December 5, 2008
HENRY BARTOLI, PLAINTIFF-RESPONDENT,
FOSTER WHEELER, LTD.; FOSTER WHEELER HOLDINGS, LTD.; FOSTER WHEELER, LLC; FOSTER WHEELER NORTH AMERICA CORP.; FOSTER WHEELER CORPORATION, DEFENDANTS-APPELLANTS.
On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-2565-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 23, 2008
Before Judges Wefing, Parker and Yannotti.
In this case alleging breach of a separation agreement (agreement), defendants Foster Wheeler, Ltd., Foster Wheeler Holdings, Ltd., Foster Wheeler, LLC, Foster Wheeler North America Corp. and Foster Wheeler Corporation (collectively referred to as Foster Wheeler) appeal from a final judgment entered on September 10, 2007 awarding plaintiff a bonus in the amount of $218,742 for 2002 but denying his claim for additional bonus compensation for 2003; and an order entered on October 10, 2007 amending the final judgment to clarify certain provisions. We affirm in part and reverse in part.
Plaintiff Henry Bartoli was Vice-President and Group Executive of Foster Wheeler's Power Systems Group from December 1992 until April 15, 2002. In April 2001, Richard Swift, Foster Wheeler's then-CEO and president, announced his retirement, effective December 2001. In order to "lend stability to Management for the benefit of the Company during the search for a new CEO," Foster Wheeler offered employment agreements to key senior executives, including plaintiff. Plaintiff entered into such an agreement on May 29, 2001 (2001 contract). The 2001 contract expired on December 31, 2003 and provided certain benefits in the event Foster Wheeler terminated plaintiff's employment before December 31, 2003 for any reason "other than (i) death; (ii) disability (as defined in the Company's long-term disability plan), or (iii) conviction of, indictment for, or the entry of a guilty plea . . . with respect to a felony offense."
In addition to certain other benefits, the 2001 contract provided salary continuation for a terminated employee for two years from the date of termination and all target bonuses under the annual and long-term segments of the Company's Incentive Compensation Plan (or any successor similar plan which may be adopted in lieu of such Incentive Compensation Plan) for all calendar years within the Salary Continuation Period. Such bonuses shall be paid at the same time as payments are made to the other participants in such Incentive Compensation Plan or successor plan.
In March 2002, Foster Wheeler was in serious financial difficulty when its new CEO, Raymond Milchovich, discovered that plaintiff's group would have to take significant write-downs on several contracts because of inadequate financial performance. These losses in plaintiff's group precluded Foster Wheeler "from developing a credible plan, which delayed . . . negotiations with a senior lender . . . a key priority of [the Company]." Since plaintiff was the senior executive responsible for his group's performance, Milchovich asked him to explain the losses. After Milchovich was dissatisfied with plaintiff's performance at a meeting to address each contract, Milchovich advised the Board of Directors (Board) of his intent to terminate plaintiff's employment.
Milchovich had two meetings with plaintiff, one on April 11 and the other on April 15, 2002.*fn1 According to Milchovich, at the April 11 meeting, plaintiff advised Milchovich that "[t]his situation is not working for either of us and I think it is time for me to leave. I want you to cash me out." Milchovich told plaintiff that plaintiff's performance "was a serious failure amounting to gross negligence and gross misconduct and would have very significant material negative implications on the negotiations with lenders and the delay would cause a serious material negative reaction in the marketplace." Milchovich informed plaintiff that he was not prepared "to take a position in terms of what [plaintiff's] termination benefit levels, if any, would be in the event of his termination for cause."
On April 15, Milchovich met again with plaintiff and informed plaintiff that he was being terminated for cause. He explained again that plaintiff's failures in his area of accountability "would have a material negative impact on [the Company's] ability to obtain future business during this period of uncertainty." Milchovich then provided plaintiff with a draft separation agreement to which plaintiff objected, claiming that another terminated employee received different benefits. Milchovich said the other employee was terminated under different "business facts and circumstances." The first draft of plaintiff's separation agreement was dated April 17, 2002. Thereafter, Milchovich had no direct communications with plaintiff regarding negotiation of the separation agreement.
The negotiations continued, however, and after several drafts were exchanged, plaintiff executed the separation agreement and a release and waiver agreement on June 6, 2002. The separation agreement provided for, among other things, salary continuation for 104 weeks; health insurance coverage for two years from the April 15 separation date; full vesting of stock options and removal of any restrictions on shares of the company's capital stock in plaintiff's possession; use of a company car for one year after his separation date; and "career transition assistance services" by a firm of his choice.
The following provision in the separation agreement is the subject of this dispute:
(viii) For calendar years 2002 and 2003, you shall be eligible to receive a bonus under the Company's Incentive Compensation Plan (or any successor plan which may be adopted in lieu of such Incentive Compensation Plan). Such bonus shall be that percentage amount of your annual base salary equal to the average percentage of base salaries paid as bonuses under the annual segment of the Company's Incentive Compensation Plan (or successor plan) to the senior executive officers of the Company at your former executive level during each such calendar year. For purposes of such bonus determination, such senior executive officers of the Company are the Company's Senior Vice President and General Counsel, Senior Vice President Human Resources and Administration, Treasurer, Secretary, and the Deputy General Counsel. Such bonus shall be paid to you at the same time as payments are made to the participants in the Incentive Compensation Plan (or successor plan). (Emphasis added).
Plaintiff filed his complaint in September 2005, seeking to enforce the separation agreement. He alleged that Foster Wheeler breached the separation agreement by refusing to pay the Incentive Compensation Plan (ICP) bonus in accordance with paragraph (viii). He further alleged that he did not receive his full ICP bonus for 2003; and that Foster Wheeler breached the covenant of good faith and was unjustly enriched.
The ICP was developed by the Board in May 2002, after the old Executive Compensation Plan (ECP) was terminated. Under the ECP, bonuses were based on the company's financial performance. For example, the company's financial performance was so poor in 1997, 1998 and 2001 that neither plaintiff nor any other executives received ECP bonuses.
The ICP was ratified by the compensation committee in July 2002. It was governed by the guidelines set forth in the document entitled "Foster Wheeler Annual Incentive Plan for 2002 and Subsequent Years" (guidelines). According to the guidelines, a bonus under the ICP required a recommendation by the CEO, and approval by the compensation committee and the Board. Similar to the ECP, ICP bonuses were based upon the financial performance of the company. Hence, the bonus was an incentive for the executives to perform.
On February 13, 2003, in a confidential memorandum to the compensation committee, Milchovich advised that Foster Wheeler is likely to be operating in the zone of insolvency until the company can be successfully restructured. This process could last several months or could continue well into 2004. To be successful we must be able to attract, retain and motivate the talent required to perform a high volume of work in an uncertain environment and with questionable upside.
Milchovich listed a number of cost-cutting actions in the memorandum, including freezing or modifying the defined benefit pension plan; reducing corporate center overhead "by as much as 50%;" and considering filing for Chapter 11 bankruptcy protection. Nevertheless, Milchovich recommended awarding ICP bonuses to "certain individuals" who are "either high performers, are deemed to be retention risks or both. This group includes those most critical for the turnaround initiative and those Foster Wheeler can least afford to replace."
Accordingly, Milchovich recommended that bonuses be paid for calendar year 2002 to twenty-three "key high performing" executives. Attached to the February 13, 2003 memorandum was a list of the twenty-three executives recommended for the bonus and a list of forty-eight "eligible" employees not recommended for it. On February 19, 2003, the compensation committee approved the 2002 bonuses recommended by Milchovich, noting "that only 31% of the population eligible for 2002 bonus awards" were recommended for them.
On February 28, 2003, the Board "rejected the award of bonuses pursuant to the Foster Wheeler Annual Incentive Plan for 2002 and Subsequent Years." Indeed, the Board "expressed concern regarding the approval of any bonuses under the [ICP] given the unprofitability of the Company in 2002." (Emphasis added). The Board expressed concern, however, about retaining "key employees given the financial condition of the Company" and asked its human resources consultant "what methods would be available to retain and motivate key employees given the current situation of the Company." The consultant "advised that the use of retention awards is common for companies in similar situations, in which case a portion of the award is paid now and a portion paid in the future."
The Board ultimately approved retention awards -- not ICP bonuses -- for "the 23 corporate center employees previously identified as most critical for the turnaround initiative and those Foster Wheeler can least afford to replace." The Board established criteria for payment of the retention awards that differed significantly from the ICP bonuses. Clearly, the Board did not intend the retention awards to be a "successor plan" to the ICP bonuses, nor did it intend to give the retention awards to any executives who were not "key high performing" employees.
Foster Wheeler reported the retention awards in its March 23, 2003 proxy statement filed with the Securities and Exchange Commission (SEC), stating that the Board "approved a grant of retention awards to certain key high-performing employees to incentivize them to continue employment with the Company for the fiscal year 2003."
In 2003, the company's financial condition had improved and ICP bonuses were paid once again. On November 23, 2004, plaintiff received one-third of his "2003 incentive compensation bonus," and on August 15, 2005, he received "two-thirds of what [d]efendants claimed [p]laintiff was owed for his 2003 bonus." He did not receive any bonus for 2002 and claimed he did not receive "the full bonus compensation due him for calendar year 2003."
At trial, plaintiff argued that under the separation agreement his eligibility to receive bonuses for the 2002 and 2003 calendar years under the ICP or "successor plan" was not tied to continued employment or individual performance with Foster Wheeler. Plaintiff claimed that Foster Wheeler should have paid him an ICP bonus when it paid retention awards to the twenty-three "key high performing" executives for 2002, because the retention awards were a "successor plan" to the ICP bonuses.
Foster Wheeler argued that plaintiff was not entitled to a bonus for 2002 because no ICP bonuses were paid for that year and the retention awards were paid only to the twenty-three "key high performing" executives, and were not paid pursuant to a "successor plan" to the ICP. The key difference between ICP bonuses and retention awards was that ICP bonuses were paid to all eligible employees based upon the company's performance in a given year. Retention awards, on the other hand, were one-time awards paid to employees deemed necessary for the company's turnaround. The formula for calculating ICP bonuses also differed significantly from the formula used for the retention awards.
The evidence demonstrated that in 2003 the company's financial performance improved and ICP bonuses for 2003 were paid to all eligible employees in 2004. The ICP bonuses were conditioned on the company's performance for 2003, unlike the retention bonuses paid for 2002. Plaintiff was paid the ICP bonus for 2003 based upon his 2002 executive title and a calculation of the bonus applied to plaintiff's last salary. Plaintiff's 2003 bonus amounted to $256,956.
After the four day bench trial, the court found that "defendants' failure to pay plaintiff a bonus for the calendar year 2002 breached [plaintiff's] contractual rights" because the "retention bonus was a successor to the ICP or that the retention plan was simply an option for awarding bonuses under the ICP." The court rejected plaintiff's claim for a greater bonus for 2003 and denied his claims for breach of good faith and fair dealing and unjust enrichment.
In its decision, the trial court focused on the separation agreement and found:
The plain language of the agreement calls for eligibility under the company's incentive compensation plan, and more to the point in this case, any successor plan, which may have been adopted. The key words are any successor plan. Thus, the eligibility is created in the ICP or any successor plan without regard to whether the plaintiff was employed by the company or whether he was one of the first persons to receive a bonus under future plans. It plainly and simply sets forth his eligibility to participate in that plan based on the calculation set forth in the next part of the paragraph.
While it is true that the language . . . in the paragraph refers to "senior executive officers of the company" the comparitors are set forth specifically in the next sentence of the agreement where it provides that "such senior executive officers of the company are" and then sets forth the titles of those officers. . . . .
It had become clear from the testimony of all the witnesses that the "optics" involved in these decisions were quite important, since it would be difficult to justify to shareholders awarding incentive bonuses when the company was performing so poorly. But it would be more palatable if the payments were described as retention bonuses. The bottom line was that the same employees who had been recommended for bonuses under the ICP were those who received bonuses under the so-called retention plan.
With respect to the 2003 bonus, the court found that the language in the ICP refers to the entire group of those eligible for a bonus and not to any individual within the group. Therefore, monies paid as bonuses can range anywhere from the highest paid to those eligible members who received no compensation. I find, therefore, that the inclusion of [the deputy general counsel] in the calculation was proper under the express terms of the agreement.
The court concluded that plaintiff was not entitled to any greater bonus for 2003 than he was paid.
In this appeal, Foster Wheeler argues that the trial court erred in (1) awarding plaintiff an ICP bonus for 2002; and (2) finding that ICP bonuses were paid for 2002 under the ICP or a successor to that plan.
The trial court's finding that the retention awards were merely a successor to the ICP bonuses is not supported by the evidence. The evidence demonstrates that ICP bonuses were based upon the company's performance and were not awarded to anyone for 2002 because the Board determined that it would be irresponsible to award incentive bonuses when the company was experiencing serious financial difficulty. Rather, the Board authorized retention awards, which were one-time payments approved for twenty-three "key high performing" executives for entirely different reasons and under different criteria than the ICP awards. The retention awards were paid to only thirty-one percent of executives eligible for ICP bonuses. Plaintiff was clearly not included in the list of "key high performing" executives recommended for the retention awards. Similar to when ECP bonuses were not paid in 1997, 1998 and 2001 because of the company's poor performance in those years, ICP bonuses were not awarded in 2002 because of the company's poor performance.
Plaintiff's insistence that he be included in the retention awards is without merit. Only twenty-three of the seventy-one executives eligible for ICP bonuses in 2002 received retention awards. As we have previously discussed, the criteria for and the calculation of the retention awards was entirely different from the ICP bonuses.
Although the trial court found the retention awards a "successor plan" to the ICP and, therefore, payable to plaintiff under paragraph (viii) of the separation agreement, that finding is not supported by the evidence. The trial court overlooked the purpose and intent of the retention awards vis-à-vis the ICP bonuses. The court further overlooked the facts (1) that no ICP bonuses were paid for 2002 because of the company's poor performance, and (2) that the retention awards were paid to only twenty-three "key high performing" executives "most critical for the turnaround initiative and those Foster Wheeler can least afford to replace."
In a non-jury case such as this, the trial court's findings of fact should not be disturbed unless "they are so wholly insupportable as to result in a denial of justice." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84
A-0985-07T1 (1974). Findings of the trial court are binding on us, however, only if supported by "adequate, substantial and credible evidence." Id. at 484 (emphasis added). We will not disturb the factual findings and legal conclusions of the trial court unless they are "manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence." Ibid.
We have carefully considered the record before us and we are satisfied that the trial court erred in finding (1) that the retention awards were a "successor plan" to the ICP; and (2) that plaintiff was entitled to an ICP bonus for 2002. Accordingly, we reverse the judgment of the trial court and vacate the award of $218,742 to plaintiff as a bonus for 2002.
We affirm the remainder of the judgment for the reasons stated by the trial court in its decision placed on the record of August 24, 2007.
Affirmed in part; reversed in part.