Opinion
No. FST CV 10-6004491
April 6, 2011
MEMORANDUM OF DECISION
The plaintiff moves for summary judgment on the counterclaim and all special defenses except the third special defense and thereafter on Counts One and Three of his complaint. The defendant similarly cross moves for summary judgment on Count Three of the complaint. A brief precis of the causes of action and theories of defense implicated by these motions is imperative.
First Special Defense — alleges that the plaintiff was terminated for "poor performance" and by virtue of the agreements between the parties the plaintiff was not entitled to exercise his unvested stock options.
Second Special Defense — alleges that the plaintiff is not entitled to relief because he has unclean hands in that he failed to perform his duties and hid his poor performance from the defendant.
Third Special Defense — alleges that the plaintiff has failed to establish that the defendant has acted in bad faith.
Fourth Special Defense — alleges that the unvested stock options are not wages within the meaning of Sec. 31-72 of the General Statutes.
Fifth Special Defense — alleges that the arbitration award which is final and binding on the parties is res judicata as to all of the plaintiff's claims.
First Counterclaim — "Breach of Fiduciary Duty" — essentially, this alleges that the plaintiff breached his fiduciary duty to the defendant by advancing his own interests, to the detriment of the defendant.
Second Counterclaim — "Negligence" — alleges that the plaintiff breached his duty of care to the defendant in the performance of his duties.
Count One of Plaintiff's Complaint — alleges that the defendant breached its contract with the plaintiff by failing to purchase Lornamead stock pursuant to the stock options that had been granted to him.
Count Three of Plaintiff's Complaint — alleges that the defendant violated § 31-72. It is noted that Count Three bears the same title as Count Two, the difference being that Count Two seeks double damages on the amount already recovered in the arbitration whereas, Count Three seeks payment for the unvested stock options as well as double damages on that sum.
The court notes that the text of Count Two contains mistaken references to § 32-71a instead of § 31-71a.
The dispute between the parties arises out of the defendant's termination of the plaintiff as Chief Executive Officer of the defendant for "poor performance," with the consequence that the plaintiff was denied compensation for vested and unvested stock options. In accordance with the formal agreement of the parties the issue of the fair market value of the stock options was submitted to arbitration. The arbitration resulted in an award fixing the value of the stock subject to the options at $8 per share as of the date of termination. By stipulation, the plaintiff withdrew from that proceeding his claim for payment for the unvested stock options and the claim for double damages under § 31-72.
The plaintiff characterizes the termination as for "without cause." The court notes that the letter of termination from the defendant to the plaintiff does not contain this terminology but rather bases the termination on "poor performance."
"The standards for summary judgment motions are well known, and the court will not go to great lengths in stating those standards here. See Conn. P.B. § 17-49. ('[Summary] judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law'); see also Neuhaus v. Decholnoky, 280 Conn. 190, 199 (2006) ('In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party') (quotations omitted); Nolan v. Borkowski, 206 Conn. 495, 500 (1988) ('In ruling on a motion for summary judgment, the court's function is not to decide issues of material fact, but rather to determine whether any such issues exist')."
Both motions before the court raise the same two potentially dispositive issues, viz: (1) whether collateral estoppel bars the defendant from relitigating the issue of the plaintiff's "poor performance," and (2) whether the unvested stock options may be deemed wages within the meaning of § 31-71a and are thereby subject to the terms of § 31-72. The court will first address the motions by subject matter and will then adjudicate each part of the motion not in order but again by subject matter.
COLLATERAL ESTOPPEL CT Page 8755
Because of the dispositive nature of collateral estoppel, summary judgment is the appropriate method of resolving the claim. Zizka v. Water Pollution Control Authority, 95 Conn. 682, 687 (1985). In Connecticut, an arbitration award has preclusive effect so as to bar subsequent litigation on the same claim. Corey v. Avco-Lycoming Division, 163 Conn. 309, 318-19 (1972).
In support of his claim the plaintiff argues that the arbitrator must necessarily have approved of the plaintiff's performance because he accepted several of the plaintiff's appraiser's (Karlitz) upward "normalization adjustments" to the stock price, especially adjustments #5 and 6. Examination of these adjustments belies such an interpretation of the Karlitz appraisal.
Normalization Adjustment #5-the defendant had been selling goods abroad to affiliated companies at prices far below market price which companies then turned around and sold these goods in the United States thereby undermining the defendant's domestic sales.
Normalization Adjustment #6 — this concerns the defendant's 2007 $140 million refinancing through Kaupthing Bank HF. Specifically, $30 million of the funds generated through that refinancing were diverted to the defendant's controlling owners. The defendant needed these diverted funds, among other reasons, to pay third-party vendors that produced the defendant's goods. However, the diversion of these funds left the defendant without the liquid capital necessary to get a large amount of its products to its customers. Karlitz thus calculated the increase in the defendant's revenue had the defendant been able to ship these products to its customers.
Neither of these "normalization adjustments" on their face had anything to do with the quality of the plaintiff's performance. Although the other normalizations which the arbitrator found acceptable are not described in the moving papers, nor has the Karlitz appraisal been made an exhibit in these proceedings, there is no reason to think that these adjustments related to the plaintiff's performance any more than adjustments #5 and 6. The court is simply unable reasonably to draw this inference. What the court can and does reasonably infer is that two factors influenced the arbitrator's judgment most strongly, i.e. (i) the rejection of the defendant's appraiser's comparables offered to support his market approach to value, and (ii) the arbitrator's expressed preference for the income approach employed by Karlitz.
Directly connected to this issue are the defendant's counterclaims in which it alleges five examples of mismanagement by the plaintiff which it claims constituted poor performance and caused the termination of his employment. The specific acts of mismanagement cited are: (1) "sales declined; (2) shipments outpaced consumption; (3) sales were inflated through inappropriate shipments to international distributors; (4) EBITDA was dramatically below budget; (5) there were significant accounting errors in the reporting of promotional or trade spending, among other things."
Earnings Before Interest, Taxes, Depreciation, Amortization.
The plaintiff argues that these issues were, in effect, subsumed by the arbitrator, considered in his deliberations, ultimately rejected sub silentio and therefore they were actually litigated before that tribunal. In support of that argument the plaintiff refers the court to numerous excerpts from the transcript of the proceedings before the arbitrator which present a comparative study of the arguments of counsel and testimonial evidence with the allegations of the counterclaims in an effort to show that the quality of the plaintiff's performance was actually litigated in that proceeding.
The plaintiff points out that the arbitrator determined the value of the shares of the defendant as at the date of termination at $8 per share. There is no dispute that at the time the plaintiff was hired the shares were worth $4 each. Thus, the plaintiff argues that the doubling in value of the shares had to be due to his successful management of the company. Therefore, the plaintiff urges the court to draw an inference that his performance could not have been poor.
"[C]ollateral estoppel, or issue preclusion, prohibits the relitigation of an issue when that issue was actually litigated and necessarily determined in a prior action . . . For an issue to be subject to collateral estoppel, it must have been fully and fairly litigated in the first action. It also must have been actually decided and the decision must have been necessary to the judgment . . . The doctrine of collateral estoppel is based on the public policy that a party should not be able to relitigate a matter which it already has had an opportunity to litigate." (Citations omitted; internal quotation marks omitted.) Aetna Casualty Surety Co. v. Jones, 220 Conn. 285, 296, 596 A.2d 414 (1991). "An issue is actually litigated if it is properly raised in the pleadings or otherwise, submitted for determination, and in fact, determined . . . 1 Restatement (Second), Judgments § 27, comment (d) (1982). An issue is necessarily determined if, in the absence of a determination of the issue, the judgment could not have been validly rendered." (Internal quotation marks omitted.) Carol Management Corp. v. Board of Tax Review, 228 Conn. 23, 32-33, 633 A.2d 1368 (1993). "In order for collateral estoppel to bar the relitigation of an issue in a later proceeding, the issue concerning which relitigation is sought to be estopped must be identical to the issue decided in the prior proceeding . . . [T]he court must determine what facts were necessarily determined in the first trial, and must then assess whether the [party] is attempting to relitigate those facts in the second proceeding." (Internal quotation marks omitted.) Aetna Casualty Surety Co. v. Jones, supra, 297. New England Estates, LLC v. Branford, 294 Conn. 817, 838-39 (2010).
This court must determine therefore whether the facts concerning performance were actually litigated in this litigation and if they were, whether they are identical to the facts at issue here.
"An issue is `actually litigated' if it is properly raised in the pleadings, submitted for determination, and in fact determined." State v. Ball, 226 Conn. 265, 276 (1993). Furthermore, there is a strong basis for the rationale behind the rule that an issue must be essential or [necessary] to the judgment before it can be barred by collateral estoppel. In Halpern v. Schwartz, 426 F.2d 102, 105 (2d Cir. 1970), the court gave two reasons why an issue must be essential to the judgment before collateral estoppel applies: "First, the decision on an issue not essential to the prior judgment may not have been afforded the careful deliberation and analysis normally applied to essential issues, since a different disposition of the inessential issue would not affect the judgment . . . Second, the decision on an inessential issue in the prior judgment was not subject to the important safeguard as to its correctness, to wit: a contested review on appeal." Thus, "collateral estoppel can be applied only to bar relitigation of facts that were formally put in issue and ultimately determined by a valid, final judgment." Carnese v. Middleton, 27 Conn.App. 530, 542 (1992).
Informed by these principles the court must now proceed to determine whether the plaintiff's "poor performance" was actually litigated in the arbitration. A careful examination of the comparative study discloses that while each of the five areas of alleged mismanagement were discussed in both argument and evidence, each was done so not for the purpose of enabling the arbitrator to vet the plaintiff's performance but rather to provide a basis for finding that the defendant's stock was worth nothing. There is nothing in the record before the arbitrator which exculpates the plaintiff of the five negative conditions which the company experienced and which the counterclaim attributes to the plaintiff. At this juncture there is simply no way to determine whether the five conditions resulted in whole or in part from the plaintiff's performance or whether they were produced by other factors over which the plaintiff had no control, or whether they were caused partially by each. Certainly the arbitrator did not attempt to make such a determination.
The sole reference to the plaintiff's performance as contained in the award is found at page 6-7 and reads as follows: "Claimant's testimony regarding his performance and contributions were considered only to the extent relevant to consideration of the future earning capacity of Lornamead and the value of claimant's interest in Lornamead viewed as of May 27, 2008."
Since the remainder of the award is totally silent on the extent to which, if any, the quality of the plaintiff's performance contributed to the five negative conditions and because that issue was never submitted to arbitration the court infers that neither the argument of counsel on the point nor the evidence which touched on the plaintiff's performance influenced the award in any material way. By the same rationale, it is impossible to determine from the award whether the value of the shares of stock increased because of the plaintiff's performance. Again, such increase could have been produced by any one of a number of factors for which the plaintiff may or may not be entitled to take credit. Such a determination is especially fact bound and must await the production of evidence at trial. Thus, consistent with the principles set forth above the court finds that whether the plaintiff's performance was poor or not was not litigated because it was not submitted and even if it is contained implicitly in the arbitrator's determination, it was not essential to the award. Moreover, unlike in Alexandru v. Strong, 81 Conn.App. 68 (2004), the facts alleged to support the allegation of poor performance in the present case were not before the arbitrator in a context which was necessary for his determination.
The court finds reinforcement for this in the stipulation to which the parties subscribed at the commencement of the arbitration. In this stipulation the plaintiff withdrew from the proceeding the very same issues which he now claims are clothed with collateral estoppel effect. By their very nature the withdrawn issues would have required adjudication of the plaintiff's level of performance by the arbitrator.
For these reasons the court concludes that the doctrine of collateral estoppel does not bar adjudication of the level of the plaintiff's performance in this proceeding.
"WAGES" PURSUANT TO SECTION 31-71a(3)
The plaintiff alleges in count three of his complaint that he is entitled to receive the value of his unvested, unexercised stock options in the company as of the date of termination at the price of $8 per share as determined by the arbitration award. He further alleges that he is entitled to have that sum doubled in accordance with the terms of § 31-72. In count two he seeks to apply the same doubling formula to the amount which he has already been awarded by the arbitrator. The motion for summary judgment and cross motion for summary judgment seek an adjudication of whether the unvested stock options constitute "wages" as that term is defined in § 31-71a(3) as "compensation for labor or services rendered by an employee, whether the amount is determined on a time, task, piece, commission or other basis of calculation."
In an arguably analogous area of the law our Supreme Court has held that unvested pension benefits are property subject to equitable distribution in a dissolution action. Bender v. Bender, 258 Conn. 733, 739 (2001) and that pension benefits represent a form of deferred compensation for services rendered. As such, the court said "they are conceptually similar to wages." For the Bender court two considerations were controlling. First, the pension benefit though subject to contingencies, was capable of "reasonably accurate quantification" and second, the unvested pension benefits were analogous to stock options because the holder of either enjoyed the right to receive a promised benefit under prescribed conditions. As such it created an enforceable right in the holder. Id. at 746.
However, the prescribed preconditions to the exercise of the stock options related solely and unequivocally to the individual performance of the option holder, namely, (1) not accepting employment that conflicted with the employer's interest; (2) not revealing any of the employer's trade secrets, and (3) not bringing any claims against the employer for conduct that preceded the date of the agreement. Id. at 747. It is significant that each of these conditions were attributable solely to the option holder himself and were not dependent on any external, collateral factors. Id. at 747.
This court acknowledges that the wage collection statutes are remedial in nature and should be liberally construed. Weems v. City Bank, 289 Conn. 769, 794 (2008). This principle apparently formed the basis for the court's decision in Pereira v. DSL, Net, Inc., 27 Conn. L. Rptr. 18 at 643 (October 16, 2000). In the Pereira case the issue was whether unvested stock options are wages. Contrary to the plaintiff's reading of this opinion the court did not engage in an analysis of the statutory scheme contained in § 31-71a et seq. but stated well recognized principles of statutory construction followed by reference to legislative history. The court found that the primary purpose of this legislation "was to provide redress for employees denied earned wages." Id. at 646. And that the double damages provision was "remedial and punitive in nature." Id. Among other employment termination cases, the court relied on Butler v. Cadberry Beverages, Inc., 1999 WL 464 527 (6/30/99), in which the trial court held that only an employee can state a claim under § 31-72 to recover a discretionary bonus that had not vested at the time of the employee's termination. In other words that court held that a discretionary bonus constitutes "wages" within the meaning of the statute. On the basis of this precedent the Pereira court held that unvested stock options are wages under § 31-71a(3).
In 2008 our Supreme Court decided Weems v. Citygroup, Inc., 289 Conn. 769. In that case the court held that an employee bonus which depended for its payment on the exercise of discretion by the employer's board of directors was not within the definition set forth in § 31-71a(3). That court began its analysis by determining that the language of § 31-71a(3) is ambiguous because it permits interpretation which would include as wages a discretionary bonus not tied to identifiable extra work by the employee and a bonus linked expressly to identifiable extra work which is not necessarily discretionary. Thus, as the court did in the Pereira case, the Weems court consulted the legislative history of the statute and found it silent on the question. However, that court went on to consult New York Law because New York Labor Law § 190(1) McKinney (2002) is similar to § 31-71a(3). As a result, the court adopted the view enunciated by the New York Court of Appeals in Truelove v. Northeast Capital and Advisory, Inc., 738 N.E.2d 770 (2000). Thus, the court formulated a rule for Connecticut which governs this court's inquiry. The court stated: "We agree with the analysis in Truelove, and we conclude, therefore, that bonuses that are awarded solely on a discretionary basis, and are not linked solely to the ascertainable efforts of the particular employee, are not wages under § 31-71a(3)." Id. at 782 . . ."Although the plaintiffs argue that the branch managers had to achieve "specific goals" to receive the bonuses, thus rendering them compensation for services rendered, a review of the bonus plans indicate that the bonus awards are tied to subjective factors such as diversity within a branch, and the profitability of the particular branches, which are factors not entirely predictable or within the control of the specific employees. Thus, we conclude that the bonus and branch manager programs are not wages contemplated by § 31-71a(3), and, therefore, the wage statutes are inapplicable to these particular claims." Id. (Emphasis added.)
This court must now apply these principles to the facts of the present case. The plaintiff was terminated for "poor performance" as that term is defined in the nonqualified stock option agreement between the parties. This stock option agreement provides in pertinent part as follows: "The Option shall become immediately 100% vested and exercisable on (a) a Change in Control (as defined in the Employment Agreement), (b) termination of Optionee's employment by the Company without Cause (as defined in the Employment Agreement) other than due to Poor Performance (as defined below), or (c) termination of Optionee's employment by Optionee for Good Reason (as defined in the Employment Agreement). "Poor Performance" shall mean the failure of the Company to realize certain goals as are mutually agreed by Optionee and the Board of Directors of Lornamead Acquisitions Limited on a consistent basis. The Company shall, from time to time, provide Optionee with a written summary of such goals and Optionee shall only be subject to termination of employment for Poor Performance for purposes of this Agreement with respect to those goals which he has received written notice of." (Emphasis added.)
Likewise, the incentive stock option agreement contains the identical provision. It is evident that these contractual provisions make it clear that the quality of the plaintiff's performance was to be judged by the sole standard of whether the company realized certain goals which were to be mutually agreed upon by the plaintiff and the company's board of directors. It is further evident that since the goals contemplated by the contract were those to be achieved by the company as a whole and not by the plaintiff/employee, the goals, as in Weems were unpredictable and not within the control of the plaintiff because they were dependent upon such subjective factors as the productivity of other employees and the decisions and policies of the board of directors which at times could have hindered or even undermined the plaintiff's efforts. This conclusion is reinforced by this court's own statutory analysis guided by the Weems court's observation concerning the Idaho Supreme Court's interpretation of its wage definition statute which is identical to ours. Our Supreme Court commented as follows:
"Our independent research has revealed some recent authority supporting the defendant's argument, and concluding that stock options are not wages subject to Idaho's wage statutes, which define wages identically to § 31-71a(3). See Paolini v. Albertson's, Inc., 143 Idaho 547-50, 149 P.3d 822 (2006) (relying on methods of payment directed in related statutes in concluding that "[n]on-monetary compensation such as stock options cannot be wages because that form of compensation is not payable in cash, with a check, or by deposit into the employee's account"). Nevertheless, for the purpose of this analysis, we decline to address the defendants' argument on this point, and assume that the gross compensation amount constituted the wage, with the payroll plan contributions being deductions therefrom." Id. at 784, n. 17 (alternate citation omitted).
It is enlightening to quote from the opinion of the Idaho court because that state's statutory wage protection scheme is similar to ours.
"Statutes that are in pari materia must be construed together to effect legislative intent. Statutes are in pari materia if they relate to the same subject. City of Sandpoint v. Sandpoint Indep. Highway Dist., 139 Idaho 65, 69, 72 P.3d 905, 909 (2003) (citations omitted). Idaho Code § 45-608(1) gives clarity to the legislature's intent regarding the meaning of the word wages in Chapter 6 of Title 45. It states: `Employers shall pay all wages due to their employees at least once during each calendar month, on regular paydays designated in advance by the employer, in lawful money of the United States or with checks on banks where suitable arrangements are made for the cashing of such checks without charge to the employee. Nothing contained herein shall prohibit an employer from depositing wages due or to become due or an advance of wages to be earned in an account in a bank savings and loan association or credit union of the employee's choice, provided that the employee has voluntarily authorized such deposit. If the employee revokes such authorization for deposit, it shall be deemed terminated and the provisions herein relating to the payment of wages shall apply.'
This statute requires employers to `pay all wages due to their employees at least once during each calendar month, on regular paydays designated in advance by the employer.' By its terms, it is not limited to wages earned during a calendar month or to wages that are normally paid every calendar month. It applies to wages due during the month. Wages earned over a longer period of time, such as an annual bonus based upon net profits, will come due during a specific calendar month and are covered by the statute.
This statute also requires that employers shall pay all wages due to their employees . . . in lawful money of the United States or with checks on banks where suitable arrangements are made for the cashing of such checks without charge to the employee or by deposit into the employee's account with his or her consent. (Emphasis added.) The word shall, when used in a statute, is mandatory. Goff v. H.J.H. Co., 95 Idaho, 837, 839, 521 P.2d 661,663 (1974). Thus, the employer does not have discretion to pay wages in a manner other than as directed by the statute. The manner of payment directed by the statute applies to all wages due. If all wages due must be paid in cash, with a check, or by deposit into the employee's account, then the word wages can only refer to monetary compensation. Nonmonetary compensation such as stock options cannot be wages because that form of compensation is not payable in cash, with a check, or by deposit into the employee's account. When Section 45-601(7) is construed with Section 45-608(1), stock options cannot constitute wages under Section 45-601(7). The term wages in Chapter 6 of Title 45 only refers to monetary compensation."
"In Connecticut the process of statutory interpretation involves the determination of the meaning of the statutory language as applied to the facts of the case, including the question of whether the language does so apply . . .
When construing a statute, [o]ur fundamental objective is to ascertain and give effect to the apparent intent of the legislature . . . In other words, we seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case, including the question of whether the language actually does apply . . . In seeking to determine that meaning, General Statutes § 1-2z directs us first to consider the text of the statute itself and its relationship to other statutes. If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered." Weems v. Citigroup, Inc., 289 Conn. at 778-79.
Related statutory provisions or statutes in pari materia "often illuminate the task" Hatt v. Burlington Coat Factory, 263 Conn. 279, 312 (2003). Sections 31-70 to 31-71e fall within this statutory classification and are considered in accordance with the mandate of Section 1-2z. Section 31-70 prohibits an employer from withholding wages because the employee failed to give prior notice of the severance. Section 31-71b provides as follows:
Sec. 31-71b. Weekly payment of wages. Exemptions. "(A) Each employer, by himself, his agent or representative, shall pay weekly all moneys due each employee on a regular pay day, designated in advance by the employer, in cash, by negotiable checks or, upon an employee's written request, by credit to such employee's account in any bank which has agreed with the employer to accept such wage deposits.
(b) The end of the pay period for which payment is made on a regular pay day shall be not more than eight days before such regular pay day, provided, if such regular pay day falls on a nonwork day, payment shall be made on the preceding work day.
(c) This section shall not be construed to prohibit a local or regional board of education and a recognized or certified exclusive bargaining representative of its certified or uncertified employees from including within their collective bargaining agreement a schedule for the payment of wages to certified employees or noncertified employees that differs from the requirements of subsections (a) and (b) of this section.
(d) Nothing in this section shall be construed to apply to employees swapping workdays or shifts as permitted under a collective bargaining agreement." (Emphasis added.)
It is apparent to the court from both the use of the term "wages" twice in the statute both in the title and the text, that the wages referred to are a form of monetary compensation. So too with § 31-71c which mandates timely payment of wages in full upon termination of employment. This obviously refers to money because benefits other than money such as medical and pension benefits would not be paid until some time after termination. Section 31-71d and e also clearly and unequivocally relate to the payment or withholding of monetary sums. None of these statutory provisions could possibly be construed to apply to unvested stock options.
In further support, the court notes that the term "wage" as defined in Webster's New World Dictionary Second College edition at 1596 as "money paid to an employee for work done, and usually figured on an hourly, daily or piecework basis."
This conclusion joins other decisions of this court that have been authored by colleagues which hold that unvested stock options are not wages under § 31-72. See NOFS v. Gemini Network, Inc., 2003 WL 462975 (Cohn, J.); Shafton v. DSC Net, Inc. 2001 WL 273200 (Jones, J.); Swihart v. Country Home Bakers, Inc., 1998 WL 867327 (Corradino, J.).
In conclusion, this court holds as a matter of law that the unvested stock options in this case are not wages within the meaning of § 31-71a(3) and are therefore not subject to the terms of § 31-72.
DEFENDANT'S SPECIAL DEFENSES
Unclean Hands, Second Special Defense — It is noteworthy that neither party has briefed the summary judgment motion as it relates to the second special defense. It is well established in Connecticut that an issue which is raised in a motion but not briefed is deemed to be abandoned. Blumenthal v. Kimber Manufacturing, Inc., 265 Conn. 1, 12-13 N. 8 (2003). For this reason the court does not reach that portion of the plaintiff's motion which addresses this special defense but notes that generally the scope of the defense is applicable only to actions in which equitable relief opposed to money damages is sought. Thompson v. Orcutt, 257 Conn. 301 (2001). No equitable relief is sought herein.
Res Judicata — The Fifth Special Defense alleges that the arbitration award is res judicata as to all of the plaintiff's claims.
"The doctrine of res judicata holds that an existing final judgment rendered upon the merits without fraud or collusion, by a court of competent jurisdiction, is conclusive of causes of action and of facts or issues thereby litigated as to the parties and their privies in all other actions in the same or any other judicial tribunal of concurrent jurisdiction . . . If the same cause of action is again sued on, the judgment is a bar with respect to any claims relating to the cause of action which were actually made or which might have been made." (Emphasis added; internal quotation marks omitted.) Powell v. Infinity Ins. Co., 282 Conn. 594, 600, 922 A.2d 1073 (2007). "The rule of claim preclusion prevents reassertion of the same claim regardless of what additional or different evidence or legal theories might be advanced in support of it." Fink v. Golenbock, 238 Conn. 183, 191, 680 A.2d 1243 (1996).
"We have adopted a transactional test as a guide to determining whether an action involves the same claim as an earlier action so as to trigger operation of the doctrine of res judicata. [T]he claim [that is] extinguished [by the judgment in the first action] includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the action arose. What factual grouping constitutes a transaction, and what groupings constitute a series, are to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage . . . In applying the transactional test, we compare the complaint in the second action with the pleadings and the judgment in the earlier action." (Citations omitted; internal quotation marks omitted.) DeMilo Co. v. Commissioner of Motor Vehicles, 233 Conn. 281, 294, 659 A.2d 162 (1995). New England Estates, LLC v. Branford, supra at 482-83.
The defendant provides little analysis of how the award has preclusive effect so as to bar litigation of the plaintiff's claims except to state that the plaintiff is contractually bound to arbitrate them. As the defendant knows, the claims which are the subject of this lawsuit were stipulated out of the arbitration.
As an alternative argument the defendant relies on the language contained in the award. The arbitrator made the following statement at the conclusion of the award.
"This Partial Final Award is in full settlement of all claims submitted in the Arbitration against Respondent in connection with (a) the valuation of and (b) Respondent's obligation to pay Claimant for Claimant's shares and vested options in Lornamead, and all such claims not expressly addressed herein are hereby denied in their entirety."
The defendant argues that the word "all such claims not expressly addressed herein are hereby denied in their entirety" indicate that the plaintiff is not entitled to anything more than what was provided to him in the final award. This argument is without merit because it overlooks the fact that: (a) that the arbitrator recognized the award as a "partial" award, and (b) that the issues which are the subject of this lawsuit were never submitted to him but were expressly reserved for adjudication in another forum. Thus, these claims could not have been made in the arbitration. Powell v. Infinity Ins. Co., 282 Conn. 600.
Breach of Fiduciary Duty — The First Counterclaim alleges that the plaintiff breached his fiduciary duty to the defendant by advancing his own interests to the detriment of the defendant. Again, the court notes that neither party has briefed this issue and it is therefore deemed abandoned. "We repeatedly have stated that [w]e are not required to review issues that have been improperly presented to this court through an inadequate brief . . . Analysis, rather than mere abstract assertion, is required in order to avoid abandoning an issue by failure to brief the issue properly . . . Where a claim is asserted in the statement of issues but thereafter receives only cursory attention in the brief without substantive discussion of citation of authorities, it is deemed to be abandoned." (Alternate citation omitted.) (Internal quotation marks omitted.) Massey v. Branford, 115 Conn.App. 153 (2009).
Negligence — The Second Counterclaim alleges that the plaintiff was negligent in that he breached his duty to the defendant and was therefore negligent in his performance. Likewise, neither party has briefed this issue. It is consequently deemed abandoned.
Count One of the Plaintiff's Complaint — The plaintiff seeks summary judgment as to Count One of his complaint which alleges breach of contract in that the defendant refused to purchase the plaintiff's unvested option shares when it terminated his employment "without cause" and for "poor performance." The plaintiff claims there is no genuine issue of material fact that he should be compensated for his unvested stock option at the rate of $8 per share because based upon the arbitration award (a) the arbitrator necessarily determined that the stock had value and (b) that the plaintiff inevitably must have been responsible for that value. Thus, he concludes that the arbitrator clearly established that the plaintiff's performance could not have been poor. The defendant argues that no such inference can be drawn from the arbitrator's determination because in his arbitration claim the plaintiff sought to be compensated at the rate of $38 per share and even his expert witness testified that the stock was worth only $15 per share. Thus, the defendant concludes that because the arbitrator found that the stock was worth considerably less than what either the plaintiff or his appraiser claimed, it necessarily follows that it was the plaintiff's poor performance which brought the stock's value down below even his own expert's calculation. As a second ground the plaintiff relies on that portion of the two agreements which makes the plaintiff's stock option dependent upon the absence of poor performance. That provision reads as follows: "`Poor Performance' shall mean the failure of the Company to realize certain goals as are mutually agreed by Optionee and the Board of Directors of Lornamead Acquisitions Limited on a consistent Basis. The Company shall, from time to time, provide Optionee with a written summary of such goals and Optionee shall only be subject to termination of employment for Poor Performance for purposes of this Agreement with respect to those goals which he has received written notice of."
The plaintiff asserts in his affidavit that the parties never "mutually agreed" upon "certain goals" and the defendant never provided the plaintiff with a "mutually agreed written summary of such goals." The defendant counters by reference to the affidavit of Jon Osborne, the company's chief operating officer and that of James Carney, a vice president of the defendant, both of which state that budget documents and "management packs" which the plaintiff prepared contained company goals, projections and deviations from these goals. Moreover, the affidavits contain statements that the plaintiff's alleged "poor performance" was brought to his attention at "repeated senior level discussions" and that there was never any question about what the truly agreed upon goals of the company were.
"In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact. `The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law. The courts hold the movant to a strict standard. To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact.' 6 Moore, Federal Practice (2d Ed.) ¶ 56.15; Plouffe v. New York, N.H. H.R. Co., 160 Conn. 482, 488 (1971). As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent. Evans Products Co. v. Clinton Building Supply, Inc., 174 Conn. 512, 516 (1978)." (Alternate citations omitted.) DHR Construction Co. v. Donnelly, 180 Conn. 430, 434 (1980).
As stated above, in order for the plaintiff to prevail on these grounds the court must draw a reasonable inference from the arbitration award that the plaintiff's performance level was not poor. For such an inference properly to be drawn from the award, the inference must be logical and reasonable and must be strong enough so that it can be found that it is more probable that the fact to be inferred is true. State v. Rogers, 198 Conn. 53, 57 (1985). This court is unable to draw such an inference and therefore there is clearly a genuine issue of material fact as to this point.
The plaintiff's next argument seems to cast the contractual requirement of a written summary of goals as a condition precedent to termination for poor performance, although not labeled as such.
"Whether the performance of a certain act by a party to a contract is a condition precedent to the duty of the other party to act depends on the intent of the parties as expressed in the contract and read in light of the circumstances surrounding the execution of the instrument." Ravitch v. Stollamn Poultry Farms, Inc., 165 Conn. 135, 149 (1973)
Thus, whether this provision was intended by the parties to be a condition precedent to termination for poor performance depends upon their intent in light of the circumstances surrounding the execution of the agreements in which this provision appears. Summary judgment procedure is particularly inappropriate for ascertaining contractual intent. Town Bank and Trust Co. v. Benson, 176 Conn. 304, 309 (1978). In the present case neither party has submitted any evidence relating to intent at the time of execution or whether some functional equivalent such as budget documents and "management packs" short of a written summary of goals was provided the plaintiff in the absence of a strict adherence to the written word. Surely, the defendant contends these documents were tantamount to such a summary. Indeed, the parties have provided no legal analysis on the point except for citation of Levine v. Massey, 232 Conn. 272, 78-279 (1995), for general principles of contract interpretation. It is well settled that matters of contract interpretation raise questions of fact. Bowman v. Central Avenue Apartments Inc., 203 Conn. 246, 257 (1987). There is a genuine issue of fact and law as to whether an alternative method of presenting company goals which arguably would accomplish the same purpose would satisfy this contractual provision.
This conclusion is buttressed as well by the court's own experience that in contractual matters forged in business settings, the express language of a contract may not tell the whole story. Our Supreme Court's discussion of that principle as it has been applied in other business settings suggests application of the maxim that form should not be exalted over substance. Starr v. Commissioner of Environmental Protection, 235 Conn. 722, 742-43 (1996).
Exposition of this maxim can be found in the opinion of our Supreme Court in Aetna Casualty Surety Co. v. Murphy, 206 Conn. 409, 412-15 (1988).
"We are confronted, in this case, by a conflict between two competing principles in the law of contracts. On the one hand, the law of contracts supports the principle that contracts should be enforced as written, and that contracting parties are bound by the contractual provisions to which they have given their assent. Among the provisions for which the parties may bargain are clauses that impose conditions upon contractual liability. `If the occurrence of a condition is required by the agreement of the parties, rather than as a matter of law, a rule of strict compliance traditionally applies.' E. Farnsworth, Contracts (1982) § 8.3, p. 544; see Grenier v. Compratt Construction Co., 189 Conn. 144, 148 (1983); Brauer v. Freccia, 159 Conn. 289, 293-94 (1970); Strimiska v. Yates, 158 Conn. 179, 185-86 (1969). On the other hand, the rigor of this traditional principle of strict compliance has increasingly been tempered by the recognition that the occurrence of a condition may, in appropriate circumstances, be excused in order to avoid a "disproportionate forfeiture." See e.g., 2 Restatement (Second), Contracts (1981) § 229; Johnson Controls, Inc. v. Bowes, 381 Mass. 278, 280 (1980); 3A A Corbin, Contracts (1960 Sup. 1984) § 754; E. Farnsworth, supra, § 8.7 pp. 570-71; 5S. Williston, Contracts (3d Ed. Jaeger 1961) §§ 769 through 811.
In numerous cases, this court has held that, especially in the absence of conduct that is "wilful," a contracting party may, despite his own departure from the specifications of his contract enforce the obligations of the other party with whom he has dealt in good faith. In construction contracts, a builder's deviation from contract specifications, even if such a departure is conscious and intentional, will not totally defeat the right to recover in an action against the owner on the contract. Grenier v. Compratt Construction Co., supra. 148-49 ; Vincenzi v. Cerro, 186 Conn. 612, 615 (1982). In contracts for the sale of real property, the fact that a contract states a date for performance does not necessarily make time of the essence. Kakalik v. Bernardo, 184 Conn. 386, 392 (1981); see Ravitch v. Stollman Poultry Farms, Inc., 165 Conn. 135, 148 (1973). A purchaser of real property does not despite his knowing default, forfeit the right to seek restitution of sums of money earlier paid under the contract of sale, even when such payments are therein characterized as liquidated damages. Vines v. Orchard Hills, Inc., 181 Conn. 501, 509, 435 A.2d 1022 (1980); Pierce v. Staub, 78 Conn. 459, 466 (1906). Finally, despite a failure to deliver contract goods, a seller need not pay an amount contractually designated as liquidated damages to a buyer who has suffered no damages attributable to the seller's breach. Norwalk Door Closer Co. v. Eagle Lock Screw Co., 153 Conn. 681, 689 (1966).
This case law demonstrates that, in appropriate circumstances, a contracting party, despite his own default, may be entitled to relief from the rigorous enforcement of contract provisions that would otherwise amount to a forfeiture. On the question of what circumstances warrant such relief, no better guidelines have ever been proffered than those articulated by Judge Benjamin Cardozo in the celebrated case of Jacob Youngs, Inc. v. Kent, 230 N.Y. 239 (1921). Discussing the interpretation of contracts to ascertain how the parties intended to govern their contractual relationship, Cardozo first notes that `[t]here will be no assumption of a [contractual] purpose to visit venial faults with oppressive retribution.' Id., 242. The opinion then continues: `Those who think more of symmetry and logic in the development of legal rules than of practical adaptation to the attainment of a just result will be troubled by a classification where the lines of division are so wavering and blurred. Something, doubtless, may be said on the score of consistency and certainty in favor of a stricter standard. The courts have balanced such considerations against those of equity and fairness, and found the latter to be the weightier . . . Where the line is to be drawn between the important and the trivial cannot be settled by a formula. `In the nature of the case precise boundaries are impossible.' (2 Williston on Contracts, sec. 841). The same omission may take on one aspect or another according to its setting . . . The question is one of degree, to be answered, if there is doubt, by the triers of the facts . . . and, if the inferences are certain, by the judges of the law . . . We must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. Then only can we tell whether literal fulfilment is to be implied by law as a condition." Id. 242-43.
From this it is evident that whether the defendant's deviation from the contract requirement by substituting what it claims to be a functional equivalent can totally impact the plaintiff's right to recover must await the production of evidence at trial.
Count Three of Plaintiff's Complaint — Count three of the plaintif's complaint realleges a violation of § 31-72 but characterizes that violation as done in bad faith, arbitrary and unreasonable. Commissioner of Labor v. Wall, 69 Conn.App. 450, 461 (2002). Because the court has already determined that § 31-72 does not apply because the unvested stock options are not wages under § 31-71a(3), whether the denial of payment was done in bad faith is immaterial.
On the basis of the foregoing discussion the plaintiff's motion for partial summary judgment is denied in its entirety and the defendant's motion for summary judgment on Count Three is granted.