Varghese v. Honeywell Intl Inc ( 2005 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
THOMAS VARGHESE, Dr., 
Plaintiff-Appellee,
v.
HONEYWELL INTERNATIONAL,  No. 04-2271
INCORPORATED; HONEYWELL
TECHNOLOGY SOLUTIONS,
INCORPORATED,
Defendants-Appellants.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
William M. Nickerson, Senior District Judge;
Alexander Harvey, II, Senior District Judge.
(CA-01-3348-WMN)
Argued: May 25, 2005
Decided: September 14, 2005
Before MOTZ and GREGORY, Circuit Judges, and
HAMILTON, Senior Circuit Judge.
Affirmed in part, reversed and vacated in part, and remanded in part
by published opinion. Judge Gregory wrote the majority opinion, in
which Judge Motz concurred in Parts I and II and Senior Judge Ham-
ilton concurred in Part III. Judge Motz wrote a separate opinion dis-
senting from Part III. Senior Judge Hamilton wrote a separate opinion
dissenting from Part II.B.
2 VARGHESE v. HONEYWELL INTERNATIONAL
COUNSEL
ARGUED: Michael L. Banks, MORGAN, LEWIS & BOCKIUS,
L.L.P., Philadelphia, Pennsylvania, for Appellants. Eric Kenneth
Bachman, WIGGINS, CHILDS, QUINN & PANTAZIS, P.C., Wash-
ington, D.C., for Appellee. ON BRIEF: Kathy B. Houlihan, Christine
B. Cox, MORGAN, LEWIS & BOCKIUS, L.L.P., Washington, D.C.,
for Appellants. Timothy B. Fleming, WIGGINS, CHILDS, QUINN
& PANTAZIS, P.C., Washington, D.C., for Appellee.
OPINION
GREGORY, Circuit Judge:
Dr. Thomas Varghese brought suit against Honeywell International
Inc., and Honeywell Technology Solutions, Inc.,1 alleging, among
other things, that Honeywell violated Maryland law when it failed to
pay him separation benefits and terminated his right to exercise previ-
ously granted stock options. A jury returned a verdict for Dr. Var-
ghese on both of these claims, granting Dr. Varghese $337,000 on his
stock options claim and $25,571.73 on his separation pay claim. The
damages granted to Dr. Varghese on his stock options and separation
pay claims were enhanced under the Maryland Wage Payment and
Collection Law ("MWP&CL"). Honeywell challenges this result on
two grounds. First, Honeywell argues that the stock options were not
wages, and therefore not covered by the MWP&CL and subject to an
enhancement. Second, Honeywell argues that the separation pay
claims are preempted by ERISA.
1
Defendant Honeywell International, Inc. ("Honeywell"), is a Mary-
land corporation founded in 1985. It was re-formed in 1999 through its
merger with AlliedSignal Inc. Defendant Honeywell Technology Solu-
tions, Inc., formerly Allied Technical Services Corporation ("ATSC") is
a wholly owned subsidiary of Honeywell. AlliedSignal purchased
Bendix Field Engineering Corporation in 1993. Honeywell, Honeywell
Technology Solutions, Inc., and all predecessor entities are hereinafter
referred to as "Honeywell."
VARGHESE v. HONEYWELL INTERNATIONAL 3
We find that Honeywell’s ERISA preemption argument is not
properly before us. However, because we find that the stock options
are not in fact "wages" as that term is defined by the MWP&CL, we
reverse in part the judgment of the district court, vacate in part the
jury’s award to Dr. Varghese, and remand to the district court for
redetermination.
I.
Dr. Varghese began his employment with Honeywell International
Inc.’s predecessor, Bendix Field Engineering Corp., as a Field Engi-
neer in 1983. The terms of Dr. Varghese’s employment offer provided
him with a monthly salary, a travel and relocation allowance, and var-
ious fringe benefits then available to other comparable employees. In
early 1998 Dr. Varghese requested, and was granted, a one year
unpaid leave of absence to pursue an advanced degree in the execu-
tive management program at the Massachusetts Institute of Technol-
ogy Sloan School of Management. At the time of his leave of
absence, Dr. Varghese was a Senior Principal Engineer, a salary band
4 level employee. Although Honeywell paid Dr. Varghese’s tuition
for the management program and agreed to make every effort to rein-
state him to his position or to a comparable position at the end of his
leave of absence, the company informed Dr. Varghese that it could
not guarantee that he could return to active employment with Honey-
well.
Upon the completion of the executive management program in
May of 1999, Dr. Varghese requested reinstatement with Honeywell.
However, due to substantially changed business conditions, Honey-
well did not offer Dr. Varghese a position. On August 21, 1999, Dr.
Varghese sent a letter to Honeywell stating: "If there are no opportu-
nities within ATSC, despite waiting for more than 3 months now
since the original communication, I am only left with the option of
asking for termination of my employment and earned severance." J.A.
361. On October 7, 1999, Honeywell informed Dr. Varghese "that
due to current business conditions we are unable to identify a suitable
position to which you can be reinstated at this time and have taken
action to terminate your employment with ATSC effective May 31,
1999." J.A. 205. On that same day, Honeywell’s human resources
department completed the necessary paperwork to terminate Dr. Var-
4 VARGHESE v. HONEYWELL INTERNATIONAL
ghese’s employment. Importantly, Honeywell classified Dr. Var-
ghese’s termination as "voluntary."
During his sixteen-year tenure at Honeywell, Dr. Varghese
received 4800 stock options through four separate stock option grants.2
Under the Honeywell compensation system, all executive-level
employees (i.e., those classified by the corporation as salary band 5
or above) automatically received annual option grants. For non-
executive employees (i.e., salary band 4 and below), of which Dr.
Varghese was one, option grants were discretionary awards. In grant-
ing these awards, Honeywell considered "the duties of the employees
and their present and potential contributions to the Company’s suc-
cess." J.A. 188. Importantly, on appeal, Dr. Varghese does not con-
tend that he was ever promised the stock options in question.
After his termination, Dr. Varghese set out to obtain his earned
severance benefits and to exercise his stock options. Dr. Varghese’s
options had fully vested at the time of his termination, entitling him
to exercise any or all of them by purchasing the shares at the strike
price.3 Dr. Varghese attempted to exercise his options in October and
November of 1999. However, because Dr. Varghese’s termination
was classified as "voluntary" rather than as a "reduction-in-force" he
had only three months to exercise his options from his date of termina-
tion.4 Because Honeywell backdated Dr. Varghese’s termination to
May 31, 1999, the options had already expired when Dr. Varghese
attempted to exercise them.
2
On July 31, 1992 and July 30, 1993, Honeywell granted Dr. Varghese
1600 options. On July 29, 1994, Honeywell granted Dr. Varghese 1000
options. Finally, on July 19, 1996, Honeywell granted Dr. Varghese 600
options.
3
A "strike price" is the fixed price at which the owner of a stock option
can purchase the underlying security. Where the market value of the
underlying security is higher than the "strike price" at which an employee
may purchase the security, the option holder may profit from the exercise
of the options.
4
Under the terms of the stock option plan, if Dr. Varghese’s termina-
tion had been classified as a "reduction in force," he would have had
three years from his date of termination to exercise his options.
VARGHESE v. HONEYWELL INTERNATIONAL 5
Additionally, the classification of Dr. Varghese’s termination as
"voluntary" meant that he was not entitled to separation pay. Under
Honeywell’s separation plan, separation pay was an element of the
Salaried Employees Benefit Plan, applicable to salaried employees
otherwise eligible to receive such benefits. Critically, while employ-
ees whose separation from the company was due to a "reduction-in-
force" were eligible for severance benefits, those who voluntarily sep-
arated unrelated to any reduction in force were not. Therefore,
because Honeywell coded Dr. Varghese’s termination as "voluntary,"
he was not considered eligible for severance benefits. When no action
was taken pursuant to Dr. Varghese’s requests to obtain his accrued
separation benefits and to exercise his stock options, he brought the
instant suit. Through a series of amended complaints Dr. Varghese
alleged various claims, including the violation of Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act, the
Employee Retirement Income Security Act of 1974 ("ERISA"), and
the MWP&CL.
After cross motions for summary judgment, the following claims
remained: 1) that Honeywell violated ERISA’s notice requirements
by not responding to Dr. Varghese’s fall of 1999 requests for informa-
tion about his 401K plan until mid-2000, thereby breaching its fidu-
ciary duty;5 2) that Honeywell’s failure to pay Dr. Varghese
separation pay constituted a breach of contract in violation of Mary-
land common law and the MWP&CL;6 3) that Honeywell breached
its contractual obligations by retroactively terminating Dr. Varghese’s
right to exercise his stock options in violation of Maryland common
law and the MWP&CL; and 4) that an enforceable contract existed
between Dr. Varghese and Honeywell under Honeywell’s supplemen-
tal savings plan.
5
This issue was not presented to the jury because under ERISA a
claimant may not insist upon a jury trial. See Phelps v. C.T. Enterprises,
Inc., 394 F.3d 213, 222 (4th Cir. 2005)
6
The district court granted Honeywell’s summary judgment motion on
Dr. Varghese’s ERISA claim for separation pay, ruling that Honeywell’s
separation plan was not a plan covered by ERISA. This ruling, in combi-
nation with the denial of summary judgment on Dr. Varghese’s state law
separation claims, stands as an implicit rejection of Honeywell’s sum-
mary judgment argument that ERISA preempted Dr. Varghese’s state
law claims.
6 VARGHESE v. HONEYWELL INTERNATIONAL
These four claims proceeded to trial. At the end of Dr. Varghese’s
case in chief, Honeywell moved for Judgment as a Matter of Law
("JMOL") pursuant to Fed. R. Civ. P. 50(a)(1) arguing: 1) that a con-
tract for supplemental severance pay never existed; 2) that the stock
options in this case do not constitute "wages" under the MWP&CL;
and 3) that Honeywell did not breach the stock options contract.7 The
district court granted the Rule 50 motion with regard to the supple-
mental severance claim and denied it in all other respects.
On March 26, 2004 the jury returned a verdict for Dr. Varghese,
awarding him $337,000 on the stock options claim, $25,571 on the
separation pay claim, and $6,711 in prejudgment interest.8 Finally, on
September 3, 2004, the district court entered an order finding that
Honeywell had in fact violated ERISA § 502(a)(1)(A), and awarded
Dr. Varghese an additional $2600.00.
From these decisions, Honeywell brings this appeal.
II.
A.
Honeywell first challenges the district court’s denial of its motion
for judgment as a matter of law on Dr. Varghese’s stock option claim.
Under Fed. R. Civ. P. 50(a)(1), "[i]f during a trial by jury a party has
been fully heard on an issue and there is no legally sufficient evidenti-
ary basis for a reasonable jury to find for that party on that issue, the
court may determine the issue against that party." Fed. R. Civ. P.
50(a)(1). We review the denial of a motion for judgment as a matter
of law de novo, viewing the evidence in the light most favorable to
7
Honeywell argues that it also raised the issue of whether separation
pay was subject to the MWP&CL. However, such a contention is not
supported by the transcript of the JMOL hearing at trial.
8
These damages were enhanced by the MWP&CL. Specifically, under
§ 3-507.1 of the MWP&CL, if "a court finds that an employer withheld
the wage of an employee in violation of the subtitle and not as a result
of a bona fide dispute, the court may award the employee an amount not
exceeding 3 times the wage, and reasonable counsel fees and other
costs." MD Code Ann., Lab. & Employ., § 3-507.1(a) (2004).
VARGHESE v. HONEYWELL INTERNATIONAL 7
the nonmovant, and "draw[ing] all reasonable inferences in her favor
without weighing the evidence or assessing the witnesses’ credibil-
ity." Ocheltree v. Scollon Prod., Inc., 335 F.3d 325, 331 (4th Cir.
2003) (quoting Anderson v. G.D.C., Inc., 281 F.3d 452, 457 (4th Cir.
2002)). Judgment as a matter of law is proper only if "there can be
but one reasonable conclusion as to the verdict." Id. (quoting Ander-
son v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986)).
B.
In its challenge to the district court’s denial of its JMOL motion,
Honeywell argues that the stock options were not "wages" as that
term is defined by the MWP&CL because Dr. Varghese was never
promised stock options as remuneration for his labor. As such,
Honeywell contends that the jury’s award of enhanced damages for
breach of the stock option contracts under the MWP&CL was
improper. We agree.9
Pursuant to the MWP&CL:
each employer shall pay an employee or the authorized rep-
resentative of an employee all wages due for work that the
employee performed before the termination of employment,
on or before the day on which the employee would have
been paid the wages if the employment had not been termi-
nated.
MD Code Ann., Lab. & Employ., § 3-505 (2004). The statute defines
"wages" as "all compensation that is due to an employee for employ-
ment." Id. at § 3-501(c)(1). According to § 3-501(c)(2), the term
"wage" includes "a bonus," "a commission," and "a fringe benefit."
Id. at § 3-501(c)(2). Critically, § 3-501(c)(2)(iv) additionally defines
"wages" as "any other remuneration promised for service." Id. at § 3-
501(c)(2)(iv) (emphasis added).
9
Honeywell also contends that the stock options did not constitute
"wages due" to Dr. Varghese under the MWP&CL. Because we agree
with Honeywell that the stock options awarded to Dr. Varghese were not
"wages" as that term is defined by the statute, we do not reach this argu-
ment.
8 VARGHESE v. HONEYWELL INTERNATIONAL
The Maryland Court of Appeals encountered this provision of the
MWP&CL in Whiting-Turner Contracting Co. v. Fitzpatrick, 783
A.2d 667, 669 (Ct. App. Md. 2001). Joe Fitzpatrick was hired by
Whiting-Turner in 1997, and it was agreed that his compensation
would consist of a weekly salary "and, after two years of employment
and depending upon the profitability of the company, profit sharing."
Id. When Fitzpatrick informed a company vice-president that he was
considering leaving the firm in late 1998 and inquired about the status
of his profit sharing bonus, the vice-president responded: "I have a
profit sharing check for you in my pocket. All you have to do is tell
me you are staying." Id. Fitzpatrick resigned that next Monday, prior
to reaching two years of employment with Whiting-Turner. Id. When
he was not given a profit sharing bonus, he brought suit. Id.
Interpreting the MWP&CL, the court held that "the wages which
an employee is due, and which must be paid on termination of
employment, consist of all compensation, and any other remunera-
tion, that the employee was promised in exchange for his work." Id.
at 671-72 (emphasis added). Specifically, the court found that "§ 3-
501(c)(2)(iv) serves two functions: it makes clear both that the listed
forms of remuneration are simply examples, by the use of the phrase
‘any other remuneration,’ and that the ‘other remuneration’ that may
be included in—in order to be considered—wages must have been
‘promised for service.’" Id. at 672. The court stated:
reading the statute as including a bonus as wages only when
it has been promised as part of the compensation for
employment is logical and makes good common sense. The
conditions of employment are determined in advance of the
employment. What, if anything beyond the basic salary, the
employee will receive is a matter for discussion, consider-
ation and agreement. If a bonus is to be made part of the
wage package, it can be negotiated and included in what has
been promised. . . . Once a bonus, commission or fringe
benefit has been promised as a part of the compensation for
service, the employee would be entitled to its enforcement
as wages.
Id. at 672. Because the compensation package made no provision for
a bonus given before the end of two years, any such bonus would
VARGHESE v. HONEYWELL INTERNATIONAL 9
have been merely a gift or a gratuity that Fitzpatrick was not entitled
to, and therefore not a "wage" covered by the MWP&CL. See id.
The Maryland Court of Appeals soon had opportunity to apply this
holding in Medex v. McCabe, 811 A.2d 297 (Md. Ct. of App. 2002).
There Timothy McCabe, a former sales representative for Medex,
brought suit against Medex seeking to recover wages and incentive
fees (i.e., commissions) under the MWP&CL. Id. at 300. McCabe
earned a salary of $49,000.00 plus incentive fees. Id. According to
McCabe’s employee manual, "[p]ayment from all Company incentive
compensation plans is conditional upon meeting targets and the par-
ticipant being an employee at the end of the incentive plan (generally
the fiscal year) and being employed at the time of actual payment."
Id. McCabe resigned his position after the end of the fiscal year, but
prior to the time of actual payment. When Medex refused to pay the
incentive fees, McCabe filed suit. Id. at 301.
The Medex court began by stating that the exchange of remunera-
tion for an employee’s work is the critical inquiry in the determina-
tion of whether compensation constitutes a wage. Id. at 302. "Where
the payments are dependent upon conditions other than the employ-
ee’s efforts, they lie outside of the definition." Id. According to the
Medex court, this situation was distinguishable from the requested
accelerated bonus in Whiting-Turner which was not "promised for
service" because:
the incentive fees were related directly to sales made by the
employees during a defined fiscal year. McCabe had per-
formed all the work necessary to earn the fees, and Medex
had registered the sales. In the terminology of the incentive
plan itself, some of the incentive fees "begin to earn" at
meeting 80% of a target goal, while another "[i]ncentive
begins" upon the sale of certain goods.
Id. at 302-03 (emphasis added). Because the incentive fees were part
of McCabe’s promised compensation for work performed, and
because McCabe had performed all the work necessary to earn the
fees, the court held that they were "wages" to which McCabe was
entitled. See id. at 301, 303.
10 VARGHESE v. HONEYWELL INTERNATIONAL
Reading the MWP&CL and Maryland case law10 on this issue, it
is clear that for a form of compensation to constitute "wages" under
the MWP&CL, and therefore be subject to the MWP&CL enhanced
damages provisions, the employee must have been promised the par-
ticular form of compensation as remuneration for his labor. The
Whiting-Turner court’s interpretation of § 3-501(c)(2)(iv) is critical in
that regard. According to Whiting-Turner, § 3-501(c)(2)(iv) sets forth
the general governing principle that remuneration can only constitute
wages where it is promised for service. See Whiting-Turner, 783 A.2d
at 672. §§ 3-501(c)(2)(i)-(iii) merely put forth a non-exhaustive list of
examples that can meet that criteria. See id. The Whiting-Turner court
emphasized this point when it stated that "reading the statute as
including a bonus as wages only when it has been promised as part
of compensation is logical and makes good common sense." Id. As
such, even if the stock options in this case were a "fringe benefit," or
a "bonus," they still must have been promised to Dr. Varghese as
remuneration in order to qualify as "wages."
Dr. Varghese contends that because the options were granted as
remuneration for service, they constitute "wages."11 We recognize that
10
Dr. Varghese cites much external authority to support his proposition
that the stock options in this matter constitute wages under the
MWP&CL. However, we do not believe that any of these cases are par-
ticularly helpful on this issue. In Scully v. U.S. Wats, Inc., 238 F.3d 497
(3rd Cir. 2001), and Reiger v. Rhone-Poulenc Roer, Inc., Civ. A. No. 93-
4821, 1995 WL 395948, at *6-7 (E.D. Pa. June 30, 1995), the equivalent
Pennsylvania statute does not use the term "promise" to define wages.
That statute defines "wages" as including "all earnings of an employee,
regardless of whether determined on time, task, piece, commission, or
other method of calculation. The term ‘wages’ also includes fringe bene-
fits or wage supplements whether payable by the employer from his
funds or from amounts withheld from the employees pay by the
employer." 43 Pa. Stat. Ann. § 260.2a (1992). Similarly, the Colorado
Wage Claim Act section defining "wages" interpreted in Montemayor v.
Jacor Communications, Inc., 64 P.3d 916 (Colo. Ct. App. 2002), did not
employ language similar to the "promise" language employed by the
MWP&CL.
Because "wage" is explicitly defined differently by the Maryland stat-
ute at issue, these cases do not mandate a different result here.
11
Honeywell contests this, arguing that the options were based an
employee’s future potential to contribute. Appellant’s Brief 19.
VARGHESE v. HONEYWELL INTERNATIONAL 11
stock options are commonly used as compensation tools. We further
recognize that the grant of stock options in this matter was, in all like-
lihood, at least partially remuneration for Dr. Varghese’s past perfor-
mance. However, mere remuneration, while necessary, is not
sufficient to prove that a particular form of compensation constituted
"wages" under the MWP&CL. Under Maryland law, the test to deter-
mine whether a particular form of compensation constitutes "wages"
under the MWP&CL contains a promise element as well. Thus, the
issue before us is whether these particular stock option grants were
promised to Dr. Varghese as remuneration for his efforts in his
employment agreement.12
Whiting-Turner and Medex focused on the existence of an employ-
ment agreement laying out the terms of compensation to establish the
existence, or non-existence, of a "promise." In Whiting-Turner, the
court explicitly noted that "[h]ad the respondent been with the peti-
tioner for two years when the decision was made to offer him a bonus
and had the financial condition of the petitioner justified it, there
would be no doubt of the respondent’s entitlement . . . because shar-
ing in the profits of the company after two years was promised as part
of the respondent’s compensation package." Id. at 673 (emphasis
added). Because the parties did not agree to an accelerated bonus, any
such accelerated bonus could not constitute "wages" under the
MWP&CL.
By contrast, in Medex, where "Medex represented these incentive
fees as a portion of the employee’s ‘Total Target Cash Compensa-
tion,’" and represented that the "incentive fees were supplemental to
the fixed salary as a combined measure of compensation," the court
found that the incentive fees constituted "wages" under the
MWP&CL. Medex, 811 A.2d at 306 (emphasis added). There, the sat-
isfaction of three conditions, agreed upon at that outset of the employ-
ment relationship, provided a measurable benchmark to determine
whether one was entitled to receive incentive compensation. See id.
The record in this case is unequivocal that no such promise, out-
right or conditional, existed. As an initial matter, we note that Dr.
Varghese repeatedly testified that Honeywell never promised him
12
This includes any legal cognizable amendments to this agreement.
12 VARGHESE v. HONEYWELL INTERNATIONAL
stock options as a part of his compensation package.13 Further, Dr.
Varghese’s employment documents that set forth his compensation
package made no explicit mention of stock options. Although the
"Salaried Employees Compensation Agreement" makes clear that Dr.
Varghese’s compensation package includes any additional compensa-
tion comparable employees may be entitled to, the "Total Compensa-
tion and Incentive Pay" summary document makes clear that band 4
employees "may" also be included in the annual incentive plan, and
"may" receive stock option grants.14 Read together, these documents
show that while Dr. Varghese was eligible to receive stock options,
at no point was he entitled to them.
13
During his deposition, Dr. Varghese testified as follows:
"Q: You weren’t guaranteed stock options in any given year, were
you?
A: I was not guaranteed a stock option, but it was customary practice
that if you’re involved in winning contracts, from the precedence that
was established, I was eligible for stock options in 1998."
J.A. 247-48 (Deposition Transcript of Thomas Varghese, February 12,
2003).
At trial, Dr. Varghese testified as follows:
"Q: Dr. Varghese, did you have any promise that you would receive
stock options as part of your compensation at Allied Signal?"
A: No Promise."
Q: I’m sorry?
A: I did not have any promise, written promise.
Q: Did anyone ever guarantee you stock options?
A: No, there’s no guarantee."
J.A. 457-58 (Transcript of Thomas Varghese Trial Testimony, March 24,
2004).
14
We note here that the operative language used in the "Total Compen-
sation and Incentive Pay" summary document, namely the word "may,"
is markedly different from the language employed by the contract in
Medex, which speaks about fees being "earned" and incentives "begin-
ning." See Medex, 811 A.2d at 302-03. In Medex, McCabe "earned" the
incentive fees and was therefore entitled to them. See Medex, 811 A.2d
at 302-03.
VARGHESE v. HONEYWELL INTERNATIONAL 13
Importantly, no document or testimony sets forth any conditions
that, once satisfied, would convert mere eligibility to entitlement. In
Medex, the "incentive fees ‘beg[a]n to earn’ at meeting 80% of a tar-
get goal." Medex, 811 A.2d at 302-03. There, meeting [sales] targets
constituted a measurable benchmark, by which an employee could
demonstrate that he was entitled to the incentive fees at issue.15 Here,
there were no such conditions or measurable benchmarks. No matter
what Dr. Varghese did in his professional capacity, Honeywell always
retained the discretion to not nominate Dr. Varghese to receive stock
options. In fact, Honeywell could have nominated the entire company
except Dr. Varghese and been in complete compliance with Dr. Var-
ghese’s employment contract. This is exemplified by the fact that Dr.
Varghese only received four stock option grants during his sixteen
years at Honeywell. Such discretion counsels against construing the
stock option grants at issue as "wages." An employer cannot decide
to not pay an employee the "wages" that employee has earned. Nor
can an employer claim that earned "wages" have somehow expired
based on the reason it terminated an employee.16 The fact that Honey-
well could always decide to simply not grant Dr. Varghese stock
options, coupled with the fact that the stock options expired upon an
employee’s voluntary termination, counsels against defining the stock
option grants in this case as "wages."
Finally, we would note that the mere fact that the stock options
were granted does not convert them from a form of a gratuity or
reward to "wages" that must be paid. Under that logic, any and all
forms of compensation, once granted, would constitute "wages."
Maryland law applies a much narrower brush, defining wages as com-
pensation promised to an employee as remuneration for that employ-
ee’s labor. As such, it is possible for additional compensation to be
granted without it being termed a "wage." The Maryland courts have
explicitly focused on the idea that "the conditions of employment are
determined in advance of the employment." The universe of what is
promised as a "wage" for each individual employee is defined by all
15
Similarly, in Whiting-Turner, two years and company profitability
provided a means of measurement. See Whiting-Turner, 783 A.2d at 669.
16
However, this is exactly what would happen under the stock options
contract, under which all stock options granted to any employee termi-
nated for cause expired on the date of termination.
14 VARGHESE v. HONEYWELL INTERNATIONAL
the documents constituting the employment agreement and setting
forth the terms of the employment relationship. "Wages" are not
defined ex post facto, viewing the actual grant as the penultimate indi-
cation of whether a form of compensation constitutes a "wage." The
grant of a form of compensation not contained in the employment
agreement is not a "wage" because it was not promised. The
MWP&CL protects the proper expectation of promised remuneration.
Where there is no promise, there can be no proper expectation. Defin-
ing "wage" as the Maryland courts have advances that goal.
Because the facts of this case reveal no such promise, outright or
conditional, nor show the existence of any measurable benchmark by
which Dr. Varghese could demonstrate that he was entitled to receive
stock options, we find that the options in this case were not "wages"
under the MWP&CL and therefore were not subject to the
MWP&CL’s enhanced damages provisions.
III.
Honeywell next argues that the district court erred when it denied
summary judgment on Dr. Varghese’s state law separation pay claims
because its separation plan is covered by ERISA which preempts state
law. In response, Dr. Varghese argues that Honeywell’s ERISA pre-
emption argument is not properly before this Court because, under
Chesapeake Paper Products Co. v. Stone & Webster Engineering
Corp., 51 F.3d 1229 (4th Cir. 1995), we do not review pre-trial deni-
als of summary judgment after a full trial and final judgment on the
merits. Honeywell counters that because this appeal centers around a
legal issue, a motion for judgment as a matter of law was not the
proper avenue for such a challenge. Therefore, Honeywell argues that
this appeal of the district court’s pre-trial denial of summary judgment
is properly before this court. We do not find Honeywell’s argument
convincing.
In Chesapeake, we held "that this Court will not review, under any
standard, the pretrial denial of a motion for summary judgment after
a full trial and final judgment on the merits." Id. at 1237. In that case,
Stone and Webster ("S&W") moved the district court for partial sum-
mary judgment, requesting that "the court rule as a matter of law that
the rights and liabilities of the parties were governed by the Engineer-
VARGHESE v. HONEYWELL INTERNATIONAL 15
ing Contract, as amended on January 16-17, 1992, by Amendment #1
. . . ." Id. at 1231. The district court denied this motion, and proceeded
to trial on the proper interpretation of the contract. Id. at 1233. After
Chesapeake’s case in chief, the district court denied S&W’s motion
for judgment as a matter of law and the jury ruled in favor of Chesa-
peake. Id. at 1233.
We began our analysis of S&W’s appeal by noting that eight cir-
cuit courts had recently adopted the rule that the denial of summary
judgment is not reviewable on appeal after a full trial on the merits.
Id. (citing Watson v. Amedco Steel, Inc., 29 F.3d 274, 277-78 (7th Cir.
1994); Black v. J.I. Case Co., 22 F.3d 568, 570-72 (5th Cir. 1994);
Johnson Int’l Co. v. Jackson Nat’l Life Ins. Co., 19 F.3d 431, 434 (8th
Cir. 1994); Lama v. Borras, 16 F.3d 473, 476 n. 5 (1st Cir. 1994);
Whalen v. Unit Rig, Inc., 974 F.2d 1248, 1250-51 (10th Cir. 1992);
Jarrett v. Epperly, 896 F.2d 1013, 1016 (6th Cir. 1990); Locricchio
v. Legal Services. Corp., 833 F.2d 1352, 1358-59 (9th Cir. 1987);
Glaros v. H.H. Robertson Co., 797 F.2d 1564, 1573 & n. 14 (Fed. Cir.
1986)). Next, we rejected the "contention that our review should
depend on whether the party claims an error of law or an error of fact"
because: 1) all summary judgment decisions are legal decisions
because they do not rest on disputed facts; and 2) this court should
not "engage in the dubious undertaking of determining the bases on
which summary judgment is denied and whether those bases are
‘legal’ or ‘factual.’" Id. at 1235. We continued on to note that:
Reviewing a pretrial denial of summary judgment after a
full trial is inappropriate because the denial was based on an
undeveloped, incomplete record, which was superceded by
evidence adduced at trial. Even when the pretrial record and
the trial testimony are identical, a judgment after a full trial
is superior to a pretrial decision because the factfinder’s ver-
dict depends on credibility assessments that a pretrial paper
record simply cannot allow.
Id. at 1236 (citations omitted).
We further found that bifurcating summary judgment decisions is
unnecessary because a party "has adequate remedies other than seek-
ing review of the denial after a full trial." Id. at 1236. First, the party
16 VARGHESE v. HONEYWELL INTERNATIONAL
may move for a judgment as a matter of law under Fed. R. Civ. P.
50 and then seek appellate review of the motions if they are denied.
Id. at 1236. Importantly, we stated that "a party may appropriately
move for judgment as a matter of law on discrete legal issues" even
where the legal issue may not be entirely dispositive of a claim or
defense. Id. at 1236 (emphasis added). Additionally, we noted that a
party may "move the court to certify the denial for interlocutory
appeal pursuant to 28 U.S.C. § 1292(b)." Id. at 1237. As a result, we
concluded that we would not review a pretrial denial of a motion for
summary judgment after a full trial and final judgment on the merits.
Id.; see Benner v. Nationwide Mutual Ins. Co., 93 F.3d 1228, 1233
(4th Cir. 1996) (citing Chesapeake for the proposition that "[b]ecause
there was a full trial and final judgment on the merits, we may not
review the district court’s pretrial denial of summary judgment").
In the instant case, Honeywell moved for summary judgment prior
to trial on all of Dr. Varghese’s claims, including the issue of whether
Honeywell’s failure to pay Dr. Varghese separation pay constituted a
breach of contract in violation of Maryland common law and the
MWP&CL. At the summary judgment hearing, Honeywell argued
that these claims were preempted by ERISA. For example, the follow-
ing exchange took place between the court and defense counsel:
The Court: Well leaving aside the question of futility, but if
he can assert this claim under ERISA, isn’t his breach of
contract claim preempted? . . .
Ms. Weiss: Yes. The separation pay is preempted by
ERISA, because it deals with a welfare benefit program for
the plaintiff. So that therefore it is preempted by ERISA,
and he has not exhausted any administrative remedies under
ERISA to obtain a separation pay.
J.A. 318. In ruling on Honeywell’s summary judgment motion, the
district court noted that "plaintiff seeks a recovery of separation or
severance pay both under ERISA and under Maryland common law.
If plaintiff were entitled to recover separation pay under ERISA, his
claim under state law would presumably be preempted." J.A. 58. Ulti-
mately, the district court denied Honeywell’s summary judgment
motion on the Maryland common law and MWP&CL separation pay
VARGHESE v. HONEYWELL INTERNATIONAL 17
claims, allowing them to go to trial, and granted Honeywell’s motion
for summary judgment on Dr. Varghese’s ERISA separation pay
claim, ruling that Honeywell’s separation plan was not subject to
ERISA.17 At the close of Dr. Varghese’s case in chief, Honeywell
moved for JMOL, but it did not raise the ERISA preemption argu-
ment. After a full trial on the merits the jury returned a verdict for Dr.
Varghese and the court entered a final judgment on September 3,
2004.
Here, Honeywell seeks appellate review of a district court’s denial
of summary judgment after a full trial and final judgment. However,
under binding circuit precedent, this is exactly the type of situation in
which appellate review is not available. Recognizing this problem,
Honeywell attempts to extricate itself from underneath the Chesa-
peake umbrella. Specifically, Honeywell argues that the ERISA pre-
emption issue was not raised in its JMOL motion because such
motions challenge the sufficiency of the evidence presented by an
opposing party at trial. As such, Honeywell contends a JMOL motion
was not the appropriate avenue for its legal challenge and that appel-
late review of the pretrial denial of summary judgment is therefore
proper.
However, these arguments were addressed in Chesapeake. Again,
we expressly rejected "the contention that our review should depend
on whether the party claims an error of law or an error of fact." Ches-
apeake, 51 F.3d at 1235. In fact, we stated that although a dichotomy
between reviewing denials of summary judgment based on an errone-
ous legal conclusion and those based on an erroneous factual determi-
nation "is supported by the reasoning in Holley [Holley v. Northrop
Worldwide Aircraft Serv., 835 F.2d 1375, 1378 (11th Cir. 1988)] . . .
we decline to follow Holley and therefore need not describe specific
circumstances in which this Court would review the denial of sum-
mary judgment after trial." Id. at 1235 n.8. In other words, the Chesa-
peake Court did not need to discuss "specific circumstances" because
there are none. The express rejection of Holley, a case that supported
such a dichotomy, makes that point clear. At no point does the opin-
ion suggest otherwise.
17
As was previously noted, this ruling inherently addressed Honey-
well’s ERISA preemption argument.
18 VARGHESE v. HONEYWELL INTERNATIONAL
We recognize that several other circuits have taken a different
approach on this issue, allowing appeals from a denial of summary
judgment after a trial where the summary judgment motion raised a
legal issue and did not question the sufficiency of the evidence. See,
e.g., Pavon v. Swift Transp. Co., 192 F.3d 902 (9th Cir. 1999); Rekhi
v. Wildwood Industries, Inc., 61 F.3d 1313 (7th Cir. 1995). However,
as the Seventh Circuit noted in Chemetall GMBH v. ZR Energy, Inc.,
320 F.3d 714, 721 (7th Cir. 2003), their approach simply conflicts
with our own. There, the Seventh Circuit expressly noted the dis-
agreement stating: "[t]he Fourth Circuit, however, has rejected any
distinctions between factual and legal issues like the one we drew in
Rekhi, holding that in either case, review of the district court’s denial
of summary judgment is barred after trial." Id.
In Chesapeake, we concluded that we would not review a district
court’s pretrial denial of summary judgment after a full trial and final
judgment on the merits. See Chesapeake, 51 F.3d at 1237; see
Rhoades v. Federal Deposit Insurance Corp., 257 F.3d 373 (4th Cir.
2001); Benner v. Nationwide Mutual Ins. Co., 93 F.3d 1228 (4th Cir.
1996). After the denial of Honeywell’s summary judgment motion,
there was a full trial and final judgment on the merits. Honeywell had
the option to move for judgment as a matter of law (the denial of
which we will review), arguing that ERISA preempted Dr. Var-
ghese’s state law separation pay claims. As we noted in Chesapeake,
"a party may appropriately move for judgment as a matter of law on
discrete legal issues." Id. at 1236 (emphasis added). Although Honey-
well moved for judgment as a matter of law, they did not so move on
this issue and therefore failed to preserve it for appeal. Therefore,
binding circuit precedent mandates that the appeal be dismissed.18
IV.
Given our finding that the stock options in this case did not consti-
tute "wages" as that term is defined by the MWP&CL, we reverse in
18
Of course, this outcome does not address the merits of Honeywell’s
preemption claim. However, this Court has often applied procedural
rules in criminal matters where a person’s life is literally at stake and not
reached the merits of the claim. The instant matter is no different.
VARGHESE v. HONEYWELL INTERNATIONAL 19
part the judgment of the district court, vacate in part the jury award
to Dr. Varghese, and remand to the district court for redetermination.
AFFIRMED IN PART, REVERSED
AND VACATED IN PART, AND
REMANDED IN PART
DIANA GRIBBON MOTZ, Circuit Judge, concurring in part and dis-
senting in part:
I concur in Parts I and II of Judge Gregory’s opinion for the court,
holding that the stock options Honeywell granted to Dr. Varghese did
not constitute "wages" under the Maryland Wage Payment & Collec-
tion Law, Md. Code Ann., Lab. & Employ., § 3-501 et seq. (2004)
("MWP&CL" or "the Act"). However, because I believe that Honey-
well’s argument that ERISA preempts Dr. Varghese’s state law sepa-
ration pay claim is properly before us, I respectfully dissent from Part
III.
I.
I agree with Judge Gregory’s analysis and resolution of Dr. Var-
ghese’s stock option claim. In interpreting the MWP&CL’s definition
of "wages," the Maryland Court of Appeals has focused on whether
the options were promised as remuneration for services rendered. See
Whiting-Turner Contracting Co. v. Fitzpatrick, 783 A.2d 667, 671-72
(Md. 2001) ("[T]o be wages [within the statute], the payment must
have been promised to the employee as compensation for work per-
formed."); see also Medex v. McCabe, 811 A.2d 297, 302-03 (Md.
2002).
These cases indicate that, while it is crucial that the benefit at issue
is remuneration for work performed, it is equally crucial that the com-
pensation was "promised as part of the compensation for employ-
ment." Whiting-Turner, 783 A.2d at 672. Moreover, Whiting-Turner
holds that this promise must be included in the compensation pack-
age. See id. (asserting that the compensation to be paid is a matter
"for agreement in advance of the employment or to become a part of
the undertaking during the employment").
20 VARGHESE v. HONEYWELL INTERNATIONAL
Dr. Varghese does not contend that Honeywell promised to grant
him stock options as part of the employment agreement negotiated
and agreed upon either in advance of or during the tenure of his
employment. Indeed, he admits that Honeywell never promised him
options. Consequently, because a promise to grant stock options was
not part of the "conditions of employment," id., Dr. Varghese’s
options do not constitute "wages" under the MWP&CL.
Thus, Judge Hamilton’s contention that, "once Honeywell actually
granted Dr. Varghese the stock options with the concomitant promises
that he could exercise them . . . , Dr. Varghese’s right to exercise
those options . . . constituted ‘remuneration promised for service,’"
post at 29, though interesting, misses the mark. Because the grant of
stock options was "not a part of the compensation package promised,"
Whiting-Turner, 783 A.2d at 673, the mere fact that the options, once
granted, could be exercised in accordance with their terms does not
convert them into "wages" under the MWP&CL. Indeed, because all
stock options include a "promise" that they can be exercised in accor-
dance with their terms, the position advocated by the dissent would
transform every grant of stock options by an employer to an employee
— no matter how unexpected and voluntary — into "wages" under
the Act. This result "would read out of the statute the words ‘prom-
ised for service.’" Id. at 672. Controlling precedent from Maryland’s
highest court prohibits this interpretation.
II.
I disagree, however, with the conclusion in Part III of Judge Grego-
ry’s opinion that binding circuit precedent, specifically Chesapeake
Paper Products Co. v. Stone & Webster Engineering Corp., 51 F.3d
1229 (4th Cir. 1995), forecloses our review of the district court’s
rejection of Honeywell’s ERISA preemption defense at the summary
judgment phase. In so holding, the majority ignores the critical differ-
ences between Chesapeake and the case at hand. Thus, rather than
simply following the entirely proper rule we adopted in Chesapeake,
the majority imprudently expands that rule. The important policy jus-
tifying the Chesapeake rule provides no support at all for this expan-
sion. For these reasons, I would join most of our sister circuits in
rejecting such an expansion.
VARGHESE v. HONEYWELL INTERNATIONAL 21
In Chesapeake the district court denied Stone & Webster’s motion
for summary judgment on a contract claim because it found that
Chesapeake had presented sufficient evidence to create "genuine
issues of material fact regarding the formation of the contract and ulti-
mately the proper interpretation of what one finds to be the contract
between the parties." Id. at 1233 (internal quotation marks omitted).
The case proceeded to trial, which concluded with a verdict for Ches-
apeake. Without filing Rule 50 motions for judgment as a matter of
law, Stone & Webster sought review of the summary judgment denial
on appeal. In refusing to review that ruling, we reasoned that
"[r]eviewing a pretrial denial of summary judgment after a full trial
is inappropriate because the denial was based on an undeveloped,
incomplete record" that was examined not to "settle or even tenta-
tively decide anything about the merits of the claim," but only to
decide whether or not "the case should go to trial." Id. at 1236 (inter-
nal quotation marks and citations omitted). Permitting appellate
review of a summary judgment denial in such circumstances would
"deprive a party of a jury verdict after the evidence was fully pre-
sented, on the basis of an appellate court’s review of whether the
pleadings and affidavits at the time of the summary judgment motion
demonstrated the need for a trial." Id. at 1237 (internal quotation
marks and citation omitted). Thus, once a trial has occurred, a party
must make an appropriate Rule 50 motion to preserve a challenge on
appeal to the sufficiency of the evidence. See id. at 1236.
This is a sound rule, which, as we noted in Chesapeake, many of
our sister circuits have adopted. See id. at 1234. The majority, how-
ever, apparently concludes that Chesapeake holds that an appellate
court can never review a district court’s denial of summary judgment
after a full trial. But Chesapeake does not hold this; indeed, it clearly
implies the contrary. The Chesapeake court carefully noted that it did
not need to describe the "specific circumstances in which this Court
would review the denial of summary judgment after a full trial." Id.
at 1235 n.8. Such a notation would be unnecessary if no such "cir-
cumstances" existed.
A case, like the one at hand, in which the sole basis of the district
court’s denial of summary judgment was rejection of a purely legal
defense — here preemption — obviously presents such a "circum-
stance." The evidentiary concerns discussed in Chesapeake are simply
22 VARGHESE v. HONEYWELL INTERNATIONAL
not at issue when a party seeks to reassert on appeal a legal defense
that the court below rejected at the summary judgment stage.
The Seventh Circuit made precisely this point in Rekhi v. Wild-
wood Industries, Inc., 61 F.3d 1313 (7th Cir. 1995). There the defen-
dant argued that summary judgment was appropriate because another
legal defense — res judicata — barred the plaintiff’s claim. The
Rekhi court recognized that if a trial court denied summary judgment
merely on the ground that the nonmoving party had presented suffi-
cient evidence to take the case to trial, it would be unjust for an appel-
late court to review that denial after "the plaintiff went on to present
at trial enough evidence to show that he [was] entitled to win his
suit." Id. at 1318. However, the court went on to explain that there is
no unfairness in allowing a party to reassert on appeal a legal defense
rejected as a basis for summary judgment (e.g., res judicata, statute
of limitations, immunity, preemption) because by definition a legal
defense provides a basis to avoid liability for an otherwise meritorious
claim. Id. Even when a plaintiff has sufficient evidence to escape
summary judgment and proceed to trial, a legal defense may entitle
a defendant to the award of summary judgment. A subsequent trial
verdict for the plaintiff does not change that fact.
As Judge Posner explained in Rekhi, "[t]he injustice would be" to
deny the party moving for summary judgment on the basis of a legal
defense the opportunity to reassert that defense on appeal because
"most defenses . . . would have no function if all [they] did was bar
meritless suits." Id. Accordingly, a defense must "remain[ ] available
. . . even when the plaintiff, having survived summary judgment, goes
on to win a judgment on the merits." Id. (citing cases). "Defenses are
not extinguished merely because" they are "denied at the summary
judgment stage." Id. Rather, "[i]f the plaintiff goes on to win [at trial],
the defendant can reassert the defense on appeal." Id.
For this reason, many of our sister circuits, including five of the
eight on which we relied in Chesapeake, have specifically refused to
extend the Chesapeake rule the way the majority does here. Indeed,
they allow review of the denial of summary judgment if the denial
was based on a pure question of law, rather than a determination as
to evidentiary sufficiency. See, e.g., Rothstein v. Carriere, 373 F.3d
275, 284 (2d Cir. 2004) ("A critical distinction exists between sum-
VARGHESE v. HONEYWELL INTERNATIONAL 23
mary judgment motions raising the sufficiency of the evidence to
create a fact question for the jury and those raising a question of law
that the court must decide. Where a motion for summary judgment
based on an issue of law is denied, appellate review of the motion is
proper even if the case proceeds to trial and the moving party fails to
make a subsequent Rule 50 motion.") (internal quotation marks omit-
ted); Chemetall GMBH v. Zr Energy, Inc., 320 F.3d 714, 719 (7th Cir.
2003); Pavon v. Swift Transp. Co., 192 F.3d 902, 906 (9th Cir. 1999);
White Consol. Indus. v. McGill Mfg. Inc., 165 F.3d 1185, 1189-90
(8th Cir. 1999); McPherson v. Kelsey, 125 F.3d 989, 995 (6th Cir.
1997); Ruyle v. Continental Oil Co., 44 F.3d 837, 841-42 (10th Cir.
1994).1
Here, we need not go so far as to allow review of all questions of
law decided at summary judgment, and I see no reason to adopt this
view in the case at hand. But see supra note 1. I would hold, however,
that when, as here, a district court denies a motion for summary judg-
ment based entirely on a legal defense, a subsequent trial does not
eliminate the movant’s right to assert that defense on appeal. Substan-
tial authority supports appellate review in these circumstances, see,
e.g., Rekhi, 61 F.3d at 1318 (res judicata); Ruyle, 44 F.3d at 841-42
(collateral estoppel); see also Paschal v. Flagstar Bank, FSB, 295
F.3d 565, 571-72 (6th Cir. 2002) (statute of limitations); Lenz v.
Dewey, 64 F.3d 547, 550 (10th Cir. 1995) (qualified immunity), and
the majority has failed to cite a single case that rejects it. Certainly
the rule articulated in Chesapeake does not prohibit (nor does the
dicta in that case counsel against) such review. Indeed, as many of our
1
Although some dicta in Chesapeake disapproves the reasoning in
these cases, see Chesapeake, 51 F.3d at 1235-36, contrary to the sugges-
tion in Chemetall, 320 F.3d at 721, Chesapeake’s actual holding does not
prohibit such a rule. Chesapeake involved the review of a denial of sum-
mary judgment on the ground that the plaintiff had presented sufficient
evidence to go to trial. See id. at 1233. While defendant Stone & Webster
"claim[ed] that its motion sought partial summary judgment on a discrete
legal issue, . . . in actuality, its motion sought resolution of the conflict-
ing factual inferences from the competing contract documentation on the
central issue of which document governed the rights and liabilities of the
parties." Id. at 1235. Thus, despite its dicta, the holding in Chesapeake
would not prevent us from adopting in a future case the view espoused
by many of our sister circuits.
24 VARGHESE v. HONEYWELL INTERNATIONAL
sister circuits have held, the rationale for the Chesapeake rule simply
does not support the unwise and unjust expansion of that rule articu-
lated by the majority.2
HAMILTON, Senior Circuit Judge, concurring in part and dissenting
in part:
While I fully agree with the holding in Part III of Judge Gregory’s
opinion that Honeywell is not entitled to appellate review of the judg-
ment below with respect to Dr. Varghese’s state law separation pay
claims, I strongly disagree with the holding in Part II.B. of Judge
Gregory’s opinion that Dr. Varghese was not entitled to enhanced
damages under the Maryland Wage Payment and Collection Law (the
MWP&CL), Md. Code, Labor & Employment, §§ 3-501 to 3-509,
with respect to his stock option claims. Accordingly, I concur in Part
III of Judge Gregory’s opinion, but dissent from Part II.B. of that
opinion, concurred in by Judge Motz. I would affirm the judgment
below in toto.
I.
The operative stock option plan in this case declared as follows:
The Company desires to attract and retain the best avail-
able talent and to encourage the highest level of perfor-
mance by its employees. By affording employees the
opportunity to acquire an equity interest in the Company
and by providing them incentives to put forth maximum
efforts for the success of the Company’s business, the Plan
is expected to contribute to the attainment of those objec-
tives.
2
Refusing Honeywell the right to assert its legal defense on appeal
works a particular injustice because its preemption defense is, in fact,
meritorious. ERISA does preempt Dr. Varghese’s state law severance
pay claim because Honeywell’s separation plan requires an ongoing
administrative scheme not triggered by a single one-time event but by the
termination for one of three reasons of any salaried employee. See, e.g.,
Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 14 n.9 (1987);
Bowles v. Quantum Chem. Co., 266 F.3d 622, 631-33 (7th Cir. 2001)
(and the cases cited therein).
VARGHESE v. HONEYWELL INTERNATIONAL 25
(J.A. 187). With regard to stock option granting decisions, the same
plan provided that Honeywell’s Management Development and Com-
pensation Committee (the Committee) would "base its selection of
award recipients, among other things, on the duties of the employees
and their present and potential contributions to the Company’s suc-
cess." (J.A. 188). In this vein, the record contains the trial testimony
of Honeywell Executive Compensation Analyst Katherine Behre
(Behre) to the effect that an employee at Dr. Varghese’s level, i.e.,
band four, is nominated for a stock option grant based upon two fac-
tors: (1) the employee’s performance and (2) as an inducement to the
employee’s future contributions to the company. Similarly, Mary
Neville, a twenty-year veteran of Honeywell who served as Honey-
well’s Human Resources Manager at all times relevant to this appeal,
testified at trial that stock option grants depended upon employee per-
formance and the potential for future contributions to the company.
She also confirmed that "[s]tock options are in the nature of compen-
sation, . . . whether you’re a band 4, band 3, band 2." (J.A. 474).
Notably, the record also contains the Honeywell created document
entitled "Our Pay Philosophy." (J.A. 626). The document states that
employees in positions below band 5 may receive stock option grants
separately from bands 5 and 6 through its broad-based stock-option
program. Further, under the subheading "Why we use options," the
document expressly provides:
Our stock price is the ultimate indicator of the value of our
company and its potential. The market rewards results, not
just effort. Our long-term incentive ties your actions to
achievement of our business strategy over time as evidenced
by stock price performance. With stock options, there are no
entitlements, no guarantees and no rewards for maintaining
the status quo. Stock options provide a highly leveraged pay
opportunity. As shareholder value increases, so will the
value of your options.
(J.A. 627) (emphasis added). Under the subheading "Our Stock
Option Philosophy," the same document goes on to state:
Guidelines for stock options are determined each year based
on a review of competitive-positioning and the value of an
option at that point in time.
26 VARGHESE v. HONEYWELL INTERNATIONAL
Your individual award level continues to be linked directly
to the results of the Management Resource Review (MRR)
process. Your award reflects your position as a key member
of the leadership team and your potential to be a significant
contributor going forward. Think about stock options as a
look ahead: Top performers with the most significant poten-
tial receive the greatest number of options.
Id.
The Committee granted Dr. Varghese stock options on four sepa-
rate occasions. Specifically, the Committee granted Dr. Varghese
stock options on July 31, 1992, July 30, 1993, July 29, 1994, and July
19, 1996.
The record facilely supports the reasonable inference that Dr. Var-
ghese performed his job duties at Honeywell with distinction in the
one year periods immediately preceding each of these stock option
grants. For example, the record contains two glowing performance
reviews for two of the option grant periods. The first is for the period
beginning July 1991 and ending July 1992. The second is for the
period beginning August 1992 and ending October 1993. In both
reviews, Honeywell rated Dr. Varghese’s overall performance during
the respective rating periods as "Outstanding." (J.A. 175, 181).
According to the performance review forms, such a rating meant that
"[m]ajor job responsibilities were exceeded in all areas. Established
objectives that stretched employee performance were achieved or
exceeded. Overall performance was clearly exceptional." (J.A. 172,
178).
To its credit, Honeywell makes no disparaging statements in this
appeal regarding Dr. Varghese’s job performance while at Honeywell.
Similarly, Honeywell does not take issue with the statement in Dr.
Varghese’s appellate brief that his job performance was excellent dur-
ing the years for which Honeywell granted him the stock options.1
1
If the record below contains performance reviews for the other two
option grant periods, the parties did not see fit to include them in the
joint appendix for our consideration.
VARGHESE v. HONEYWELL INTERNATIONAL 27
Based upon the series of stock option grants, at the time of his
involuntary termination of employment in 1999, Dr. Varghese had the
vested right to purchase 4,800 shares of Honeywell stock at prices
established at the time of the respective grants. Soon after receiving
notice of his termination, Dr. Varghese wrote several letters to
Honeywell asking to exercise his stock options. Honeywell subse-
quently informed Dr. Varghese that his options had expired because
it deemed his termination to have been voluntary. Honeywell does not
challenge on appeal the jury’s finding that it had misclassified Dr.
Varghese’s termination, and thus had impermissibly refused to allow
him to exercise his fully vested stock options. Rather, Honeywell
challenges Dr. Varghese’s qualification for enhanced damages under
the MWP&CL for its actions in this regard.
For his part, Dr. Varghese acknowledged at his pretrial deposition
and at trial that, in contrast to a band 5 or 6 employee, as a band 4
employee, he had no guarantee that Honeywell would grant him stock
options in any given year. Rather, he only had the potential for such
a grant. Dr. Varghese also testified at trial that Honeywell never
promised that it would actually grant him stock options as part of his
compensation. However, it is undisputed from the record that, as a
band 4 employee, he would be eligible for the discretionary grant of
stock options.
II.
With the preceding factual background and procedural history in
mind, I turn now to analyze whether the right to exercise the stock
options granted Dr. Varghese in accordance with the terms of the
operative stock option plan constitutes "wages" under the MWP&CL.
Specifically, the MWP&CL provides: "Each employer shall pay an
employee . . . all wages due for work that the employee performed
before the termination of employment, on or before the day on which
the employee would have been paid the wages if the employment had
not been terminated." Md. Code, Labor and Employment, § 3-505.
MWP&CL § 3-507.1 creates a private right of action to recover for
violation of MWP&CL § 3-505:
[I]f an employer fails to pay an employee in accordance
with . . . § 3-505 of this subtitle, after 2 weeks have elapsed
28 VARGHESE v. HONEYWELL INTERNATIONAL
from the date on which the employer is required to have
paid the wages, the employee may bring an action against
the employer to recover the unpaid wages. . . .
Md. Code, Labor and Employment, § 3-507.1(a). The enhanced pen-
alty provision of this section provides:
If, in an action under subsection (a) of this section, a court
finds that an employer withheld the wage of an employee in
violation of this subtitle and not as a result of a bona fide
dispute, the court may award the employee an amount not
exceeding 3 times the wage, and reasonable counsel fees
and other costs.
Id.
The MWP&CL defines "wage" broadly and specifically identifies
a non-exclusive list of compensation categories as wages for purposes
of the MWP&CL:
(1) "Wage" means all compensation that is due to an
employee for employment.
(2) "Wage" includes:
(i) a bonus;
(ii) a commission;
(iii) a fringe benefit; or
(iv) any other remuneration promised for service.
Md. Code, Labor and Employment, § 3-501(c). In Whiting-Turner
Contracting Co. v. Fitzpatrick, 783 A.2d 667 (Md. 2001), the Court
of Appeals of Maryland made clear that MWP&CL § "501(c)(2)(iv)
serves two functions: it makes clear both that the listed forms of
remuneration are simply examples, by the use of the phrase ‘any other
remuneration,’ and that the ‘other remuneration’ that may be included
VARGHESE v. HONEYWELL INTERNATIONAL 29
in—in order to be considered—wages must have been ‘promised for
service.’" Whiting-Turner, 783 A.2d at 672.
Of course, the posture of this case on appeal requires that we view
the evidence in the record in the light most favorable to Dr. Varghese
and draw all reasonable inferences from that evidence in his favor.
Ocheltree v. Scollon Prod., Inc., 335 F.3d 325, 331 (4th Cir. 2003).
Under this dictate, the record supports the reasonable inference that
Honeywell granted Dr. Varghese the stock options at issue in signifi-
cant part because he had performed his job in an exceptional manner
in the immediately preceding years.2 In other words, Dr. Varghese
had performed his job at Honeywell during those years in a manner
that was not required of him; in a manner which exceeded the status
quo by a wide margin.
Based upon Whiting-Turner, 783 A.2d at 667, Medex v. McCabe,
811 A.2d 297 (Md. 2002), and Dr. Varghese’s admission at trial that
Honeywell never promised to grant him stock options, Honeywell
argues that prior to the actual grants of the stock options at issue, such
stock options and/or the right to exercise them did not qualify as "re-
muneration promised for [Dr. Varghese’s] service." Md. Code, Labor
& Employment, § 3-501(c)(2)(iv). However, once Honeywell actually
granted Dr. Varghese the stock options with the concomitant promises
that he could exercise them in accordance with the terms of the opera-
tive stock option plan, Dr. Varghese’s right to exercise those options
in accordance with the terms of the operative stock option plan consti-
tuted "remuneration promised for service," id., and thus wages under
the MWP&CL. Part II.B. of Judge Gregory’s opinion, as concurred
in by Judge Motz, overlooks the reality that the facts of this case,
when properly viewed, fall squarely within the language of the
enhanced damages provision of the MWP&CL.
The fact that Honeywell granted Dr. Varghese the stock options for
service that he was not erstwhile required to perform is critical to the
analysis, because the promised right to exercise the stock options is
2
Even Part II.B. of Judge Gregory’s opinion, as concurred in by Judge
Motz, recognizes "that the grant of stock options in this matter was, in
all likelihood, at least partially remuneration for Dr. Varghese’s past per-
formance." Ante at 11.
30 VARGHESE v. HONEYWELL INTERNATIONAL
then not a mere gratuity, but "remuneration promised for service."
Md. Code, Labor & Employment, § 3-501(c)(2)(iv). As the Maryland
Court of Appeals declared in Whiting-Turner, "[o]nce a bonus, com-
mission or fringe benefit has been promised as a part of the compen-
sation for service, the employee would be entitled to its enforcement
as wages." Whiting-Turner, 783 A.2d at 672.
Here, viewing the evidence in the record in the light most favorable
to Dr. Varghese, which we are required to do, Dr. Varghese’s right
to exercise the stock options granted him by Honeywell was promised
by Honeywell as part of the compensation for Dr. Varghese’s excep-
tional service, and therefore, constituted wages under the MWP&CL.
Accordingly, I would hold that the district court did not err in refusing
to grant Honeywell’s motion for judgment as a matter of law with
respect Dr. Varghese’s claim for enhanced damages under the
MWP&CL.
One final and crucial point: The fact that the respective stock
option grants post-dated Dr. Varghese’s beyond-the-status-quo ser-
vice during the years immediately preceding those grants is neither
foreclosed by the language of the MWP&CL nor Maryland case law.
Viewing the evidence in the light most favorable to Dr. Varghese, one
can draw the reasonable inference that prior to the time of even the
first stock option grant to Dr. Varghese, Honeywell had promised, as
part of Dr. Varghese’s total compensation, that once it granted him
stock options based upon his beyond-the-status quo service to the
company, he could exercise those options in accordance with the
terms of the operative stock option plan. The key fallacy in Judge
Gregory’s analysis in Part II.B., as concurred in by Judge Motz, is his
unwillingness to draw this reasonable inference, which by precedent
he is bound to do. Of course the opposite inference is the one that is
unreasonable—Honeywell set up a detailed employee stock option
plan, placed great emphasis on the plan’s purpose to encourage the
highest level of performance by its employees, but did not intend the
promise that granted stock options could be exercised in accordance
with the operative stock option plan to constitute part of the employ-
ee’s total compensation for employment. Plainly stated, Judge Greg-
ory and Judge Motz’s view of the evidence on this point fails to
afford Dr. Varghese the benefit of viewing the evidence in the record
VARGHESE v. HONEYWELL INTERNATIONAL 31
in the light most favorable to him and drawing all reasonable infer-
ences therefrom in his favor.
In sum, I would affirm the judgment below in toto. Accordingly,
I concur in Part III of Judge Gregory’s opinion, but dissent from Part
II.B., as concurred in by Judge Motz.