Appeal from a judgment of the United States District Court for the Southern District of New York, Kram, J., entered in favor of plaintiff-appellee Richard Leberman in connection with an employment severance agreement. The district court granted Leberman's motion for summary judgment, denied defendant-appellant John Blair & Company's cross-motion for summary judgment, and awarded Leberman damages, attorney's fees and disbursements. Reversed and remanded.
Oakes, Chief Judge, Timbers and Meskill, Circuit Judges.
John Blair & Company (Blair) appeals from a judgment of the United States District Court for the Southern District of New York, Kram, J, entered on January 4, 1989, after the court granted Richard Leberman's motion for summary judgment, denied Blair's cross-motion for summary judgment and awarded Leberman damages, attorney's fees and disbursements. Federal jurisdiction is based on diversity of citizenship of the parties. The judgment in favor of Leberman was as follows: "(a) in the principal amount of $511,988.00 plus interest . . . (b) in the principal amount of $165,307.21 as the amount of reasonable attorneys' fees and disbursements . . . and (c) the costs of this action, to be determined by the Clerk of the Court." The award of $511,988 was to satisfy the terms of a January 1985 employment severance agreement and a September 1985 employment severance agreement. Because there were genuine issues of material fact concerning whether the terms of the January 1985 agreement were superseded by the September 1985 agreement and whether Leberman acted in good faith in determining the amount of severance payment that he was owed, the district court erred in granting summary judgment to Leberman. Accordingly, we reverse the judgment of the district court and remand for further proceedings.
In February 1985, Leberman became Blair's Vice President and Chief Financial Officer. Under the terms of his employment agreement dated January 23, 1985 (the January Agreement), Leberman was to participate in Blair's restricted stock plan and in its Long-Term Incentive Unit Plan (Unit Plan). Under the terms of the restricted stock plan, Leberman was initially awarded 1,690 shares of stock. Later, in September 1985, Leberman was awarded 3,692 additional shares. Shares awarded to Leberman under this plan were to become vested if he remained in continuous employment with Blair and did not transfer the stock during a four year award cycle. The terms of that plan further provided that a change in control of Blair would cause the condition of continuous employment and the restrictions on the shares to lapse, and ownership of the stock to vest immediately. Under the terms of the Unit Plan, Leberman was awarded 1,340 performance units. Vesting of the performance units depended on Leberman's continuous employment with Blair and Blair's performance level. The monetary value of the performance units would be determined in accordance with a formula provided in the Unit Plan. If an acquisition of control of Blair were to occur, the requirement of continuous employment would be waived and the performance units would vest immediately. The terms of the severance agreement contained in the January Agreement provided that, Leberman would "receive 1 year's severance, if [he were] terminated from John Blair & Company any time during [his] first 2 years of employment for other than cause."
Leberman and Blair entered into a Severance Compensation Agreement, dated September 27, 1985 (the September Agreement), which stated that in the event of a change in control of Blair, if Leberman's employment were terminated other than for death, disability, retirement or cause, or if Leberman were to terminate his employment for good reason, Blair would pay him a lump sum severance equal to three times his "'annualized includible compensation for the base period' (as defined in Section 280G(d) of the Internal Revenue Code . . . )." At the time of his termination in October 1986, Leberman's annualized includible compensation for the base period was $220,111.04. Section 4 of the September Agreement provided, in pertinent part, that
if the lump sum severance payment under this Section 4 . . . either alone or together with other payments which [Leberman] has the right to receive from [Blair], would constitute a "parachute payment" (as defined in Section 280G of the [Internal Revenue] Code), such lump sum severance payment shall be reduced to the largest amount as will result in no portion of the lump sum severance payment under this Section 4 being subject to the excise tax imposed by Section 4999 of the [Internal Revenue] Code. The determination of any reduction in the lump sum severance payment under this Section 4 pursuant to the foregoing proviso shall be made by [Leberman] in good faith, and such determination shall be conclusive and binding on [Blair].
The procedures for deciding whether to include the award of performance units in the "lump sum severance payment" calculations under the September Agreement included reading both the terms of the Unit Plan and the "Performance Unit Certificate" that awarded the specific number of performance units to Leberman.
Section 280G of the Internal Revenue Code, I.R.C. § 280G (West Supp. 1989) (the Code), provides that "no deduction shall be allowed [as a business expense] for any excess parachute payment." I.R.C. § 280G(a). An "excess parachute payment" is defined as "an amount equal to the excess of any parachute payment over the portion of the base amount allocated to such payment." I.R.C. § 280G(b)(1). The definition of "parachute payment" is found in section 280G(b)(2)(A) of the Code which provides that:
The term "parachute payment" means any payment in the nature of compensation to (or for the benefit of) a disqualified individual if --
(i) such payment is contingent on a change --
(I) in the ownership or effective control of the corporation, or
(II) in the ownership of a substantial portion of the assets of the corporation, and
(ii) the aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such change equals or ...