Graphic Packaging Holding Company vs Stephen M. Humphrey , 416 F. App'x 1 ( 2010 )

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 10-12015
NOVEMBER 16, 2010
Non-Argument Calendar
JOHN LEY
________________________ CLERK
D.C. Docket No. 1:08-cv-03379-ODE
GRAPHIC PACKAGING HOLDING COMPANY,
Plaintiff-Counter-Defendant-
Appellant,
versus
STEPHEN M. HUMPHREY,
Defendant-Counter-Claimant-
Appellee.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(November 16, 2010)
Before BARKETT, HULL and COX, Circuit Judges.
PER CURIAM:
Graphic Packaging Holding Company (“Graphic Packaging”) paid Stephen M.
Humphrey $1,208,392.55 for Restricted Stock Units (“RSUs”) after he retired from
the company. Graphic Packaging claims that it overpaid Humphrey, and seeks to
recover the amount of the alleged overpayment of $541,575.08 based on theories of
money had and received and, alternatively, unjust enrichment. Graphic Packaging
also asserts a claim for attorneys’ fees and expenses pursuant to O.C.G.A. § 13-6-11.
The issue of overpayment hinges on whether Graphic Packaging made a
mistake by valuing the RSUs on the date of Humphrey’s retirement rather than on the
date the RSUs became payable. In ruling on the parties’ cross-motions for summary
judgment, the district court concluded that Graphic Packaging failed to produce
sufficient evidence showing that valuing the RSUs on the date of Humphrey’s
retirement was a mistake. Accordingly, the district court denied Graphic Packaging’s
motion for summary judgment and granted Humphrey’s motion for summary
judgment. The district court also concluded that Graphic Packaging was not entitled
to attorneys’ fees and expenses pursuant to O.C.G.A. § 13-6-11. After review, we
affirm the judgment of the district court.
I. Background
A. The 2004 Stock and Incentive Compensation Plan and Humphrey’s Restricted
Stock Units
Stephen M. Humphrey served as the President and Chief Executive Officer of
Graphic Packaging Corporation or one of its corporate predecessors from 1997
2
through 2006, and served as its Vice Chairman in 2007.1 In 2004, the shareholders
of Graphic Packaging approved the 2004 Stock and Incentive Compensation Plan (the
“Stock Plan”). This plan, which is not covered by ERISA, provides for the award of
various types of stock incentives for eligible employees, including Restricted Stock
Units (“RSUs”). Humphrey earned participation rights in the Stock Plan during his
career. The Stock Plan provides that actual awards of RSUs are to be made in
subsequent Award Agreements.
Humphrey received four Award Agreements throughout his career, and the
material terms of the agreements are the same. Through these four Award
Agreements, Humphrey received a total grant of 1,158,186 RSUs. Each of the four
Award Agreements provided that the RSUs were to be paid out to Humphrey one-half
in cash and one-half in Graphic Packaging common stock. The parties agree that
each RSU is intended to be the value equivalent of one share of stock. This appeal
concerns when the RSUs should be valued for the cash portion of Humphrey’s RSU
award.
1
Graphic Packaging Corporation was the publicly-traded predecessor of Plaintiff Graphic
Packaging Holding Company. As the result of a merger with Altivity Inc. in March 2008, Graphic
Packaging Corporation became a wholly-owned subsidiary of Graphic Packaging Holding Company.
3
When Humphrey retired on December 31, 2007, all of his RSUs had vested.
Although all of Humphrey’s RSUs were vested on the date of his retirement, the four
Award Agreements provide that the vested benefits do not become payable until the
expiration of the “Mandatary Holding Period.” The expiration of the Mandatory
Holding Period could occur upon one of several different events, including the
participant’s retirement. The Award Agreements also provide, however, that if a
participant is a “key employee” under Internal Revenue Code § 409A (26 U.S.C. §
409A), the Mandatary Holding Period extends for six additional months beyond the
date of retirement. Humphrey was a § 409A “key employee,” so the Mandatory
Holding Period did not expire–and the RSUs thus did not become payable–until June
30, 2008. The parties agree that the Stock Plan and the Award Agreements are silent
as to whether the value of the RSU distribution should be determined at the
conclusion of § 409A’s Mandatory Holding Period, or at another time–specifically,
on the date of Humphrey’s retirement. Because each RSU is the equivalent of one
share of the company’s stock, the question in this case is whether the stock should be
valued on the date of retirement (December 31, 2007) or the date the stock became
payable (June 30, 2008).
4
B. Graphic Packaging’s Past Practice Regarding RSU Payouts Under the Stock
Plan
Humphrey’s retirement on December 31, 2007, marked the first time that
Graphic Packaging imposed the six-month holding period mandated by § 409A
following a key employee’s retirement. As a result, there is no historical practice that
speaks directly to the proper valuation date for RSUs when a § 409A holding period
is imposed. Nonetheless, both parties cite Graphic Packaging’s historical practice
regarding the valuation of RSUs to support their particular valuation date. Graphic
Packaging points out that in all prior instances the RSUs were valued on the date they
became payable, and Humphrey points out that in all prior instances the RSUs were
valued on the date of retirement. Without the six-month holding period mandated
by § 409A, both claims are true because the date of retirement and the date the RSUs
become payable are the same date. The only reason these events would happen on
different dates is if the § 409A holding period was applied.
C. Humphrey’s Alleged Overpayment
A somewhat elaborate series of events preceded the payment of benefits in this
case. Shortly after Humphrey’s effective date of retirement, on January 9, 2008,
Graphic Packaging’s Director of Compensation Kevin R. Wolff sent Humphrey a
letter explaining the impending payout of his RSUs. The letter stated that “all vesting
5
restrictions lapsed and all holding periods expired on the date of your Retirement,”
and the value of Humphrey’s RSU award was to be determined based upon the
closing stock price of the company’s common stock as of December 31, 2007, which
was $3.69 per share. (R.2-40, Ex. 7 at 8.) Wolff and his staff failed to take account
of the fact that Humphrey was a key employee under § 409A, and that the payout of
his RSUs would therefore need to be delayed by six months.
The next day Graphic Packaging’s Senior Vice President of Human Resources
Wayne E. Juby sent a second letter to Humphrey. Like the previous letter, the letter
indicated that Humprey’s RSUs would be valued as of the date of his retirement on
December 31, 2007, and the RSUs would be deposited in Humphrey’s bank account
by January 15, 2008.
Shortly after Juby sent the letter to Humphrey, the Graphic Packaging Legal
Department brought to Wolff’s attention that the payout of Humphrey’s RSUs would
need to be delayed for six months because of the requirements of § 409A and the
RSU Award Agreements. Wolff telephoned Humphrey and told him that his award
was subject to a six-month holding period beyond his retirement date due to § 409A
because he was a “key employee.” Wolff did not, however, tell Humphrey anything
about recalculating the value of the RSUs.
6
Wolff sent Humphrey a third letter on June 24, 2008. This letter again
confirmed that Humphrey’s RSUs would be valued as of the date of his retirement on
December 31, 2007, and stated that that the money would be direct deposited by June
30, 2008, which was the end of the six-month holding period.
On June 30, 2008, Graphic Packaging paid Humphrey $1,208,392.55 for the
cash portion of his RSUs. This figure was based on valuing the RSUs as of
Humphrey’s date of retirement–December 31, 2007. The price of Graphic
Packaging’s common stock on this date was $3.69 per share.
Several weeks after Graphic Packaging deposited Humphrey’s cash benefits
into his bank account, the Graphic Packaging Legal Department questioned the
valuation date used to determine Humphrey’s RSU payout. The Legal Department
took the position that the proper valuation date for Humphrey’s RSUs was the date
of distribution (June 30, 2008) rather that the date of retirement (December 31, 2007).
Because the price of the stock had dropped to $2.02 per share on June 30, 2008, the
Legal Department concluded that Humphrey had been overpaid by $541,575.08.
Wolff notified Humphrey of the alleged overpayment by telephone on July 22,
2008, and two days later sent Humphrey a letter stating that he had been overpaid by
$541,575.08 due to an “administrative error.” The letter stated that the amount of
cash should have been determined based on the value of Graphic Packaging’s
7
common stock on June 30, 2008, which was $2.02 per share. The letter demanded
repayment of the $541,575.08.
Humphrey declined to refund the money. After the parties failed to resolve the
proper valuation date, Graphic Packaging submitted the issue to the Compensation
and Benefits Committee of the Graphic Packaging Board of Directors (the
“Compensation Committee”) for a final determination of the proper valuation date for
Humphrey’s RSU distribution. The Stock Plan provides that the Compensation
Committee “shall be responsible for administering the Plan” and that “[a]ll actions
taken and all interpretations and determinations made by the Committee shall be final
and binding upon Participants, the Company, and all other interested individuals.”
(R.2-40, Ex. 5 at 17.) Humphrey’s four Award Agreements contain similar grants of
authority.
Graphic Packaging notified Humphrey that the Compensation Committee
would be resolving the valuation issue and invited him to submit any additional
documents or information he wanted the Committee to consider. Prior to the
Committee’s meeting, the three Committee members received a collection of
documents that included a memorandum outlining the pertinent facts and issues, the
relevant agreements, and the correspondence between the Company and Humphrey
(or their respective counsel) regarding the dispute. On September 16, 2008, the
8
Committee met and received a presentation from Graphic Packaging’s outside and in-
house counsel regarding the dispute. The Committee determined that the proper
valuation date was June 30, 2008. Immediately after this meeting, Graphic Packaging
informed Humphrey of the Committee’s decision. Humphrey again declined to return
the $541,575.08.
II. Procedural History
On September 17, 2008, Graphic Packaging filed this lawsuit in Georgia state
court, seeking to recover the amount of the alleged overpayment of $541,575.08
based on theories of money had and received and, alternatively, unjust enrichment.
Graphic Packaging also asserted a claim for attorneys’ fees and expenses pursuant to
O.C.G.A. § 13-6-11.
Humphrey removed the case to federal court. In his Answer, he asserted a
counterclaim against Graphic Packaging for breach of contract in connection with
Graphic Packaging’s payout of the stock portion of his RSUs. Humphrey also
asserted a counterclaim for attorneys’ fees and expenses pursuant to O.C.G.A. § 13-6-
11.
The parties filed cross-motions for summary judgment that the district court
granted in part and denied in part. The district court denied Graphic Packaging’s
motion for summary judgment with respect to its claims against Humphrey. The
9
district court granted Humphrey’s motion for summary judgment with respect to
Graphic Packaging’s claims against him and dismissed these claims. With respect to
Humphrey’s counterclaims, the district court denied Humphrey’s motion for summary
judgment, granted Graphic Packaging’s motion, and dismissed the counterclaims.
The district court entered final judgment and ordered that each party bear its own
costs. Graphic Packaging filed a timely Notice of Appeal. Humphrey did not appeal
the dismissal of his counterclaims.
III. Issues on Appeal
Graphic Packaging raises the following issues on appeal: (1) whether the
district court erred in concluding that Graphic Packaging failed to produce sufficient
evidence showing that the company’s valuation of Humphrey’s RSU’s on the date of
his retirement was mistaken;2 and (2) whether the district court erred in concluding
that Graphic Packaging was not entitled to attorneys’ fees and expenses pursuant to
O.C.G.A. § 13-6-11.
2
The district court denied Graphic Packaging’s motion for summary judgment and granted
Humphrey’s motion for summary judgment on the ground that Graphic Packaging failed to submit
evidence showing that it made a mistake by valuing Humphrey’s RSUs as of the date of his
retirement. Because we ultimately affirm on this basis, both motions are discussed together.
10
IV. Discussion
A. Money had and received / unjust enrichment
An action for money had and received is founded on the equitable principle
that no one ought to unjustly enrich himself at the expense of another. Gulf Life Ins.
Co. v. Folsom, 349 S.E.2d 368, 370-71 (Ga. 1986). Recovery in such an action is
authorized against one who holds the money of another that he ought in equity and
good conscience refund. Time Ins. Co. v. Fulton-DeKalb Hosp. Auth., 438 S.E.2d
149, 150-51 (Ga. Ct. App. 1993) (quotations and citations omitted). A plaintiff
prevails on an action for money had and received where (1) a payment was
mistakenly made as a result of the plaintiff’s lack of diligence and (2) the party
receiving payment would not be prejudiced by refunding the payment–subject to a
weighing of the equities between the parties. Folsom, 349 S.E.2d at 373. Claims for
unjust enrichment brought in an attempt to recover a mistaken overpayment are
analyzed by Georgia courts under the same framework as a claim for money had and
received. See D & H Constr. Co. v. City of Woodstock, 643 S.E.2d 826, 830 (Ga. Ct.
App. 2007).
The district court denied summary judgment to Graphic Packaging and granted
summary judgment to Humphrey on Graphic Packaging’s claims for money had and
received and unjust enrichment because it found that Graphic Packaging could not
11
show that it made a mistake by valuing the RSUs as of the date of Humphrey’s
retirement. Graphic Packaging contends that the district court erred in reaching this
conclusion in the following ways: (1) by failing to defer to the determination of the
Compensation Committee regarding the appropriate valuation date; (2) by rejecting
and misconstruing Kevin Wolff’s undisputed testimony regarding the events leading
to the alleged overpayment; and (3) by misinterpreting Graphic Packaging’s past
practice regarding RSU valuation. We address each contention in turn.
Graphic Packaging first argues that the district court erred by failing to give
proper deference to the Compensation Committee’s determination that Humphrey’s
RSUs should have been valued as of the date they became payable (June 30, 2008).
According to Graphic Packaging, this deference is mandated by the language of the
Stock Plan and Award Agreements and by Delaware law.3
The Stock Plan and Award Agreements do not address the appropriate
valuation date in the event RSUs vest and are paid out on different dates, as in
Humphrey’s case. The documents do, however, give the Compensation Committee
“full and exclusive discretionary authority” to interpret the Stock Plan and Award
3
The Stock Plan and the Award Agreements provide that they are to be interpreted in
accordance with Delaware law. Graphic Packaging claims that Delaware law governs the
interpretation of the Stock Plan and Award Agreements, and Humphrey does not dispute this
contention. We therefore assume without deciding that Delaware law is the proper choice of law in
interpreting the relevant documents.
12
Agreements, and provide that the determinations of the Committee are “final and
binding.” (R.2-40, Ex. 5 at 17.) Delaware law, moreover, requires courts to give
deference to a committee that is granted interpretive and decision-making authority
under a corporate compensation plan. See, e.g., JPMorgan Chase & Co. v. Pierce,
517 F. Supp. 2d 954, 958 (E.D. Mich 2007) (quoting Schwartz v. Century Circuit,
Inc., 163 A.2d 793, 796 (Del. Ch. 1960)) (applying Delaware law and explaining that
“[w]here a contract vests a corporate administrative committee with the authority to
make ‘binding, final and conclusive’ decisions regarding an employee’s eligibility
under a corporate compensation plan, a court should accept the committee’s decision
as ‘conclusive in the absence of fraud, bad faith and the like.’”); Lieberman v. Becker,
155 A.2d 596, 600 (Del. 1959) (“We must assume that the committee of directors
charged with the administration of this plan will do so in the good faith exercise of
their considered business judgment. . . . A decision by responsible businessmen
reached after careful consideration . . . , without bad faith or fraud, is entitled to
weighty consideration by the courts.”).
Based on the Compensation Committee’s authority to interpret the Stock Plan
and Award Agreements and the deference afforded to corporate compensation
committees under Delaware law, Graphic Packaging contends that analysis of the
Committee’s decision should be limited to assessing whether it was tainted by bad
13
faith or fraud, and, in the absence of both, Delaware law requires deferring to the
Committee’s determination that Humphrey was overpaid.
We cannot agree. In this case, Graphic Packaging has the burden to produce
evidence showing that it made a mistake when it valued and paid Humphrey’s RSUs
based on the date of his retirement. Graphic Packaging cannot meet this burden by
simply pointing to the Compensation Committee’s ultimate conclusion that
Humphrey’s RSUs should be valued on the date they became payable. Rather,
Graphic Packaging must produce evidence showing why one valuation date is correct
and the other date is incorrect. Further, the Delaware cases do not support Graphic
Packaging’s argument because those cases did not concern mistaken payments
whereby the corporate employer has the burden of proving that a payment was
mistaken in order to be entitled to equitable relief. Thus, the district court was correct
in analyzing the basis for the Compensation Committee’s conclusion in order to
determine whether Graphic Packaging met its burden of submitting evidence of a
mistaken payment.
Graphic Packaging also argues that the evidence supporting the Compensation
Committee’s determination shows that a mistaken payment was made. We disagree.
Graphic Packaging has pointed to no specific document or testimony that shows why
valuing the RSUs on the date they became payable is correct and valuing the RSUs
14
on the date of retirement is incorrect. While one committee member testified that
past practice supported valuing the RSUs on the date they became payable, there was
no past practice of valuing RSUs in the context of a § 409A key employee, like
Humphrey.
Graphic Packaging next argues that the testimony of Director of Compensation
Kevin Wolff provides sufficient evidence that the company’s valuation of
Humphrey’s RSUs as of the date of his retirement was mistaken. Graphic Packaging
contends that the district court refused to credit Wolff’s testimony, and this refusal
amounted to an impermissible credibility determination. We disagree.
The district court correctly concluded that Wolff’s testimony did not establish
that Graphic Packaging over-valued Humphrey’s RSUs by valuing them as of the date
of Humphrey’s retirement (December 31, 2007). While Wolff testified that valuing
the RSUs as of the date of retirement was a “mistake,” he did not explain the basis for
this conclusion. While Wolff testified that valuing the RSUs as of the date of
retirement was not in line with the company’s understanding of its past practice in
interpreting the Stock Plan, Graphic Packaging had never previously addressed how
RSUs should be valued in the context of a § 409A key employee, like Humphrey. We
agree with the district court’s conclusion that valuing Humphrey’s RSUs as of the
date of his retirement was a reasonable interpretation of the relevant agreements that
15
was confirmed repeatedly through numerous letters and, ultimately, by paying
Humphrey accordingly.
Graphic Packaging also argues that the district court erred in its assessment of
the Company’s past practice regarding the valuation of RSUs. According to Graphic
Packaging, prior to Humphrey’s retirement all RSUs paid out under the Stock Plan
were valued on the date the RSUs became payable regardless of vesting date.
We agree with the district court that Graphic Packaging’s past practice does not
show that a mistake was made in valuing Humphrey’s RSUs. As the district court
correctly noted, in every instance prior to Humphrey’s retirement, the date of
retirement was the same date as the date the RSUs became payable under the Award
Agreements because the only reason the dates would differ is if the § 409A holding
period was imposed. Since there is no indication in the record that a § 409A holding
period had ever been imposed prior to Humphrey’s retirement, there is no historical
practice that could show that Humphrey’s RSU valuation was miscalculated.
We conclude by noting, as the district court did, that Graphic Packaging’s
arguments are notable for what they do not say. First, neither the Stock Plan nor the
Award Agreements provide that Humphrey’s RSUs should have been valued on the
date the § 409A holding period expired. Although the § 409A holding period may
postpone the distribution of the payment, there is no indication in the Award
16
Agreements that it operates to alter the value of Humphrey’s vested RSUs. Second,
nothing in § 409A suggests that the proper valuation date should be at the end of the
six-month holding period. Since it is clear that if § 409A had not been applied to
delay Humphrey’s RSU distribution the valuation date under the relevant agreements
would have been the date of Humphrey’s retirement, there is no basis for the
conclusion that § 409A somehow operates to change the valuation date.
Accordingly, the district court correctly determined that Graphic Packaging
failed to submit evidence showing that its valuation of Humphrey’s RSUs on the date
of his retirement was a mistake.
B. Attorneys’ Fees
Graphic Packaging argues that the district court erred in granting Humphrey’s
motion for summary judgment on Graphic Packaging’s claim for attorneys’ fees and
expenses pursuant to O.C.G.A. § 13-6-11.4 In order to prevail on such a claim, a
plaintiff must first prevail on its underlying claims. Ellis v. Gallof, 469 S.E.2d 288,
289 (Ga. Ct. App. 1996). Graphic Packaging has not done so in this case, and we
thus affirm the district court’s grant of summary judgment in favor of Humphrey on
Graphic Packaging’s claim for attorneys’ fees and expenses.
4
Graphic Packaging has withdrawn its appeal with respect to its motion for summary
judgment on its claim for attorneys’ fees and expenses pursuant to O.C.G.A. § 13-6-11.
17
V. Conclusion
For the foregoing reasons, we affirm the judgment of the district court.
AFFIRMED.
18