On appeal from the Superior Court of New Jersey, Chancery Division, Essex County.
Approved for Publication January 5, 1996.
Before Judges Michels, Baime and Villanueva. The opinion of the court was delivered by Michels, P.j.a.d.
The opinion of the court was delivered by: Michels
The opinion of the court was delivered by MICHELS, P.J.A.D.
Plaintiff Richard Gillman appeals from a summary judgment of the Chancery Division entered in favor of defendants Bally Manufacturing Corporation and Bally's Park Place, Inc. (hereinafter collectively referred to as "Bally") that dismissed his complaint seeking (1) damages based on both intentional and negligent misrepresentation with respect to Bally's administration of certain stock option rights granted to him as severance consideration and (2) equitable relief from Bally's contention that his option rights had been forfeited as a result of his attempt to exercise a portion of those rights sixteen days after the date Bally maintained the rights were last exercisable.
Plaintiff, who served for many years as one of Bally's top executives, signed agreements (hereinafter collectively referred to as the Option Agreements) with Bally in July and October of 1991, which granted him options to buy one million shares of Bally stock and 300,000 shares of Bally Gaming International, Inc. stock. Under the Option Agreements, the options had a ten-year life as long as plaintiff remained employed by Bally. The Option Agreements further provided that if he retired, the options were only exercisable within one year after retirement and, if he was terminated for other reasons, the options were only exercisable within three months. On January 8, 1993, plaintiff retired from Bally under a Retirement and Separation Agreement that vested his unmatured stock options and which provided that he could exercise the options according to the terms of the respective Option Agreements. However, plaintiff failed to exercise approximately forty percent of the Bally options and all of the Bally Gaming International, Inc. options within one year after his retirement as required under the Option Agreements. When he attempted to exercise the options on January 24, 1994, sixteen days after the one-year period had elapsed, Bally refused to permit the purchase of the stock.
Plaintiff instituted this action seeking to reinstate the options he lost through his inaction, raising essentially three points. First, plaintiff claimed that under his contract with Bally he was entitled to exercise the options within ten years after their issuance or until 2001, rather than one year after his retirement. Second, he claimed that if he was subject to the one-year deadline, Bally, through fraudulent or negligent statements, misled him into believing that he had ten years to exercise the options. Finally, plaintiff claimed that the expiration of the options was a forfeiture and that he should be relieved from it on the basis that he made an honest mistake regarding the expiration date of the options.
Following cross-motions for summary judgment, Judge Margolis in the Chancery Division found that plaintiff had retired and that the Option Agreements with Bally clearly provided that theoptions would lapse one year after his retirement. The trial court further found that Bally made no false representations or fraudulent or negligent statements concerning the option dates. Finally, with respect to the forfeiture claim, the trial court held that a sophisticated businessman, such as plaintiff who was represented by experienced counsel, should have known the expiration date of the options and should not be relieved from the consequences of his inaction. The trial court thereupon entered summary judgment in favor of Bally. Plaintiff appealed.
Plaintiff seeks a reversal of the summary judgment, contending that (1) his right to receive cash under vested options was fully supported by prior consideration to Bally and any lateness in the exercise of the options would be an immaterial breach by him which will not sustain forfeiture; (2) even in cases outside the employment context involving "time of the essence" options, relief from forfeiture should be granted in instances of non-prejudicial lateness due to reasonable mistake; (3) in construing his severance contract as subjecting his options to a one-year exercise period, the trial court improperly (a) rendered terms of the agreement superfluous; (b) excluded drafting history evidence to the contrary; and (c) resolved factual issues of Bally's state of mind on the basis of affidavits; and (4) in dismissing his claims for intentional and negligent misrepresentation and for "bad faith" breach of contract, the trial court improperly resolved issues of Bally's state of mind based on affidavits.
We are satisfied from our review of the record and the arguments presented that the trial court properly granted summary judgment in favor of Bally and that all issues of law raised are clearly without merit. R. 2:11-3(e)(1)(E). We are convinced that there does not exist a genuine issue of material fact which precluded the granting of summary judgment in favor of Bally whether the matter is viewed traditionally under Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 110 A.2d 24 (1954), or under the standard more recently announced in Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 666 A.2d 146 (1995).
Additionally, we emphasize that the trial court's exercise of discretion in denying plaintiff's forfeiture claim may be disturbed only if it is "so wholly insupportable as to result in a denial of Justice." Goodyear Tire and Rubber Co. v. Kin Properties, Inc., 276 N.J. Super. 96, 106, 647 A.2d 478 (App. Div.), certif. denied, 139 N.J. 290 (1994) (quoting Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484, 323 A.2d 495 (1974)). "In reviewing the exercise of discretion it is not the appellate function to decide whether the trial court took the wisest course, or even the better course, since to do so would merely be to substitute our judgment for that of the lower court. The question is only whether the trial Judge pursues a manifestly unjust course." Gittleman v. Central Jersey Bank & Trust Co., 103 N.J. Super. 175, 179, 246 A.2d 757 (App. Div. 1967), rev'd on other grounds, 52 N.J. 503, 246 A.2d 713 (1968).
"Equity's jurisdiction in relieving against a forfeiture is to be exercised with caution lest it be extended to the point of ignoring legal rights." Dunkin' Donuts of Am. v. Middletown Donut Corp., 100 N.J. 166, 182, 495 A.2d 66 (1985); Brick Plaza, Inc. v. Humble Oil & Refining Co., 218 N.J. Super. 101, 104, 526 A.2d 1139 (App. Div. 1987). When a contract expressly provides for expiration of a party's rights at a time certain, "a court of equity will not interfere to substitute a different and more liberal agreement" than that which existed between the parties. Fox v. Haddon Tp., 137 N.J. Eq. 394, 398, 45 A.2d 193 (Ch. 1945). "An express contract, making time a particular of it, cannot be ignored by a court of equity." Gorrie v. Winters, 214 N.J. Super. 103, 107, 518 A.2d 515 (App. Div. 1986) (quoting Collins v. Delaney Co., 71 N.J. Eq. 320, 322, 64 A. 107 (Ch. 1906)), certif. denied, 107 N.J. 114 (1987). "Although a broad forfeiture clause in an employment or [stock] option contract may work harsh results, a court must act only upon the language of the written contract. . . ." Fredericks v. Georgia-Pacific Corp., 331 F. Supp. 422, 427 (E.D. Pa. 1971), dismissed, 474 F.2d 1338 (3d Cir. 1972).
In an option contract, "time is of the essence." 1A Corbin on Contracts, § 273 (1963 & Supp. 1994); Brick Plaza, supra, 218 N.J. Super. at 104; Sosanie v. Pernetti Holding Corp., 115 N.J. Super. 409, 413, 279 A.2d 904 (Ch. Div. 1971). Generally, expiration provisions in stock option agreements are strictly enforced. Courts reject the inevitable breach of contract and forfeiture claims that employees, former employees and other stock option holders press when they fail to timely exercise their options. See, e.g., Bernard v. IMI Systems, Inc., 131 N.J. 91, 106-07, 618 A.2d 338 (1993) ("It is not uncommon for an employee's right to exercise a stock option to terminate upon such employee's termination from employment."); Mullen v. New Jersey Steel Corp., 733 F. Supp. 1534, 1554 (D.N.J. 1990) (employee's failure to purchase stock options before termination led to loss of the options); Fredericks, supra, 331 F. Supp. at 428 ("having left the employment of Georgia-Pacific prior to exercising the remaining options Fredericks' right to exercise the options terminated.").
For example, in Mullen, supra, 733 F. Supp. at 1552-53, the Federal District Court held that even if a vice-president believed that his stock options did not expire when his employment terminated, that belief would have been unreasonable because it was contrary to the option agreement's express provisions and no one at the company had told him that he would still be able to exercise them. Similarly, in Fredericks, supra, 331 F. Supp. at 424, an executive who resigned by agreement, later argued that he should be permitted to exercise his remaining options post-termination because he had been driven out of his position before he could exercise them. The Federal District Court strictly enforced a provision that the executive's options expired when his employment terminated, holding that the ...