Pollen v. Aware Inc.
| Decision Date | 15 February 2002 |
| Docket Number | 99-P-1459 |
| Citation | 53 Mass. App. Ct. 823 |
| Parties | WILLIAM DAVID POLLEN vs. AWARE, INC. Docket No.: 99-MASSACHUSETTS COURT OF APPEALS County: Middlesex |
| Court | Appeals Court of Massachusetts |
Corporation, Stock, Valuation of stock. Contract, Employment, Implied covenant of good faith and fair dealing, Termination. Employment, Termination. Damages, Breach of contract. Value.
Civil action commenced in the Superior Court Department on August 1, 1996.
The case was heard by Charles T. Spurlock, J.
Gordon P. Katz (Douglas W. Phillips with him) for the defendant.
Dale C. Schneider for the plaintiff.
Present: Greenberg, Mason, & Doerfer, JJ.
After a bench trial in the Superior Court, judgment was entered for the plaintiff, William David Pollen, on his claims against the defendant, Aware, Inc. (Aware), for breaches of contract and of the implied duty of good faith and fair dealing, in connection with Aware's refusal to permit Pollen to exercise certain stock options it had previously granted to him. On appeal, Aware claims that the trial judge committed various errors both in his determination of liability and also in his calculation of damages. We vacate the judgment on the count of the complaint alleging breach of the implied duty of good faith and fair dealing. We otherwise affirm the judgment.
The undisputed facts. We summarize certain facts from the judge's findings and uncontradicted evidence in the record. Aware has its offices in Bedford and is engaged in the business of developing and marketing telecommunications software, chipsets, and modems that increase the speed of data communications over conventional copper telephone lines. Howard Resnikoff was the founder and president of Aware.
In August, 1987, Novon Partners, Ltd. (Novon), a partnership affiliated with Aware, hired Pollen, who was then a full-time student studying mathematics at Harvard University, to assist in various research projects at Aware. (Through this arrangement, Pollen became an employee of Aware.) At that time, Novon and Pollen entered into an employee agreement providing, among other things, that Pollen would not divulge any of Aware's confidential information and, for a period of one year following termination of his employment with Aware, would not participate in any research in which Aware had engaged.
In July, 1988, Pollen purchased 111 shares of stock in Aware pursuant to the terms of a stock restriction agreement. In January, 1990, upon entering into an incentive stock option agreement with Aware, Pollen was granted options to purchase an additional 6,889 shares of stock in Aware at a price of $.95 per share. The written agreement provided that the options would vest at the rate of one thirty-sixth per month, and would be fully vested after three years. The agreement further provided that the options would become void upon the termination of Pollen's employment with Aware.
In or about May, 1990, Pollen, acting with Resnikoff's encouragement, left his full-time employment at Aware to pursue a Ph.D. degree in mathematics at Princeton University. At that time, Aware granted Pollen a leave of absence and also, pursuant to a letter agreement dated May 17, 1990, engaged him as an "intermittent consultant in the area of wavelet-related mathematics." The letter agreement provided that, whenever he performed a task pursuant to the agreement, Pollen would be paid $240.00 a day and reimbursed for his reasonable expenses incurred in performing the task.
At the time Pollen commenced his leave of absence, Aware's stock option plan defined the term "employee" as including "independent consultants and others that provide services to [Aware]." Accordingly, as a result of the parties' arrangements, Pollen's stock options continued to vest while he pursued his degree at Princeton. The options became fully vested in or about January, 1993.
In January, 1994, Pollen interrupted his studies at Princeton and returned to live in the Boston area. Around this time Resnikoff invited Pollen to return to Aware and continue his research there. In a letter to Resnikoff dated March 21, 1994, Pollen declined this offer, stating that, "I am not up to being able to do Ph.D. level work at this time," and, "I simply cannot afford to work for free under any circumstances."
In May, 1994, Robert Mosher, who was Aware's chief financial officer, sent Pollen a letter stating that Aware could not continue his leave of absence indefinitely and that, accordingly, his leave of absence and stock options would be terminated unless he returned to work at Aware on or before May 31, 1994. Mosher sent a similar letter to another employee who was on a leave of absence at this same time.
In response to Mosher's letter, Pollen met with Resnikoff prior to May 31, 1994, and agreed to return to Aware and perform some research work on an unpaid basis. Thereafter, Mosher sent Pollen a further letter, dated June 20, 1994, stating that, as he was "still considered to be on a leave of absence," his 1987 employment agreement was "still binding" on him.
In accordance with his latest agreement, Pollen performed unpaid research work at Aware through June and part of July, 1994. He then left the company and, in or about January, 1995, he re-enrolled at Princeton to pursue his Ph.D. studies. In March, 1995, Aware removed Pollen's name from a list it was maintaining that showed those Aware employees owning stock options, but Aware did not notify Pollen that it had done so.
In May, 1996, Pollen received a notice to Aware's shareholders indicating that Aware was planning an initial offering of its stock to the public at a price between $10 and $12 per share. In response to this memorandum, Pollen sent a letter dated June 4, 1996, to John Walsh, who was then Aware's chief financial officer, stating that Pollen was "exercising [his] 6,889 Aware common stock options at a price of $0.95 each," and enclosing a check for $6,544.55. Pollen subsequently received a response from Aware's counsel, dated June 25, 1996, stating that "[y]our leave of absence status and your stock options were among those terminated in early 1995," and that, "I must return to you your check for $6,554.55 as your stock options no longer exist."
Aware's initial public stock offering thereafter occurred on August 9, 1996. The stock was offered at a price of $10 per share and closed at $14.75 per share on the day of the offering.
The trial. Pollen testified at trial that he had never been notified either orally or in writing that his leave of absence had been terminated and, hence, he had understood that his options had continued to be valid through June, 1996, when he attempted to exercise them. Pollen further testified that he could have exercised the options in May, 1994, when he received Mosher's letter, but he had understood that his leave of absence would be continued in exchange for his agreement to return to Aware during the summer of 1994 and perform work on an unpaid basis, and hence there was no need to exercise the options at that time.
Resnikoff testified, on the other hand, that he had orally informed Pollen in July, 1994, that his temporary return to work had been unsuccessful and, hence, his leave of absence and ongoing employment relationship with Aware were being terminated as of that time. Resnikoff further testified that he had explained to Pollen prior to his return to work that the company's whole purpose in inviting him to return was to determine whether he could still contribute to Aware's ongoing projects and that, if he did not demonstrate that he could do so, then his employment with Aware would be terminated.
Discussion. We accept the judge's findings of fact unless "clearly erroneous." Kendall v. Selvaggio, 413 Mass. 619, 620 (1992). His legal conclusions drawn from those facts, however, are reviewed de novo. See id. at 621. See also Bowman v. Heller, 420 Mass. 517, 522 n.6 (1995).
1. Breach of stock option agreement. The judge concluded that Aware had breached its stock option agreement with Pollen by refusing to allow him to exercise his options in June, 1996, because the judge found that, as of that time, Pollen remained an employee of Aware (as defined in the stock option plan) and hence, under the agreement, he retained the right to exercise the options. In reaching this result, the judge explicitly rejected Resnikoff's testimony that he had notified Pollen in July, 1994, that Pollen's status as an employee was being terminated. The judge found that Aware had presented "no writing or credible testimony" to evidence its alleged termination of...
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