Knudsen v. Northwest Airlines, Inc.

• Decision Date: 12 January 1990
• Docket Number: No. C5-88-2070,C5-88-2070
• Parties: , 5 IER Cases 107 Craig A. KNUDSEN, Respondent, v. NORTHWEST AIRLINES, INC., Petitioner, Appellant.
• Court: Minnesota Supreme Court

Page 131

450 N.W.2d 131

58 USLW 2448, 5 IER Cases 107

Craig A. KNUDSEN, Respondent, v. NORTHWEST AIRLINES, INC., Petitioner, Appellant.

No. C5-88-2070.

Supreme Court of Minnesota.

Jan. 12, 1990.

Syllabus by the Court

In a stock option agreement providing for termination of the agreement in the event the employee who was granted the rights ceases to be employed for any reason, there is no implied covenant of good faith termination for cause.

Peter Bologna, Northwest Airlines, Inc., St. Paul, and Eric J. Magnuson, Minneapolis, for appellant.

William L. Lucas, Harvey, Thorfinnson & Scoggin, Eden Prairie, for respondent.

Heard, considered, and decided by the court en banc.

KEITH, Justice.

This action for breach of a stock option contract is before us on appeal from a reversal of the trial court's summary judgment for appellant, Northwest Airlines, Inc. ("Northwest"). Knudsen v. Northwest Airlines, Inc., 437 N.W.2d 733 (Minn.App.1989). The court of appeals decided that the issue of whether respondent, Craig A. Knudsen, was fired for cause was material, and a genuine issue existed as to the reason for his dismissal.

The parties do not dispute the basic facts. Respondent, Craig A. Knudsen, while a management employee of Republic Airlines ("Republic"), entered into a Stock Option and Stock Appreciation Agreement ("Agreement") offered by Republic pursuant to a Stock Option and Stock Appreciation Right Plan ("Plan"). The Agreement granted Knudsen the option to buy 600 shares of Republic common stock at $6.50 per share and to receive in cash the appreciation above $6.50 per share on 600 shares of common stock. Under the Agreement, the option rights could be exercised in thirds: one-third after April 24, 1986; one-third after April 24, 1987; and the balance after April 24, 1988. Paragraph No. 7 of the Agreement stated:

Termination. In the event that the Employee shall cease to be a management employee of the Company (i.e., an employee whose salary and benefits are not determined by a collective bargaining agreement) for any reason, the ISO and SAR may be exercised by the Employee (to the extent that the Employee is then vested) at any time prior to such termination.

In January 1986, NWA Inc., Northwest's parent company, acquired Republic upon certain conditions. The merger agreement accelerated the vesting of Republic's outstanding stock option and appreciation rights to the effective date of the merger. The agreement defined the effective date of merger as the date when all contingencies of the agreement had been satisfied, including United States Department of Transportation approval. Those conditions were met as of August 12, 1986, which became the effective merger date. As of that date, NWA Inc. paid $17 for each outstanding share of Republic common stock and Republic paid cash for the appreciation rights.

Knudsen exercised his vested first third of the stock option rights shortly after April 24, 1986. Before the remaining two-thirds of his stock rights vested, Knudsen was terminated, effective July 15, 1986. On October 9, 1986, Knudsen wrote to Northwest stating that he wanted to exercise his remaining stock rights. Northwest refused, citing the terms of the Agreement. As a result, Knudsen commenced this breach of contract action on February 5, 1987.

On January 11, 1988, Knudsen sent Northwest Set III of Plaintiff's Interrogatories. Interrogatory numbers 18-45 and 47-49 requested information on the reasons for Knudsen's termination and on the number of employees terminated between January and August 12, 1986. Northwest objected to those interrogatories on the basis of relevancy and moved for summary judgment. Knudsen then moved for an order compelling answers to interrogatories. The trial court granted summary judgment and denied the motion to compel answers. The court of appeals reversed finding a genuine issue of fact existed with respect to the reason for Knudsen's discharge.

In reviewing an order for summary judgment, this court must determine whether genuine issues of material fact exist and whether the trial court erred in its application of the law. Betlach v. Wayzata Condominium, 281 N.W.2d 328, 330 (Minn.1979). A material fact is one the resolution of which will affect the outcome of the case. Zappa v. Fahey, 310 Minn. 555, 556, 245 N.W.2d 258, 259-60 (1976). Whether the reason for Knudsen's dismissal constitutes a material fact is a question of law. Cf. Holisak v. Northwestern Nat'l Bank, 297 Minn. 248, 251, 210 N.W.2d 413, 415 (1973); cf. also Hursh v. Village of Long Lake, 247 Minn. 1, 5, 75 N.W.2d 602, 605 (1956). Where lack of an issue is indicated on a motion for summary judgment, the motion must be granted unless the party opposing the motion shows existence of a triable issue. Vosbeck v. Lerdall, 245 Minn. 164, 167, 72 N.W.2d 371, 374 (1955).

Knudsen claims breach of the stock option contract. He alleges, in effect, that Northwest breached a covenant of good faith and fair dealing found in all contracts. This covenant says that a party who prevents performance by the other party may not benefit by so doing. In support of his allegation, he cites Craigmile v. Sorenson, 248 Minn. 286, 292, 80 N.W.2d 45, 49 (1956) (holding vendor who reserves in contract for deed right to approve insurance placed on buildings and who does not approve insurance in good faith so vendee can comply, thereby prevents performance; by preventing performance, vendor could not claim default and effect cancellation of contract) and Haase v. Stokely-Van Camp, Inc., 257 Minn. 7, 12-13, 99 N.W.2d 898, 901-02 (1959) (holding in contract between cannery and farmer...