203 A.3d 1186
Vt.2018Background
- Tanzer was a longtime employee of MyWebGrocer and a participant in the company’s phantom share plan; vested phantom shares were part of his compensation and converted on certain triggering events (change in control or IPO).
- Pre-2009 plans treated phantom shares as a distributional interest equal to 10% of the LLC’s distributional interest, with formulas to convert individual phantom shares into a member distributional interest; plans included a clause allowing amendment if the company converted to a corporation other than by IPO.
- In 2009 MyWebGrocer converted from an LLC to a Delaware corporation and amended the plan, capping total phantom shares and converting vested phantom shares to a fixed fraction of shares (resulting in 254,416 common shares reserved for phantom shareholders); the corporation later issued preferred stock to investors.
- A 2013 merger triggered a cashout using the 2009 valuation formula; MyWebGrocer offered Tanzer approximately $589k (including escrow), which Tanzer disputed as underpayment and sued for breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, promissory estoppel, and violation of Vermont wage statutes.
- The trial court granted summary judgment for Tanzer on breach of contract (interpreting the 2008 plan to require a 10% payout), denied his wage-law claim, and dismissed MyWebGrocer’s counterclaims; a jury later found for Tanzer on the covenant claim and awarded compensatory and punitive damages; the Supreme Court reverses the contract ruling, vacates the covenant verdict, and holds the phantom-share payout qualifies as wages under Vermont law.
Issues
| Issue | Plaintiff's Argument (Tanzer) | Defendant's Argument (MyWebGrocer) | Held |
|---|---|---|---|
| Whether the phantom-share plan obligated MyWebGrocer to pay phantom shareholders a guaranteed 10% equity interest post-incorporation (i.e., anti-dilution) | The 2008 plan’s 10% distributional-interest provision required phantom shareholders to receive 10% of company equity at payout regardless of corporate conversion or later share issuances | Pre-2009 provisions anticipated amendment on conversion; the 2009 amendment fixed conversion to actual shares and contemplated dilution (no anti-dilution guaranty) | Reversed: the 2009 amendment and plan language do not guarantee a fixed 10% equity stake post-incorporation; no contractual anti-dilution rule was shown |
| Whether the jury verdict for breach of the covenant of good faith and fair dealing should stand given the court’s summary judgment on contract | Tanzer relied on the court’s contract ruling and other conduct to show bad-faith litigation and payout manipulation | MyWebGrocer argued the contract ruling improperly influenced the jury and contested the underlying conduct | Vacated: permitting the jury to hear that the court had decided breach of contract in Tanzer’s favor improperly colored context for the covenant claim; remand for potential retrial on covenant claim if repleaded properly |
| Whether the phantom-share payout is "wages" under 21 V.S.A. §§ 341–348 such that statutory wage remedies apply | Phantom shares were compensation granted for services (vested, some in lieu of salary) and payable on a triggering event; once payable, the employer had no discretion to withhold payment—thus they are wages | The payout was contingent, akin to a lottery or discretionary profit-sharing/bonus tied to corporate events and therefore not "wages" | Reversed: the Court holds the payout meets the statutory definition of wages (remedial statute, broad definition of earnings); once payoff triggered, payment was due and employer lacked discretion to deny it |
| Whether attorney’s fees awarded post-trial were properly limited | Tanzer sought fees for activities tied to both contract and covenant litigation and for certain litigation conduct | MyWebGrocer challenged fees and certain litigation-conduct findings; court limited recoverable fees to those arising from bad-faith/dishonest litigation conduct | Unresolved on merits: because contract ruling reversed and covenant verdict vacated, the Court did not reach final resolution of permissible fee recovery; remanded for proceedings consistent with reversal/remand |
Key Cases Cited
- Hamelin v. Simpson Paper Co., 702 A.2d 86 (Vt. 1997) (contract interpretation gives effect to parties’ expressed intent)
- Carmichael v. Adirondack Bottled Gas Corp. of Vt., 635 A.2d 1211 (Vt. 1993) (implied covenant of good faith and fair dealing protects parties’ justified expectations)
- Monahan v. GMAC Mortg. Corp., 893 A.2d 298 (Vt. 2005) (limits on separate covenant claims and standard for punitive damages/actual malice)
- Langlois v. Town of Proctor, 113 A.3d 44 (Vt. 2014) (covenant covers settlement and litigation conduct; dishonest litigation conduct can violate covenant)
- Stowell v. Action Moving & Storage, Inc., 933 A.2d 1128 (Vt. 2007) (purpose of wage statutes is to ensure timely payment; remedial statutes construed broadly)
- Perrault v. Chittenden Cty. Transp. Auth., 192 A.3d 381 (Vt. 2018) (wages construed as earnings; earnings defined broadly)
- Quinn v. Pate, 197 A.2d 795 (Vt. 1964) (defining wages/earnings in statutory context)
- Truelove v. Ne. Capital & Advisory, Inc., 738 N.E.2d 770 (N.Y. 2000) (bonuses tied to firm performance and employer discretion are not statutory wages)
- Weems v. Citigroup, Inc., 961 A.2d 349 (Conn. 2008) (bonus/restricted stock awards not wages when discretionary and tied to employer success)
- Coen v. SemGroup Energy Partners G.P., LLC, 310 P.3d 657 (Okla. Civ. App. 2013) (phantom units payable on change of control were not wages under Oklahoma law; considered discretion and link to employer performance)
- Wal-Mart Stores, Inc. Assocs. Health & Welfare Plan v. Wells, 213 F.3d 398 (7th Cir. 2000) (contract terms are interpreted against background default legal principles)
- In re Gadhue, 544 A.2d 1151 (Vt. 1988) (attorney’s fees may be recoverable when litigation is made necessary by another’s wrongful act)