Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Rosen v. Smith Barney

June 15, 2007

MELVIN ROSEN AND JAMES D. FOX ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS-RESPONDENTS/ CROSS-APPELLANTS,
v.
SMITH BARNEY, INC., SALOMON SMITH BARNEY, INC., SALOMON BROTHERS, INC., DEFENDANTS-APPELLANTS/ CROSS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Law Division, Essex County, L-10040-99.

The opinion of the court was delivered by: Lihotz, J.T.C. (temporarily assigned).

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued November 8, 2006

Before Judges Weissbard, Graves and Lihotz.

We are asked to review whether the parties' agreement to divert earnings to an incentive compensation plan violates the public policy undergirding the New Jersey Wage and Hour Law (Wage law), N.J.S.A. 34:11-4.1 to -67. Defendants Smith Barney, Inc., Salomon Smith Barney, Inc., and Salomon Brothers, Inc. (collectively Smith Barney) are the former employers of plaintiffs Melvin Rosen and James D. Fox. Plaintiffs represent the class of former financial consultant employees of Smith Barney, who participated in a "Capital Accumulation Plan" (CAP), and "who lost the right to receive certain shares of stock under the terms of the CAP" when the CAP's forfeiture provisions were invoked.

Smith Barney appeals from partial summary judgment entered on May 18, 2005. The Law Division judge concluded that the CAP's forfeiture provisions violated the State's public policy to protect employees' compensation, as expressed by the Wage law. Plaintiffs cross-appeal from partial summary judgment dismissing their tort claims. We affirm the dismissal of the tort claims and reverse the partial summary judgment declaring the CAP null and void.

Beginning in 1989, Smith Barney offered to its financial consultant employees (i.e., financial planners and stock brokers) the option of participating in the CAP, a deferred compensation stock purchase plan. The CAP's purpose, as set forth in its enrollment form, was threefold: (1) "to attract, retain and motivate officers and certain other employees;" (2) "to compensate them for their contributions to the growth and profits of the [c]ompany;" and (3) "to encourage ownership of the [c]ommon [s]tock on the part of such personnel." It was undisputed that a high degree of broker turnover existed, industry-wide.

Plaintiffs, while employed by Smith Barney as stock brokers, agreed to participate in the CAP and voluntarily elected to allow Smith Barney to use a portion of their compensation to purchase restricted shares of stock in its parent company, Citigroup, Inc., which was offered through the plan at a twenty-five percent discount under market price (Plan stock). The enrollment period was for either six months or one year; enrollment could be discontinued after any specified interval of participation.

Upon enrollment, withheld monies were held for six months, during which time, plaintiffs surrendered control over the funds. At oral argument before us, and, as evidenced in prior motions before the trial court, it was asserted that during this six-month period funds would be returned and participation cancelled upon request. When the six-month deferral period ended, the funds were used to purchase Plan stock. Stock certificates reflecting each purchase "may, but need not, be" issued; in most cases, a record of each award of Plan stock was kept as a computerized or manual bookkeeping entry. Applicable federal, state or local income taxes on the compensation invested in the CAP were deferred.

Plan stock ownership fully vested upon completion of a two-year period. During the vesting period, CAP participants were entitled to receive all stock dividends from their identified Plan stock, and to exercise all shareholder voting rights attached to those shares. Upon vesting, all restrictions on transfer of the Plan stock were eliminated. If a participant died, the stock restrictions lapsed and the CAP assets were returned. If the participant became disabled prior to the termination of employment, the Plan stock vested as originally scheduled. However, if a participant was terminated from employment with Smith Barney for cause or resigned prior to the expiration of the two-year vesting period, all unvested stock interests in the CAP were forfeited. The forfeiture provisions were consistent with the Internal Revenue Code provisions permitting tax deferral. See 26 U.S.C.A. § 83.

Rosen joined Smith Barney on May 15, 1987, and enrolled in the CAP on June 9, 1993, electing to invest twenty percent of his compensation for a six-month term. When the six-month term expired, Rosen renewed his investment for a one-year term. For each investment period, Rosen signed an enrollment form, which stated, in relevant part:

I elect to participate in the Capital Accumulation Plan (CAP) subject to all of the provisions and administrative rules of the Plan. Immediately upon completion of the business combination between Shearson and Smith Barney, I direct my employer . . . to pay me the percent indicated below in the form of restricted stock out of my total compensation, excluding income arising from forgivable loans and the vesting of restricted stock. I understand if I leave Smith Barney Shearson voluntarily or [if I] am terminated for Cause before the restrictions lapse on shares of restricted stock received under the Plan, I will forfeit the stock, as well as the money I am hereby authorizing to be paid in the form of such restricted stock. I further understand and agree that, in the sole discretion of the Committee, the shares to be awarded to me may be issued under another similar plan, on the same terms and conditions as described in the CAP enrollment package sent to me.

The second form executed by Rosen on December 21, 1993, used negligibly different language in the beginning of the paragraph and the effect of the agreement was identical.

Rosen voluntarily resigned from his employment with Smith Barney on July 1, 1994, to join Merrill Lynch, a competing brokerage house. At that time, Smith Barney invoked the CAP's forfeiture clause and retained Rosen's unvested Plan stock.

Fox joined Smith Barney on July 5, 1995, and elected to allocate five percent of his annual cash compensation to the CAP on December 19, 1996. The enrollment form signed by Fox, which was similar to the form signed by Rosen, stated, in relevant part:

By signing and returning the Capital Accumulation Plan Election Form, I have elected to participate in CAP subject to all of its provisions and administrative rules. I understand that I have irrevocably directed my employer, Smith Barney Inc., to pay me the percentage I have elected in the form of restricted stock out of all cash compensation paid to me during the periods specified on the election form. If I leave the Company voluntarily or am terminated for Cause before the restrictions lapse on shares of restricted stock awarded under CAP, I understand that I will forfeit the restricted stock as well as the compensation I have authorized to be paid in the form of such restricted stock. I further understand that the percentages I have hereby elected will continue in full force and effect for the successive corresponding six-month periods year after year, unless or until I elect, in writing, to modify the percentages or discontinue my participation during a subsequent annual enrollment period.

Fox voluntarily resigned from his employment with Smith Barney on February 16, 1999, to join Raymond James, a competing brokerage house. At that time, Smith Barney invoked the CAP's forfeiture clause and retained Fox's unvested Plan stock.

Both Rosen and Fox testified, during depositions, that they voluntarily elected to participate in the CAP, understood its terms, including the vesting and forfeiture provisions, and believed it was an attractive investment and tax savings vehicle. During the period of their participation, each received all vested Plan stock at a considerably discounted price.

Plaintiffs' complaint, filed on October 1, 1999, alleged the CAP violated the Wage law because its terms required the forfeiture of earned wages. Plaintiffs also asserted common law tort claims of breach of contract, conversion, breach of fiduciary duty, and unjust enrichment. Numerous motions in connection with discovery and collateral matters, not relevant to the pending appeal, transpired from 1999 to 2003. On January 24, 2003, Smith Barney filed a motion for summary judgment seeking to dismiss plaintiffs' tort claims. Plaintiffs cross-moved for partial summary judgment asserting that the CAP's forfeiture provisions were incompatible with the Wage law and New Jersey public policy.

The trial court issued a bench decision on April 23, 2004, granting Smith Barney's motion for partial summary judgment and dismissed all plaintiffs' common law claims. The determination was set forth in an order dated May 4, 2004. For substantially the same reasons articulated by the trial court in its April 23, 2004 bench opinion, we affirm the grant of partial summary judgment to Smith Barney, dismissing plaintiffs' common law breach of contract, conversion, unjust enrichment, and breach of fiduciary duty claims. R. 2:11-3(e)(1)(A) and (E).

The trial court also addressed plaintiffs' request for partial summary judgment based on the argument that the CAP's forfeiture provisions were incompatible with the Wage law. The trial court framed the issue as: "whether an employer may lawfully retain an employee's deferred compensation investment in a capital acquisition plan pursuant to the plan's forfeiture provision without being violative of the New Jersey wage law statute or public policy." The trial court determined that forfeiture of earned wages invested in the CAP "contradicts public policy, which requires ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.