Leberman v. John Blair & Co.
| Decision Date | 25 July 1989 |
| Docket Number | D,No. 1075,1075 |
| Citation | 880 F.2d 1555 |
| Parties | Richard LEBERMAN, Plaintiff-Appellee, v. JOHN BLAIR & COMPANY, Defendant-Appellant. ocket 89-7075. |
| Court | U.S. Court of Appeals — Second Circuit |
Andrew B. Donnellan, Jr., New York City (Blair C. Fensterstock, New York City, of counsel), for defendant-appellant.
Craig P. Murphy, New York City (Windels, Marx, Davies & Ives, New York City, of counsel), for plaintiff-appellee.
James I.K. Knapp, Acting Asst. Atty. Gen., Gary R. Allen, Ann Belanger Durney, Calvin C. Curtis, Tax Div., Dept. of Justice, Washington, D.C., Benito Romano, U.S. Atty., S.D.N.Y., New York City, of counsel, for amicus curiae United States of America.
Before OAKES, Chief Judge, TIMBERS and MESKILL, Circuit Judges.
John Blair & Company (Blair) appeals from a judgment of the United States District Court for the Southern District of New York, Kram, J., entered on January 4, 1989, after the court granted Richard Leberman's motion for summary judgment, denied Blair's cross-motion for summary judgment and awarded Leberman damages, attorney's fees and disbursements. Federal jurisdiction is based on diversity of citizenship of the parties. The judgment in favor of Leberman was as follows: "(a) [i]n the principal amount of $511,988.00 plus interest ... (b) [i]n the principal amount of $165,307.21 as the amount of reasonable attorneys' fees and disbursements ... and (c) [t]he costs of this action, to be determined by the Clerk of the Court." The award of $511,988 was to satisfy the terms of a January 1985 employment severance agreement and a September 1985 employment severance agreement. Because there were genuine issues of material fact concerning whether the terms of the January 1985 agreement were superseded by the September 1985 agreement and whether Leberman acted in good faith in determining the amount of severance payment that he was owed, the district court erred in granting summary judgment to Leberman. Accordingly, we reverse the judgment of the district court and remand for further proceedings.
In February 1985, Leberman became Blair's Vice President and Chief Financial Officer. Under the terms of his employment agreement dated January 23, 1985 (the January Agreement), Leberman was to participate in Blair's restricted stock plan and in its Long-Term Incentive Unit Plan (Unit Plan). Under the terms of the restricted stock plan, Leberman was initially awarded 1,690 shares of stock. Later, in September 1985, Leberman was awarded 3,692 additional shares. Shares awarded to Leberman under this plan were to become vested if he remained in continuous employment with Blair and did not transfer the stock during a four year award cycle. The terms of that plan further provided that a change in control of Blair would cause the condition of continuous employment and the restrictions on the shares to lapse, and ownership of the stock to vest immediately. Under the terms of the Unit Plan, Leberman was awarded 1,340 performance units. Vesting of the performance units depended on Leberman's continuous employment with Blair and Blair's performance level. The monetary value of the performance units would be determined in accordance with a formula provided in the Unit Plan. If an acquisition of control of Blair were to occur, the requirement of continuous employment would be waived and the performance units would vest immediately. The terms of the severance agreement contained in the January Agreement provided that, Leberman would "receive 1 year's severance, if [he were] terminated from John Blair & Company any time during [his] first 2 years of employment for other than cause."
Leberman and Blair entered into a Severance Compensation Agreement, dated September 27, 1985 (the September Agreement), which stated that in the event of a change in control of Blair, if Leberman's employment were terminated other than for death, disability, retirement or cause, or if Leberman were to terminate his employment for good reason, Blair would pay him a lump sum severance equal to three times his " 'annualized includible compensation for the base period' (as defined in Section 280G(d) of the Internal Revenue Code)." At the time of his termination in October 1986, Leberman's annualized includible compensation for the base period was $220,111.04. Section 4 of the September Agreement provided, in pertinent part, that
if the lump sum severance payment under this Section 4 ... either alone or together with other payments which [Leberman] has the right to receive from [Blair], would constitute a "parachute payment" (as defined in Section 280G of the [Internal Revenue] Code), such lump sum severance payment shall be reduced to the largest amount as will result in no portion of the lump sum severance payment under this Section 4 being subject to the excise tax imposed by Section 4999 of the [Internal Revenue] Code. The determination of any reduction in the lump sum severance payment under this Section 4 pursuant to the foregoing proviso shall be made by [Leberman] in good faith, and such determination shall be conclusive and binding on [Blair].
The procedures for deciding whether to include the award of performance units in the "lump sum severance payment" calculations under the September Agreement included reading both the terms of the Unit Plan and the "Performance Unit Certificate" that awarded the specific number of performance units to Leberman.
Section 280G of the Internal Revenue Code, I.R.C. Sec. 280G (West Supp.1989) (the Code), provides that "[n]o deduction shall be allowed [as a business expense] for any excess parachute payment." I.R.C. Sec. 280G(a). An "excess parachute payment" is defined as "an amount equal to the excess of any parachute payment over the portion of the base amount allocated to such payment." I.R.C. Sec. 280G(b)(1). The definition of "parachute payment" is found in section 280G(b)(2)(A) of the Code which provides that:
The term "parachute payment" means any payment in the nature of compensation to (or for the benefit of) a disqualified individual if--
(i) such payment is contingent on a change--
(I) in the ownership or effective control of the corporation, or
(II) in the ownership of a substantial portion of the assets of the corporation, and
(ii) the aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such change equals or exceeds an amount equal to 3 times the base amount.
Section 4999 of the Code "impose[s] on any person who receives an excess parachute payment a tax equal to 20 percent of the amount of such payment." I.R.C. Sec. 4999 (West 1989).
In September 1986, control of Blair was acquired by Reliance Capital Group L.P. (Reliance). Reliance's general partner was Reliance Capital Group, a subsidiary of Reliance Group Holdings, Inc. Leberman's employment was terminated on October 3, 1986.
Because of the termination of his employment, Leberman sought the amounts he felt were due him under both the January and the September Agreements. He contended that no reduction in the amount called for under the September Agreement was required to avoid the imposition of the excise tax under section 4999 of the Code. Blair disagreed with Leberman's calculation and refused to make any payments.
At Blair's request, Leberman obtained the opinion of a tax attorney to justify his argument that the amount of the September Agreement payment did not have to be reduced. He obtained the advice of tax attorney John Y. Taggart, who opined that the September Agreement did not supersede the January Agreement or affect Leberman's rights under the restricted stock or performance unit plans. Taggart further opined that "Mr. Leberman's termination resulted after the change in control, but was not contingent on it or necessarily resulted from the change of control--it resulted because the new owners decided to revise the executive structure of the company." Taggart advised that the payment of the restricted stock had occurred on the date the stock was awarded, not at the time of vesting, and therefore that the payment could not be contingent on the vesting. Taggart submitted his opinion to a colleague, Guy Maxfield, who was also a tax expert. Maxfield agreed that Taggart's opinion was correct. Based on Taggart's opinion that the payments were not contingent on the change in control, Leberman "determined that no reduction in the amount called for under Section 4 of the agreement of September 27, 198, [was] necessary to preclude the imposition of an excise tax under Section 4999 of the Internal Revenue Code." In a supplemental opinion, Taggart modified his position on the payments pursuant to the performance unit plan. He stated that the payments pursuant to the performance unit agreement were not contingent for purposes of section 280G because the payment might have been made to Leberman on the occurrence of events other than a change in control.
On November 25, 1986, Leberman filed suit seeking $195,000 in payment under the January Agreement and $660,333 in payment under the September Agreement. By late 1986, Blair paid Leberman $182,988 for his 5,382 shares of restricted stock and $134,000 for his 1,340 performance units. On January 2, 1987, pursuant to section 4 of the September Agreement, Blair paid Leberman $343,345.11 calculated as follows:
Base Amount $220,111.04
Three Times Base Amount 660,333.12
Reduced by other payments which were contingent on the change in
control of [Blair]
Performance Units (1,340 134,000.00
units at $100 per unit)
-----------
Net
...To continue reading
Request your trial
-
In re Houbigant, Inc.
...favorable to the non-moving party. See Nat'l Union Fire Ins. Co. v. Turtur, 892 F.2d 199, 203 (2d Cir.1989); Leberman v. John Blair & Co., 880 F.2d 1555, 1559 (2d Cir.1989); Lund's Inc. v. Chemical Bank, 870 F.2d 840, 844 (2d Cir.1989). The court's function is to determine "whether the evid......
-
Fontaine v. Ryan
...at the affair. Summary judgment based on construction of a contract should be limited to unambiguous agreements. Leberman v. John Blair & Co., 880 F.2d 1555, 1559 (2d Cir.1989). The court may not interpret an ambiguous contract "to accord with its instinct for the dispensation of equity upo......
-
In re Jamesway Corp.
...favorable to the non-moving party. See National Union Fire Ins. Co. v. Turtur, 892 F.2d 199, 203 (2d Cir.1989); Leberman v. John Blair & Co., 880 F.2d 1555, 1559 (2d Cir. 1989); Lund's Inc. v. Chemical Bank, 870 F.2d 840, 844 (2d Cir.1989). We must determine "whether the evidence presents a......
-
Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP
...Fed.R.Civ.P. 56(c). While the Court must view the record “in the light most favorable to the non-moving party,” Leberman v. John Blair & Co., 880 F.2d 1555, 1559 (2d Cir.1989) (citations omitted), and “resolve all ambiguities and draw all reasonable inferences in favor of the party against ......