Lowes v. Cabletron CV-96-77-M 11/25/97 UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE

Darlene Lowes, Plaintiff

v. Civil No. 96-77-M Cabletron Systems, Inc., Defendant

O R D E R

Darlene Lowes brings this breach of contract action against her former employer, Cabletron Systems, Inc., claiming that

Cabletron wrongfully refused to honor certain stock options

issued to her under the Cabletron 1989 Equity Incentive Plan. She also claims that Cabletron wrongfully refused to issue her a

number of shares in Gratias Corporation, pursuant to the Gratias

Corporation 1989 Restricted Stock Plan. Cabletron denies that Lowes is entitled to any additional shares of either Cabletron Systems, Inc. or Gratias Corporation, and moves for summary

judgment. Lowes objects and has filed a cross motion for summary

judgment. The court has jurisdiction over plaintiff’s claims pursuant to

.

Standard of Review Summary judgment is appropriate when the record reveals "no

genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). In ruling upon a party's motion for summary judgment, the

court must, "view the entire record in the light most hospitable

to the party opposing summary judgment, indulging all reasonable inferences in that party's favor." Griggs-Ryan v. Smith,

(1st Cir. 1990).

Facts

By order dated December 13, 1996, the court denied

Cabletron’s motion for summary judgment, concluding that its

board of directors (and its incentive compensation committee) was

obligated to determine, fairly and in good faith, whether Lowes was terminated as a result of a total and permanent disability

and, therefore, entitled to the stock she claims. Because

neither the board nor the compensation committee ever did so, the court held that Cabletron was not entitled to judgment as a

matter of law. Lowes v. Cabletron, No. 96-077-M, slip op. at 12-

13 (D.N.H. December 13, 1996). The pertinent facts underlying this dispute are set forth in that earlier order. Nevertheless,

the court will briefly address those facts which are relevant to

the pending cross motions for summary judgment.

I. The Stock Awards and Stock Options.

Lowes began working for Cabletron in July of 1985. As a

benefit of her employment, she was awarded 1,750 shares of stock in Gratias Corporation, pursuant to the Gratias Corporation 1989

Restricted Stock Plan. Although Lowes actually owned all of the

2 shares of stock, they remained “unvested” and subject to

forfeiture under certain conditions until they “vested.” Those

shares were to have vested according to the following schedule:

1. 5/31/1989 - 250 shares; 2. 5/31/1990 - 500 shares; 3. 5/31/1991 - 500 shares; and 4. 5/31/1992 - 500 shares.

In July of 1989, Lowes received the 250 shares that vested on May

31, 1989. And, in June of 1990, she received the 500 shares that

vested on May 31, 1990. She claims that because her employment

was terminated by reason of a total and permanent disability, she

is entitled, under the terms of the Restricted Stock Plan, to the

remaining 1000 “unvested” shares of Gratias stock. In support of her claim, Lowes relies upon the following provision in the

Gratias Corporation 1989 Restricted Stock Plan:

Forfeiture. Unvested Shares shall be forfeited to the Company if the full-time employment of the Participant with Cabletron and its wholly-owned subsidiaries terminates for any reason, provided, however, that in the event the employment of the Participant terminates by reason of death or permanent disability (as determined by the Board of Directors of the Company in its sole discretion) of the Participant, all Unvested Shares shall immediately become Vested Shares.

Gratias Corporation 1989 Restricted Stock Plan, at para 7(c)

(emphasis added).

As an additional benefit of her employment, Lowes was given

options to purchase up to 1000 shares of Cabletron stock.

3 Pursuant to Cabletron's 1989 Equity Incentive Plan, those stock

options were exercisable according to the following schedule:

1. 12/20/1989 - 200 shares; 2. 12/20/1990 - 200 shares; 3. 12/20/1991 - 200 shares; 4. 12/20/1992 - 200 shares; and 5. 12/20/1993 - 200 shares.

In January of 1990, Lowes exercised her option to purchase 200

shares of Cabletron stock, in accordance with the option that

became exercisable on December 20, 1989. And, in January of

1991, she exercised her option to purchase 200 additional shares,

in accordance with the option that became exercisable on December 20, 1990.

Again, she says that because she was discharged “by reason of” her total and permanent disability, she is entitled under the

terms of the Equity Incentive Plan to exercise her options to

purchase the remaining 600 shares of Cabletron stock. The Cabletron Systems, Inc. 1989 Equity Incentive Plan provides:

If a Participant ceases to be an Employee by reason of . . . total and permanent disability (as determined by the Committee), the following will apply:

(a) . . . each Option and Stock Appreciation Right held by the Participant when his or her employment ended will immediately become exercisable in full and will continue to be exercisable until the earlier of (1) the third anniversary of the date on which his or her employment ended, and (2) the date on which the Award would have terminated had the Participant remained an Employee.

4 Cabletron Systems, Inc. 1989 Equity Incentive Plan at para. 7.1

(emphasis added). Cabletron denies that the foregoing provision

entitles Lowes to exercise the disputed stock options.

II. Lowes' Employment and Disability History.

On May 17, 1990, Lowes left work, claiming that she was unable to function due to stress, anxiety, and depression. That

same day, she sought counseling from Dr. George Hilton, a board

certified psychiatrist. Although she was unable to return to her

job at Cabletron, she remained an employee of Cabletron and began

receiving long term disability benefits. In November of 1990, she was admitted to Portsmouth Pavilion hospital for in-patient

psychological treatment. Lowes was diagnosed as suffering from

major depression and a mixed personality disorder with obsessive- compulsive and histrionic features. She was discharged

approximately two weeks later.

Also in 1990, Lowes filed a claim for workers' compensation.

After holding a hearing on Lowes’ claims, a New Hampshire

Department of Labor Hearings Officer denied her request for

workers' compensation benefits. She appealed that decision to the Compensation Appeals Board, which reversed the hearings

officer's decision and ruled that, “The claimant is found to be

disabled from employment as of May 17, 1990 due to a depressive

5 disorder caused by the condition of her employment.” Decision of

the Compensation Appeals Board at 3-4 (August 12, 1991).1

In January of 1991, Dr. Hilton opined that Lowes was “unable

to accomplish the stressful managerial duties that were her

routine job while employed at Cabletron.” Exhibit 3 to defendant’s memorandum. He did, however, note that her

“anticipated rehabilitation potential is good,” and predicted

that she might be able to return to work within six to twelve

months.

By letter dated April 25, 1991, Cabletron

terminated Lowes' employment, effective that day. The termination letter provided that, “[t]he decision [to terminate

your employment] was reached following a review of your current

employment situation and your undetermined availability to return to suitable work.” Exhibit 12 to plaintiff’s memorandum.

Approximately three months later, in July of 1991, Dr. Hilton again opined that Lowes was totally disabled and unable “to perform the duties of any occupation, for which she is

reasonably qualified by education, training, or experience.”

Exhibit 8 to plaintiff’s memorandum. In August, he reaffirmed his opinion that Lowes was totally disabled as a result of major

depression and added that he was unable to predict when (or

1 Based on her depressive disorder, Lowes also applied for Social Security Disability benefits. And, in March of 1992, the Administrative Law Judge who considered her claim ruled that she met the disability insured status requirements under the Social Security Act as of May 17, 1990. 6 whether) she might be able to return to work. Exhibit 9 to

plaintiff’s memorandum.2

By letter dated October 7, 1993, Lowes notified Cabletron of

her intention to exercise her "stock appreciation rights"

(presumably under both the Equity Incentive Plan and the Restricted Stock Plan), asserting that she met the two conditions

necessary to exercise those rights: (1) her employment was

terminated; and (2) at least in her view, it was terminated “by

reason of” her total and permanent disability. Slightly more

than a year later, in December of 1994, Cabletron's Board of Directors considered, at least in part, Lowes' claimed

entitlement to the disputed stock. However, for reasons

discussed more fully in the court’s previous order, the board ruled that she was not entitled to the stock, concluding that "it

was not necessary for the Board to determine whether the

termination of her employment occurred by reason of permanent disability." Letter of Michael Myerow dated December 16, 1994.

Ultimately, however, in March of 1997 (after the court

denied Cabletron’s first motion for summary judgment), the board and the compensation committee convened to consider Lowes’

2 Based upon the record presently before the court, it does not appear that Dr. Hilton opined that Lowes was both totally and permanently disabled until approximately September, 1994. At that time, Dr. Hilton concluded that Lowes was able to function at only a “minimal level” and opined that she was totally and permanently disabled. Exhibit 6 to defendant’s memorandum. 7 request and to determine whether she was entitled to exercise her

stock options. Lowes submitted a brief, to which she attached

several exhibits, in support of her claim to the disputed stock. Among other things, Lowes included the various opinion letters

from Dr. Hilton. Additionally, Dr. Hilton testified before the

board and reiterated his conclusion that Lowes is totally and permanently disabled.

Cabletron also presented the board and the committee with a

brief, outlining its view that Lowes was not entitled to the

disputed stock. Included in the materials submitted by Cabletron was an opinion letter from Dr. Robert M. Weiner, who had reviewed

Lowes’ medical records and performed a psychiatric examination.

Despite acknowledging fairly compelling evidence to the contrary (e.g., Lowes’ psychiatric history, the decision of the Workers

Compensation Board, her receipt of SSI benefits, and Dr. Hilton’s

opinion that she has been totally disabled since 1990), Dr. Weiner concluded that, “In my opinion, Darlene Lowes does not have a mental illness or a psychiatric disorder that disables her

from employment.” Exhibit 13 to defendant’s memorandum.

After accepting the briefs submitted by the parties and

hearing the testimony of Dr. Hilton, the members of the board and

the compensation committee unanimously agreed that:

under the Cabletron Plan, the Committee’s determination as to whether an employee ceased to be an employee by reason of total and permanent disability would have to 8 be based upon the existence of total and permanent disability at the time of termination of employment and must be made based upon facts and circumstances existing at the time of termination of employment. . . The members of the Committee further agreed that since the Cabletron Plan states that for the vesting of the options to occur, the reason for separation of employment must be permanent and total disability, then a worsening of a condition existing at the time of separation or the failure to cure a condition generally deemed curable at the time of separation would not cause the options to vest, and the medical prognoses available at that time should guide the determination as to whether any disability would be considered permanent and total.

Exhibit 17 to defendant’s memorandum (Minutes of March 24, 1997

meeting, at 2-3) (emphasis supplied).

On April 28, 1997, the board passed a unanimous resolution, concluding that Lowes’ employment did not terminate by reason of

a permanent disability. Accordingly, the board concluded that

Lowes was not entitled to the disputed stock in Gratias Corporation. On the same day, the incentive compensation

committee passed a similar unanimous resolution, reaching the

same conclusion with regard to Lowes’ claimed entitlement to the Cabletron stock.

Lowes insists that Cabletron (through its board and the

committee) breached the provisions of the Equity Incentive Plan and Gratias Corporation Stock Plan when it determined that her

9 employment was not terminated by reason of a total and permanent

disability and refused to tender the disputed stock.3

Discussion

I. Governing Law Regarding Contract Interpretation.

Under New Hampshire law, the interpretation of a contract presents a mixed question of law and fact. As the Court of

Appeals for the First Circuit has noted, "the general rule is

that whether a contract is clear or ambiguous is a question of

law . . .. If the contract is deemed to be ambiguous, then the

intention of the parties is a question of fact." In re

Navigation Technology Corp.,

(1st Cir.

1989)(citations omitted)(cited with approval in Public Service

Co. of N.H. v. Town of Seabrook,

(1990)). The New Hampshire Supreme Court has held that a clause contained in a

contract "is ambiguous when the contracting parties reasonably

3 In its earlier order, denying Cabletron’s first motion for summary judgment, the court noted that:

neither Lowes nor Cabletron has addressed a potentially dispositive legal issue: whether the Employee Retirement Income Security Act,

, et seq. (“ERISA”), governs plaintiff's claims under either (or both) of the employee stock plans and, if so, whether her state law contractual claims are preempted. Of course, if ERISA governs plaintiff’s claims it will also affect her right to a jury trial and the applicable standard of judicial review.

Lowes v. Cabletron, No. 96-077-M, slip. op. at 13 (D.N.H. December 13, 1996) (citations omitted). Because neither party has yet addressed whether ERISA governs this dispute, the court will proceed under the assumption that New Hampshire contract law governs the resolution of this matter and that both parties have affirmatively agreed that ERISA does not apply. 10 differ as to its meaning." Laconia Rod & Gun Club v. Hartford

Accident and Indemnity Co,

(1983). So, while

the interpretation of unambiguous contractual provisions presents a question of law, the interpretation of ambiguous contractual

provisions presents questions of fact.

II. The Disputed Contract Language.

The provisions of both the Equity Incentive Plan and the

Gratias Corporation Stock Plan at issue in this case are plain

and unambiguous. Contrary to the resolutions adopted by the

board and the committee, neither plan requires an employee to present evidence at the time of his or her termination

demonstrating that he or she is totally and permanently disabled.

The plans merely require that the employee’s employment be terminated “by reason of” the disability. Neither plan requires

that Cabletron actually be aware that the employee is disabled.4

4 Suppose, for example, that a Cabletron employee became totally and permanently disabled as a result of an automobile accident in another state and, because the employee was hospitalized for several weeks, he or she was unable to notify Cabletron of the reason for his or her absence. If Cabletron were to terminate the employee for failing to show up for work (without knowledge of the underlying accident and the nature and extent of the employee’s injuries), it could not, under the terms of the plans as drafted, deny the employee’s subsequent request for stock under the terms of the plans. In short, the employee need only be terminated as a result of the disability. At the time of termination, Cabletron need not have actual knowledge of the disability. It is then incumbent upon the board and/or the committee to determine, fairly and in good faith, whether the employee was terminated “by reason of” a total and permanent disability. It would not do, of course, to say the termination was due to unexplained absence from work when the absence and lack of explanation were due to disability. 11 The decisions by both the board and the committee to limit

provisions of the plans (by apparently requiring an employee to

present medical evidence at the time of termination that supports his or her claim regarding disability) are invalid efforts to

unilaterally modify the terms of those contracts as they apply to

Lowes’ contractual rights as asserted here. See, e.g., Guaraldi

v. Tans-Lease Group,

(1992) (“It is a

fundamental principle of contract law that one party to a

contract cannot alter its terms without the assent of the other

party.”).

III. Cabletron’s Alleged Breach of the Contracts.

Having interpreted the unambiguous provisions of the

governing contracts at issue, the court must next consider whether Cabletron breached those provisions. That, however,

presents a more difficult question. If the board and/or the

committee had merely relied upon the materials submitted by Lowes, the court might properly conclude that, as a matter of

law, Cabletron failed to act in accordance with its obligations

of good faith and fair dealing when it rejected her efforts to

exercise her rights under the stock plans. Lowes was terminated as a result of her “undetermined availability to return to

suitable work.” Exhibit 12 to plaintiff’s memorandum. Plainly,

at that time, Lowes was unable to return to work because of her disability. The evidence on that point is undisputed (and

overwhelming). The only real question is whether her disability

12 is “permanent.” And, with regard to that issue, the board and

the committee were presented with conflicting evidence.

In support of her claim, Lowes submitted the opinion of Dr.

Hilton, the findings of the Workers’ Compensation Appeals Board,

and the findings of the Social Security Administration. On the other hand, however, Cabletron presented the opinion of Dr.

Weiner, who opined that plaintiff is not currently disabled as a

result of any “mental illness or psychiatric disorder” (thereby

undercutting her assertion that her disability, regardless of its

severity in 1991, was, at any time, “permanent”).

While Dr. Weiner’s opinion (formed based upon a single

meeting with Lowes and a review of her medical record) may lack the persuasive value of the substantial evidence to the contrary,

it is, nevertheless, sufficient to raise a genuine issue of

material fact: Did the members of the board and the committee act reasonably, fairly, and in good faith when, in the exercise of their discretion, they chose to credit the opinion of Dr.

Weiner over the substantial evidence to the contrary. Resolution

of that factual question is properly left to a trier of fact. See, e.g., Kline v Burns,

(1971) (“The existence

of a breach [of contract] is usually a question of fact to be

determined by the circumstances of each case”); Colonial Life

Ins. v. Electronic Data Systems,

(D.N.H.

13 1993) (same). Accordingly, neither party is entitled to judgment

as a matter of law.5

Conclusion

For the foregoing reasons, the existence of genuine issues

of material fact precludes the court from concluding that either party is entitled to judgment as a matter of law. Cabletron’s

motion for summary judgment (document no. 45) is denied.

Likewise, Lowes’ motion for summary judgment (document no. 46) is

also denied.

SO ORDERED.

____________________________ Steven J. McAuliffe United States District Judge

November 25, 1997 cc: Richard C. Mooney, Esq. Andru H. Volinsky, Esq.

5 Cabletron seems to suggest that Lowes is not entitled to the disputed stock because she has not (and, indeed, cannot) demonstrate that at the time of her termination, she was totally and permanently disabled. Notwithstanding defendant’s assertions to the contrary, however, a trier of fact might reasonably conclude that Lowes was totally and permanently disabled when she was terminated and, therefore, she was terminated “by reason of” her disability. Crediting Dr. Hilton’s opinion and the undisputed facts, a trier of fact could reasonably conclude that: (1) Lowes was unable to perform the duties of her job at Cabletron in May of 1990 because she was totally disabled; (2) as of September, 1994 (the date of Dr. Hilton’s opinion letter), Lowes was both “totally and permanently disabled”; (3) Between May of 1990 and September, 1994, Lowes never experienced a period of time during which she was not totally disabled; and, therefore, (4) Lowes has been totally and permanently disabled since May, 1990. 14