FISHOFF v. Coty, Inc.

OPINION AND ORDER

I. INTRODUCTION

Michael Fishoff is suing Coty Inc. — his former employer — for alleged breach of contract, promissory estoppel, and breaches of the duties of good faith and fair dealing. 1 These claims stem from Fishoffs attempt to exercise options awarded to him in his capacity as Coty’s Chief Financial Officer (“CFO”). Coty now moves for summary judgment on Fishoffs claims for breach of contract and moves to dismiss Fishoffs promissory estoppel claim. 2 For the reasons discussed below, Coty’s motion for summary judgment is denied and its motion to dismiss is granted.

II. BACKGROUND

A. Facts 3

Fishoff became Coty’s CFO on July 1, 2002 and was terminated on December 11, 2008. 4 Pursuant to his employment agreement, Fishoff was entitled to participate in Coty’s Long-Term Incentive Plan (“LTIP”), which awarded some Coty em *212 ployees with stock options to incentivize future performance (“Participants”). 5

Fishoff received 200,000 Non-Qualified Stock Options (“options”) pursuant to the LTIP. 6 Those options had all vested by the fall of 2008. 7

On Monday, December 1, 2008, Fishoff gave notice to Alexandra Ebrahim, Coty’s Manager of Compensation, that he was exercising all 200,000 vested options. 8 The LTIP requires that an option exercise must occur on the last day of the month. 9 Because the last day of November 2008 fell on a Sunday, this Court determined as a matter of law that Fishoffs exercise was a timely November exercise. 10

Coty is a privately owned corporation and its securities are not publicly traded. 11 Coty uses investment banks to place a value on its stock for purposes of the option awards. 12 Prior to December 2008, Coty had consistently used J.P. Morgan for this purpose. 13 In September of 2008, J.P. Morgan pegged Coty’s stock at $58 per share. 14

On December 5, 2008, the Coty Board of Directors (“Board”) met in New York City. 15 During this meeting, the Board decided that, in light of deteriorating market conditions, the next option valuation should occur as soon as possible, but no later than January 31, 2009. 16 The Board also decided that option exercises that had occurred since the last Exercise Date, November 30, 2008, should be deemed void. 17 Additionally, the Board voted to amend the LTIP to provide for four valuations each year and to provide window periods for Participants to exercise stock options following each valuation. 18

At this time, Coty employed Rothschild Inc., a nationally recognized investment bank, to perform a revaluation of its shares. 19 Rothschild determined the value of Coty’s shares to be $31 as of November 30, 2008 — Fishoffs claimed Exercise Date. 20 This dispute centers on whether the LTIP permits Coty to pay out Fish-offs options at this lower rate, rather than the $58 September valuation.

B. The LTIP and Award Agreement

It is undisputed that section 6(d)(ii) of the LTIP applies to Coty’s payment for the exercise of Fishoffs stock options. Section 6(d)(ii) provides:

Any provision of the Plan or any Award Agreement to the contrary notwith *213 standing, the provisions of this Section 6(d)(ii) shall apply to Options prior to the IPO. Prior to the IPO, Options becoming exercisable in accordance with their terms may be exercised only on an Exercise Date. Upon any valid exercise of an Option or any portion thereof prior to the IPO, the respective Participant shall be entitled to receive only a payment in cash equal to the excess, if any, of the Fair Market Value, as of the Exercise Date, of the Shares underlying the Option or portion thereof so exercised over the aggregate exercise price of such Option or portion thereof. The payment of cash shall be made as promptly as practicable after an exercise in accordance herewith.... 21 The LTIP defines “Fair Market Value” as:

... [T]he fair market value of the property or other item being valued, as determined by the [Board] in its sole discretion. Prior to the IPO, as hereinafter defined, Fair Market Value of the Shares shall be determined on each Valuation Date, by the [Board] using a nationally recognized investment bank (or other comparable valuation expert) selected by the [Board]. Unless otherwise determined by the [Board], there shall be two Valuation Dates in each fiscal year, one at the meeting of the Board in which the Company’s financial results for the prior fiscal year are approved and the other approximately six months thereafter.... 22

The LTIP defines “Exercise Date” to mean “the last day of any month, except the month prior to the month in which a Valuation Date falls.” 23 It defines “Valuation Date” to mean “the Initial Valuation Date and any date thereafter on which the [Board] determines Fair Market Value.” 24 An “Award” is defined to mean “any Option,” and “Option” means “a Non-Qualified Stock Option.” 25 The LTIP defines “Non-Qualified Stock Option” to mean “a right to purchase Shares from the Company that is granted under Section 6 of the Plan....” 26

The LTIP contains a number of discretionary provisions. Section 3(b) provides that “designations, determinations, and *214 other decisions ... with respect to ... any Award shall be within the sole discretion of the [Board] [and] may be made at any time____” 27 Section 9(b) provides that the Board “may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted, prospectively or retroactively, consistent with the latest version of the Plan as in effect from time to time. 28 Section 9(c) authorizes the Board to “make adjustments in the terms and conditions of ... Awards in recognition of unusual or nonrecurring events ... affecting the Company ... or the financial statements of the Company ... whenever the [Board] determines that such adjustments are appropriate in order to prevent ... enlargement of the benefits or potential benefits intended to be made available under the Plan.” 29 Section 10(c), under the heading “No Rights to Awards” provides that “[n]o Employee, Participant or other Person shall have any claim to be granted any Award and there is no obligation for uniformity of treatment of Employees, Participants, or holders or beneficiaries of Awards.” 30 The LTIP provides that “the validity, construction, and effect of the [LTIP] and any rules and regulations relating to [it] and any Award Agreement shall be determined in accordance with the laws of the State of New York.” 31

III. LEGAL STANDARD

A. Summary Judgment

Summary judgment is appropriate “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” 32 “ ‘An issue of fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. A fact is material if it might affect the outcome of the suit under the governing law.’ ” 33 “[T]he burden of demonstrating that no material fact exists lies with the moving party ....” 34

In turn, to defeat a motion for summary judgment, the non-moving party must raise a genuine issue of material fact. “When the burden of proof at trial would fall on the nonmoving party, it ordinarily is sufficient for the movant to point to a lack of evidence to go to the trier of fact on an essential element of the nonmovant’s claim.” 35 To do so, the non-moving party must do more than show that there is “ ‘some metaphysical doubt as to the mate *215 rial facts,’ ” 36 and it “ ‘may not rely on conclusory allegations or unsubstantiated speculation.’ ” 37 However, “ ‘all that is required [from a non-moving party] is that sufficient evidence supporting the claimed factual dispute be shown to require a jury or judge to resolve the parties’ differing versions of the truth at trial.’ ” 38

In determining whether a genuine issue of material fact exists, the court must “constru[e] the evidence in the light most favorable to the non-moving party and draw all reasonable inferences” in that party’s favor. 39 However, “[i]t is a settled rule that ‘[credibility assessments, choices between conflicting versions of the events, and the weighing of evidence are matters for the jury, not for the court on a motion for summary judgment.’ ” 40 Summary judgment is therefore “appropriate only if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.” 41

B. Contract Ambiguity

Summary judgment is only appropriate in a contract dispute “when the contractual language on which the moving party’s case rests is found to be wholly unambiguous and to convey a definite meaning.” 42 Summary judgment “may be granted only ‘when the intent of the parties can be ascertained from the face of their agreement.’ ” 43 A contract must be read as a whole “ ‘to ensure that excessive emphasis is not placed on particular words or phrases.’ ” 44 “To the extent the moving party’s case hinges on ambiguous contract language, summary judgment may be granted only if the ambiguities may be resolved through extrinsic evidence that is itself capable of only one interpretation, or where there is no extrinsic evidence that would support a resolution of these ambiguities in favor of the nonmoving party’s case.” 45

“ ‘Whether or not a contract is ambiguous is a question of law to be resolved by the courts.’” 46 A court should make this determination by looking only within the four corners of the document, *216 without reference to outside sources. 47 “Contract language is unambiguous when it has ‘a definite and precise meaning, unattended by danger of misconception in the purport of the [contract] itself, and concerning which there is no reasonable basis for a difference of opinion.’ ” 48 Language is ambiguous if it is “ ‘capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.’ ” 49

Ambiguity will not be found merely because the parties to a contract urge different interpretations. 50 “New York follows the well established contra proferentem principle which requires that ‘equivocal contract provisions are generally to be construed against the drafter.’ ” 51

C. Motion to Dismiss

In reviewing a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the court must “accept as true all of the factual allegations contained in the complaint,” 52 and “draw all reasonable inferences in the plaintiffs favor.” 53 To survive a Rule 12(b)(6) motion to dismiss, the allegations in the complaint must meet a standard of “plausibility.” 54 A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” 55 Plausibility “is not akin to a probability requirement;” rather plausibility requires “more than a sheer possibility that a defendant has acted unlawfully.” 56

D. Promissory Estoppel

A cause of action for promissory estoppel under New York law requires a plaintiff to demonstrate a clear and unambiguous promise, reasonable and foreseeable reliance by the promisee, and unconscionable injury to the relying party as a result of the reliance. 57

IV. DISCUSSION

A. Contract Ambiguity

Coty claims that the LTIP unambiguously vests “ ‘sole discretion’ ” in the Board to determine Fair Market Value as *217 of an Exercise Date “ ‘at any time,’ ”— including “ ‘retroactively’ ” — on “ ‘any date,’ ” and without obligation to treat Participants “ ‘uniformly.’ ” 58 Coty also argues that the language of section 6(d)(ii) does not require it to use the September Valuation Date for Fishoff s shares. Coty points to sections of the LTIP that expressly provide for payment based on “the per Share value on the most recent Valuation Date,” 59 claiming that the use of this phrase in these sections indicates that the LTIP intended to ascribe a different meaning to section 6(d)(ii). That section provides, in pertinent part, that

[u]pon any valid exercise of an Option or any portion thereof ... the respective Participant shall be entitled to receive only a payment in cash equal to the excess, if any, of the Fair Market Value, as of the Exercise Date, of the Shares underlying the Option or portion thereof so exercised over the aggregate exercise price of such Option or portion thereof. 60

As a result, the phrase “as of the Exercise Date” as used in section 6(d)(ii) cannot mean that Fishoff was entitled, without limitation, to the Fair Market Value as of the September Valuation Date, because had such a reading been intended, Coty “knew how to so provide” and would have used the phrase “most recent Valuation Date” in section 6(d)(ii). 61 Conversely, Fishoff contends that the LTIP is unambiguous in that it confers no discretion on the Board to alter the Fair Market Value assigned to shares after a valid exercise. 62

Both parties’ arguments miss the mark. The issue is not whether it was within Coty’s discretion to retroactively determine the Fair Market Value of Fish-offs shares after a valid exercise. Rather, the question is whether the LTIP permits Coty the discretion to apply different Fair Market Values to shares exercised by different Participants on the same day. The answer is clear — the LTIP is unambiguous and does not provide for such discretion.

Courts are “extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include.” 63 The LTIP *218 does not explicitly permit Coty to assign different Fair Market Values to shares that are exercised on the same date. This Court will not read this provision into the LTIP — an act which this Court is not empowered to take and one which would create a risk of arbitrary conduct by the Board. 64

Coty points to two provisions — sections 3(b) and 10(c) of the LTIP — in support of its position. Section 3(b) provides that it is within the Board’s sole discretion to make any decisions regarding the LTIP or any Award and can do so at any time. 65 Section 10(c), under the heading “No Rights to Awards,” provides that “[n]o Employee, Participant or other Person shall have any claim to be granted any Award and there is no obligation for uniformity of treatment of Employees, Participants, or holders or beneficiaries of Awards.” 66

The discretion conferred on Coty by section 3(b) is extremely broad and may well permit Coty to retroactively value shares. In addition, section 10(c) does permit Coty to treat Participants differently with regard to awarding stock options. For example, under section 10(c), Coty may grant two similarly situated employees vastly different awards, including the number of stock options, when the options can be exercised, whether they are revocable or irrevocable, and limitations on how they may be exercised. Yet, neither section 10(c) nor section 3(b), nor any other LTIP provision, expressly provides that the Board has the discretion to value shares exercised on the same date differently. 67 Construing the terms of the LTIP against its drafter, the LTIP does not provide Coty with the discretion to apply different Fair Market Values to Participants who exercise on the same date.

This Court previously determined that Fishoffs exercise “was a timely ‘November’ exercise.” 68 Under the terms of the LTIP, Coty was obligated to assign to Fishoffs shares the same Fair Market Value assigned to every Participant who exercised in November. Had Coty determined that all November exercisers were entitled to a Fair Market Value of $31, this dispute may never have arisen. Fishoff alleges that at least some November exercisers were issued payments equal to a Fair Market Value of $58 per share minus the amount they paid for their options, even though Fishoff was offered a payment equal to a Fair Market Value of only *219 $31 per share minus his purchase price. 69 While the LTIP may permit Coty to value its shares at any time, Coty’s stock cannot have two Fair Market Values on the same day. If this varying treatment occurred, then Coty breached the terms of the LTIP. Whether any Participants were awarded payments of $58 per share minus their respective purchase prices is an area that remains open for discovery. 70 Coty’s motion for summary judgment on the limited question of contract interpretation is denied.

B. Promissory Estoppel

Fishoff alleges that Coty promised to honor Fishoff s November 2008 exercise of 200,000 vested stock options. 71 Fishoff contends that he “continued to provide services to Coty” in reliance on Coty’s alleged “promise to pay his option exercise.” 72 As a result, Fishoff alleges he suffered damages of at least $7.6 million. 73

As an initial matter, Fishoff s allegation of reasonable and foreseeable reli-

ance is not plausible. Coty could not have reasonably foreseen Fishoff s reliance because Fishoff was not obligated under the LTIP to continue his employment with Coty in order to receive payment on exercised options. In other words, even if Fishoff had terminated his employment with Coty the day after he exercised his options, Fishoff was entitled to a payment that was equal to the Fair Market Value of the shares as of his November Exercise Date minus his average purchase price of those shares. It is not plausible that Fish-off continued his employment with Coty in reasonable and foreseeable reliance on Coty’s alleged promise.

Even if Fishoffs allegation of reliance was plausible, Fishoff fails to plead the requisite injury for such a promissory estoppel claim. “Under New York law, the failure to switch employers does not create a promissory estoppel claim unless the plaintiff can show that unconscionable injury would result absent enforcement of the defendant’s promise.” 74 *220 Fishoff s only alleged injury is that resulting from Coty’s alleged violation of the LTIP through its decision to value Fish-offs options at $31 rather than $58. 75 Unconscionable injury, however, requires something beyond “the expectation damages which flow naturally from the nonperformance of the alleged agreement.” 76 Even construing all facts in favor of Fish-off, it is not plausible that Fishoff has suffered unconscionable injury. Coty’s motion to dismiss Fishoff s promisory estoppel claim is granted.

y. CONCLUSION

For the reasons stated above, Coty’s motion for summary judgment on Fishoff s breach of contract claim is denied, and Coty’s motion to dismiss Fishoffs promissory estoppel claim is granted. The Clerk of the Court is directed to close this motion [Docket No. 25]. A conference is scheduled for December 28, 2009, at 4:30 p.m. in Courtroom 15C.

SO ORDERED.