Appeal from a judgment of the United States District Court for the Southern District of New York (Scheindlin, J.) entered on February 5, 2010, in which the court awarded damages to Plaintiff-Appellee Michael Fishoff based upon its finding that Coty Inc. breached an options contract by retroactively valuing the company's shares such that Fishoff's options were worth approximately half of what all other options exercised in November 2008 were worth.
The opinion of the court was delivered by: Pooler, Circuit Judge:
Before: KEARSE, POOLER, and HALL, Circuit Judges.
Because nothing in the contract expressly authorized Coty to arbitrarily and retroactively re-value Fishoff's shares after he had exercised them, we affirm the judgment of the district court. AFFIRMED.
This appeal was taken from a final judgment of the United States District Court for the Southern District of New York (Scheindlin, J.) entered on February 5, 2010, in which the court awarded damages to Plaintiff-Appellee Michael Fishoff based upon its finding that Coty Inc. breached an options contract by retroactively valuing the company's shares such that Fishoff's options were worth approximately half of what all other options exercised in November 2008 were worth. Because nothing in the contract expressly authorized Coty to arbitrarily and retroactively re-value Fishoff's shares after he had exercised them, we affirm the order of the district court.
Appellee Michael Fishoff was employed by Appellant Coty Inc., a privately held corporation, which describes itself as "a global beauty leader and the world's largest fragrance company." Fishoff served as Coty's Chief Financial Officer from July 2002 until December 2008, when the company severed its employment contract with Fishoff. The facts of this lawsuit arise from efforts by the company, coinciding with the termination of Fishoff's employment, to reduce the value of his stock options.
When Fishoff was hired in 2002, Coty provided him with an employment letter addressing his compensation package, including his eligibility to participate in the company's Long-Term Incentive Plan ("LTIP" or "Plan"). In November 2002, Coty awarded Fishoff a nonqualified stock option to purchase up to 50,000 shares of Coty stock at a purchase price of $14 per share. Approximately one year later, Fishoff was awarded another 50,000 nonqualified stock options at a purchase price of $17 per share. In September 2004, he received 50,000 additional options with a purchase price of $23.25. And in September 2005, Fishoff received his final installment of 50,000 options with a purchase price of $25.50 per share. Each of these awards was governed by the terms of Coty's LTIP.
The LTIP states, inter alia, that "[u]nless otherwise expressly provided in the Plan," Coty's Board of Directors, which operated as the "Committee" charged with administering the LTIP, retains discretion to interpret the terms of the LTIP. Pursuant to this discretion, the Board may "amend any terms of, or alter, suspend, discontinue, cancel or terminate" existing awards "consistent with the latest version of the Plan as in effect from time to time." The Plan further provides "there is no obligation for uniformity of treatment of Employees, Participants, or holders or beneficiaries of Awards," and "[t]he terms and conditions of Awards need not be the same with respect to each recipient." "Award" is defined to include, inter alia, the types of stock options at issue in this case.
Section 6 of the LTIP relates to the Board's discretion with respect to specific awards, providing, among other things, that the Board determines who receives options and how many options each individual receives; what, if any, restrictions there are on when those options can be exercised; and how much the optionee will receive after cashing in, or exercising, the option. Except in circumstances not relevant here, the LTIP provides: "Upon 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." The defined term, "Fair Market Value," means the cash value of the share underlying each option. Pursuant to the terms of the Plan, Fair Market Value was to "be determined" by the Board periodically (the "Valuation Date[s]"), "using a nationally recognized investment bank (or other comparable valuation expert) selected by the [Board]." In terms of the restrictions on the exercise of the options at issue in this case, the LTIP provides that options "may be exercised only on an Exercise Date," which is defined as "the last day of any month, except the month prior to the month in which a Valuation Date falls." [A30] Coty states that Valuation Dates were usually in March and September, but the LTIP does not specify any particular date on which a valuation must take place.
The parties have not provided much color on Fishoff's relationship with Coty, but it clearly reached a low point during his last months at the company. In September 2008, the Board determined that the Fair Market Value of Coty's stock was $58 per share. Approximately two months later, Fishoff decided to exercise all of his 200,000 options and provided the company with notice of the transaction. Because the November Exercise Date (November 30, 2008) fell on a Sunday, Fishoff tendered his notice in person on Monday, December 1, 2008, as he was entitled to do by New York General Construction Law Section 25. The next day, Coty confirmed that Fishoff's notice was effective for the month of November and they provided him with notice of the cash value for his redemption, which totaled $7,612,500.
Three days later, Coty changed course, and the Board convened an official meeting on December 5 to alter the established terms of the LTIP. First, the Board voided all options exercise notices that had been tendered in December, including Fishoff's, on the ground that the notices were ...