BENJAMIN E. BAUMILLER v. SKM APPLIED TECHNOLOGY PARTNERS et al.
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
DOCKET NO. A-2203-05T52203-05T5
BENJAMIN E. BAUMILLER,
SKM APPLIED TECHNOLOGY PARTNERS
and SUSSEX TECHNOLOGY, INC.,
Argued March 20, 2007 - Decided August 8, 2007
Before Judges Skillman, Lisa and Grall.
On appeal from Superior Court of New
Jersey, Law Division, Sussex County,
Docket No. L-523-99.
John P. Leonard argued the cause for
appellant/cross-respondent (McElroy, Deutsch, Mulvaney & Carpenter, attorneys; Mr. Leonard, of counsel; Meredith A. Walling, on the brief).
Scott T. Tross argued the cause for
respondents/cross-appellants (Herrick, Feinstein, attorneys; Mr. Tross, of
counsel and on the brief; Paul H.
Schafhauser, of counsel).
Following a bench trial in the Law Division, plaintiff Benjamin E. Baumiller appeals from the dismissal of his complaint alleging defendants' failure to pay severance benefits due under his contract of employment upon his resignation for "good reason." Defendants SKM Applied Technology Partners (SKM) and Sussex Technology, Inc. (STI) cross-appeal from the dismissal of their counterclaims alleging breach of contract, negligent job performance and breach of fiduciary duty. We conclude that plaintiff is entitled to a salary severance payment and insurance benefits but otherwise affirm the judgment.
The litigation arises from the sale of STI to SKM. STI is in the business of plastic injection molding. When STI was established in 1986, plaintiff, who had successfully managed a plant for a company that did similar work, was offered a position as Vice President of Operations and a one-third ownership interest in the company. His equal partners were McKinnon and Boheim. In 1992 STI hired Mackey to prepare financial statements, track production and secure financing. In 1995 STI sold a ten-percent interest in their business to MacIntosh, STI's Vice President of Sales, and hired Cuddihy to manage the plant. By 1996 STI had between seventy and eighty employees and projected sales of $6,000,000. By 1 997 STI had 100 employees. In 1997 Mackey, with input from plaintiff and MacIntosh, prepared a five-year growth plan, which included plans for marketing and business development and projected sales of $20.13 million, pre-tax income of $5.208 million and net income of $2.969 million by the end of the five years.
In October 1997 plaintiff and his partners agreed to sell STI to SKM. Langton is SKM's CEO. SKM paid $9,000,000, assumed responsibility for debt of $3,000,000 and agreed to retain the STI partners in their former positions and pay bonuses up to a total of $3,000,000 if STI met income projections. STI personnel were to be retained in the following positions: plaintiff, as Vice President of Operations; McKinnon, as President; Boheim, as Vice President of Engineering; Mackey as CFO; and MacIntosh as Vice President of Sales and Marketing. During negotiations, the men discussed SKM's interest in STI's role in acquisition of additional companies and plaintiff's willingness to oversee operations in newly acquired companies.
The employment contract at issue here is between STI and plaintiff. That contract references SKM's purchase agreement with the sellers of STI. It also recognizes SKM's desire to "encourage" plaintiff's continued employment as "a highly experienced and knowledgeable executive of the Company whose creativity, expertise and efforts have been instrumental in the development of the Company's business."
The employment contract, dated October 24, 1997, is for a term of four years unless terminated earlier pursuant to Section 1.8 of the contract. Section 1.8(a) authorizes STI to terminate plaintiff "without Cause at any time, upon [thirty] calendar days' written notice to the Employee," and permits plaintiff to terminate his employment with "Good Reason at any time, upon [thirty] calendar days' written notice to [STI]." Section 1.8(b) permits STI to terminate plaintiff for "cause" and plaintiff to resign for any reason.
The severance package available on termination of the contract varies depending on the reason for separation. Upon termination in accordance with Section 1.8(b), there is no severance benefit beyond salary previously earned and expenses not yet paid. Upon termination pursuant to Section 1.8(a), plaintiff is entitled to participate in the term-life, medical, disability and dental insurance benefits and severance pay in a lump sum that, when discounted to present value, is equivalent to the greater of one-year's salary or salary from the date of termination to the end of the contract term. Section 1.8(a) provides that these severance benefits "constitute liquidated damages payable as a result of the termination . . . without Cause or . . . for Good Reason."
Eligibility for incentive compensation, the bonuses to which SKM and STI agreed at the time of the sale, is also dependent upon the reason for termination. Pursuant to Section 2.6, incentive compensation owed must be paid if plaintiff resigns for "good reason" or is terminated for any reason other than "cause."
Section 1.9(c) defines the term as follows:
(c) "Good Reason" means (i) any removal of Employee from or failure to re-elect Employee to Employee's position with the Company at the time of this Agreement or a different position with substantially the same or greater powers and authority or (ii) any material increase, decrease or other change in the duties and responsibilities of Employee over, below or from his duties and responsibilities immediately prior to the consummation of the [stock-purchase agreement].
Plaintiff's employment contract described his duties during the employment period as follows:
Employee shall serve as the Vice President of Operations of the Company and shall report directly to the Company's Board of Directors . . . or to such other person as may be designated from time to time by the Board. In such capacity, Employee shall perform such duties and exercise such powers commensurate with his position as the Vice President of Operations, subject to the direction of the Board or its designees and subject to such restrictions as the Board or its designees may from time to time reasonably impose.
The facts pertinent to plaintiff's claim that he had good reason for resignation are as follows. Plaintiff expected to retain the manufacturing duties he had as Vice President of Operations with possible additional responsibility for manufacturing done in plants of other companies SKM might acquire. Boheim, whose contract had a similar provision, understood that he, plaintiff and McKinnon would continue doing jobs "exactly" like the jobs they had done prior to the sale of STI. SKM's CEO, Langton, expected STI's President to direct the officers who reported to him.
In the months prior to the sale of STI, plaintiff, along with Cuddihy who reported to him, was supervising the day-to-day operations of the plant and all aspects of its manufacturing. During the first year of the contract, he performed the same duties. In October 1998 plaintiff listed the following as his duties as Vice President of Operations in a memo to McKinnon: selection of material suppliers; selection of outside services; job quoting and cost audits; new project evaluations; major equipment evaluations and purchasing; planning production to meet sales forecasts; capital and operations; and customer visits.
In addition, plaintiff visited four different companies in the northeast to determine whether their operations and facilities could be integrated with STI and their purchases of materials could be combined with STI's to secure more favorable prices. Plaintiff viewed these visits as a small part of his job that took him away from STI for no more than a total of seven days between October 1998 and March 1999. During the same period, Langton visited STI monthly and discussed acquisitions with plaintiff and other STI officers. Plaintiff did not complain about or protest his involvement in this work.
McKinnon resigned as President of STI for health reasons, and in March 1999 he was replaced by an outsider, Smith. Smith was directed to develop STI's business within its existing facilities and through new acquisitions.
Smith found fault with STI's system for determining costs. He discussed development of a cost system with Mackey, and they considered the job to be one more appropriate for the Vice President of Operations. Smith assigned the task to plaintiff. Smith also wanted plaintiff to spend more time on acquisitions. He concluded that plaintiff's assignments should be adjusted to permit him to spend more time developing the cost system and working on acquisitions. He also suggested having the plant manager, Cuddihy, report to Smith rather than plaintiff. Langton gave Smith approval to proceed with his plan if plaintiff agreed.
On March 31, 1999, less than one month after he started on the job, Smith told plaintiff about the proposed change in his assignment. In plaintiff's view, the acquisition work was limited and not steady and his duties were being decreased and replaced with accounting-type work for which he was not qualified.
Smith and plaintiff left their discussion with different impressions. Smith believed he gave plaintiff the option to accept the change and his reasons for viewing him as the best person for acquisition work and cost system development. Plaintiff thought he made it clear that he would not want to be involved in laying people off when STI acquired new companies and did not have the accounting background necessary to develop a cost system. Although plaintiff believed that his contract prevented what Smith proposed, he did not believe that Smith was offering him the option of accepting or rejecting the change in his assignment and did not protest out of concern that Smith would consider him insubordinate. Smith thought plaintiff asked for time to consider whether to accept the change in assignment; plaintiff thought he had no choice.
According to Smith, On April 1, 1999, plaintiff agreed to the change in assignment, and said he thought the work would be interesting. According to plaintiff, he never consented. There is no writing memorializing an agreement to a change in plaintiff's assignment. Smith released a memo to all employees announcing plaintiff's appointment to "the newly created position of [Vice President of] Corporate Development." The memo advised that Cuddihy would continue as plant manager but report to Smith. Smith assumed plaintiff's responsibilities for overseeing the manufacturing operations.
Plaintiff talked to others about his disappointment. He told Boheim he felt as if he did not have a job and complained to Mackey about his obligation to develop the cost system. When Langton congratulated plaintiff on the new position, plaintiff questioned whether his new job was a "real job." Langton told him it was and that it would be good for him. Plaintiff said "thanks." Langton thought the thank you was sincere, but plaintiff thought that his sarcastic tone should have conveyed his discontent. One of plaintiff's colleagues viewed him as working for SKM, not STI, after his reassignment.
On May 13, 1999, Langton asked plaintiff to visit a company just acquired by STI. That company had two plants in different locations; SKM planned to close one of the plants. Langton asked plaintiff to determine how and when STI could close one plant and shift its work to the other. Concluding that he had spent his career building companies not tearing them down and did not want to change that, plaintiff decided to resign. He delivered his letter of resignation to Smith on May 17, 1999. It read:
Please accept this letter as formal notification that my employment with [STI] will terminate on 6/18/99, in accordance with the terms under clause 1.8 of my employment contract. As required in my employment agreement, this is my [thirty] days['] official written notice.
Plaintiff told Smith that the work was not what he "had signed on for." Since plaintiff left STI, the position of Vice President of Corporate Development has remained vacant.
Plaintiff did not indicate that his resignation was for good reason or request severance benefits until he commenced this litigation on August 24, 1999. Defendants assert that plaintiff did not have "good reason" and, even if he did, he may not recover severance benefits because he agreed to change his assignment and elected to continue his employment between April 1 and May 17, 1999, despite any breach.
The employment contract includes additional provisions pertinent to defendants' assertion of amendment and waiver. Amendment or waiver of any provision of the employment contract is permitted, "but only if . . . such amendment or waiver is in writing and is signed . . . ." Delay, action or inaction does not amount to a waiver: "No failure or delay by any party in exercising any right, power or privilege . . . will operate as a waiver thereof nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege"; and "No action or inaction taken or omitted pursuant to this Agreement will be deemed to constitute a waiver of compliance with any covenants contained in this Agreement and will not operate or be construed as a waiver of any subsequent breach, whether of similar or dissimilar nature." The agreement is to be "governed by, and construed in accordance with, the law of the State of New York . . . ."
The trial court determined that the change in plaintiff's duties amounted to "good reason" for his resignation. The court found that the main focus and day-to-day duties of plaintiff's job prior to his reassignment on April 1, 1999 were manufacturing and plant operations and that those duties were no longer part of his job when he resigned. The court further found that the alternative duties that Smith assigned to plaintiff on April 1, 1999, although operational, were not consistent with his prior duties and responsibilities. On that basis, the court concluded that the reassignment amounted to an unwelcome promotion that materially changed plaintiff's duties within the meaning of Section 1.9(c)(ii).
The trial court's findings are supported by substantial credible evidence in the record and consistent with the plain meaning of Section 1.9(c) of the employment contract. We see no basis for interference with that determination. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974).
Defendants argue that subparagraph (ii) of Section 1.9(c) had no application in this case. They contend that subparagraph (i) applies to a change of "position" and subparagraph (ii) applies to bar a change of "duties and responsibilities" when the employee keeps the "same position." We reject that argument as inconsistent with the plain meaning of Section 1.9(c).
Under New York law, which the parties agreed would govern the interpretation of this employment contract, an agreement that is clear and complete is enforced in accordance with the plain meaning of its terms, which is the best indicator of the parties' intention. See Greenfield v. Philles Records, Inc., 780 N.E.2d 166, 170-71 (N.Y. 2002); 807 N.E.2d 876, 879 (N.Y. 2004); Vermont Teddy Bear Co. v. 538 Madison Realty Co., 775 N.Y.S.2d 765, 767 (2004). Section 1.9(c) plainly states two alternate and separate bases for a finding of "Good Reason": "(i) any removal of Employee from or failure to re-elect Employee to Employee's position . . . at the time of this Agreement or a different position with substantially the same or greater powers and authority or (ii) any material increase, decrease or other change in the duties and responsibilities of Employee over, below or from his [prior] duties and responsibilities . . . ." (Emphasis added).
Contrary to defendants' claim, subparagraph (i) is not rendered meaningless if subparagraph (ii) can be applied when there is a change of position. See Excel Graphics Techs., Inc. v. CFG/AGSCB 75 Ninth Ave., L.L.C., 767 N.Y.S.2d 99, 102 (App. Div. 2003) (noting that courts avoid interpretations that render a portion of the agreement meaningless), appeal dismissed, 781 N.Y.S 2d (2004). A person may be assigned greater power and authority without a material change in duties or responsibilities or asked to perform the same duties while simultaneously being deprived of authority and power previously enjoyed. The trial court properly read Section 1.9(c) to afford plaintiff "good reason" for resignation if demoted or asked to do a job materially different from the job he performed before he sold his interest in STI.
Plaintiff contends that the trial court, having found that he had "good reason" to resign, erred in determining that he could not recover severance benefits. The trial court found several separate and independent bars to recovery, none of which are properly applied in this case.
As we understand the decision, the trial court concluded that plaintiff consented to the reassignment and waived the right to severance. Pursuant to Section 4.2(a) of this contract, however, any amendment (here, an agreement by plaintiff to modify his duties) or waiver of a right (here, a waiver of plaintiff's right to severance available on resignation for good cause) must be in writing.
Under New York law, the general rule is that the terms of a contract prohibiting oral modification may only be altered by a writing. See N.Y. General Obligations Law 15-301(1); Rose v. Spa Realty Assocs., 366 N.E.2d 1279, 1282-83 (N.Y. 1977). In this case, there was no writing amending either Section 1.2, which defines plaintiff's duties, or Section 1.9(c), which defines "good reason" for resignation. Similarly, plaintiff's letter of resignation referencing Section 1.8, which was silent as to his intention to seek a contract remedy for resignation based upon good reason, cannot be deemed to be a waiver of a right not referenced in that letter.
New York recognizes exceptions to the general rule that bars enforcement of oral agreements to modify or waive contractual rights specified in an agreement that requires written modification or waiver. See Rose, supra, 366 N.E. 2d at 1282-83. Those exceptions do not apply in this case.
Under New York law, an oral modification may be enforced if there is proof of full performance of the agreement to modify or proof of partial performance that is "unequivocally referable to the oral modification." Ibid. Where, however, the performance that has been rendered is consistent with an option available under the written contract, the exception allowing oral modification does not apply. See ibid. (discussing the rationale for the exception to the general rule and noting that conduct must be incompatible with any option available under the written agreement).
In this case, plaintiff's six weeks of performance in his new assignment was consistent with the options available to him under the written agreement. Pursuant to Section 1.8(a) of the agreement, plaintiff was permitted to invoke his right to terminate his employment for good reason "at any time." He was under no obligation to resign immediately or to give STI an opportunity to restore him to his prior position before resigning. Cf. Bigda v. Fischbach Corp., 898 F. Supp. 1004, 1009 (S.D.N.Y. 1995) (contractual right to liquidated damages based on a change in duties not triggered until ten days after written notice from plaintiff), aff'd, 101 F.3d 108 (2d Cir. 1996). Moreover, pursuant to Section 4.2(b), a delay on plaintiff's part in exercising his right to resign for "good reason" and collect severance could not "operate as a waiver." Accordingly, plaintiff's continued performance for a brief period - his delay in exercising his right to resign with benefits - was wholly consistent with the option available to him under the written contract and not unequivocally indicative of an agreement to an oral modification of his duties or a waiver of his contractual remedies.
Even when there has been performance of an oral agreement to modify, the oral agreement will not be enforced if there is no consideration. See Taylor v. Blaylock & Partners, L.P., 659 N.Y.S.2d 257 (App. Div. 1997). In Taylor the court found consideration for the oral agreement to modify benefits payable under an employment contract. Id. at 259. The employer, who had been unable to meet payroll, asserted an oral agreement to modify compensation as a defense to the employee's action for payment. Id. at 258. The assertion was that the employee agreed to work for overhead and benefits rather than face termination as an at-will employee. Id. at 259. The Court of Appeals concluded that there was mutual consideration for the oral modification based upon the employee's agreement to accept reduced compensation and the employer's promise to refrain from exercising its right to terminate the employment relationship. Ibid.
There is no basis for a finding of consideration in this case. While Section 1.8(b) gave STI the right to terminate plaintiff for "good cause" without paying severance benefits, pursuant to Section 1.8(a), STI was required to pay the benefits if plaintiff resigned for "good reason" or if STI terminated him without good cause. In retaining plaintiff in his new position at the same salary, STI neither paid consideration it was not required to pay nor refrained from exercising an option available to STI under the written contract.
The trial court also concluded that plaintiff's recovery of contract damages available to him upon resignation for good reason was barred by his election to perform his new job rather than to invoke his contractual right to resign and demand damages. Again, the court misapplied New York law.
Under New York law, a party who is aggrieved by a breach of contract may treat the "entire contract as broken and sue immediately . . . or reject the proposed breach and continue to treat the contract as valid." Inter-Power of New York, Inc. v. Niagara Mohawk Power Corp., 686 N.Y.S.2d 911, 913 (App. Div. 1999). The party cannot do both at the same time and must elect between these mutually exclusive remedies or courses of action. Ibid. (relying on Strasbourger v. Leerburger, 134 N.E. 834, 835 (N.Y. 1922)); see ESPN, Inc. v. Office of the Comm'r of Baseball, 76 F. Supp.2d 383, 397-98 (S.D.N.Y. 1999) (applying New York law and noting that "the nonbreaching party has two options: it can terminate the agreement and sue for total breach, or it can continue the contract and sue for partial breach"). This obligation to elect remedies is premised on the principle that "'[t]he law simply does not, under the circumstances, permit a party to exercise two alternative or inconsistent rights or remedies.'" Apex Pool Equip. Corp. v. Lee, 419 F.2d 556, 562 (2d Cir. 1969) (quoting 5 Williston on Contracts 684 (3d ed. 1961)) (applying New York law).
As a preliminary matter we question whether the principle of election of remedies, which applies in cases of breach of contract, has any application here. It is not clear that the severance benefits promised to plaintiff in the event of his resignation for "good reason" are based on the employer's breach of the contract. The severance benefits are more in the nature of a contractual right that arises when there is "good reason" for resignation that does not amount to a breach. We recognize that Section 1.8(a) labels severance benefits as "liquidated damages payable as a result of the termination . . . for Good Reason" and that use of the term "liquidated damages" suggests benefits that are available upon proof of a breach. But Section 1.9(c) defines "good reason" so broadly as to include alterations of duties and responsibilities that would not be barred by the general and vague definition of plaintiff's contractual duties included in Section 1.2 of the agreement. Plaintiff's duties are not defined with reference to the job duties and authority that he enjoyed as Vice President of Operations of STI prior to his sale of his interest in the company to SKM. In contrast, Section 1.9(c), defines "good reason" with reference to plaintiff's prior job. The definition affords protection against changes in authority and duties not found elsewhere in the contract.
Read together, Sections 1.2, 1.8(a) and 1.9(c) are best understood to afford plaintiff the right to enjoy the agreed upon salary and benefits for a term of four years if not permitted to work for STI for four years in a job with the same authority and power and the duties and responsibilities he enjoyed prior to his sale of his interest in STI. The purchase agreement and the employment contract are related. Sections 1.8(a) and 1.9(c) together provide plaintiff with a guarantee of either a job he enjoyed and the salary STI agreed to pay or the severance benefits and freedom to seek another job. Thus, while plaintiff's recovery of general contract damages for breach based on change in his contractual duties might be barred on the ground that he elected to continue work rather than sue on the contract, his pursuit of the right to severance benefits available based on his resignation for "good reason" is not subject to that bar because it is not a remedy for breach.
Even if we were to conclude that the doctrine of election of remedies had application here, plaintiff's decision to delay his resignation for six week was expressly permitted by the contract. Section 1.8(a) affords him a right to resign for good reason "at any time" during the term of the contract. Even absent a provision of that sort, the doctrine of election of remedies is not applicable unless the party has had a "reasonable time" to make an election following the breach. See Bigda, supra, 898 F. Supp. at 1009-12. This is not a case in which an employee has sought to reap the benefits of employment and the benefits of contract remedies for breach, which are inconsistent. It is not comparable to Bigda, upon which the trial court relied. Ibid. (involving an employee who worked and collected his salary long after his assignments changed and did not leave the job until his contract term had expired at which time he sought damages in the amount of three years' salary under the contract).
We conclude that plaintiff was entitled to severance benefits consistent with Section 1.8(a) of the employment contract.
The parties raise two additional claims of error. Plaintiff contends that the trial court erred in concluding that he did not establish entitlement to incentive compensation. Defendants contend that the court erred in dismissing its counterclaims. Our review of the record and consideration of the arguments presented leads us to conclude that these claims lack sufficient merit to warrant discussion in a written decision. R. 2:11-3(e)(1)(E).
Affirmed in part; reversed in part, and remanded for a determination of the amount of severance benefits due plaintiff pursuant to Section 1.8(a) of the employment contract. We do not retain jurisdiction.
New York courts recognize a second sort of exception to the general rule, which is based on principles of equitable estoppel and requires evidence that the party seeking to enforce the modification substantially relied upon the oral modification. Rose, supra, 366 N.E. 2d at 1283. There is no evidence of such reliance on any conduct of plaintiff in this case. Section 1.8(a) did not require plaintiff to give STI an opportunity to return him to his old job. Moreover, this exception based on estoppel, like the exception based on partial performance of an oral agreement to modify, is applicable only when the "conduct relied upon to establish estoppel [is] not otherwise . . . compatible with the agreement as written." Ibid.
August 8, 2007