-month time period within which Kinsey could exercise those options after his resignation (the "2002 Options") and in Count 9 of the Amended Complaint, Kinsey seeks to recover accrued, unused vacation benefits to which Kinsey claimed he was entitled upon resignation from Fairfield. The parties have completed fact discovery and the instant motion was heard and marked fully submitted on, May 23, 2007.

The Facts

The facts are obtained from the Defendant's Local Civil Rule 56.1 Statement ("Def. Statement") and Kinsey's Response and Statement ("Plaintiff Response") and are not in dispute except as noted below.

Kinsey is a former at-will employee of both Fairfield and FFD and holds a degree in finance. At the time of his resignation from Fairfield in 2003, Kinsey held the position of Senior Vice President of Real Estate Acquisitions. In that position, Kinsey was responsible for significant acquisition and development projects valued at hundreds of millions of dollars, which were expected to result in net sales revenue for Fairfield somewhere in the billiondollar range.

Fairfield is a vacation timeshare ownership company. In April 2001, Cendant acquired Fairfield (the "Merger"). In connection with the Merger, FFD was created to acquire property for Fairfield to develop.

Effective March 7, 1997, Fairfield established the 1997 Stock Option Plan (the "Plan"). The Plan authorized the Fairfield Board of Directors (the "Board") or its compensation committee to make discretionary awards to employees of options to purchase shares of Fairfield common stock. Specifically, the Plan states:

Grants of Stock Options. The Compensation Committee or the Board may from time to time authorize grants to any Participants of Stock Options upon such terms and conditions as such committee or the Board, as applicable, may determine in accordance with the provisions set forth below.

The Plan defines "Stock Option" as "the right to purchase a share of Common Stock upon exercise of an option granted pursuant to Paragraph 5."

Under the Plan, any award of options would specify the required period of continuous employment and any other conditions to be satisfied before the awarded options would become exercisable, and an award could also provide for, or be amended to provide for, the earlier exercise of options in the event of a change in control of Fairfield. Specifically, the Plan stated in a section titled "Grants of Stock Options":

(e) Each grant will specify the required period or periods (if any) of continuous service by the Participant with the Company or any Subsidiary and/or any other conditions to be satisfied before the Stock Options or installments thereof will become exercisable, and any grant may provide, or may be amended to provide, for the earlier exercise of the Stock Options in the event of a change in control of the Company (as defined in the stock option agreement evidencing such grant or in any agreement referred to in such stock option agreement) or in the event of any other similar transaction or event.

Under the Plan, each award of options was to be evidenced by a stock option agreement executed on behalf of Fairfield and delivered to the recipient employee. Specifically, the Plan states in a section titled "Grants of Stock Options":

(g) Each grant will be evidenced by a stock option agreement executed on behalf of the Company by the Chief Executive Officer (or another officer designated by the Compensation Committee or the Board, as applicable) and delivered to the Participant and containing such further terms and provisions, consistent with the Plan, as such committee or the Board, as applicable, may approve.

The Plan authorized the Board (or the compensation committee), without the consent of the recipient employee, to amend any agreement evidencing a stock option granted under the Plan, or otherwise take action, to accelerate the time or times at which the options may be exercised and to extend the expiration date of the options. The Plan states, in a section termed "Amendments, Etc.," that:

(a) The Compensation Committee or the Board, as applicable, may, without the consent of the Participant, amend any agreement evidencing a Stock Option granted under the Plan, or otherwise take action, to accelerate the time or times at which the Stock Option may be exercised, to extend the expiration date of the Stock Option, to waive any other condition or restriction applicable to such Stock Option or to the exercise of such Stock Option, to reduce the exercise price such Stock Option, to amend the definition of a change in control of the Company (if such a definition is...