Ryan v. Crown Castle NG Networks Inc.

• Decision Date: 13 December 2016
• Docket Number: H041712
• Citation: 6 Cal.App.5th 775,211 Cal.Rptr.3d 743
• Parties: Patrick S. RYAN, Plaintiff and Appellant, v. CROWN CASTLE NG NETWORKS INC., Defendant and Respondent.
• Court: California Court of Appeals

6 Cal.App.5th 775

211 Cal.Rptr.3d 743

Patrick S. RYAN, Plaintiff and Appellant,

v.CROWN CASTLE NG NETWORKS INC., Defendant and Respondent.

H041712

Court of Appeal, Sixth District, California.

Filed December 13, 2016

T. Kelly Cox, San Diego, for Plaintiff and Appellant Patrick S. Ryan.

Kirkland & Ellis Christopher W. Keegan, Austin L. Klar, San Francisco, for Defendant and Respondent Crown Castle Ng Networks, Inc.

RUSHING, P.J.

Plaintiff Patrick S. Ryan brought this action against his former employer, NextG Networks, Inc., and its successor Crown Castle NG Networks Inc. (collectively NextG). He alleged in essence that NextG had breached a promise to grant him lucrative stock options as a condition of his employment. The case went to the jury with an unclear special verdict form and unhelpful instructions. The jury sustained two contract-based causes of action, but failed to find the value of the promised options, despite a directive on the verdict form that it do so. Instead it made a finding of the income plaintiff lost by entering the employment relationship, despite a directive obviating such a finding in light of the jury's rejection of plaintiff's tort causes of action. Plaintiff moved for a new trial on the ground of inadequate damages. The trial court denied the motion while disclaiming the power to "substitute its judgment for that of the jury" and suggesting that declarations were necessary to determine "what the jury actually did." We will reverse with instructions to grant a new trial. The court was fully empowered and indeed obligated to make an independent assessment of the adequacy of the verdict. Moreover, the verdict was unmistakably unsound. If viewed as an award of tort damages, it had no foundation in law. If viewed as an award of contract damages, it had no foundation in fact. It is in all likelihood the product of juror confusion, improper compromise, or some combination of the two. Either way the findings of liability are sufficiently suspect that a retrial cannot fairly be limited to damages. Accordingly, we will direct that the court conduct a new trial on all issues unless plaintiff elects to stand on the previous judgment.

BACKGROUND

At the time of the events in question, NextG was a major provider of distributed antenna systems, which are a means of providing wireless connectivity. Plaintiff was an attorney, much of whose solo practice consisted of advising or representing NextG as an independent contractor. His principal contact at NextG was Robert Delsman, its vice president of government relations and regulatory affairs. Around the summer of 2009 NextG was acquired by Madison Dearborn Partners (Madison Dearborn), a private equity firm. At around that time Delsman moved into the position of general counsel. One of NextG's co-founders approached plaintiff about filling Delsman's previous position, which would require him to become a full-time NextG employee. Plaintiff testified without contradiction that the job would pay less than he had been earning in his private practice. As described to him, however, the job would include a stock option that "would be worth quite a bit of money at some point in the future."

Negotiations ensued between plaintiff and NextG. On September 9, 2009, Delsman e-mailed plaintiff a draft offer which stated in part, "[W]e will recommend to Company's Board of Directors that, at the first applicable Board of Directors meeting, you be granted an option to purchase 75,000 shares of the Company's Common Stock at an exercise price equal to the then current fair market value as determined by the Board of Directors at such meeting." The letter stated that one-quarter of the promised shares would "time-vest one year after the date of grant and 1/48th of the ... shares ... shall time-vest monthly thereafter, so that the Option shall be fully time-vested four (4) years from the date of grant, subject to your continued service to the Company on the relevant vesting dates." The draft said nothing about any other vesting conditions.

Plaintiff was concerned that under these terms the options could be deprived of value if Madison Dearborn sold the company before the options had "time-vest[ed]." He therefore asked Delsman to "add an acceleration clause to the options vesting such that all options immediately vest in the event of a sale or transfer." Delsman forwarded to plaintiff some additional language, to be incorporated in the final offer, stating that the options would be subject to time vesting and to "performance-vesting, the details of which will be set forth in your grant agreement and which are the customary performance-vesting provisions applicable to all options granted by the Company." Plaintiff testified, apparently without contradiction, that he had not previously encountered the term "performance vesting" and that he took it to refer to satisfactory performance of his own duties, which was already a condition of his receiving a promised annual bonus. He also appeared to have the understanding, at least initially, that the new terms described an alternative means of vesting, devised in response to his concerns about a sale; thus he wrote back to Delsman that while he "like[d] the proposal to accelerate vesting based on performance," it did not really meet his concerns, because the company could still be sold prior to vesting. (Italics added.) Delsman replied that he did not "like the 'performance vesting' component" and did not "know what it means."

On September 17, 2009, NextG communicated a formal written offer to plaintiff including the performance-vesting clause. He signed the offer the next day and promptly entered into NextG's employ. Several months later, in January 2010, he received two copies of a document entitled "NextG Networks, Inc. 2009 Stock Award Plan / Stock Option Agreement" (option grant). It indicated that a stock option had been granted to him for 75,000 shares of common stock at an exercise price of $8.73 per share, with a "[v]esting [c]ommencement [d]ate" of August 27, 2009. After time-vesting language conforming to plaintiff's offer letter, it set out the following provision: "No portion of the Option shall performance-vest until the date ... that the Sponsors' Cash-on-Cash Return (as defined below) measured as of such measurement date equals eight percent (8%)." "Cash-on-Cash Return" was given a very complex definition involving return on the investment of certain unidentified "Sponsors."¹ In argument to the jury, counsel for plaintiff summarized the provision as meaning that "the owners are going to have to get all of their cash back plus eight percent."

Although the "Sponsors" were not identified in the option grant, that and various other relevant terms were defined in a separate document, simultaneously adopted by NextG's directors, entitled "NextG Networks, Inc. 2009 Stock Award Plan" (stock award plan).² That document contained other relevant terms, including a 90-day limitations period for exercising options after separation from employment.³

The option grant and stock award plan were seemingly prepared with the expectation that they would be construed and applied together: the option grant referred repeatedly to "the Plan" and even included language incorporating "the Plan" by reference. However plaintiff testified that he was never provided with a copy of the stock award plan, or otherwise made aware of its existence—let alone its contents—until well after leaving NextG's employ. Similarly, another attorney in the legal department testified that she did not receive a copy of the plan, and was unaware of any 90-day limitation, until after she was told that she could no longer exercise her options. In a letter contesting this assertion, which was read to the jury without objection, she wrote that when she left NextG's employ in March 2011, "the stock plan had not been provided to any option grantees that I knew in spite of request for it." Likewise, plaintiff testified that he had spoken to several other employees and none of them reported receiving a copy of the plan. NextG's senior director of human resources testified that she and another human resources worker "had trouble in the very beginning obtaining the stock option documents from upper management." She testified in deposition that her department had "difficulty making sure that everybody had received what they were supposed to receive and keeping track of that."

In January 2011 plaintiff resigned from NextG to pursue, as he testified, other interests. In December of that year, after learning that NextG had been acquired by Crown Networks, he e-mailed Delsman to ask what this meant for option holders. Delsman told him that he would have difficulty exercising his options because of the 90-day limitation period set out in the stock award plan. Plaintiff testified that this was when he first learned of a separate plan document and of the 90-day provision.

Despite Delsman's warning, plaintiff sent NextG a letter accompanied by a check for $218,250 and a notice of exercise of the options as to the 25,000 shares that had time-vested when he left employment.⁴ NextG's then-general counsel responded that the attempted exercise was ineffective because of the 90-day clause and because the options had not performance-vested when plaintiff left employment.

Plaintiff filed this action on February 14, 2012. As ultimately amended, the complaint asserted causes of action for (1) breach of employment agreement; (2) breach of the covenant of good faith and fair dealing implied in the employment agreement; (3) fraud and fraudulent concealment; (4) negligent misrepresentation; (5) breach of stock option agreement; (6) breach of the covenant of good faith and fair dealing implied in the stock option agreement; and (7) declaratory relief.

At trial plaintiff called an expert witness on the subject of damages, who calculated that the net value of the 25,000 shares that had time-vested was $326,250. Defe...