Fishoff v. Coty, Inc.
634 F.3d 647
2d Cir.2011Background
- Fishoff, Coty entered LTIP with multiple stock option grants (2002–2005) under a discretionary plan administered by Coty’s Board; LTIP defined Fair Market Value (FMV) to be set by a valuation on specified dates by a chosen expert; Exercise Date was the last day of each month, with November 2008 having a Sunday as the last day; Fishoff exercised 200,000 options in November 2008 and Coty initially paid at FMV of $58, then retroactively reduced Fishoff’s value via a separate, Fishoff-only valuation; Board subsequently voided late December notices, added valuation dates, and restricted Exercise Dates; Coty later paid Fishoff $31 per share for a total of about $2.2 million, far below the $7.6 million payable to others; Fishoff sued in SDNY asserting breach of contract, fraud, and securities claims; district court held Fishoff timely November exercise under NY GCL § 25 and awarded damages for the value differential; Coty appealed the contract interpretation and sanctions rulings; Second Circuit affirmed the district court’s judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness of Fishoff’s November exercise under NY GCL §25 | Fishoff timely exercised November 2008; December 1 processing was allowed under §25. | LTIP required processing on Exercise Date; §25 does not apply to processing, only payment timing. | Timely November exercise under §25; district court proper. |
| Coty’s discretion to alter share value post-exercise under LTIP | LTIP requires FMV in place on Exercise Date; unilateral post-exercise retroactive valuation violates contract. | LTIP grants Board broad discretion to interpret and modify awards. | Coty violated LTIP nondiscretionary FMV rule; duty of good faith breached. |
| Application of the implied covenant of good faith and fair dealing | Coty’s post hoc devaluation was arbitrary and harmed Fishoff’s contractual fruits. | Discretion within LTIP could be exercised; implied duty not implicated. | Implied covenant limits discretion; arbitrary post-exercise valuation is unlawful. |
| Sanctions under PSLRA for Rule 11 conduct | Plaintiff’s securities argument had some non-frivolous support; Rule 11 standards apply. | Arguments frivolous; sanctions warranted. | District court did not abuse discretion; sanctions denied. |
Key Cases Cited
- Lee v. BSB Greenwich Mortgage Ltd. P'ship, 267 F.3d 172 (2d Cir. 2001) (contract interpretation and standard of review on de novo review)
- Dalton v. Educational Testing Serv., 87 N.Y.2d 384 (New York Court of Appeals 1995) (duty of good faith and fair dealing in exercising discretion)
- Jennifer Realty Co. v. 511 West 232nd Owners Corp., 98 N.Y.2d 144 (N.Y. 2002) (implied covenant of good faith and fair dealing in contracts)
- Lam v. American Express Co., 265 F. Supp. 2d 225 (S.D.N.Y. 2003) ((excluded due to lack of official reporter citation))
- Namad v. Salomon, Inc., 74 N.Y.2d 751 (New York Court of Appeals 1989) (limits on employer discretion in compensation)
- In re Kaplan, 143 F.3d 807 (3d Cir. 1998) (interpretation of discretionary plans; fiduciary duties)
- National Mortgage Network, Inc. v. Sterling Nat’l Bank, 392 F.3d 520 (2d Cir. 2004) (duty of good faith in financial contracts)
- ATSI Communications, Inc. v. Shaar Fund, Ltd., 579 F.3d 143 (2d Cir. 2009) (sanctions standards under PSLRA; frivolous securities claims)
- Morley v. Ciba-Geigy Corp., 66 F.3d 21 (2d Cir. 1995) (sanctions and nonfrivolous positions concept)