Paolini v. Albertson's Inc. ( 2007 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BRUCE P. PAOLINI, 
Plaintiff-Appellant,
v. No. 03-35724
ALBERTSON’S INC.; PLAN  D.C. No.
CV-02-00041-BLW
ADMINISTRATOR, of Albertson’s
amended and restated stock-based OPINION
incentive plan,
Defendants-Appellees.

Appeal from the United States District Court
for the District of Idaho
B. Lynn Winmill, District Judge, Presiding
Argued February 22, 2005
Submitted March 16, 2005
Submission Vacated August 10, 2005
Submitted April 6, 2007
Seattle, Washington
Filed April 6, 2007
Before: Betty B. Fletcher and Ronald M. Gould,
Circuit Judges, and Samuel P. King,* District Judge.
Opinion by Judge B. Fletcher
*The Honorable Samuel P. King, Senior United States District Judge
for the District of Hawaii, sitting by designation.
3945
PAOLINI v. ALBERTSON’S INC. 3947
COUNSEL
Bruce P. Paolini, Pro se, Virginia Beach, Virginia, plaintiff-
counterdefendant-appellant,
J. Walter Sinclair, Harry S. Chandler, & Wade L. Woodard,
Stoel Rives LLP, Boise, Idaho, for defendant-
3948 PAOLINI v. ALBERTSON’S INC.
counterclaimant-appellee Albertson’s, Inc., and defendant-
appellee the Plan Administration of Albertson’s Amended and
Restated Stock-Based Incentive Plan.
OPINION
B. FLETCHER, Circuit Judge:
Bruce P. Paolini (“Paolini”) appeals the district court’s
grant of summary judgment to the defendants—Paolini’s for-
mer employer Albertson’s, Inc. and the Administrator of
Albertson’s, Inc.’s Stock-Based Incentive Plan (the “Plan
Administrator”), (collectively “Albertson’s”).
I.
Paolini was an employee of Albertson’s for seventeen
years. He advanced to the position of Senior Vice President
of Labor Relations and Employment Law. During Paolini’s
time at Albertson’s he received several thousand stock
options. The options were issued pursuant to the Albertson’s
Amended and Restated 1995 Stock-Based Incentive Plan (the
“Plan”). According to the Plan, a “Change in Control” at the
company accelerated the vesting of the stock options.
It is undisputed that in March 2001 Albertson’s adopted
new Corporate Governance Guidelines, and that, pursuant to
the Guidelines, the Board of Directors reduced its size. Six
directors resigned in June 2001. That month Albertson’s also
announced a significant restructuring plan that was to include
store closures, division consolidations, and process streamlin-
ing.
Paolini communicated to the company that he believed
these changes amounted to a change in control, and he
attempted to exercise his stock options based on accelerated
PAOLINI v. ALBERTSON’S INC. 3949
vesting, under Section 13(a) of the Plan. The Plan Adminis-
trator denied his request on the grounds that the events did not
constitute a change in control as defined by the Plan.
Soon after Paolini raised the issue of a change in control
and the attendant accelerated vesting of stock options, he left
his employment at Albertson’s. The parties dispute the factual
circumstances of his departure.
On January 31, 2002, Paolini initiated this suit, challenging
the Plan Administrator’s decision and alleging that he had
been wrongfully terminated. Albertson’s counterclaimed for
monies due under a promissory note. The district court
granted summary judgment in Albertson’s favor.
Paolini’s appeal raises three issues. First, he argues that
summary judgment was improper because material, disputed
facts remain as to whether certain events which occurred in
2001 accelerated the vesting of certain stock options he pos-
sessed. Second, Paolini contends that the district court erred
when it determined that, as a matter of law, he had not been
wrongfully discharged. Paolini maintains that he was wrong-
fully terminated in violation of Idaho’s wage laws, public pol-
icy, and the covenant of good faith and fair dealing. Finally,
Paolini argues that the district court erred when it granted
summary judgment to Albertson’s on its counterclaim, hold-
ing that he owed Albertson’s the principal and interest due on
a promissory note that had been extended to him. Because we
find that none of these arguments has merit, we affirm the dis-
trict court’s ruling.
II.
In granting Albertson’s motion for summary judgment, the
district court agreed with the Plan Administrator’s determina-
tion that Paolini’s stock options did not vest in 2001,1 as do
we.
1
Paolini contests the deferential standard applied by the district court in
its review of the Plan Administrator’s decision. We need not determine
3950 PAOLINI v. ALBERTSON’S INC.
[1] The relevant contractual clause—Section 13(c) of the
Plan—provided:
“Change in Control” shall mean the occurrence in a
single transaction or series of transactions of any one
of the following events or circumstances . . . (ii)
merger, consolidation, or reorganization of the Com-
pany where 20% or more of the incumbent directors
of the Company are changed.
Paolini argues that “20% or more of the incumbent directors
. . . changed” in 2001. This, however, is irrelevant, because
Paolini has not alleged facts that would constitute a “merger,
consolidation, or reorganization,” as required by Section 13(c).2
III.
Paolini claims that he was wrongfully discharged in retalia-
tion for asserting that he and others were entitled to acceler-
ated vesting and for acting to exercise his stock options. He
argues this was a violation of Idaho’s wage laws, public pol-
icy, and the covenant of good faith and fair dealing.
whether this standard was proper, however, because we affirm, upon de
novo review, the substance of the Administrator’s decision. We find that
Paolini has not raised a genuine triable issue as to whether a “Change in
Control” occurred in 2001.
2
We understand the Plan’s requirement of a change of 20% or more of
the incumbent directors to supply a modifier, but not a definition, for the
term “reorganization.” We rely on the commonly understood definition of
“reorganization” in a corporate context. See, e.g., 19 Am. Jur. 2d Corpora-
tions §§ 2306 (citing, for example, People ex rel. Barrett v. Halsted Street
State Bank, 14 N.E.2d 872, 877 (Ill. App. Ct. 1938)), 2309; 15 Fletcher
Cyclopedia of the Law of Private Corporations §§ 7201, 7202, 7205,
7215-16 (2006); see also Whicher v. Delaware Mines Corp., 15 P.2d 610(Idaho 1932).
PAOLINI v. ALBERTSON’S INC. 3951
A.
Because resolution of Paolini’s wrongful discharge claims
as related to Idaho’s wage laws and Idaho’s public policy
presented matters of first impression under Idaho law, we cer-
tified the following questions to the Idaho Supreme Court:
1. Can stock options be wages under Idaho Code
sections 45-601(7) and 45-613? If so, is it a factual
issue as to whether the stock options were issued as
wages, to be resolved by a factfinder?
2. If an employer fires an employee for trying to
exercise his right to the receipt of wages, has the
employer violated the public policy exception to at-
will employment?
Paolini v. Albertson’s, Inc., 418 F.3d 1023, 1024 (9th Cir.
2005) (“Paolini I”).
[2] The Idaho Supreme Court granted our request and pro-
vided its answer in Paolini v. Albertson’s Inc., 149 P.3d 822(Idaho 2006) (“Paolini II”). The court held in Paolini II that
stock options do not constitute wages under Chapter 6 of Title
45 of the Idaho Code. Id. at 825.3
[3] As we noted in Paolini I, “if stock options are not
wages then no triable issue of fact exists for the wrongful dis-
charge claims under Idaho’s wage law.” 418 F.3d at 1026.
Since the Idaho Supreme Court held that stock options are not
wages, we must affirm the district court’s dismissal of
Paolini’s claim that he was terminated for pursuing a wage
3
Because the court held that stock options are not wages, it concluded
that our second question was moot. Accordingly, the court did not con-
sider whether an employee’s attempt to exercise his right to the receipt of
wages is protected such that firing an employee for those actions would
violate the public policy exception.
3952 PAOLINI v. ALBERTSON’S INC.
complaint, in violation of Idaho Code § 45-613. Cf.
Reinkemeyer v. SAFECO Ins. Co. of America, 166 F.3d 982,
984 (9th Cir. 1999) (“We are bound by the answers of state
supreme courts to certified questions . . . .”).
[4] For the same reason, we affirm the district court’s dis-
missal of Paolini’s claim that his termination was contrary to
Idaho’s “public policy exception” to the at-will employment
relationship. Cf. Edmondson v. Shearer Lumber Products, 75
P.3d 733, 737 (Idaho 2003) (“[A]n employer may be liable for
wrongful discharge when the motivation for discharge contra-
venes public policy.”). If, as the Idaho Supreme Court con-
cluded, stock options are not wages, Paolini’s assertion of his
entitlement to the options is not protected as a matter of pub-
lic policy. See, e.g., id. at 738-39 (holding that the exception
does not include protecting an employee’s constitutional right
of free speech). Paolini has not raised any genuine issue of
fact with regard to any other ground for applying the public
policy exception.
B.
[5] According to the Idaho Supreme Court, at-will employ-
ees are afforded an implied covenant of good faith and fair
dealing. See Mitchell v. Zilog, Inc., 874 P.2d 520, 526 (Idaho
1994); Metcalf v. Intermountain Gas Co., 778 P.2d 744, 749
(Idaho 1989).
The implied-in-law covenant of good faith and fair
dealing protects the rights of the parties to an agree-
ment to receive the benefits of the agreement that
they have entered into. . . . A breach of this covenant
occurs when a party takes any action which ‘vio-
lates, nullifies, or significantly impairs’ the rights or
benefits due under the existing contract.
Parker v. Boise Telco Fed. Credit Union, 923 P.2d 493, 501
(Idaho Ct. App. 1996) (quoting Metcalf, 778 P.2d at 749).
PAOLINI v. ALBERTSON’S INC. 3953
Continued employment, of course, does not itself constitute a
benefit inherent in an express or implied at-will agreement.
Id.[6] Paolini argues that Albertson’s breached the covenant
of good faith and fair dealing by firing him for trying to exer-
cise his stock options. However, as of the summer of 2001,
the stock options were not benefits due Paolini, and he pos-
sessed no right to exercise the options at that time. Therefore,
Paolini was not denied “rights or benefits due,” and we affirm
the district court’s determination that no breach occurred.
IV.
The following facts are undisputed: while employed by
Albertson’s, Paolini invested on margin in Albertson’s stock.
The value of the stock fell. Albertson’s Credit Union issued
several margin calls. Paolini borrowed money—
approximately $560,000 in total—from Albertson’s to cover
the margin calls.
Paolini signed a promissory note for an initial loan from
Albertson’s on November 8, 1999. This original note was due
February 3, 2000. Albertson’s lent money to Paolini on three
subsequent occasions, and the due date for the entire loan was
extended to February 1, 2001.
Two days before Paolini signed the fourth and final loan
agreement, he sent a letter to the company outlining a repay-
ment schedule. The letter suggested a repayment date of Janu-
ary 1, 2002. However, the fourth loan agreement—which
Paolini signed two days after sending the letter—states a due
date of February 1, 2001.
After Paolini commenced the instant action, Albertson’s
filed a counterclaim, arguing Paolini owes the company the
balance due (that is, the full principal and accumulated inter-
est) on the promissory note lent to cover the margin calls on
3954 PAOLINI v. ALBERTSON’S INC.
his stock. Paolini counters that the loan was contingent on his
continued employment and, because he separated from
Albertson’s before the note was due, he is not liable for the
balance. Paolini further argues the note created a limitation on
the at-will employment relationship and that Albertson’s vio-
lated the note by firing him.
[7] There is no genuine issue of material fact presented
here, nor legal error in the district court’s disposition of the
promissory note claim. The due date of the loan is determina-
tive. Although Paolini’s letter proposed a later due date, he
signed a final agreement on September 13, 2000 that provides
a due date of February 1, 2001. The loan was therefore due
before Paolini separated from Albertson’s, and the subsequent
conflict between the parties has no effect upon the promissory
note. We affirm the district court’s grant of summary of judg-
ment to Albertson’s on this counterclaim.
AFFIRMED.