Zilincik v. Tesla CA1/2

Filed 3/29/22 Zilincik v. Tesla CA1/2
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO
SCOTT ZILINCIK, et al.,
Plaintiffs and Appellants, A154463, A155840
v. (San Mateo County
TESLA, INC., Super. Ct. No. CIV 511676)
Defendant and Appellant.
GENE GLAUDELL,
Plaintiff and Appellant, A154464, A155819
v.
TESLA, INC., (San Mateo County
Defendant and Appellant. Super. Ct. No. CIV 474656)
These appeals require us to decide a single question: when, several
years after its founding but before it became practically the household name
that it enjoys today, a pioneering automotive startup company called Tesla,
Inc. offered stock options to its employees in its standard offer letter of
employment, what was the vesting schedule of the stock options?
Specifically, could newly hired Tesla employees exercise a portion of their
stock options immediately, beginning on the very first day they started
working at Tesla, or was there a “cliff” that required them to work for one
year before they could start to do so?
1
These two consolidated cases involved 47 former Tesla employees who
sought redress for Tesla’s allegedly wrongful refusal to allow them to exercise
their stock options when their employment ended after less than one year.
Following a two-month bench trial in the consolidated cases, the trial court
concluded that Tesla employees could immediately exercise 25 percent of
their stock options their first day on the job, and it awarded damages
accordingly.
Applying ordinary rules of contract interpretation, we conclude the trial
court erred in its construction of Tesla’s standard offer letter. On de novo
review of the undisputed extrinsic evidence, we hold the stock options were
subject to a one-year vesting “cliff” that required one year of continued
employment before employees could start exercising their stock options. For
this reason, we reverse the judgments entered in favor of 18 former Tesla
employees who prevailed against Tesla for breach of contract, and we affirm
the judgments entered against (or, in some cases, dismiss the appeals by) the
29 other former employees whose same claims were rejected by the trial court
on other, unrelated grounds.
BACKGROUND
Tesla was founded in 2003, by Martin Eberhard and Marc Tarpenning,
with the idea of “changing the world” by creating a classy and desirable all-
electric car, and the following year, in April 2004, Elon Musk joined the
company as the chairman of the company’s board of directors (and later
became its CEO). The former employees who brought this litigation worked
there several years later, during the roughly four-year period from April 2007
2
to March 2011. During this period, Tesla’s workforce grew from hundreds to
literally thousands of employees.1
A. The Offer Letters
All 47 plaintiffs received Tesla’s standard offer letter, identical in
material respects. In relevant part, it stated:
“Subject to the approval of Tesla’s Board of directors, you will be
granted a stock option to purchase an aggregate of [a specified number of]
shares of Tesla’s Common Stock pursuant to Tesla’s Equity Incentive Plan
then in effect.[2] Your stock options will vest commencing upon your first day
of employment (1/4th of the shares vest one year after the Vesting
Commencement Date and 1/48th of the shares vest monthly thereafter over the
next three years). . . . [¶] . . . You further represent and warrant that you have
read, understand, and accept the terms of your Stock Option Agreement, in
particular the vesting schedule of the shares of Tesla’s Common Stock
thereof.” (Italics added.)
The italicized language, at issue here, was added by Tesla’s then head
of human resources (Craig Harding) around February 2007, who added the
language (without consulting either his superiors or the company’s board of
directors), because he thought the prior version was not sufficiently clear as
1 The parties’ briefs do not specify the figures, but Tesla asserted in
closing argument the evidence demonstrated it grew from around 150
employees in 2007 to more than 5000 by 2012. That rise was not without
setbacks; the trial court found that in October 2008, it laid off 25 percent of
its workforce, dropping from approximately 225 employees to 189. And in
2010, in anticipation of its upcoming initial public offering, it laid off
30 percent of its national salesforce.
2 The terms of Tesla’s equity incentive plan, which it revised in 2010
after its initial public offering, will be discussed as necessary in our analysis.
3
to when employee stock options would vest.3 Harding testified he had been
informed by someone “in company management” that Tesla’s practice was to
vest 25 percent of someone’s stock options after one year and the remaining
portion monthly over three years. Tesla used the revised version of the offer
letter for about five years, until sometime in 2012.
None of the plaintiffs received any attachments or any of the
documents referenced in their offer letter when they signed it (i.e., the Stock
Option Agreement and Equity Incentive Plan); Tesla’s standard practice was
to provide such documents only after an employee started work.
After they started work, most of the plaintiffs received a standardized
grant notice advising them that the board of directors had approved their
award of stock options, and all parties agree the grant notice stated that the
options were subject to a one-year vesting cliff.4 It is not entirely clear how
many plaintiffs received that document, but the parties agree in their
briefing that at least 30 of them not only received that document but also
3 That prior version, in effect from 2003 until sometime in early 2007,
stated: “Your stock options will vest in accordance with the Tesla Motors
Equity Incentive Plan of 2003 commencing upon your first day of
employment.”
4 Specifically, the grant notice specified that the “exercise schedule” for
the stock option was the “same” as its “vesting schedule”: “1/4th of the shares
vest one year after the Vesting Commencement Date. 1/48 th of the shares
vest monthly thereafter over the next three years.”
4
signed it (plaintiffs say 30 did so and Tesla says 32, but the precise figure is
immaterial).5 The record shows that others also received it.6
Some plaintiffs also received a Stock Option Agreement, which was
often included as separate document with the grant notice, and plaintiffs
concede in their briefing that at least 18 of them signed that document. The
Stock Option Agreement incorporated the terms of the grant notice, stating
that “[s]ubject to the limitations contained herein, your option will vest as
provided in your Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service.”
The trial court found that some plaintiffs did not receive either a grant
notice or a stock option agreement while employed at Tesla, but the court did
not specify how many plaintiffs fell into this category, nor have the parties in
their briefing. But it appears that, at most, 11 plaintiffs received neither
document, although again the precise number is immaterial.7
5 It is appropriate for us to rely on the parties’ factual assertions in
this way. Because appellate briefs and arguments “are ‘reliable indications of
a party’s position on the facts as well as the law,’ ” appellate courts “ ‘may use
statements in them as admissions against the party,’ ” and “ ‘[a]n express . . .
assertion in a brief is frequently treated as an admission of a legal or factual
point, controlling in the disposition of the case.’ ” (Lueras v. BAC Home
Loans Servicing, LP (2013) 221 Cal.App.4th 49, 93 (Lueras) (conc. & dis. opn.
of Thompson, J.).) Particularly given the size of this record, we will do so
here as appropriate and necessary.
6 By way of example, the trial court specifically found one plaintiff,
Patrick Nemeth, received the grant notice but did not sign it; and another,
Guillermo Berzunza, received a grant notice but it was “questionable”
whether he signed it (because his copy was unsigned and Tesla produced no
signed copy).
7 Below in closing argument, plaintiffs’ counsel asserted that
11 plaintiffs never received either document, thereby tacitly conceding that at
least the other 36 did receive one or both. (See Fassberg Construction Co. v.
Housing Authority of City of Los Angeles (2007) 152 Cal.App.4th 720, 752
5
In 2010, following its initial public offering on June 29, 2010, Tesla
combined the Stock Option Agreement and Grant Notice into a revised,
consolidated agreement called the 2010 Stock Option Award Agreement,
which applied to three plaintiffs who were hired in that period and signed the
revised document. Like the earlier documents it replaced, the Stock Option
Award Agreement also described a vesting schedule that included a one-year
vesting cliff.
B. This Litigation
In July 2008, David Vespremi, a former employee who had been
terminated shortly before his 12-month anniversary, brought suit against
Tesla, seeking damages and other relief based upon the stock option
provision of his offer letter (Vespremi v. Tesla Motors, Inc. (Super. Ct.
San Mateo County, No. 474656). Another former employee, Gene Glaudell,
joined the litigation, and their complaint was eventually narrowed to allege a
single cause of action for breach of contract, based upon the vesting language
of the offer letter.
The Vespremi pleadings were settled after an appeal to this court.
Reversing an order sustaining a demurrer without leave to amend to the
breach of contract cause of action, we held the vesting language of the offer
letter was ambiguous and thus its meaning could not be resolved at the
demurrer stage (Vespremi v. Tesla Motors, Inc. (May 5, 2011, A127008)
[nonpub. opn.] [2011 WL 1713497] (Vespremi I)). We discuss that opinion in
greater detail below.
[unambiguous concession in closing argument that is “not made
improvidently or unguardedly” is a binding judicial admission]; accord,
Korchemny v. Piterman (2021) 68 Cal.App.5th 1032, 1049.) Tesla says that
only 12 plaintiffs signed neither document.
6
In 2013, the claims by the lead plaintiff, David Vespremi, proceeded to
a bench trial ahead of Glaudell’s claims. Vespremi prevailed, but on appeal
we reversed the judgment entered against Tesla, and Vespremi’s claims are
not at issue here. (See Vespremi v. Tesla Motors, Inc. (Oct. 30, 2017,
A142391, A143550) [nonpub. opn.].)
Meanwhile, on February 7, 2012, another former Tesla employee, Scott
Zilincik, commenced a separate lawsuit against Tesla while the Vespremi
case was underway (Zilincik v. Tesla Motors, Inc. (Super. Ct. San Mateo
County, No. 511676). Zilincik was brought on behalf of all similarly situated
former Tesla employees whose employment had ended before one year,
alleging Tesla had breached the stock option provision in its standard offer
letter by denying those employees “the option to vest stocks of Tesla Motors
they were granted during their employment with the company.” Class
certification was denied, and the complaint eventually was brought on behalf
of 47 individual plaintiffs.8 The breach of contract cause of action in their
operative pleading (the sixth amended complaint) alleged Tesla breached “an
express written employment agreement” by denying plaintiffs the “option to
vest on Tesla Motors’ stock options they were granted during their
employment” with Tesla.9
8 There were originally 51 individual plaintiffs; the parties tacitly
agree, though, that the number dropped to 47 by the time of trial.
9 Also alleged were two nominally separate causes of action concerning
their employment agreements: for specific performance of the stock options,
and for declaratory relief that, pursuant to their employment agreements,
they are entitled to vested stock options beginning the first day of their
employment and were not required to work for one full year in order for their
stock options to vest.
The Zilincik plaintiffs also asserted an alternative claim for “unjust
enrichment/restitution,” alleging Tesla was unjustly enriched by “fraudulent,
7
The Zilincik case proceeded to a two-month, consolidated bench trial
together with Glaudell’s claims in Vespremi, at the conclusion of which the
trial court rendered lengthy statements of decision in each case encompassing
more than 200 pages combined. In all, 18 plaintiffs prevailed (17 in Zilincik
plus Glaudell in Vespremi); 29 did not.
On the central issue as to the meaning of the ambiguous offer letter,
the trial court sided with the plaintiffs. It interpreted the letter to mean that
each plaintiff’s “right to purchase Tesla common stock at a set price[] vested
immediately upon the date that each started working for Tesla.” It ruled that
“[t]he stock options ‘vested’ immediately upon employment as stated in the
Offer Letter; and 25% of the stock could be purchased through exercise of the
options during the first year of employment.”
Nonetheless, Tesla prevailed on other grounds against 17 plaintiffs in
Zilincik. Fourteen plaintiffs lost on the ground they never made any effort to
exercise their stock options, 14 others were held to be bound by a broad
release of claims against Tesla contained in severance agreements they
signed when their employment ended, and one lost on the ground he had
been fired for cause.
Subsequently, on May 4, 2018, a judgment was entered in Zilincik in
favor of 17 plaintiffs against the 29 remaining plaintiffs, and in Vespremi a
separate judgment was entered in Glaudell’s favor. In all, the court entered
judgments in favor of 18 former employees, with individual damages awards
illegal and inequitable conduct” in that it “promised stock options to each of
the Plaintiffs and then it failed to provide those options to them, thus
precluding Plaintiffs from exercising their vested stock options and denying
Plaintiffs the option to vest on [the] stock options they were granted during
their employment.” That claim was later dismissed. (See p. 8, post.)
8
ranging from a low of $1,635.83 to a high of $338,528, for a combined total of
nearly $700,000. It then denied the prevailing plaintiffs’ requests for
statutory attorney fees under Labor Code section 218.5 and it taxed costs.
Tesla timely appealed from both judgments, and the plaintiffs timely
cross-appealed from both judgments. The parties also appealed from post-
judgment orders regarding attorney fees and costs. We subsequently
consolidated all appeals.
DISCUSSION
The parties raise many issues. Many concern liability, most of which
pertain to various subsets of plaintiffs; there also are issues concerning the
trial court’s choice of remedy and its calculation of damages; and the
plaintiffs challenge the trial court’s denial of their request for statutory
penalties and statutory attorney fees.
The one question common to all parties, whether they prevailed below
or not, is whether the trial court erred in adopting the plaintiffs’
interpretation of the offer letter. As we will explain, it did. For that reason,
it is unnecessary to address the parties’ other contentions, and the judgments
in both cases must be reversed and/or affirmed accordingly.10
I.
Appellate Jurisdiction and This Appeal’s Scope
Before turning to the merits, two matters require comment.
10 Relatedly, plaintiffs contend the court erred in denying their motion
for leave to amend their complaint to add a cause of action for waiting time
penalties under the Labor Code for their unpaid stock options. Because we
conclude they had no right to exercise their stock options, any error in
denying them leave to amend their complaint is harmless, and we do not
understand them to contend otherwise.
9
First, we have independently considered whether the Zilincik judgment
is final and appealable. We ascertained from the record that the trial court
granted an unopposed request by the Zilincik plaintiffs to dismiss their
second cause of action for unjust enrichment without prejudice (at a discovery
conference in October 2015, several months before trial). Having assessed
the question, we conclude there is no obstacle to our proceeding on the merits.
There is no indication in the record the parties agreed to the “without
prejudice” dismissal to facilitate potential future litigation on the dismissed
claim, or that the Zilincik plaintiffs are attempting to reserve their right to
litigate that dismissed cause of action in the future. For these reasons, the
Zilincik judgment is sufficiently final to be appealable. 11 (See Alaama v.
Presbyterian Intercommunity Hospital, Inc. (2019) 40 Cal.App.5th 55, 63-64;
Alki Partners, LP v. DB Fund Services, LLC (2016) 4 Cal.App.5th 574, 589,
fn. 6; Abatti v. Imperial Irrigation District (2012) 205 Cal.App.4th 650, 665-
666, approved by Kurwa v. Kislinger (2013) 57 Cal.4th 1097, 1105-1106.)
Second, there is an issue concerning the identity of the appealing
parties. Tesla asserts that only 19 of 29 losing plaintiffs have appealed but
11 No party’s briefing mentions the “without prejudice” aspect of the
dismissal or addresses its impact on the finality of the subsequently entered
Zilincik judgment. Moreover, the parties did not comply with their
mandatory duty (as appellants) to address the finality of the judgment and
assure us that it is indeed final and appealable. (See Cal. Rules of Court,
rule 8.204(a)(2)(B) [appellant’s opening brief must “state that the judgment
appealed from is final, or explain why the order appealed from is
appealable”].) Their briefing “simply serves the question of appealability onto
the court’s side of the net and invites the court to undertake an independent
analysis of appealability.” (Lester v. Lennane (2000) 84 Cal.App.4th 536,
557.) Particularly given the size and complexity of this voluminous set of
consolidated appeals, the omission imposed an unnecessary burden on the
court.
10
provides no record citation. The notice of cross-appeal from the judgment
entered in Zilincik was filed by “Plaintiffs Scott Zilincik, et al.,” which we
construe to mean all plaintiffs in that case. Nevertheless, Tesla also
asserts—without contradiction by the plaintiffs—that 10 of the Zilincik
plaintiffs who lost on the ground their claims are barred by the release
contained in their separation agreements (Berlin, Brice, Epstein, Jesse,
Kraft, Lim, Longhurst, Nemeth, Schloz and Schumacher) have not challenged
the judgments entered against them, and so Tesla asks us to “clarify . . . that
these [10] plaintiffs are not part of this appeal.” Tesla is correct that the
plaintiffs’ briefing contains no argument that the court erred in entering
judgment against those 10 plaintiffs. Plaintiffs’ challenge to the trial court’s
ruling on Tesla’s affirmative defense of release concerns only four other
plaintiffs (Ardeleanu, Lemke, Miller, and Siwek). By not briefing any
challenge to the judgments entered against them, the other 10 plaintiffs have
abandoned their appeals from the Zilincik judgment, and the appropriate
disposition is to dismiss their appeals. (See Conservatorship of Ben C. (2007)
40 Cal.4th 529, 544, fn. 8; In re Sade C. (1996) 13 Cal.4th 952, 994; Drink
Tank Ventures LLC v. Real Soda in Real Bottles, Ltd. (2021) 71 Cal.App.5th
528, 537; County of Kern v. Dillier (1999) 69 Cal.App.4th 1412, 1425.)
Thus, on the merits, we will consider the claims of 37 plaintiffs (in their
capacities as respondents and/or appellants from the judgments).
II.
Legal Principles
The principles of contractual interpretation are well-settled. Briefly,
“[a] contract must be so interpreted as to give effect to the mutual intention
of the parties as it existed at the time of contracting, so far as the same is
ascertainable and lawful.” (Civ. Code, § 1636.) In interpretating a contract,
11
“[o]ur initial inquiry is confined to the writing alone.” (Mountain Air
Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 752;
Civ. Code, § 1639.) Judicial interpretation is controlled by “ ‘ “[t]he ‘clear and
explicit’ meaning” ’ ” of words, “ ‘ “interpreted in their ‘ordinary and popular
sense,’ unless ‘used by the parties in a technical sense or a special meaning is
given to them by usage.’ ” ’ ” (Mountain Air, at p. 752; Civ. Code, §§ 1638,
1644.) Moreover, “ ‘a contract must be understood with reference to the
circumstances under which it was made and the matter to which it relates.
(Civ. Code, § 1647).’ ” (Mountain Air, at p. 752.) “ ‘Extrinsic or parol evidence
may be used to explain ambiguity, context or related matter.’ ”
(Hollingsworth v. Heavy Transport, Inc. (2021) 66 Cal.App.5th 1157, 1177
(Hollingsworth).)
At the same time, California law follows the objective theory of
contracts. (See 1 Witkin, Summary of Cal. Law (11th ed. 2021 update)
Contracts § 767.) The parties’ intent “is interpreted according to objective,
rather than subjective, criteria.” (Gilkyson v. Disney Enterprises, Inc. (2021)
66 Cal.App.5th 900, 916 (Gilkyson).) “ ‘ “The parties’ undisclosed intent or
understanding is irrelevant to contract interpretation.” ’ ” (Zissler v.
Saville (2018) 29 Cal.App.5th 630, 644.) Rather, what matters are “the
outward manifestations or expressions of the parties,” judged by an objective
standard. (Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th
129, 150, abrogated on another ground in Reid v. Google (2010) 50 Cal.4th
512, 524.)
Our standard of review depends on whether the trial court resolved any
factual conflicts when it interpreted the parties’ agreement. “ ‘When the
competent parol evidence is in conflict, and thus requires resolution of
credibility issues, any reasonable construction [of a contract] will be upheld
12
as long as it is supported by substantial evidence.’ ” (Hollingsworth, supra,
66 Cal.App.5th at p. 1177.) On the other hand, when there is no conflict in
the relevant extrinsic evidence, we review the interpretation of a contract de
novo, both when the extrinsic evidence “ ‘points only one way’ ” such that the
record shows only one “plausible interpretation” of the agreement (Steller v.
Sears, Roebuck & Co. (2010) 189 Cal.App.4th 175, 185) and also when the
undisputed extrinsic evidence is subject to conflicting inferences (Gilkyson,
supra, 66 Cal.App.5th at p. 915).
Here, the parties do not agree on the applicable standard of review.
Plaintiffs assert our review is for substantial evidence. They assert the
trial court “weighed conflicting evidence about the implications of Tesla’s
haphazard vesting schedules as they applied to various employees over the
years and found that the pattern of permitting employees to vest before one
year of employment was an indicator that [plaintiffs] had actually vested in
their stock options . . . immediately upon the commencement of their
employment.” The portions of the record they cite do not support this
assertion. The cited evidence, which concerns various employees and board
members who were terminated before the expiration of one year’s service, is
not in conflict, and thus it does not call for a more deferential standard of
review.
Tesla asserts we must review the court’s ruling de novo because the
trial court did not consider any of the extrinsic evidence introduced at trial,
and asserts that the evidence, had it been considered, was not in conflict and
supports only one reasonable interpretation of the offer letter. We do not
agree the court failed to consider the extrinsic evidence. The evidence was
admitted at trial; the trial court’s statements of decision expressly discusses
13
some (not all) of it 12; and, although the trial court’s analysis focused primarily
on the letter’s plain language, Tesla points to nothing in its ruling indicating
a refusal to consider any evidence. That said, we do agree with Tesla the
relevant extrinsic evidence is undisputed. Accordingly, we will review the
trial court’s interpretation of the offer letter independently, under a de novo
standard of review.
II.
Analysis
A. The Offer Letter’s Plain Language
Once again, the disputed language of the offer letter states: “Your
stock options will vest commencing upon your first day of employment (1/4 th
of the shares vest one year after the Vesting Commencement Date, and 1/48 th
of the shares vest monthly thereafter over the next three years).” Tesla
argues the only reasonable interpretation is that this language encompasses
a “four-year vesting schedule beginning on the employee’s first day of
employment with Tesla, with the first quarter of the option vesting on the
employee’s one-year anniversary.” Plaintiffs argue this means, as the trial
court ruled, that “25% of [their] stock options vested on their first day of
[e]mployment.” (They do not specify what, in their view, is the total length of
the vesting period—which in our view is an important piece of the puzzle, for
reasons we will explain.)
In our prior opinion, we held this disputed language is ambiguous.
(Vespremi v. Tesla Motors, Inc. (May 5, 2011, A127008 [nonpub. opn.]
12 For example, in a roughly 10-page discussion, the trial court
discussed evidence of the letter’s drafting history, Tesla’s practices regarding
stock options held by employees who were terminated after less than one
year of employment and other circumstances.
14
[2011 WL 1713497, at pp. *12-*14].) All of the parties assert our opinion is
binding (under law of the case and/or collateral estoppel), and so we will
assume without deciding that it is. We therefore begin with that prior
analysis, which was based on the offer letter’s plain language.13
In previously considering the vesting provision of the offer letter, we
determined it contains a latent ambiguity “as to whether the right to
purchase and hold the Tesla stock vested before or after the passage of one
year from the effective dates of those agreements.” (Vespremi I, supra
[2011 WL 1713497, at p. *14].) We reasoned that “[t]he ambiguity arises
from an apparent inconsistency between the first clause of the relevant
sentence in the [offer letters] and the parenthetical clause following it: ‘Your
stock options will vest commencing upon your first day of employment (1/4 of
the shares vest one year after the Vesting Commencement Date, and l/48 of
the shares vest monthly thereafter over the next three years).’ ” (Ibid.) We
found “an apparent inconsistency” in this “key” sentence, because “[t]he first
clause of that sentence states that the stock options ‘will vest commencing
upon your first day of employment,’ but the parenthetical clause following it
seems contradictory in saying that ‘1/4 of the shares will vest one year after
the Vesting Commencement Date’ (the latter phrase presumably referring to
the ‘first day of your employment’).” (Ibid.) “[T]he first clause of the key
sentence of the [offer letter],” we said, “is inconsistent with the ensuing
parenthetical clause.” (Ibid.)
We hypothesized in our prior opinion there might be some meaningful
distinction between the offer letter’s use of the terms “stock options” and
13 We previously granted an unopposed request to take judicial notice
of our prior appellate opinions in Vespremi.
15
“shares” (see Vespremi I, supra [2011 WL 1713497, at p. *14, fn. 12]), but on
appeal plaintiffs urge no such distinction. Moreover, it was plaintiffs’ burden
to prove their case, and nothing has been called to our attention to suggest
that they adduced any evidence below, or indeed put forward even any
theory, to justify a construction that distinguishes between the vesting of the
right to exercise their stock options and the vesting of the right to own the
shares so purchased. On the contrary, their own expert witness refuted such
a distinction.14
Construing the vesting language, therefore, to make no distinction
between the vesting of options and the vesting of shares as the case now
comes to us on appeal in a new and different posture, it becomes apparent
that the offer letter’s plain language is reasonably susceptible, at most, to two
possible interpretations concerning the vesting schedule’s duration—a
subject that, as noted, plaintiffs’ appellate briefing does not address, but that
we deem important to a proper construction of the disputed language as a
whole. (See Civ. Code, § 1641.) On the one hand, the plain meaning of the
parenthetical language plainly encompasses a four-year vesting period: its
formula specifies that 25 percent of the options vest “one year after” the
vesting commencement date, and the remaining 75 percent vest “thereafter
over the next three years.” “One year after” plus “three years” after that
equals four years. On the other hand, plaintiffs’ proffered interpretation of
14 The entire premise of testimony by plaintiffs’ expert about “straight
line vesting” as a recognized industry alternative to vesting schedules that
include a delay or “cliff” was that the former entails “an immediate delivery
of . . . vested shares . . . .” (Italics added.) In the non-cliff scenario, he
explained, “[T]he option shares will vest immediately.” “[I]t creates the
immediate ability to purchase shares in the company after just a month or
two of service, if that’s what the optionee desires.”
16
the vesting schedule—that 25 percent of the options vest immediately—
necessitates a construction of the parenthetical language that results in
either a three-year vesting period (because the remaining options vest
“thereafter [i.e., after day one] over the next three years”) or a four-year
vesting period that encompasses a one-year pause (in effect, a delayed one-
year cliff; because the remaining options vest “one year after” the
commencement of vesting and “thereafter over the next three years”). Both
meanings are potentially problematic: the three-year vesting schedule,
because it takes no account of the “one year after the vesting commencement
date” language, and the four-year schedule with a delayed one-year cliff,
because it is an interpretation not proffered by any party, and has no support
in the extrinsic evidence and no apparent purpose. Finally, it also bears
noting that the offer letter’s plain language is not reasonably susceptible to
an interpretation whereby one quarter of the options vest on the first day of
employment and the remainder vest continuously over a period of four years
with no one-year cliff. Mathematically, it must be one or the other (no cliff or
four years).15 It cannot be both. And we do not understand anyone to
contend otherwise.
Having thus framed the interpretation issue in its full dimensions, we
now proceed to answer it. Although this trial was lengthy and the record is
voluminous, the answer, as we will explain, is not terribly complicated.
15 The language “1/48 of the shares vest monthly thereafter over the
next three years” results in 36/48, i.e., three-fourths vesting over a three-year
period. At the end of three years, taking into account the earlier vesting of
the first one fourth of the shares, there would be no remaining stock options
left to vest.
17
At trial, the parties’ experts on industry usage cleared up our confusion
about the ambiguity we previously identified. Both experts—Tesla’s and
plaintiffs’—testified that the start of an option’s vesting schedule is referred
to in the industry as the option’s “vesting commencement date.” As Tesla’s
expert put it, that standard industry term refers to “the date on which the
vesting clock begins to run” and does not imply that any portion of the option
is actually vested as of that date. He also testified, without contradiction,
that companies typically choose to start the vesting schedule for new
employee stock options either on the first day of employment (which is more
favorable to the employee), or the date the option is actually granted by the
board of directors (which typically is some months later). Plaintiffs’ expert
acknowledged that a stock option that begins vesting on the first day of
employment can be subject to a one-year vesting cliff.16 He also admitted
that an offer letter he drafted used the phrase “vesting commencement date”
to signify that vesting began on the date the employee’s service begins, even
though the letter did not say that and did not define the term; he speculated
that the phrase “vesting commencement date” was “most likely” defined in
the corresponding grant notice.
Viewed in light of this uncontradicted evidence of industry custom and
usage, it thus appears that the first clause of the disputed language in the
offer letter merely specifies when the vesting schedule begins (i.e., “your first
day of employment”), and the parenthetical (a period measured from “the
Vesting Commencement Date”) specifies the duration of the vesting period
16Asked on cross-examination about the effect of a stock option with a
one-year cliff, he testified, “if the vesting schedule begins on the first day of
employment, then there would be no shares subject to the option vested until
the employee’s one year anniversary.” (Italics added.)
18
(i.e., four years). (See Civ. Code, § 1644 [“The words of a contract are to be
understood in their ordinary and popular sense, rather than according to
their strict legal meaning; unless used by the parties in a technical sense, or
unless a special meaning is given to them by usage, in which case the latter
must be followed”], italics added.) So understood, the disputed language
would seem to encompass a vesting schedule that begins on an employee’s
first day of work, with 25 percent of the stock option vesting one year later
and the remainder vesting over the course of the three years following that.
The testimony from both sides’ experts about the meaning of these
ambiguous technical terms strongly supports Tesla’s interpretation of the
disputed vesting language. But as we discuss, there is additional undisputed
extrinsic evidence that supports it, and there is no evidence supporting
plaintiffs’ interpretation.
Before turning to the other extrinsic evidence, it is important to keep in
mind the scope of plaintiffs’ theory. Although there were 47 former
employees involved in this trial and their individual circumstances varied
(which was the subject of lengthy portions of the trial court’s statements of
decision), plaintiffs did not argue below and do not argue now that, at a
minimum and in the alternative, the meaning of the offer letter’s vesting
language differs depending on specific circumstances unique to any plaintiff.
Rather, their sole theory was and is that the offer letter confers identical
rights on all employees. That was the theory expressly framed by their
pleadings.17 That was the theory encompassed implicitly by their closing
17 The operative complaint in Vespremi alleged that “at all relevant
times . . . , other Tesla Motors employees signed employment agreements
that were similar to those signed by Plaintiffs and had the same rights to
purchase stock options as Plaintiffs.”
19
argument, which began by stressing the fact each offer letter had identical
vesting language. That was the theory adopted implicitly by the trial court,
which drew no distinction between any of the plaintiffs for purposes of
construing the offer letter and, indeed, made findings the letter was a
“standardized document used by Tesla,” generated by computer. And that is
plaintiffs’ sole theory on appeal: they assert only that the trial court’s
interpretation of the offer letter is correct across the board and without
distinction, and do not urge us to uphold that interpretation for any subset of
plaintiffs based on their individual circumstances. Tesla, too, posits that the
offer letter has the same meaning for all plaintiffs. So, we will consider the
remaining extrinsic evidence in light of the parties’ theory of the case: that
the offer letter has a single, uniform meaning, applicable to all Tesla
employees.
B. The Grant Notice and Stock Option Agreement
First, many of the plaintiffs unequivocally manifested an objective
understanding that the ambiguous language of the offer letter meant there
was a one-year cliff, when they received (and a majority signed) grant notices
that made this explicit and did not raise any objection.18 Nor did any other of
The Zilincik complaint alleged that each plaintiff was hired pursuant
to a “substantially similar” offer letter that included an “identical” stock
option vesting provision They also alleged, more generally, that “a significant
number of Tesla Motors employees signed employment agreements that were
substantially similar to the Zilincik Employment Agreement and included the
Vesting Provision, which mandates that stock options ‘will vest commencing
upon your first day of employment.’ ”
18 As noted, plaintiffs say that 30 of them signed their grant notices;
Tesla says the number is 35. Either way, that is considerably more than half
of the plaintiffs, and an unspecified number of others also indisputably
received grant notices.
20
the thousands of Tesla employees ever object that the vesting schedule of
their grant notice contradicted the terms of the standard offer letter.
Regardless whether the grant notices superseded the offer letters as a
binding contract (which is an issue the parties have briefed but we need not
decide), we agree with Tesla that the unanimous silence from the employee
ranks concerning the vesting schedule information conveyed in the grant
notice (over a collective period of about four years) is evidence the offer letter
meant the same thing. As stated in authority plaintiffs themselves cite,
“[e]vidence which tends to show a concurrence in the actual understanding of
the parties is controlling.” (Canavan v. College of Osteopathic Physicians and
Surgeons (1946) 73 Cal.App.2d 511, 519; see id. at p. 517 [parties’ subsequent
correspondence “formed no part of the contract but merely served to
interpret . . . it” and supported plaintiff’s proffered construction, because
defendant’s silence “implied a concurrence” with letter received from plaintiff
and “was an approval of its contents and confirmation of the agreement
already reached”]; see also, e.g. Oceanside 84, Ltd. v. Fidelity Fed. Bank
(1997) 56 Cal.App.4th 1441, 1450-1451 [borrower acquiesced in lender’s
interpretation of mortgage agreement by failing to object to bank’s periodic
notices of interest rate changes for 5 years].) “[W]hen a contract is
ambiguous, a construction given to it by the acts and conduct of the parties
with knowledge of its terms, before any controversy has arisen as to its
meaning, is entitled to great weight, and will, when reasonable, be adopted
and enforced by the court.” (Universal Sales Corp. v. California Press
Manufacturing Company (1942) 20 Cal.2d 751, 761.) “This rule of practical
construction is predicated on the common sense concept that ‘actions speak
louder than words.’ ” (Crestview Cemetery Assn. v. Dieden (1960) 54 Cal.2d
744, 754.)
21
The trial court found Tesla presented the grant notices to employees as
“perfunctory” corporate paperwork that simply needed to be signed and
returned, with no intent by either Tesla or any of its employees to alter the
stock option vesting provisions. But that finding in no way undermines their
relevance as an interpretive aid. On the contrary, the court’s finding that
nobody intended by these documents to change the stock option vesting
schedule cuts the other way. This necessarily suggests they all—Tesla and
its employees alike—intended and understood the language of the grant
notices was consistent with the offer letter’s vesting language. What is more,
the plaintiffs were not oblivious to the grant notices Tesla issued to them:
according to the trial court’s statement of decision, “Plaintiffs repeatedly
testified at trial something to the effect that each saw that, consistent with
his/her Offer Letter, the Grant Notice confirmed the same amount of shares
exercisable under the stock option and provided the exercise price.”
Furthermore, “perfunctory” or not, under the law, ancillary documents
provided to employees in connection with the issuance of employee stock
options are relevant to ascertaining the parties’ intent, as evidence of
surrounding circumstances. (See Falkowski v. Imation Corp. (2005)
132 Cal.App.4th 499, 506, 511 [letter from CEO accompanying corporate
document that granted stock options to employees held properly considered in
construing meaning of corporate stock option plan]; Civ. Code, § 1647 [“A
contract may be explained by reference to the circumstances under which it
was made, and the matter to which it relates”].)
We also agree with Tesla that the subsequent documents are relevant
as an aid to our interpretation of the offer letter for another reason: as Tesla
puts it, “the documents here logically must be read together because the offer
letter lacks certain material terms (such as the exercise price) found in the
22
Grant Notice.” Tesla asserts that the stock option provision, standing alone,
is judicially unenforceable. (See, e.g., Weddington Productions, Inc. v. Flick
(1998) 60 Cal.App.4th 793, 811; Peterson Development Co. v. Torrey Pines
Bank (1991) 233 Cal.App.3d 103, 115.) The parties have not cited any
California authority addressing the enforceability of a stock option that lacks
an exercise price, we have found none, and the question raises significant
issues on this record. But regardless whether Tesla’s offer letter is too
uncertain on its face to be enforced (a question ultimately not at issue here),
the undisputed evidence shows that the grant notice in fact supplied the
missing exercise price for each of the plaintiffs’ stock options. It was the
vehicle by which Tesla communicated the missing price term to each plaintiff.
Indeed, many plaintiffs admitted they knew the offer letter did not spell out
all the details of their stock options. For example, one (Dennis Schaaf) was
asked, “you understood that there were some terms of your stock option that
were not set forth in your offer letter, right?” to which he answered
affirmatively (“Um, yeah, I guess”). Another (Daniel Fischtein) admitted he
expected there would be additional documents with “more specifics”
pertaining to his promised stock option, “because it is mentioned” in the offer
letter. Another (Frank Jesse) testified that he believed the grant notice and
stock option agreement he signed was the “other supporting documentation”
he had known would be “forthcoming” after his offer letter. We thus agree
with Tesla that, logically, the grant notice is sufficiently connected to the
offer letter that its contents are relevant to ascertaining the parties’
contractual intent.
The parties disagree as to whether this result also is compelled by
operation of law under Civil Code section 1642, which provides that “[s]everal
contracts relating to the same matters, between the same parties, and made
23
as parts of substantially one transaction, are to be taken together.” 19 But we
do not need to resolve whether California law requires us to interpret the
offer letter in light of the subsequent stock option documents, because
plaintiffs’ expert on industry practices told the court that, as a matter of
standard industry practice, they should be. In substance, he testified that
ambiguities in an offer letter should be resolved by consulting the
corresponding stock option plan, stock option agreement and grant notice,
which ideally the offer letter should incorporate by reference. 20 “The
19 “Although the statute refers expressly to several ‘contracts,’ the
language has been broadened by case law to apply to instruments or writings
that are not on their own contracts. [Citations.] Civil Code section 1642 ‘ “is
most frequently applied to writings executed contemporaneously, but it is
likewise applicable to agreements executed by the parties at different times if
the later document is in fact a part of the same transaction.” ’ ” (R.W.L.
Enterprises v. Oldcastle, Inc. (2017) 17 Cal.App.5th 1019, 1027.) Moreover,
the existence of an integration clause in one of the documents does not
preclude application of Civil Code section 1642. (Id. at p. 1031; accord,
Colaco v. Cavotec SA (2018) 25 Cal.App.5th 1172, 1202-1203.)
20 The subject arose when the expert was cross-examined about a
possible ambiguity in the stock option vesting language of a representative
offer letter he himself had drafted:
“Q: . . . you can read this language and your—you would expect people
to understand, given the flow of it, that the one-48th shares per month don't
start until the 13th month? [Objection overruled.]
“THE WITNESS: In these agreements there is a careful cross-
referencing of the—at the end of the paragraph in B in stock option, and it
says that, it will be . . . [‘]subject to the other terms and conditions set forth in
the [Company’s] 2013 equity compensation plan, and the standard form of
stock agreement[’], and that would include a grant notice, and that would
include a statement of terms. [¶] That document and that set of agreements
being integrated, any ambiguities could be resolved in those documents. It is
an important part of best practices to integrate the plan, because those
documents can be helpful to understanding the agreement.
24
agreements tend to have a technical or an outline format,” he testified,
whereas “the offer letter strives to be narrative.” Tesla cited this testimony
but plaintiffs do not address it. Given the fact their own expert endorsed the
practice of examining stock option documents to interpret an ambiguous
stock option provision in an offer letter (particularly when, as here, such
documents are expressly cross-referenced), we are hard-pressed to see how
plaintiffs can now credibly insist that we as a reviewing court not do so.
Indeed, in closing arguments in the trial court, plaintiffs’ counsel
conceded this was appropriate. He argued it was permissible for Tesla to
assert the later documents clarified the offer letter. We agree. That
concession is binding (see Lueras, supra, 221 Cal.App.4th at p. 93 (conc. &
dis. opn. of Thompson, J.); see also, e.g., Korchemny, supra, 68 Cal.App.5th at
p. 1049 [concession by plaintiff’s counsel during argument that he was “ ‘not
“Q. In order to be 100 percent sure, in the vesting schedule in TX
933, page 29, that the one-48th shares starts on the 13th month, we would
want to look at the equity incentive plan and the stock agreement and the
grant notice?
“A. Yes.” (Italics added.)
On redirect examination, he again confirmed the need to consult plan
documents to resolve uncertainty:
“Q. You mentioned that one of the best practices is to incorporate the
stock option agreement in the plan, and the terms and conditions of these
documents into the offer letter; is that correct?
“A. Yes, that’s correct.
“Q. This is under the assumption that the vesting language in all
these documents is identical and it is not different, correct?
“A. Well, yes, but the [sic] properly incorporating them by reference at
least allows the parties to review them together and resolve any conflicts
internally. They should all be identical, each of the vesting clauses.” (Italics
added.)
25
disputing the actual numbers’ ” held a binding admission concerning
payments on promissory notes].)
C. Other Contractual Terms
Second, other express terms to which some plaintiffs agreed
unequivocally evince an understanding of a one-year cliff. Plaintiff Travis
Lemke’s offer letter not only included the disputed vesting language but also
stated that if he was terminated without cause “the one-year cliff on your
stock options will be waived.” Plaintiffs’ counsel asserted in closing argument
that other Tesla employees also received offer letters waiving the one-year
cliff if they were terminated without cause. Although the parties have not
focused our attention on this language, it is impossible to reconcile the
express reference to a “one-year cliff on your stock options” contained in some
employees’ letters with plaintiffs’ and the trial court’s interpretation of the
disputed, standard vesting language contained in all of the letters. The
words in these letters matter, and we cannot disregard them. (See Civ. Code,
§§ 1639 [contractual intent must be determined “from the writing alone, if
possible”], 1641 [interpretation must take into account the “whole of [the]
contract . . . , so as to give effect to every part, if reasonably practicable, each
clause helping to interpret the other”].)
D. Other Corporate Communications
Because every Tesla employee in the relevant period (not just the
plaintiffs) received an offer letter containing the identical disputed language,
Tesla’s conduct toward its workforce in general is relevant in ascertaining the
offer letter’s meaning, and plaintiffs do not contend otherwise. (See Heston v.
Farmers Ins. Group (1984) 160 Cal.App.3d 402, 407, 413, 415 [in dispute
between insurer and insurance agent concerning meaning of standardized
agency contract, no error to admit evidence of dealings between insurer and
26
other agents].) On the contrary, plaintiffs tacitly acknowledge that evidence
of Tesla’s dealings with other employees is relevant because they rely on such
evidence themselves (arguing that evidence of Tesla’s vesting practices
concerning other employees is “inarguably relevant”), and below they
acknowledged the relevance of such evidence expressly.21
Here, quite apart from the grant notices (and, in some cases, the stock
option agreements) sent to the plaintiffs, every other contemporaneous
corporate communication by Tesla about the vesting period during this period
consistently said, or indicated, that the new hire stock options were subject to
a one-year cliff, and plaintiffs cite no evidence to the contrary.
For example, during new employee orientation sessions, which became
more formalized over time as the company grew, Tesla frequently informed
its employees of the one-year vesting cliff. There was a brief period of time in
which this did not happen (see footnote 22, post, pages 27-28), and there also
was conflicting evidence as to whether the subject of stock options was
always discussed in such sessions (for example, plaintiffs cite the testimony
of about 18 of them who recalled no discussion of stock options when they
were hired and/or in orientation sessions they attended). But when the
subject of the vesting schedule was discussed during employee orientations,
the evidence was uncontradicted that Tesla apprised its new employees of the
one-year cliff,22 including in PowerPoint presentation slides prepared by
21 In closing argument, plaintiffs’ counsel asserted that evidence of
“practice between Tesla and its employees’ work force,” not just evidence of
Tesla’s dealings with the individual plaintiffs themselves, was relevant to the
interpretation issue.
22 Three of the four people who served as Tesla’s director of human
resources during the period in question corroborated this: Craig Harding,
Tesla’s HR director from October 2006 to 2008, Alan Cherry, who was the
27
Tesla’s stock administrator Lorinne Flores that were admitted into
evidence.23 Indeed, plaintiffs concede in their brief that the PowerPoint
presentation was used “beginning sometime in 2009”—a binding admission.
(See Lueras, supra, 221 Cal.App.4th at p. 93.) Below in closing argument,
plaintiffs’ counsel even tacitly conceded that some of the plaintiffs might have
seen it.24 The evidence also is uncontradicted that nobody ever voiced an
objection that the vesting schedule described in the presentation slides
differed from what had been promised in the offer letter. And the parties cite
no evidence that employees were told during new hire orientation sessions
that they could immediately exercise their options.
Contrary to the evidence just discussed (and the concessions in their
brief and by their counsel in closing argument), plaintiffs assert that “Tesla
did nothing to provide its employees with any type of training to assist
[employees] in understanding of [sic] the stock option program.” This
director from 2008 to approximately November 2009, and Cherry’s successor,
Arnnon Geshuri, who still occupied the post by the time of trial.
There was only one gap. Michael Taylor, a corporate finance executive
who filled in as an interim HR director for about nine months until Cherry
was hired (from around November 2007 until July 2008), recalled no
employee training concerning stock options while he was temporarily
overseeing Tesla’s HR department.
23 One presentation slide said, “[f]our year standard vest,” and “25%
vest after one year then monthly thereafter.” Two others said, similarly,
“[f]our year standard vest–25% vest after one year from your hire date, then
monthly thereafter for the subsequent three years, as long as you remain an
employee of Tesla Motors.”
24 In closing argument, he conceded the existence of the slide
presentation slides and argued that 42 plaintiffs said they never saw the
slides, thereby implicitly conceding the possibility that five other plaintiffs
did see them.
28
mischaracterizes the record. In support, they cite testimony by only 18 of the
47 plaintiffs about the lack of training on stock options they received (Schlict,
Glaudell, Kraft, Ardeleanu, Schaaf, Gerth, Jesse, Irvin, Rajaee, Siwek,
Hogland, Nemeth, Huynh, Swortsfigure, McNamee, Berzunza, Webb and
Minaee). Evidence that 18 people among a workforce of thousands could
recall no such training is hardly surprising; it does not refute Tesla’s showing
that such training routinely took place.
In support of their assertion that “Tesla did nothing,” plaintiffs also cite
testimony by one of the plaintiffs, Tara Minaee, who worked in Tesla’s HR
department and coordinated the logistics for weekly new hire presentations
for only four months (in 2010 around the time of Tesla’s public offering). We
discuss the details of her testimony in a footnote.25 Minaee had no personal
25 Minaee described the new hire orientation process as disorganized in
that period and “always changing every week,” and testified she frequently
had to “run around the office” to track down presenters to cajole them to
participate. As part of her duties, she assembled PowerPoint slides prepared
by other people into slide decks to ensure they were arranged in order of
speaker, and testified she never received any presentation slides from Tesla’s
stock administrator (Lorinne Flores), whom Minaee acknowledged did
participate in the orientation sessions to discuss stock options. In all, Minaee
coordinated about 12 to 14 orientation sessions. She was present during the
sessions only to help new employees fill out routine paperwork and then left
the room for the remainder of the sessions and was never present during
Flores’s presentations about stock options.
By contrast Minaee’s predecessor, Tristan Acquino, corroborated the
testimony of Tesla’s corporate executives (see footnote 22, ante, page 27).
Acquino coordinated the new employee orientation sessions before Minaee
took that role over and, unlike Minaee, he personally attended all of the
sessions he organized. He testified that Lorinne Flores presented about stock
options at every session he organized and created her own PowerPoint
presentations, and he authenticated the slides that she used. Acquino
testified that the HR department had its own set of slides and that he was
responsible for updating only those slides.
29
knowledge of what was discussed about stock options during those sessions in
that brief period. At best, her testimony was circumstantial evidence that
the person who presented on the subject (Lorinne Flores) did not always use
PowerPoint presentation slides. But an equally reasonable inference, which
on de novo review we are entitled to draw, is that in the chaos Minaee
described, she (Minaee) was simply unaware of Flores’s use of presentation
slides.
Finally, plaintiffs assert that the individual “who served as Tesla’s Vice
President of Finance and Human Resources Director at relevant times”
“admitted [that] . . . Tesla provided no training with regard to the stock
option program or the Stock Option Provision to any of its employees,
including Respondents, during the course of their employment.” That is a
particularly troubling distortion of the record. The HR executive (Michael
Taylor) testified only that he recalled no employee training concerning stock
options while he was temporarily overseeing Tesla’s HR department. What
plaintiffs do not mention is that Taylor occupied that role very early on and
only briefly (from around November 2007 until July 2008) (see footnote 22,
ante, page 28), and that only seven of the 47 plaintiffs were working at Tesla
during that juncture. In short, none of the evidence cited by Plaintiffs refutes
Tesla’s showing that employees were often apprised of the one-year vesting
cliff during new employee sessions and that nobody—ever—objected.
Tesla points to other corporate communications that consistently
referred to a one-year vesting cliff as well. For example, a document entitled
“Tesla Motors Stock Option FAQ” that was prepared in February 2007
referred to the one-year cliff, and the FAQ continued to be in use two years
30
later. 26 In November 2007 former plaintiff David Vespremi was negotiating
the terms of his departure from Tesla, and Craig Harding assured him in an
email “yes options continue to vest if you switch to contractor status. But
remember the 1 year cliff period . . . .” (Italics added.) About a year later
when Tesla did a round of layoffs in October 2008, its CEO Elon Musk sent a
company-wide email to “everybody.” He announced the company sought to
“do the right thing and be as fair as possible, given the circumstances,” and
so “we are making the minimum severance four weeks and waiving the
vesting cliff for those that have been here less than a year.”27 (Italics added.)
Emails from the same period by and to a plaintiff in this case evinced the
same understanding.28 And a document prepared in May 2010 called “Tesla
Motors, Inc. Equity Incentive Award Grant Policy” that was sent to all
26 It stated, “Your vesting schedule spans four years, and 25% of the
grant vests after the first year. Over the subsequent three years, 75% of the
options vest on a prorata basis. Once each portion vests, you can exercise the
corresponding options or sell the shares of restricted stock.”
One plaintiff who worked at Tesla for two months in early 2009 (Luis
Flores) acknowledged receiving this FAQ.
27Seven of the plaintiffs were employed at Tesla when the email was
sent and, we may infer, received it (Kraft, Ardeleanu, Berzunza, Irvin, Miller,
Hofmann and Jesse).
28 That plaintiff (Ardeleanu) reassured a prospective customer who had
read media accounts of the October 2008 layoff that “Everyone that was laid
off received . . . at least 1 year’s worth of stock options regardless if they were
at the company for only one day.” (Italics added.) A few months later when
she herself was negotiating a separation agreement with Tesla, Ardeleanu
was informed by HR Director Alan Cherry that “[t]he agreement regarding
the waiver of the one year cliff vesting period was only offered to employees
that left us in the general Reduction in force in October.” (Italics added.)
31
employees unequivocally apprised employees of the one-year cliff, subject to
Tesla’s choice to deviate from it at its discretion.29
Tesla asserts “there is not a single document supporting the trial
court’s interpretation of the offer letter.” Plaintiffs do not refute that
assertion. And we have encountered no document refuting it either.
E. Industry Custom and Practice Regarding New Hire Stock
Options
Tesla’s interpretation of the offer letter also is consistent with the
overwhelming industry standard, whereas plaintiffs’ interpretation would
defy the industry standard with no support in the evidence. (See LaCount v.
Henzel Phelps Constr. Co. (1978) 79 Cal.App.3d 754, 770 [“[c]ustom and usage
of words in a certain trade are admissible to explain the meaning of the terms
used in a contract”].)30
29 It stated: “The vesting schedule of equity incentive awards shall be
within the discretion of the Compensation Committee (or the Board of
Directors, as applicable), including establishing performance-based vesting
criteria, in all cases limited by any restrictions in the Plan. Generally, stock
option awards and stock appreciation rights that vest solely based on service
shall vest as to 25% of the shares subject to the award when the recipient
completes 12 months of continuous service after the vesting commencement
date of the stock option award and stock appreciation right and as to an
additional 1/48th of the shares subject to the stock option award and stock
appreciation right when the recipient completes each month of continuous
service thereafter (the ‘Standard Option/SAR Vesting Schedule’). The
Compensation Committee and the Board of Directors may deviate from such
Standard Option/SAR Vesting Schedule.” (Italics added.)
30 Plaintiffs imply that industry practices are irrelevant, because Tesla
was a maverick startup that “intended to defy standard industry practices—
to the point of having a handbook that was entitled ‘the Anti-Handbook.’ ”
The cited evidence is a four-page employee handbook addressing the
company’s standards and a variety of basic subjects (such as attendance,
safety, communication, outside employment and prohibited conduct), written
in a blunt and irreverent style. It does not address the subject of employee
32
Both Tesla’s expert and plaintiffs’ expert agreed that, by far, the
industry norm for stock options granted to new rank and file employees in
non-executive level positions is a four-year vesting period, with a one-year
cliff. Plaintiffs’ expert described it as having become the “vanilla vesting
schedule” for stock options, favored by companies both for operational reasons
(in order to retain employees, avoid turnover and recoup the investment in
hiring and training them) and to attract venture capital financing, because a
one-year cliff is the preferred norm among private equity investors to ensure
that employees are “locked in” for one year. He testified that, absent a
compelling or specific reason to adopt a different vesting schedule, “it can be
a default schedule for companies to rely on.” According to plaintiffs’ expert,
companies deviate in some fashion from that typical vesting schedule in only
about 10 percent of cases. He testified the deviations encompass many
variations as to both the existence and length of a cliff and also the length of
the vesting period, with straight-line vesting being the most common
departure from the norm.31
Tesla does not dispute that straight-line vesting is sometimes offered,
but contends the various reasons companies sometimes depart from the
typical vesting formula do not apply across the board to its company-wide
compensation, much less employee stock options, and is not evidence Tesla
intended to depart from industry practices regarding the vesting of new hire
stock options.
31 Regarding the vesting schedule’s duration, plaintiffs’ expert testified
that companies deviate from a four-year vesting schedule “from time to time,
based on the value of the employee. Employees do negotiate better deals
than this, at times.” Shorter periods are seen only “occasionally,” he testified,
citing situations involving “advisors and a few different categories” other
than employees who are granted stock options in an offer letter.
33
stock option program. And, it asserts that offering immediate vesting to all
employees would make no sense, because it would create perverse incentives
for at least some employees to show up for one day’s work and then
immediately resign with stock options, which its expert testified is precisely
what the one-year cliff is designed to avoid. We agree.
Both experts described situations in which companies sometimes
deviate from the standard vesting schedule for new hires, but most of the
situations depended on circumstances unique to specific recruits and were
not applicable to company-wide stock option programs such as Tesla’s.
According to plaintiffs’ expert, departures from the norm sometimes occur
when a new employee is in high demand, or has a prior consulting
relationship with a company. Tesla’s expert opined the most frequent
situation was when a company sought to induce a potential executive hire to
leave behind a substantial grant of equity at their existing company. None of
these individualized reasons provide a rationale for a company dispensing
with the standard one-year cliff across the board for every new hire
nationwide, in every single job opening, in every area of skill and at every
level of experience.
Plaintiffs’ expert also testified a company might deviate from the
typical vesting schedule if it lacked sufficient cash “to provide other
incentives, like a bonus program or signing bonus, [or] perks like cell phones,
[or] computers, so they make an equity package as attractive as possible.”
“Depending on their success in recruiting people,” he testified, “they make
[the stock option package] more or less attractive” to prospective hires.
Elaborating, he explained that Silicon Valley companies usually offer
immediate vesting “to compensate for a lack of cash, other negatives
associated with the company,” or to “stand out” in a competitive market, “or
34
sometimes it is the entrepreneur’s vision to provide equity immediately.” But
the parties have cited no evidence that Tesla faced such recruiting obstacles
or that its founders had such a vision. On the contrary, plaintiffs’ counsel
conceded in closing argument that, by this period of time, Tesla was a
company that “people coveted to join,” and was “famous enough” to attract
top talent. Tesla, he argued, “did not have an issue retaining or getting new
employees, in general.” (Italics added.) As for the company’s founding
“vision,” the testimony of Tesla co-founder Martin Eberhard reflected no
intent but to embrace Silicon Valley norms concerning employee stock
options—including a one-year vesting cliff.32
There is no evidence that any company—ever—had structured a
company-wide stock option program to offer new employees immediate
vesting of a substantial portion of their shares on day one. Tesla’s expert
estimated that out of the hundreds if not thousands of situations he had
encountered, he could recall no more than 30 instances in which a company
had agreed to a new hire vesting schedule without a one-year vesting cliff.
And only once, in a “very exceptional case” involving “very protracted”
negotiations with a high-level executive, could he recall a company ever
agreeing to anything comparable to allowing 25 percent of options to vest
32 Eberhard testified that when he founded the company, he asked his
Silicon Valley lawyers to prepare a standard package of option documents
that would enable the company to attract both employees and venture capital
financing, he was aware that a one-year cliff was the standard and “so we
expected something like that” in the documentation, and what he got back
was a set of documents that he thought reflected a four-year vesting schedule
with a one-year cliff. Eberhard also testified the documentation was
prepared before Elon Musk joined the company as chairman of the board of
directors.
35
immediately.33 He could not recall any company adopting a vesting schedule
that would permit a new rank and file employee to vest 25 percent of their
options, or a large portion of them, on their first day of employment. That, he
said, would be an “extraordinary” departure from the norm. Plaintiffs’ expert
was not asked if he had ever encountered such a generous vesting schedule
for new employees, and thus did not contradict that it would be
unprecedented.
In short, there is no evidence that it is consistent with industry custom
and practice, or even commercially reasonable, for a company that concededly
had no trouble attracting and retaining employees to implement a company-
wide stock option program that would enable every single employee to show
up for work on day one, and then resign on day two with an unprecedented
one quarter of their stock options.
F. Tesla’s Vesting Practices
Finally, the trial court heard extensive evidence about situations in
which Tesla sometimes allowed employees who left before their one-year
anniversary to exercise their stock options. Tesla argues that such evidence
reflects occasional exceptions that prove the existence of the one-year cliff.
Plaintiffs argue substantial evidence supports the trial court’s findings that
Tesla had a “pattern and practice of allowing employees to either vest
according to the terms of the Offer Letter or at least to exercise their stock
33 In that case, he recalled, a start-up company sought to attract a
chief executive who had recently been granted a very substantial stock option
package by his existing employer, and ultimately agreed to vest “some
portion” of the executive’s options immediately and another portion after six
months. He testified the situation was so unusual, it stood out in his
memory.
36
options as though they were vested.” 34 They assert that Tesla’s “pattern of
permitting employees to vest before one year of employment was an indicator
that [they] had actually vested in their stock options . . . immediately upon
the commencement of their employment.” We agree with Tesla.
1. Frequency
To begin with, there was no “pattern or practice.” Plaintiffs expressly
acknowledged this (once again) in closing argument. Their counsel argued:
“Tesla didn’t have a uniform, consistent practice throughout the entire period
that the Plaintiffs were working for Tesla” of vesting people out before one
year, and he also acknowledged that “[e]veryone testified that after Tesla
went public, there were no exceptions made.” (Italics added.) Tesla’s
“practice of vesting people out in some fashion as it deemed fit in [the]
circumstances,” he asserted, was “arbitrar[y]” and did not reflect “a
consistent practice.” Plaintiffs acknowledge the same thing on appeal,
because they again characterize Tesla’s conduct as “arbitrary.” At best,
Tesla’s conduct was either a “pattern and practice” or it was “arbitrary.”
Logically, it cannot be both.
The evidence indicated it was neither. The trial court found that Tesla
“would sometimes ‘accelerate’ vesting or extend employment (to reach
12 months of service) so that terminated employees could undisputedly
exercise one year of stock options,” that “[a]ccelerated exercise of stock
options were granted to some high level executives” and that “[s]ometimes”
Tesla extended the post-termination 30-day period in which to exercise
options to facilitate the exercise of stock options by terminated employees.
34 The court made no such finding. It made a number of specific
factual findings that we will discuss as necessary.
37
The undisputed evidence demonstrates that Tesla made such exceptions
relatively infrequently.
First, the experiences of certain high level executives do not appear to
be relevant. The trial court made detailed factual findings about two
company executives (Ian Wright, and Bernard Tse) and one board member
(Simon Rothman) who were allowed to vest their equity after less than one
year of service or employment.35 Plaintiffs point to them, as well as the
circumstances surrounding the ouster of co-founder Martin Eberhard, as
examples of Tesla’s vesting “pattern and practice.” But the parties have not
cited evidence that any of these four high-level executives/board members
signed the February 2007 version of the offer letter, and so their experiences
are not relevant to its meaning.36 Moreover, Eberhard testified that the
35 Wright, the company’s third employee and its first COO and the first
person ever terminated by Tesla, was terminated shortly before his one-year
anniversary. His separation from the company was not amicable; he signed a
severance agreement and he was allowed to vest his stock purchase rights to
avoid a lawsuit. Rothman was taken off the board of directors to make room
for new investors and was moved to a “more or less . . . ceremonial position”
on an advisory board to enable him to remain in continuous service and vest
his stock options. And Tse, who had previously been on the board of directors
and had approved the vesting out of Wright, later became a company
executive; he was allowed to vest out his stock options when the company
asked him to resign before one year, based on Wright’s situation. In
July 2007, he entered into a severance agreement with Tesla and the board of
directors accelerated the vesting of his options.
36 On the contrary, the trial court found Wright did not do so; Rothman
was a board member not an employee (and thus, by definition, never received
a job offer from Tesla); Tse, who joined the board in 2003, later became a
company employee and was granted stock options in November 2006, his
offer letter is not in the record and Eberhard could not recall what it said;
and Eberhard was a co-founder whose involvement with Tesla began many
years before Craig Harding drafted the February 2007 version of the offer
letter (and indeed who, as noted, commissioned his lawyers to prepare the
38
Wright and Tse situations were prompted by the company’s concern that
some of the founding stock option documents were unclear, and so this was
done to avoid potential litigation. Eberhard testified that during this period,
“the general understanding [was] that if somebody was within a month or
two of the vesting period of the first year of employment . . . we would just
vest them out to avoid issues.” 37 Of course, the offer letter was revised by
Craig Harding later on (in February 2007), in an effort to clarify it. In
addition, Eberhard testified Tesla did this only for people who were
terminated involuntarily, not people who left the company of their own
accord.
In terms of overall numbers, Tesla made exceptions to the one-year cliff
for rank-and-file employees who signed the offer letter on relatively few
occasions. The evidence shows it happened approximately 40 times,
including in extenuating circumstances such as company layoffs (30 people)
or to avert potential employment-related claims. Far more (nearly 250
people) were not permitted to do so. That is not evidence of a stock options
plan with no cliff vesting. (See Oracle Corp. v. Falotti (N.D. Cal. 2001)
187 F.Supp.2d 1184, 1196 [“That one, or even a few, executives were allowed
to vest by way of a compromise of threatened claims, or out of a desire to see
an amicable separation does not amount to evidence of a policy or an
admission by [corporate employer], or an abuse of discretion by the
original version of the offer letter at the company’s founding). He received a
grant of employee stock options in early 2007.
37 The board treated Eberhard the same way when he resigned in
November 2007 amid growing tension with Elon Musk; he negotiated the
terms of his separation with the company (both as an employee and board
member) and was put on an advisory board to enable him to continue vesting
his stock options.
39
compensation committee in this case”] [applying California law], aff’d, (9th
Cir. 2003) 319 F.3d 1106.)
2. Relevance
As Tesla argues, the exceptions it made not only were relatively
infrequent, but they also contradict the trial court’s interpretation of the offer
letter and support Tesla’s.
Tesla had a right to do this under its equity incentive plan, the terms of
which the trial court found were binding. No party questions that
determination on appeal.38 The 2003 plan (§ 10 (a)) gave Tesla’s board of
directors the power to accelerate a stock option’s vesting date
“notwithstanding the provisions in the [stock option] stating the time at which
it may be first exercised or the time during which it will vest.” (Italics added.)
The 2010 plan likewise allowed Tesla at its discretion to accelerate a stock
option’s vesting schedule (§ 4(b)(v)), as well as extend an option’s post-
termination exercisability period (§ 4(b)(ix)). Indeed, plaintiffs’ counsel
acknowledged in closing argument that Tesla had a right to vest people out
early (and simply argued Tesla lied to its employees about how frequently it
did so in order to have “leverage”). Given Tesla’s discretionary authority to
shorten an employee’s vesting schedule, evidence that over the years it
occasionally allowed terminated employees who had not reached their one-
year anniversary to exercise their options does not show the offer letter meant
there was no cliff vesting. If anything, Tesla’s occasional exceptions prove
38 The trial court made a finding that “[t]he Offer Letter itself stated
that it was subject to the operative Equity Incentive Plan, and thus the terms
of the Plan were already part of the deal . . . .” Similarly, it found that “the
[Equity Incentive] Plan was already part of the written employment
agreement at the time of the Offer Letter.” And it specifically ruled that
“Tesla was bound by the terms of the Plan as to its stock options it issued.”
40
that the general understanding was that the offer letter and stock option
plan provided for cliff vesting.
Furthermore, the undisputed evidence demonstrates that when Tesla
did make exceptions, it structured the arrangements in a manner consistent
with the existence of a default, one-year vesting cliff. For example, plaintiffs
themselves cite an email (from June 2009) asking the board of directors to
modify the stock option vesting schedule of two employees whom Tesla
intended to terminate, so that “the initial 12-month ‘cliff period’ (upon which
25% of the option grant is vested) [would be] replaced with a vesting schedule
in which 1/48 of the option vests each month commencing with the vesting
commencement date.” 39 Of course, no modification of the vesting schedule
would be necessary if the employees’ stock options had already vested on the
day they were hired. The same is true of all the examples cited by the trial
court and by plaintiffs (i.e., extending people’s employment so they reached
one-year; moving people like Anna Yen to the status of consultant so she
would remain in “continuous service” for vesting purposes 40; and moving
board members to advisory boards for the same purpose). As Tesla explains,
the fact that vesting had to be modified or accelerated for some people to
permit them to exercise their options without having worked for one year
contradicts the trial court’s interpretation. There is no need, it asserts, to
modify or accelerate something that has already occurred. We agree.
39 The trial court found that two of 16 people whose options were
accelerated were terminated in the email’s timeframe.
40 Plaintiffs conceded in closing argument the offer letter has an
implicit requirement of continuous service, which the equity incentive plan
defines as rendering uninterrupted service to the company “whether as an
Employee, Director or Consultant,” and as not being affected by a “change in
[their] capacity . . . as an Employee, Consultant or Director.”
41
G. Plaintiffs’ Contrary Arguments
Plaintiffs urge us to uphold the trial court’s “immediate vesting”
interpretation of the offer letter on several additional grounds, none of which
is persuasive.
They invoke the principle that ambiguities must be construed against
the drafter, a principle to which we adverted in our prior opinion and that
plaintiffs now say is law of the case. (See Vespremi I, supra [2011 WL
1713497, at p. *14]; Civ. Code, § 1654.) But, as we recognized in our prior
opinion (see Vespremi I, supra [2011 WL 1713497, at p. *13], quoting Badie v.
Bank of America (1998) 67 Cal.App.4th 779, 798-799), ambiguities are
resolved against the drafter only as a last resort, if other interpretive
principles do not establish the contract’s meaning. It “is a general rule; it
does not operate to the exclusion of all other rules of contract interpretation.
It is used when none of the canons of construction succeed in dispelling the
uncertainty.” (Oceanside 84, Ltd. v. Fidelity Federal Bank, supra,
56 Cal.App.4th 1441, 1448 [rejecting interpretation proffered by non-drafting
party in contractual dispute between bank and borrower]; accord, Steller v.
Sears, Roebuck & Co., supra, 189 Cal.App.4th 175, 183-184.) In our prior
opinion, where we noted that the disputed language “ ‘should be interpreted
most strongly against the party who caused the uncertainty to exist,’ i.e., . . .
Tesla” (Vespremi I, supra [2011 WL 1713497, at p. *14]), we were considering
the offer letter’s meaning on appeal from the trial court’s demurrer ruling
and held only that the disputed language on its face was reasonably
susceptible to plaintiffs’ interpretation. Here, by contrast, we are considering
its meaning after a full-scale trial on the merits. On this new and very
different record, as explained above, other principles of construction do
resolve the offer letter’s meaning based upon all the undisputed extrinsic
42
evidence concerning industry custom and usage, the surrounding
circumstances and the parties’ subsequent conduct.
Plaintiffs also point to other evidence. Specifically, they cite factual
findings (not challenged by Tesla on appeal) that Tesla’s recruiters in its
human resources department received no training on what the disputed
vesting language of the offer letter meant or how to present or explain it to
prospective employees; it was simply assumed they would know what to say
about stock option vesting. That circumstance, in hindsight, perhaps reflects
poor corporate judgment given the fact (now conceded by everyone) that the
offer letter is unclear. But plaintiffs fail to explain why the lack of recruiter
training is legally relevant to resolving what its ambiguous language means.
We discern no relevance. Moreover, Tesla cites undisputed evidence that at
least some recruiters did inform prospective employees about the one-year
vesting cliff, including Tesla’s recruiting manager (Richard Avalos) and its
former director of HR, Alan Cherry.
Plaintiffs also cite the fact that one human resources employee, Sandra
Giha (a plaintiff), testified she would tell prospective employees that “stock
options vest starting on ‘day one’ ” (which implies the absence of a one-year
cliff, because she was unaware of one). Tesla argues that such evidence does
not support the trial court’s interpretation because many of the plaintiffs
themselves testified that they didn’t speak to anyone (including Giha) about
what the offer letter meant. Indeed, only six of the other plaintiffs were hired
while Giha was working at Tesla; the other 40 were hired later. Even if our
review were governed by the substantial evidence standard, interpreting
those 40 offer letters as providing for a right of immediate vesting based on
statements made by a former Tesla recruiter with whom they never had
dealings would not be a reasonable construction. (See Hollingsworth, supra,
43
66 Cal.App.5th at p. 1177.) (And because plaintiffs’ theory is that the offer
letter has a uniform meaning, it would not be reasonable to interpret anyone
else’s offer letter differently.) Moreover, the trial court found that Giha had
no prior experience or knowledge about stock options and never received any
training about stock options or what the offer letter meant, and plaintiffs cite
no evidence she was instructed to tell recruits this. The views she espoused
would thus appear to be her own personal views, not views reasonably
attributable to Tesla.
Furthermore, the record demonstrates Giha was simply confused in her
personal views. As we have explained above, there is no plausible
construction of the disputed vesting language by which the first quarter of
stock options vest immediately and that entails a continuous four-year
vesting schedule with no one-year vesting cliff. It must be one or the other, it
cannot be both. Yet the trial court found Giha told job applicants “that stock
options vest starting on ‘day one’ and continue to vest over four years.’ ” And
she didn’t know anything about a one-year cliff. Plaintiffs’ expert admitted
on cross-examination that employees often do not understand the terms of
their stock option. He testified they “understand they have some equity in
the company, probably subject to a careful review of their company
agreements,” but that in his opinion “I don’t think they always understand
exactly what they have. But they do know, from being in [Silicon] [V]alley,
and they do know from working in jobs where people have equity
compensation, that under the right circumstances they will have equity, and
they could enjoy a windfall, I think that’s what they are focused on.” (Italics
added.) He testified that in his experience, “they often get the process wrong.
I think what they are focused on is that they have the opportunity for a
liquidation event. They don’t always understand exactly how the nuts and
44
bolts fit together.” The undisputed evidence demonstrates that this was true
of Giha.
In light of all the other undisputed evidence we have discussed, Giha’s
remarks to some recruits does not support the trial court’s interpretation of
the offer letter. By far, the overwhelming undisputed evidence favors Tesla’s
interpretation. It is simply not reasonable to adopt an interpretation of the
offer letter that is supported only by evidence that one Tesla employee in all
the years of its corporate existence provided misinformation to some
prospective employees, suggesting the company was offering a generous
vesting schedule that not only was unprecedented in the annals of Silicon
Valley but at odds with the offer letter’s literal language and is contradicted
by every documented formal corporate communication by Tesla executives
and board members about the company’s stock option vesting schedule.
H. Conclusion
We are not insensitive to the fact that the trial court made a number of
extremely unfavorable findings reflecting Tesla’s poor treatment of
employees, which can be best summed up as a determination Tesla was a
demanding employer that often treated people as expendable, sometimes
with an insensitivity bordering on callousness. As unfortunate as that is, and
as sympathetic as we might be, this case is not a referendum on Tesla’s
corporate employment practices. Nor is the question here whether any of the
plaintiffs might have asserted a different viable claim against Tesla, such as
one sounding in tort or in equity. At issue here is only a claim for breach of
express contract. In reviewing the merits of that claim, we are constrained
by established principles of contract interpretation. And in applying them,
we simply cannot uphold an interpretation of Tesla’s standard offer letter
45
that is illogical and inconsistent with virtually all of the extrinsic evidence,
based on the trial court’s or this court’s perception of the equities.
Below in closing arguments concerning the offer letter’s meaning,
plaintiffs’ counsel told the trial court that “[t]he record here, with all
honesty, . . . it’s pretty sparse from both sides.” Insofar as plaintiffs’ evidence
is concerned, we agree. So sparse, in fact, it compels a judgment in Tesla’s
favor. The plaintiffs did not meet their burden to prove that the offer letter
carries the meaning the trial court ascribed to it. For that reason, we
conclude the trial court erred.
III.
Additional Points
Given our conclusion the plaintiffs failed to prove any breach of the
offer letter, it is unnecessary to consider other issues raised by the parties. It
remains only to consider two points that we deem prudent to address, on
which the parties themselves have not really focused.
A. Travis Lemke
First, there is a contention buried in the briefing that one of the
plaintiffs who lost below, plaintiff Travis Lemke, was entitled to exercise his
stock options because of his unique offer letter that waived the one-year cliff
if he was terminated without cause, with the implication in the briefing that
this is what occurred.
This issue has been forfeited. It is not captioned under a separate
heading in the legal argument section of plaintiffs’ cross-appellants’ opening
brief but appears under a heading toward the end of a very lengthy (71-page)
“Factual Background.” Particularly in a case of this size and complexity, the
omission of required separate argument headings places an undue burden on
this court and allows us to deem the issue forfeited. (See United Grand Corp.
46
v. Malibu Hillbillies, LLC (2019) 36 Cal.App.5th 142, 153.) Moreover, the
point is not supported by any legal analysis or citation to any legal authority,
which also results in forfeiture. (See Rubio v. CIA Wheel Group (2021)
63 Cal.App.5th 82, 94-95; Arnold v. Dignity Health (2020) 53 Cal.App.5th
412, 422.)
Even if the issue were not forfeited, moreover, we would reject it.
Although the trial court made a number of findings about the
circumstances of Lemke’s termination, it did not make an express finding as
to whether Lemke was fired for cause. It found that Lemke was an auto
technician whose job duties included doing test drives of prototypes and new
Tesla cars. About three months after he was hired, it found, Lemke was test
driving a new Tesla model that was specifically slated to be delivered to Tesla
co-founder Eberhard, and “was unable to complete a sudden stop in heavy
traffic, and rear-ended the vehicle in front of him. The Tesla car sustained
severe front end damage, which would cost tens of thousands of dollars to
repair.” He was “very shaken up,” took the next two days off work at the
direction of his supervisor, and then the next day he was called into Tesla’s
headquarters and fired. He was told only that it was “not working out” and
he was being “let go.” The court found he “crashed a very expensive car and
was not surprised when he was fired shortly thereafter.” The trial court
rejected Lemke’s claims, both on the ground they were barred by the release
in the separation agreement he signed and on the ground that he “took no
steps and [made] no demands to exercise any stock options.”
Because Lemke did not prevail below, the doctrine of adverse implied
findings applies here. That is, “[i]f the party challenging the statement of
decision fails to bring omissions or ambiguities in it to the trial court’s
attention, then, under Code of Civil Procedure section 634, the appellate court
47
will infer the trial court made implied factual findings favorable to the
prevailing party on all issues necessary to support the judgment, including the
omitted or ambiguously resolved issues. [Citations.] The appellate court
then reviews the implied factual findings under the substantial evidence
standard.” (Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th
42, 59-60, italics added.) For these reasons, we will imply findings that
Lemke was fired for cause, even though the trial court’s statement of decision
does not expressly resolve that issue.
That implied finding is supported by substantial evidence. Lemke’s
supervisor testified the car sustained about $50,000 worth of damage, the
crash was Lemke’s fault (“operator error”), he presented a risk, and he was
terminated because of the accident (at the supervisor’s recommendation), due
to his “[l]ack of ability to perform the job function” including the ability to
drive safely. Moreover, Lemke’s termination under these circumstances was
consistent with Tesla’s employee handbook, which touted the company’s
“incredibly high standards” and goal of employing “exceptional people who
enjoy pushing themselves to perform at the highest levels every day.” And it
warned employees, in perfunctory fashion: “If you do something stupid,
depending on the circumstances you may be coached and given another
chance or you may be asked to leave. We can’t afford to waste our time
dealing with stupid stuff when we have so many important things to get
done.”
For these reasons, Lemke has not demonstrated there is no substantial
evidence he was fired for cause. Accordingly, he has not demonstrated any
basis in the plain text of his offer letter to waive the one-year cliff.
48
B. The Awards of Costs
Finally, because we are reversing the judgments entered in favor of the
prevailing plaintiffs, the prevailing party cost awards entered in their favor
must also be reversed as a matter of law. (See Harris v. Wachovia Mortgage
FSB (2010) 185 Cal.App.4th 1018, 1027 [an “award of costs necessarily falls
with the judgment”].)
DISPOSITION
In Vespremi v. Tesla Motors, Inc. (Super. Ct. San Mateo County,
No. 474656), the judgment entered in favor of Gene Glaudell is reversed. The
award of costs entered against Tesla is reversed and the order denying
Glaudell an award of attorney fees is affirmed.
In Zilincik v. Tesla Motors, Inc. (Super. Ct. San Mateo County,
No. 511676), the judgments entered in favor of plaintiffs Guillermo Berzunza,
Ryan Christianson, John Du, Tara Flanaghan, Luis Flores, Sandra Giha,
Rosalyn Gold-Onwude, Robert Hofmann, Christopher Hogland, Nha Phung
(Jim) Huynh, Robert Irvin, Julija Liggins Constantino, Jennifer McCoy,
Branden McNamee, Michael Schlicht, Donald Thompson and Shun Tillman
are reversed, and the judgments entered in favor of Tesla and against
plaintiffs Sorinne Ardeleanu, Phuong Bo, Kevin Daly, Daniel Fischtein,
Robert Gerth, Christopher Hiltz, Douglas Juarez, Travis Lemke, Shirley
Miller, Tara Minaee, Sheva Miran Rajaee, Dennis Schaaf, Jeremy Siwek,
Chyna Stone Willman, Eric Swortsfigure, Jonathan Taylor, Michael Webb,
Gary Nigel Ian Zeid and Scott Zilincik are affirmed. The appeals by Adam
Berlin, Henry Brice, Robert Epstein, Frank Jesse, Kris Kraft, Ethan Eang
Lim, Tony Longhurst, Patrick Nemeth, Theodore Schloz and Frederick
Schumacher are dismissed. The award of costs entered against Tesla is
49
reversed and the order denying plaintiffs an award of attorney fees is
affirmed.
Tesla shall recover its appellate costs in all appeals, to be paid by all
parties other than those whose appeals we have dismissed.
50
STEWART, J.
We concur.
RICHMAN, Acting P.J.
MAYFIELD, J. *
Zilincik et al. v. Tesla, Inc./Glaudell v. Tesla, Inc. (A154463, A154464,
A155819, A155840)
* Judge of the Mendocino County Superior Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.
51