E-Alert Case Updates

Employee’s Termination Shortly before Vesting of Performance Award Stock Did Not Constitute Breach of the Award Agreement

Joseph D. Chapman v. Asbury Automotive Group, Inc.
(September 7, 2016) United States District Court for the Eastern District of Virginia
by Matthew J. McCloskey, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: https://ecf.vaed.uscourts.gov/doc1/18917474843

In a recent opinion, the United States District Court for the Eastern District of Virginia held that a former employee who was terminated four (4) months before a performance award in the form of stock was scheduled to vest had failed to show that his employer had breached the award agreement in terminating the employee.

Plaintiff was employed with Defendant as an automobile sales associate beginning in 1999. Over the next six (6) years, he was promoted several times, and Plaintiff eventually became the General Manager of one of Defendant’s car dealerships. Plaintiff was successful in that capacity, and in 2011, he was awarded 4,000 restricted shares of stock in Defendant’s company under an “Award Agreement.” Under the terms of the agreement, the restricted shares were scheduled to vest on April 19, 2014, “provided that [Plaintiff] must be employed as of such Vesting Date.” If Plaintiff’s employment was terminated prior to the vesting date, all of Plaintiff’s rights with regard to the restricted shares would immediately terminate. The agreement further provided that Defendant “may accelerate the vesting of all or any portion of the Restricted Shares, at any time and from time to time.”

Four (4) months prior to the vesting date, Defendant terminated Plaintiff’s employment. Plaintiff contended that the individual who terminated Plaintiff’s employment knew the restricted shares were about to vest, and that Plaintiff was terminated despite that sales at his dealership were commensurate with sales at other similar dealerships. Plaintiff further asserted that Defendant normally would allow managers to move to a different position within the company rather than be terminated, but that Defendant did not accommodate his request to do so. As a result of the termination, Plaintiff did not receive the restricted shares. Plaintiff subsequently filed a lawsuit against Defendant, setting forth causes of action for breach of contract and unjust enrichment, and requesting specific performance of the Award Agreement. Defendant moved to dismiss.

Judge M. Hannah Lauck, writing for the Court, granted Defendant’s motion. Initially, the Court addressed Defendant’s contention that Plaintiff’s causes of action were merely an attempt to cloak a wrongful termination claim. The Court held that “[i]n the event [Plaintiff] intended to allege a claim for wrongful termination, his claim fails” because Plaintiff could point to no Virginia statute that Defendant violated in terminating his employment. Accordingly, to the extent that Plaintiff alleged wrongful termination; he had failed to state a claim.

The Court also dismissed Plaintiff’s claim for breach of contract. In this regard, the Court noted that Plaintiff contended that the Award Agreement “constituted [a] unilateral offer of the Restricted Shares, for which [Plaintiff] gave ‘sufficient consideration’ by refraining from quitting ‘in reliance’ on” Defendant’s offer of the shares. Plaintiff therefore asserted that the Award Agreement was a unilateral contract that Defendant violated by terminating his employment, and further argued that Defendant breached the implied duty of good faith and fair dealing by choosing not to accelerate the vesting date. The Court held, however, that Virginia employers “may condition acceptance of an offer on the satisfaction of certain conditions, and a contract is not formed until the employee accepts the offer by full performance of those conditions.” Here, the vesting condition was Plaintiff’s continued employment through April 19, 2014. Because Plaintiff did not meet that condition, no contract was formed and Defendant was not liable for breach of contract.

Regarding Plaintiff’s argument that Defendant breached the implied duty of good faith and fair dealing, the Court cited to well-established precedent holding that such an argument may only be successful where the plaintiff fully performed his or her obligations under the contract. Because Plaintiff had failed to demonstrate the existence of a contract or that he fully met all of his obligations under the Award Agreement, the Court concluded that Defendant did not violate the implied covenant of good faith and fair dealing.

Finally, with regard to Plaintiff’s unjust enrichment claim, the Court noted that Plaintiff’s claim was based on Defendant’s purported breach of the Award Agreement. Because Plaintiff’s claim was therefore based on an alleged contract which the Court had already concluded did not exist, Plaintiff had failed to state a claim.