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HARDEN v. WARNER AMEX CABLE COMMUNS. INC.

September 3, 1986

HOLMES HARDEN, Plaintiff,
v.
WARNER AMEX CABLE COMMUNICATIONS INC., Defendants



The opinion of the court was delivered by: LEISURE

LEISURE, District Judge :

Plaintiff, Holmes Harden, a former Executive Vice President and Chief Financial Officer of defendant Warner Amex Cable Communications, Inc. ("Warner Amex"), seeks damages on the basis of defendant's alleged breach of an employment agreement dated January 27, 1981 ("Agreement"). Jurisdiction has been invoked on the basis of diversity of citizenship. Plaintiff contends that under his employment contract with defendant and upon termination of his employment, he was entitled to receive the following: (a) pension benefits; (b) a bonus payment of $63,000 for services rendered in 1980; (c) nine months' salary following termination; (d) ten weeks accrued vacation pay; and (e) nine months' life and accidental death insurance and medical insurance coverage. Plaintiff has also asserted that he is entitled to an accrued bonus payment pro rated for the portion of 1983 that he was employed at Warner Amex.

Before trial, the $63,000 bonus dispute was resolved by agreement between the parties. Also, defendant withdrew an affirmative defense that plaintiff had misused certain confidential information. Finally, on the eve of trial, the parties waived their right to a jury trial. Consequently, this case was tried to the Court without a jury from October 28, 1985 through November 4, 1985. The following shall constitute the Court's Findings of Fact and Conclusions of Law under Rule 52(a) of the Federal Rules of Civil Procedure.

 FINDINGS OF FACT

 The Parties

 Harden is a citizen of the State of Connecticut. Warner Amex is an Illinois corporation, with its principal place of business in New York, New York. It is engaged in the cable television business.

 Harden was employed as Executive Vice President and Chief Financial Officer of Warner Amex from March 1, 1981 until August 26, 1983, and was paid through the end of August 1983.

 Warner Amex was owned equally by Warner Communications Inc. ("Warner") and American Express Company ("American Express"). Warner Amex was managed by an Executive Committee which consisted of Warner Amex senior management representatives and representatives of the parent companies, including Lou Gerstner, Sandra Meyer and Bob Smith of American Express and from Warner Communications, Bert W. Wasserman, Chief Financial Officer, and David Horowitz. In 1981, George Sheinberg replaced Smith as Treasurer of American Express and became a member of the Executive Committee. The Executive Committee was responsible for a range of business issues, including monitoring the general status of the cable television industry, the operations and programming aspects of the business, and the results of operations. In addition, the Executive Committee reviews issues dealing with employment and senior management.

 Harden's Prior Employment And Compensation

 Before joining Warner Amex, plaintiff worked for Reliance Insurance Company ("Reliance") as Senior Vice President and Chief Financial Officer. In that position, plaintiff supervised several hundred persons, and reported to the Reliance President and Chief Executive Officer. His other responsibilities included financial record keeping and reporting, supervision of data processing systems, mergers and acquisitions, banking relationships, and preparation of tax returns and reports to the Securities and Exchange Commission.

 Reliance paid plaintiff an annual salary of $103,000 when he left. In addition to this base salary, plaintiff was entitled to a bonus equal to 70% of his annual salary. This percentage was expected to increase to 100% of his salary the next year. Reliance also provided Harden with non-qualified stock options, life insurance benefits in excess of $800,000, and travel accident benefits in the amount of $400,000. In addition to being within one year of vesting in two Reliance pension plans, plaintiff also enjoyed substantial medical benefits. At the time he left Reliance, plaintiff was also entitled to five weeks of vacation per year after the completion of ten years of service. In addition, it was Reliance's policy to permit the accumulation of unused vacation time payable upon the departure of any executive employee at his then current salary. When plaintiff left Reliance, he was compensated for such accumulated but unused vacation pay.

 When Harden first considered leaving Reliance to join Warner Amex, he was within ten months of completing the ten years of Reliance service necessary for him to vest in the Reliance Group Incorporated pension plan and the Reliance Insurance Company pension plan. Notwithstanding this situation, plaintiff was interested when, in the summer of 1980, an executive recruiting firm suggested to plaintiff the prospect of an employment opportunity with defendant.

 The Agreement

 Warner Amex employed Harden pursuant to an agreement dated January 27, 1981 (the "Agreement") signed by Harden and John D. Lockton, Jr., who, at the time, was President and Chief Operating Officer of Warner Amex. The Agreement was the product of negotiations and discussions between Harden and Lockton and Nickolas Davatzes, the Warner Amex Senior Vice President, Human Resources Administration. During the course of these negotiations, Harden represented himself, although Elliot Wohl, a lawyer employed by Reliance, provided Harden with informal advice concerning at least one of the Agreement's drafts.

 The Agreement, as signed, provides in relevant part, as follows:

 2. Compensation -- Base salary: $125,000 on an annualized basis for 1981 (to be adjusted for start date), plus an expected annual bonus of $65,000 for 1981 payable in early 1982. It is assumed that base and bonus will increase in future years, dependent upon both your own performance and the company's performance.

 4. Pension -- If you voluntarily terminate your employment with the company, pension benefits will be determined as follows:

 a. Voluntary termination within five years of employment -- no benefits paid.

 b. Voluntary termination after five years of employment -- the company agrees to pay you, commencing on your 65th birthday, an amount which would be equal to that which you would have received under its qualified pension plan had you commenced employment with the company on August 1, 1971. Any payments received under this paragraph will be reduced by any amounts received by you, if any, under the company's qualified pension plan.

 If for any reason, other than cause, your employment is terminated by the company prior to full vesting under its qualified pension plan, the company agrees to pay you, commencing on your 65th birthday, an amount which would be equal to that which you would have received under its qualified pension plan had you been fully vested as of the date of involuntary termination with the number of years of service as of that date needed for full vesting (currently 15 years). Any payments received under this paragraph will be reduced by any amounts received by you, if any, under the company's qualified pension plan.

 If you are terminated by the company at any time for cause, any and all pension benefits you would be entitled to would be paid only from the company's qualified pension plan and only to the extent you may be vested therein.

 For purposes of the calculation of any benefits due under the terms of this letter, in the event you do not complete five years of employment, for purposes of determining the final average pay over a five-year period, it shall be assumed that for every year short of five years of employment you would have earned the sum of $125,000 per year.

 Benefits payable hereunder shall be determined on the basis of a single life annuity. You will have the right to elect any appropriate joint and survivor election permissible under the company's qualified plan with the same actuarial assumptions as would be applicable under said plan.

 6. Termination -- If for any reason, other than cause, your employment is terminated by the company within five years of employment, the company will continue obligated to pay your then monthly salary (but not bonus) for a period of up to nine months or until you commence alternative employment, whichever shall first occur.

 8. Other Benefits -- All other Warner Amex benefits will be provided to you in accordance with their terms.

 Preliminary Negotiations

 Initially, Harden met with Gustave Hauser, the Chief Executive Officer of Warner Amex in September 1980. They discussed Warner Amex's business and the duties and responsbilities for the positions of President and Chief Financial Officer, respectively. Following this meeting, Lockton was hired by Warner Amex as President and Chief Operating Officer. Harden remained a candidate for the position of Executive Vice President and Chief Financial Officer. During further discussions, Hauser told Harden that Warner Amex needed to raise funds for Warner Amex's committed construction program. These financings were to be the responsbility [sic] of the Chief Financial Officer.

 In late November or early December 1980, Harden met with Lockton. Lockton described the duties and responsibilities of the Warner Amex Chief Financial Officer to include fund raising for the construction of cable franchises and dealing with Warner Amex's lending commercial banks.

 When Harden became the leading candidate for the job of Chief Financial Officer, Lockton and the other members of the Warner Amex senior management wanted plaintiff to join Warner Amex as soon as possible. In response, Harden described to Lockton in detail Harden's total compensation and benefit package at Reliance. Harden told Lockton that he was unwilling to sacrifice any portion of the compensation or other benefits which he had at Reliance, with the exception of the Reliance stock options. These discussions also covered severance compensation in the event Harden left Warner Amex and how Warner Amex would replace the pension benefits which plaintiff had accrued during his nearly ten years at Reliance.

 In early January, 1981, Warner Amex offered plaintiff the position of Executive Vice President and Chief Financial Officer. Harden and Davatzes then began discussions about Harden's compensation package. Harden told Davatzes that he was unwilling to forfeit his Reliance pension credit and would not accept the offer unless the company guaranteed him identical retirement benefits based upon the assumption that plaintiff had fully vested in the Reliance plans. Lockton testified that the purpose of the Agreement which resulted from these discussions was to persuade Harden to work for Warner Amex. Lockton stated that he and the others "were very interested in getting him in here, giving him pension benefits which made him comfortable based on what he had been offered at Reliance Insurance."

 According to Davatzes, they discussed how a termination would affect the context of pension and severance benefits. Specifically, they agreed that Harden would not receive a pension in the event there was a voluntary termination within five years of employment. On the other hand, it was agreed that a mutually acceptable termination in which plaintiff and Warner Amex "agreed to disagree" would not cause a forfeiture of plaintiff's pension rights. According to Davatzes, he opposed making plaintiff whole with respect to Harden's pension rights, and suggested to Lockton that plaintiff's employment date should be postponed until Harden had vested in the Reliance plans. But, because Lockton wanted plaintiff to begin with Warner Amex immediately, he directed Davatzes to provide plaintiff with pension benefits equal to those he had earned at Reliance. The end result of the discussions concerning plaintiff's pension benefits, according to Davatzes, was that Harden "would be made whole." In other words, there was a "gentlemen's understanding" that if either party decided that it was not working out, Harden "would still be made whole."

 With respect to severance benefits, plaintiff told Lockton that at Reliance, in the event plaintiff decided to leave for any reason, he could simply inform the company and Reliance would continue to compensate plaintiff [sic] for a minimum of one year. It was the Warner Amex policy, on the other hand, that in the event an employee unilaterally resigned to take another job, Warner Amex did not make severance payments. According to Lockton, however, on one occasion, when a mutually acceptable resignation, or a "being pushed-out sort of resignation," occurred, severance payments were made. Davatzes testified that the concept of a "mutually acceptable" termination applied to severance pay. This concept included the possibility of an agreement to disagree or a determination by plaintiff and Warner Amex that the employment situation was not fruitful or satisfactory to either party. According to Davatzes, plaintiff could have left Warner Amex because they did not like the way they "sailed together," and Warner would have been obligated to pay plaintiff all benefits due upon a termination of plaintiff's employment by the company. This was consistent with Warner Amex's Human Resources Policy Manual, which provides, with respect to separation, that all full-time employees are eligible for severance pay in the event they are separated on the basis of a "mutually satisfactory resignation."

 Lockton told plaintiff that in the event Harden decided to leave Warner Amex, and the company disagreed with such departure, Lockton wanted to have the discretion to examine the circumstances under which Harden was leaving so that Lockton could decide unilaterally if Harden should be compensated by receipt of severance benefits. Lockton also told plaintiff that he did not want to anticipate all the circumstances which could lead Lockton to decide not to compensate Harden in the event of a voluntary termination.

 Plaintiff [sic] claims that he and Lockton agreed that if plaintiff left Warner Amex for any reason other than fraud or similar circumstances, he would be entitled to receive severance pay at his then existing salary and a continuation of his fringe benefits for a minimum of nine months or until he found a new position, whichever occurred earlier. Paragraph 6 of the Agreement provides, however, that plaintiff shall be entitled to receive severance benefits only if his employment is terminated "by the company" for any reason, other than for cause. Lockton recalls no discussion with Harden concerning paragraph 6 of the Agreement, including any discussion with respect to the inclusion of the words "by the company" in the second line of paragraph 6. Harden never asked Lockton to delete the words "by the company," nor did he complain to Lockton about the language and never asked that any changes be made in paragraph 6. Harden stated at trial that he would have preferred that these words not be included.

 Neither Lockton nor Davatzes recalls any discussion with Harden concerning vacation benefits at the time the Agreement was being negotiated. According to Harden, Lockton did not object if Harden could manage his department in such a manner that he could afford to take off five weeks every year, but there was no discussion about vacation carryovers or pay in lieu of untaken vacation.

 Paragraph 2 of the Agreement describes plaintiff's compensation in the form of salary and bonus. It provides that plaintiff's 1981 base salary would be $125,000

 plus an expected annual bonus of $65,000 for 1981 payable in early 1982. It is assumed that base and bonus will increase in future years, dependent upon both your own performance and the company's performance.

 Plaintiff's compensation history at Warner Amex was consistent with the terms of the Agreement. In 1983, plaintiff received a bonus for 1982 in the amount of $100,000, and a $15,000 raise in base salary. Plaintiff received a $15,000 base salary increase for 1983.

 Davatzes and Hauser told plaintiff that the bonus would be a part of his annual compensation and that it was normal practice to pay bonuses to senior officers at the end of the calendar year. The company also had a practice of paying bonuses to individuals who were in the process of leaving the company. According to paragraph 6 of the Agreement, it was agreed that a bonus would not accrue during the term of the salary continuation following plaintiff's [sic] termination by the company. Conversely, plaintiff was entitled to receive a bonus for the time that he worked at Warner Amex in the event his employment ended. Plaintiff conceded, on the other hand, that there was no guarantee that a bonus would be paid every year, but he was told that only dire circumstances would interfere with payment of a bonus.

 There is no evidence in the record that Warner Amex paid bonuses to members of the management group for 1983. However, Andrew L. ("Drew") Lewis, Jr., successor to Lockton, testified that he was "totally satisfied with [Harden's] performance." Pursuant to paragraph 4, the performance of plaintiff and the company related not to whether a bonus would be paid but only to whether the bonus would increase in future years.

 After these negotations were concluded, the Warner Amex Human Resources Department, under Davatzes' supervision, prepared the Agreement, dated January 27, 1981, which outlined certain of the terms and conditions of plaintiff's employment. Harden read the Agreement and all of its provisions before he signed it. He signed it even though the Agreement in its final form was not satisfactory to him in all respects.

 The Agreement does not contain a merger clause. According to Davatzes, the Agreement "is not a clear letter and that much of what went on was between the men involved," meaning Harden and Lockton. For example, the Agreement provides that the pension benefits payable shall be determined on the basis of a single life annuity, but is silent as to whether the single life annuity was to be determined on a straight life basis or a straight life with ten year certain payment. Alan W. Wolff, the Warner Amex Corporate Director of Pensions, testified that the section describing plaintiff's pension benefits is vague and ambiguous as to whether the pension guarantee was to be on a life annuity or a ten year certain and life basis. plaintiff's pension benefits at Reliance were computed on a ten year certain basis. Plaintiff and Warner Amex agreed that, under appropriate circumstances, plaintiff would be made whole with respect to his Reliance pension benefits. The Agreement also incorporated by reference all benefits provided by Warner Amex to its other employees.

 The Agreement does not define the terms "voluntary termination," "termination by the company," or "cause." Harden and Davatzes had agreed that "voluntary termination" as it appears in paragraph 4 did not include a mutually acceptable termination, or an agreement to disagree. Thus, the term "voluntary termination" applies to a situation where Harden would leave of his own accord without the company's consent or acquiescence. The phrase "terminated by the company" is ambiguous, since the Agreement does not define what constitutes a termination by the company for reasons other than cause. According to plaintiff, it was agreed that a mutually acceptable termination ...


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