Opinion
30035/08.
Decided March 15, 2010.
Hanify King, P.C., New York, New York, Attorney for Plaintiff.
Arent Fox LLP, New York, New York, Attorney for the Defendant.
The primary issue presented in this motion in this breach of employment contract action is, should the defendant, plaintiff's former employer, even if ultimately successful in this action, be required to pay during the pendency and at the conclusion of the action all of the attorney's fees incurred by the plaintiff, former employee, pursuant to the parties employment contract which required such payment, "regardless of whether such litigation results in any settlement or judgment or order in favor of any party" because this "litigation" was "asserted in good faith hereunder" by the former employee?
The employment contract also explicitly provides that, "in no event shall the Executive [plaintiff], be required to reimburse [defendant], for any of the costs and expenses relating to such litigation."
If the plaintiff's motion for reimbursement of all attorneys' fees is granted it may result in the prevailing party paying to the losing party all of his attorney's fees of approximately $100,000, in an action where the damages claimed in the complaint are only $150,000.
Is this equitable? Is this what the parties had agreed to in the employment agreements?
The aforesaid is an issue of first impression in this state.
In this action for breach of an employment contract plaintiff, William Luthern, (Luthern), moves for an Order "requiring defendant, National Grid USA, (National Grid), to pay forthwith to plaintiff his reasonable attorneys' fees and expenses incurred to date in litigating this action, in the amount of $11,741.42 and "requiring defendant National Grid USA to pay, within ten (10) business days of receipt demand therefore, Plaintiff's reasonable attorneys' fees and expenses incurred in litigation this action on a going forward basis."
Background
On September 22, 1999, Plaintiff, William Luthern and Eastern Enterprises and Boston Gas Company entered into an employment contract entitled "Officer Change of Control Agreement" (the "1999 Agreement"). On November 8, 2000, KeySpan Corp. ("KeySpan") acquired all of the stock of Eastern Enterprises and Boston Gas Company. Also effective as of November 8, 2000, Luthern and KeySpan entered into a modified employment agreement (the "2000 Agreement").
On November 25, 2002, Luthern and KeySpan entered into an "Agreement and Waiver of Rights and Claims" in which Luthern explicitly reserved his rights under the 1999 Agreement and the 2000 Agreement.
During his tenure with KeySpan Luthern was granted KeySpan stock options. On November 30, 2002, plaintiff s employment was terminated by KeySpan. Plaintiff received severance payments pursuant to paragraphs 9 and 10 of the 1999 Agreement. In correspondence with KeySpan, Luthern argued that, pursuant to paragraph 8 of the 1999 Agreement, he was also entitled to exercise his stock options upon his termination. KeySpan has refused to allow him to exercise his stock options. On August 24, 2008, KeySpan was acquired by defendant National Grid. On November 5, 2008, Luthern commenced this breach of employment contract action to obtain "immediate vesting of all keySpan options issued as of the date of his termination." Luthern moves pursuant to paragraph 12 of the 1999 Agreement for an Order directing defendant to pay his attorneys' fees. This motion is analogous to a motion for partial summary judgment.
Discussion
Summary judgment is a drastic remedy that should only be employed when there is no doubt as to the absence of any triable issues of a material fact ( Kolivas v Kirchoff , 14 AD3d 493 [2nd Dept. 2005]). "Issue finding, rather than issue determination is the courts function. If there is any doubt about the existence of a triable issue of fact, or a material issue of fact is arguable, summary judgment should be denied." ( Celardo v Bell, 222 AD2d 547 [2nd Dept. 1995]).
A plaintiff moving for summary judgment has the initial burden of coming forward with admissible evidence that establishes the absence of a material issue of fact. (CPLR 3212[b]; GTF Marketing, Inc. V. Colonial Aluminum, Sales, Inc., 66 NY2d 965, 968). Once the plaintiff has satisfied his obligation, the burden shifts and the defendant in opposing the motion must now demonstrate, by admissible evidence, the existence of a factual issue requiring a trial of the action ( Alvarez v Prospect Hosp., 68 NY2d 320; Zuckerman v. City of New York, 49 NY2d 557, 560, [1980]).
Paragraph 12 of the 1999 Agreement states:
"In the event of any litigation or other proceeding between Boston Gas or Eastern and The Executive with respect to the subject matter of this Agreement and the enforcement of rights asserted in good faith hereunder, or in the event of termination of employment pursuant to Section 7(b) or Section 7(c) above, with respect to any other remuneration or benefits with respect to the Executive (including without limitation, payments or benefits with respect to the Executive under any qualified or nonqualified pension or retirement agreement, plan, policy program or arrangement), Boston Gas shall reimburse the Executive for all costs and expenses relating to such litigation or other proceeding, including reasonable attorneys fees and expenses, promptly upon receipt of a written demand therefor(sic) and regardless of whether such litigation results in any settlement or judgment or order in favor of any party.
Notwithstanding any provision of Massachusetts law to the contrary, in no event shall the Executive be required to reimburse Boston Gas or Eastern fo any of the costs and expenses relating to such litigation or other proceeding."
Defendant's initial argument is that paragraph 12 did not survive the 2000 Agreement. Paragraph 2 of the 2000 Agreement states, in relevant part that:
"Terms of Employment: In General. The Executive acknowledges that he has agreed to serve KeySpan from and after the Effective Date at an annual rate of base salary, determined by KeySpan, that is not less than $177,500 with an annual target incentive of 30% and long-term incentive opportunity of 40% of base pay in 2001, and for the year 2000, no less than the level of award opportunity provided by Eastern by taking on the following responsibilities: Vice President, Gas Production and Control, KeySpan N.E. And the Executive Vice President of KeySpan Gas Operations for the respective areas of accountability. The Executive agrees That The Terms of the Executive's employment hereunder shall be governed by the 1999 Agreement subject to the following modifications:
(a) References in the 1999 Agreement to employment by Eastern shall be deemed modified as appropriate to reflect the fact that the Executive is employed hereunder by KeySpan N.E.
(b) the parties acknowledge that a change in control' of Eastern has occurred. If the Executive terminates his employment with KeySpan for Good Reason' or is terminated by KeySpan without cause' (as those terms are defined in the 1999 Agreement) within 24 months after the Effective Date and during the term of this Agreement, he will be entitled to certain benefits as set forth in Section 9 and 10 of the 1999 Agreement. Notwithstanding the foregoing, the Executive agrees that his employment by Key Span in accordance with the terms of this Agreement (including without limitation, the Executive's job responsibilities, compensation, benefits and perquisites as described herein) shall not constitute "Good Reason" for purposes of the 1999 Agreement."
Defendant argues that, because "paragraph 12 is not referenced in the 2000 Employment Agreement, it did not survive the modification and is no longer applicable." Plaintiff argues that this interpretation is contrary to the plain language of the 2000 Agreement which states that Luthern's "employment hereunder shall be governed by the 1999 Agreement, subject to the following modifications." Luthern argues that, because paragraph 12 was not modified, it continues to govern plaintiff's employment.
Plaintiff, in his affidavit submitted in support of the motion, avers in relevant part that:
"19.I therefore commenced this action not out of malice or bad faith but in good faith belief that I am entitled to my rights as set forth in the Agreements
. . .
22.I had in fact paid $10,166.42 to my attorneys for legal representation in connection with this dispute
. . .
23.Subsequently,. . . . .I paid an additional $1,575.00 in fees to my attorneys, for a total of $11,741.42."
Thus, plaintiff has met his initial prima facie burden of establishing his entitlement to partial summary judgment as a matter of law.
Defendant, in the attorney's affirmation submitted in opposition to the motion avers, in relevant part, that".
"11. Defendant filed an Answer and Affirmative Defenses in this action. . . . Specifically, Defendant has asserted six affirmative defenses including the affirmative defense that plaintiff fails to state a claim upon which an award of attorneys fees can be granted."
"21. Based on foregoing plaintiff is not entitled to the payment of legal fees . . . it has also been demonstrated that plaintiff has not asserted his claim in good faith because his claim for the immediate vesting of KeySpan options contradicts the language and plain meaning of paragraph 8 of the 1999 Eastern agreement. Plaintiff has not submitted his motion for the payment of legal fees in good faith."
The term "good faith" as used in the parties 1999 employment Agreement is impossible to define with any precision or exactitude. What did the parties mean when they required that the litigation by the employee be "asserted in good faith?"
"The phrase good faith' is used in a variety of contexts, and its meaning varies somewhat with the context. Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as involving bad faith' because they violate community standards of decency, fairness or reasonableness. The appropriate remedy for a breach of the duty of good faith also varies with the circumstances." (Restatement (Second) of Contracts § 205 cmt. a [1979]).
Paragraph 8 of the 1999 Agreement states:
"In the event of a Change of Control, the Executive shall be immediately vested in all shares of restricted stock of Eastern then held by the Executive, and all stock options then held by the Executive, and all stock options then held by the Executive, that were awarded under Eastern's 1982 Stock Option Plan or 1995 Stock Option Plan (or any successor plan or plans) and that were not then exercisable shall become immediately exercisable. If the Executive's employment under this Agreement shall have terminated or been terminated under Section 7(b) or Section 7(c) above on or after the Effective Date but before the related Change of Control, the immediately preceding sentence shall be applied by substituting the words held by the Executive immediately prior to termination of employment' for the words then held by the Executive.' If the Executive's employment under this Agreement shall have terminated or been terminated under Section 7(b) or Section 7(c) above, all of the Executive's stock options (including replacement options, if any, issued in substitution for such stock options in connection with the Change in Control) held by the Executive immediately prior to such termination shall be exercisable for a period that ends not earlier than the earlier of (I) the date on which the option would have expired or terminated had the Executive continued in employment, and (ii) the date which follows the Change of Control by thirteen (13) months; provided, that clause (ii) of this sentence shall not operate to extend the period of exercisability for any stock option that is intended to be an incentive stock option' within the meaning of Section 422 of the Code; and further provided, that if stock options are not assumed (and no replacement options are issued) in connection with the Change of Control, Boston Gas shall provide the Executive the opportunity to exercise all of the stock options then held by the Executive (taking into account the provisions of this sentence) on the same basis as options held by active employees that become exercisable in connection with the Change of Control."
Defendant argues that there is an issue of fact regarding whether the plaintiff commenced this action in good faith because, defendant asserts, paragraph 8 does not apply because plaintiff's termination was not related to a change in control and, because plaintiff's stock options were not part of a successor plan. At this time the court is not required to determine the ultimate viability of plaintiff's stock option claims.
Significantly, Luthern does not proffer anything to show that the attorney's fees he paid were "reasonable" as the parties employment Agreement required in order to obtain reimbursement.
The record reveals the existence of a triable issue of fact as to whether plaintiff instituted this "litigation" in "good faith."
Conclusion
Based on the foregoing, plaintiff's motion is in all respects denied.
This constitutes the Decision and Order of the Court.