Monday, May 26, 2014

Just once is enough . . .

Kneebinding, Inc. v. Howell, 2014 VT 51

By Andrew Delaney

It’s a tough sell to say that a provision of one contract that you did sign doesn’t apply when you didn’t sign a second release that says essentially the same thing. But here’s to trying . . . .

Defendant started a corporation to develop a ski binding based on one of his inventions. He needed financing, and one of the primary financiers gained a controlling interest in the corporation and became chair of its board of directors. Defendant became president and CEO. Defendant entered an employment contract with the corporation making him an at-will employee. The contract provided a year’s salary in severance pay if defendant was fired other than for cause.
   Less than a year later, the board decided to fire defendant without cause. He eventually signed a negotiated severance agreement that included, among other things, a release of all claims arising prior to the execution of the severance agreement. There was even a big ol’ list of specific claims being released. There was an offer of a post-separation consulting contract, with the same type of release to be signed at the end of the consulting period, but defendant never consulted post-separation, and he never signed that particular release.

Plaintiff, the company defendant founded, paid defendant in several periodic installments according to the severance agreement minus standard deductions and minus portions of the negotiated “purchase price” of a corporate vehicle defendant retained.

During this period, plaintiff sued defendant alleging he had violated non-disparagement and non-compete provisions of the separation agreement, committed trademark violations, defamed corporation, tortiously interfered with contracts, and misappropriated trade secrets. Defendant answered and counterclaimed “for breach of contract, defamation, invasion of privacy, misappropriation, unfair competition, tortious interference with business relations, patent violations, and intentional infliction of emotional distress.”

Plaintiff moved for summary judgment and the trial court granted the motion for all the counterclaims before the date of the release, but denied it as to claims arising afterward. Defendant moved for reconsideration, and alternatively, for permission to take an interlocutory appeal. The trial court denied the motion for reconsideration, but granted the motion for interlocutory appeal, and the SCOV accepted review.

Defendant’s argument is basically that the release in the separation agreement is ineffective because the same thing is also an appendix to the consulting agreement and that one is actually titled “release.” Plaintiff counters that the second release is a second release and necessarily only covers the consulting period.

There’s no particular deference to speak of to the trial court in this situation, but that doesn’t make much of a difference here. The SCOV notes that its primary consideration in interpreting a contract is to give effect to the parties’ intent. Defendant argues that a reference to his separation benefits and the consulting-agreement-appendix release in the separation agreement means that the first release doesn’t take effect until he signs the second one—which never happened.

Plaintiff counters that the argument defendant makes is essentially that the second agreement is redundant and that even if that’s accepted, the argument doesn’t change a danged thing. Here, the SCOV reasons that the first release is effective as did the trial court.

The SCOV agrees with the trial court that the first agreement covered pre-separation-agreement-signing claims, and the second release—which was to be signed at the end of the consulting period—covered any claims that arose during the consulting period. The language is unambiguous and supports the corporation’s argument.

There’s no this-only-comes-into-effect-if-the-second-release-is-signed language in the separation agreement. This is a case of defendant “hearing what he wants to hear.”

The SCOV explains that to conclude otherwise would render the contract’s plain terms meaningless, and the SCOV ain’t about to do that.

Defendant’s arguments that the release isn’t supported by consideration receive little consideration. (Get it?) He argues that the purchase price of the car wasn’t any benefit—it was just an advance on what he already had coming to him. The SCOV, like the trial court, disagrees.

The definition of "benefit" as applied to the concept of consideration is extremely broad, and there was evidence that at least some of the car-payment part of the contract was an early payout of at least some funds. The trial court found that was consideration enough for the release and the SCOV agrees.

The SCOV concludes that there was a reasonable factual and legal basis for the trial court’s ruling and “therefore discern no basis to disturb the judgment.”

So read those contracts carefully because one of the hardest arguments to make is that the court should let you take a mulligan on part of a contract.

No comments:

Post a Comment