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LAUNOIS v. MIDLAND-ROSS CORP.

November 23, 1990

ANDRE LAUNOIS, PLAINTIFF,
v.
MIDLAND-ROSS CORPORATION, FORSTMANN LITTLE & CO., FORSTMANN LITTLE & CO. SUBORDINATED DEBT AND EQUITY MANAGEMENT BUYOUT PARTNERSHIP II AND MRC ACQUISITION CORP., DEFENDANTS.



The opinion of the court was delivered by: Newman, Senior Judge of the United States Court of International Trade sitting as a United States District Court Judge by designation.

OPINION, FINDINGS OF FACT AND CONCLUSIONS OF LAW

INTRODUCTION

Andre Launois ("Launois"), a resident and citizen of France, brings this diversity action alleging breach of an Employment Agreement entered into between Launois and defendant Midland-Ross Corporation ("Midland-Ross") dated July 16, 1986.

Launois requests recovery of: (1) cash bonuses of between $70,000 and $120,000 per annum for 1987 and 1988, with interest, pursuant to the Second Proviso in § 3.1(b) of the 1986 Employment Agreement as it applies to the FL Aerospace Corporation Executive Incentive Compensation Plan (the "1987 Plan")*fn1; (2) a declaratory judgment that Launois' pension benefits in accordance with § 4.2 of the 1986 Employment Agreement should be calculated by including the bonuses mentioned heretofore as well as $360,000 compensation Launois was paid in 1987 for assisting in the sale of Midland-Ross' thermal systems businesses and assets to Compagnie de Fives Lille ("Fives Lille"); (3) miscellaneous benefits amounting to $92,000 under § 3.1(d) of the 1986 Employment Agreement; and (4) recompense for legal fees and disbursements of $127,000 in compliance with § 11.4(b) of the 1986 Employment Agreement. Launois seeks a joint and several judgment against defendants contending that Forstmann Little & Co. ("Forstmann Little") assumed Midland-Ross' contractual obligations following Forstmann Little's acquisition of Midland-Ross by means of a leveraged buyout consumated in September of 1986.

Defendants respond that Launois is not entitled to any bonuses for 1987 and 1988, any miscellaneous benefits, or recompense for legal fees under the terms of the 1986 Employment Agreement. Further, defendants argue that Launois erroneously contends that the allegedly unpaid bonuses and payment of $360,000 should be included in the base for determining Launois' pension calculations pursuant to § 4.2 of the 1986 Employment Agreement, and that Launois' request for a declaratory judgment to that effect should be denied. Defendants therefore request dismissal of all claims.

Jurisdiction is founded on diversity of citizenship, 28 U.S.C. § 1332(a) (1982). The amount in controversy, exclusive of interest and costs, exceeds $10,000, the jurisdictional amount required at the time this action was instituted. Venue is proper in accordance with 28 U.S.C. § 1391(a), (c) (1982).

Under § 11.5 of the 1986 Employment Agreement which stipulates that the parties are to be governed by the laws of the state of Ohio, the substantive law of Ohio applies. As a matter of course, New York courts give effect to contractual choice of law clauses. See e.g., Freedman v. Chemical Constr. Corp., 43 N.Y.2d 260, 372 N.E.2d 12, 401 N.Y.S.2d 176 (1977); Compagnia de Inversiones Internacionales v. Industrial Mortgage Bank of Finland, 269 N.Y. 22, 198 N.E. 617 (1935), cert. denied, 297 U.S. 705, 56 S.Ct. 443, 80 L.Ed. 993 (1936); Restatement (Second) of Conflicts of Laws § 187.

This matter was tried to the court without a jury. In accordance with Rule 52, Fed.R.Civ.P., the court makes the following Findings of Fact and Conclusions of Law:

BACKGROUND

The 1984 Employment Agreement

In 1984 Launois moved to Cleveland, Ohio from Paris, France to become Executive Vice President in charge of Midland-Ross' worldwide thermal business segment, which included Stein-Heurtey. While it was not typical at that time for Midland-Ross executives to have employment agreements, Launois was very concerned about relocating his family from Europe without job security, and hence Launois and Midland-Ross entered into a formal Employment Agreement designed to assure Launois that he would work in Midland-Ross' Ohio office for at least three years. The Agreement guaranteed Launois a starting annual salary of $175,000, making him eligible to be awarded bonuses in accordance with Midland-Ross' various bonus programs: Management Incentive Compensation Plan ("MICP"), Executive Performance Plan ("EPP"), and its predecessor, Executive Incentive Compensation Plan ("EICP").

In addition, the 1984 Employment Agreement enabled Launois to participate in Midland-Ross Corporation Pension Plan for Salaried Employees ("Salaried Pension Plan") for the duration of his employment with Midland-Ross which would entitle him to monthly pension benefit payments.

Sale of Midland-Ross

In April or May of 1986, Midland-Ross was offered for sale, and during May and June of 1986 Harry J. Bolwell ("Bolwell"), the Chief Executive Officer and Chairman of the Board of Directors of Midland-Ross, negotiated with several groups interested in acquiring Midland-Ross. In due course, Forstmann Little contracted to purchase a controlling interest in Midland-Ross in conformance with a certain Agreement and Plan for Merger, dated June 30, 1986. Thereafter in September of 1986, a controlling interest in Midland-Ross was acquired by Forstmann Little through one or more of its affiliates. Midland-Ross' name was changed to FL Aerospace, Inc. ("FL"), and Richard Veiser ("Veiser") became the President and Chief Executive Officer of the successor company.

The 1986 Employment Agreement

In May 1986, during the period that the sale of a controlling interest in Midland-Ross to Forstmann Little was in the process of negotiations, Bolwell suggested to, inter alios, Launois that he might wish to enter into a new Employment Agreement in order to provide Forstmann Little with flexibility in modifying existing bonus plans and to provide Launois with job security in light of the likely change of ownership of Midland-Ross. The parties agreed that Midland-Ross' attorneys, Jones, Day, Reavis & Pogue of Cleveland would draft the new Employment Agreement (Pre-Trial Order "PTO" 7).

On June 26, 1986 Frank N. Fittipaldi ("Fittipaldi"), Vice President and General Counsel of Midland-Ross, provided Launois with a draft of a proposed Employment Agreement for his review. Thereupon, Launois retained an attorney Frank Rasmussen ("Rasmussen"), of the law firm of Squire, Sanders & Dempsey of Cleveland. Launois and Rasmussen consulted on June 30, 1986 and again on July 2, 1986.

On the same day as Launois' second consultation with Rasmussen, Launois sent Fittipaldi a typed memorandum with a handwritten addendum containing various revisions that Launois desired for incorporation in the draft Employment Agreement. Essentially, Launois requested modification of two articles: one relating to Midland-Ross' supplemental retirement plan and the other relating to the assignment of contractual obligations. Launois requested these changes because he was convinced that the Thermal Systems group would be sold to a group of foreign investors, and was concerned that the successor company might object to certain portions of the obligations proposed by Midland-Ross under the new Employment Agreement.

Prior to the execution of the new Employment Agreement, Launois traveled to France and during his stay received from Fittipaldi a second draft. Launois noted that the changes he requested had been incorporated into the second draft, and also that Article III on compensation, specifically § 3.1(b) relating to incentive compensation plans and arrangements, contained substantial modifications from the first draft. Launois did not take issue with the modified language contained in the second draft until he returned to Cleveland on July 30, 1986 and met with William Ludwig ("Ludwig"), Senior Vice President of Human Resources for FL Industries, Inc., which company was responsible for, inter alia, overseeing and coordinating the acquisition of Midland-Ross on behalf of Forstmann Little. During the course of discussions relating to the modified second draft, Ludwig explained that the revisions reflected in § 3.1(b) of the new 1986 Employment Agreement had been made to provide Forstmann Little with more flexibility to modify, amend or terminate existing bonus programs.

Launois also met with his attorney, Rasmussen, on July 30 to further review the new Employment Agreement, especially in light of the various proposed revisions incorporated into the second draft by Midland-Ross. Launois was advised by Rasmussen to sign the modified second draft of the 1986 Employment Agreement, and therafter Launois and Midland-Ross entered into the new 1986 Employment Agreement. The effective date was July 16, 1986 although the Agreement was actually executed sometime after July 30, 1986 when Launois had returned from Paris to Cleveland.

Sale of Thermal Systems Group (Stein-Heurtey)

In September 1986, Morgan Stanley & Co. ("Morgan Stanley") was retained by Forstmann Little and FL to market certain of FL's divisions, including Stein-Heurtey. On January 20, 1987 Nicholas Forstmann ("Forstmann"), one of the principals of Forstmann Little, met with Launois and requested that he assist Morgan Stanley in selling the divisions comprising the thermal systems group. Indeed, Forstmann offered to pay Launois a fee of $360,000 for assisting Morgan Stanley and Midland-Ross with the sale of the various divisions (Tr. 40-42).

Launois assisted Morgan Stanley by drafting offering materials for these divisions and by meeting with potential buyers, viz, with more than seven prospective buyers, including Banque Paribas (Tr. 51). On January 30, 1987 — ten days after Launois was brought in to assist Morgan Stanley — FL contracted to sell a controlling interest in Stein-Heurtey and its subsidiaries to Fives Lille, a subsidiary of Banque Paribas*fn2. The actual sale was consummated on March 16, 1987, and on March 25, 1987 Midland-Ross paid Launois the $360,000 compensation that Forstmann had promised Launois for assisting Morgan Stanley and Midland-Ross. After March 16, 1987 Launois did not actively work for FL, but the 1986 Employment Agreement was in effect through December 31, 1988.

DISCUSSION

The court turns to a discussion of Launois' various claims for relief. In bringing this contract action, fundamentally, Launois bears the burden of proving, by a preponderance of the evidence, breach of contract terms and damages suffered thereby. See e.g., Capitol Equipment Enterprises, Inc. v. Wilson Concepts Inc., 19 Ohio App.3d 233, 484 N.E.2d 237 (Ohio Ct. App. 1984); List & Son Co. v. Chase, 80 Ohio St. 42, 88 N.E. 120 (Ohio 1909).

Bonus Payments


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