Young v. Data Switch Corp.

Peters, C. J.

In current economic conditions, corporate downsizing is often accomplished in part by offering severance agreements to corporate employees. The underlying issue in this case is whether a former employee, having retained the benefits conferred upon him by a severance agreement, may avoid that agreement on the ground of coercion for an indefinite period of time after the alleged coercion has ended. In specific procedural terms, the issue is whether the trial court abused its discretion in setting aside a jury verdict that awarded damages for wrongful termination to such an employee even though he had waited seventeen months before raising the issue of duress.

The plaintiff, Gladstone Young, brought an action for damages claiming that his employment had been wrongfully terminated by the defendant, Data Switch Corporation. In response to a special defense of release, the plaintiff alleged that he had a right to disaffirm, on the ground of duress, a severance agreement that he and the defendant had executed. A jury returned a general verdict for the plaintiff and awarded him $413,000 in damages. On the defendant’s motion, the trial court set aside the jury verdict. The trial court concluded that the jury verdict could not be sustained because, as a matter of law, the plaintiff had ratified the severance agreement by retaining its benefits and delaying any objection to its validity until sixteen months¹ after the alleged coercion had entirely ceased.

The plaintiff appealed from the judgment of the trial court to the Appellate Court, and we transferred the appeal to this court pursuant to Practice Book § 4023 and General Statutes § 51-199 (c). We affirm the judgment of the trial court.

The facts are essentially undisputed. The plaintiff is an electrical engineer who became an employee of the defendant in 1979. Toward the end of 1984, as a result of financial difficulties, the defendant began to restructure its operations. No later than April 15,1985, when the plaintiff was placed on a paid leave of absence, he became aware that his regular employment with the defendant was likely to end. At a subsequent meeting with the defendant’s president on May 14, 1985, the plaintiff himself proposed that he be placed on half-salary for a two year period during which he would serve as a consultant to the defendant. While the defendant agreed to consider this proposal, the plaintiff continued on his paid leave of absence. During this leave of absence, the plaintiff explored new scientific opportunities that the defendant subsequently decided not to pursue.

On July 26,1985, the defendant’s president informed the plaintiff that his employment was being terminated. The plaintiff does not claim that this meeting or its message was in any respect coercive.

The plaintiff’s claim of duress arises instead out of a subsequent letter, dated August 6, 1985, that contained the details of the severance plan that “[the defendant was] prepared to offer” him. That letter referred, in its opening words, to the plaintiff’s having been on “leave effective April 15,1985,” and then offered to retain him on a paid leave of absence “through October 15,1985, so that you may retain your right to exercise a significant amount of company stock options.” The plaintiff had stock options that he would not have been able to exercise if his employment had been terminated on April 15, 1985, rather than on July 26, 1985, as he had expected.² Interpreting this letter as backdating his termination for all purposes, and therefore anticipating substantially adverse economic consequences, the plaintiff felt coerced, he alleges, into acquiescing in the severance agreement.³

At a meeting held on August 14, 1985, the plaintiff brought his interpretation of this part of the severance offer to the attention of the defendant’s president and explained the importance of the stock options to him. The plaintiff himself testified that, in response, the defendant’s president assured him that, if he signed the release, he would receive his stock.

On August 15,1985, without voicing any further dissatisfaction with its terms, the plaintiff signed the severance agreement, thereby releasing the defendant from all liability arising out of the plaintiff’s employment. On August 21, 1985, the plaintiff received the 40,000 shares to which he was entitled by virtue of his previous stock options,⁴ and thereafter received the remainder of the benefits, including the right to exercise additional stock options, that were contained in the severance agreement.⁵

Subsequent to his execution of the severance agreement, the plaintiff had several further communications with the defendant. Although his first letters indicated no dissatisfaction with his severance package,⁶ he later maintained, through counsel, that his employability was being unfairly impaired because the defendant would not release him from the noncompetition clause that had been incorporated by reference into the severance agreement. Even then, he voiced no claim that the severance agreement was itself voidable on the ground of duress.⁷ Instead, this letter reflected the fact that, during the months immediately after the plaintiff’s termination, he had unsuccessfully sought professional employment as an electrical engineer. In the spring or early summer of 1986, however, soon after the expiration of his unemployment benefits, he stopped this line of inquiry and began devoting all his time to real estate investments. Not until January 20,1987, did the plaintiff first assert a claim that the severance agreement was voidable because it had been obtained by duress.

This record categorically establishes that: (1) the only coercive conduct of which the plaintiff complains is the defendant’s alleged threat to deprive the plaintiff of his right to exercise his stock options;⁸ (2) this alleged coercive conduct ended when the plaintiff exercised his options on August 6,1985; and (3) the severance agreement conferred on the plaintiff measurable economic benefits that he has continued to retain. In light of this record, and the plaintiff’s seventeen month delay in asserting his rights, the trial court determined that, although it had instructed the jury to determine whether the plaintiff’s disaffirmance of the severance agreement was timely as a matter of fact, it was required to set aside the jury’s verdict in the plaintiff’s favor as a matter of law.

The scope of our review of a trial court’s decision to set aside a jury verdict is limited to a determination of whether the trial court abused its discretion. “We have often held that ‘[t]he decision to set aside the verdict entails the exercise of a broad legal discretion that, in the absence of clear abuse, we shall not disturb. O’Brien v. Seyer, [183 Conn. 199, 208, 439 A.2d 292 (1981)].’ Palomba v. Gray, 208 Conn. 21, 24, 543 A.2d 1331 (1988); American National Fire Ins. Co. v. Schuss, 221 Conn. 768, [774,] 607 A.2d 418 (1992); State v. Hammond, 221 Conn. 264, 270, 604 A.2d 793 (1992). In our review of the exercise of this discretion, we accord great weight to the trial court’s decision; Labatt v. Grunewald, 182 Conn. 236, 240-41, 438 A.2d 85 (1980); so long as the trial court’s exercise of its discretion does not infringe on the constitutional rights of the litigants to have issues of fact determined by a jury. Seals v. Hickey, 186 Conn. 337, 350, 441 A.2d 604 (1982). This right is an ‘obviously immovable limitation on the legal discretion of the court to set aside a verdict . . . .’ Camp v. Booth, 160 Conn. 10, 13, 273 A.2d 714 (1970).” Ginsberg v. Fusaro, 225 Conn. 420, 425, 623 A.2d 1014 (1993); Jackson v. R. G. Whipple, Inc., 225 Conn. 705, 722-29, 627 A.2d 374 (1993).

Although we have no case law that directly discusses whether a party may wait seventeen months to dis-affirm, on the ground of duress, a severance agreement the benefits of which he has retained, the Restatement (Second) of Contracts (1981) contains the applicable principles. Section 381 (1) of the Restatement (Second) provides that “[t]he power of a party to avoid a contract for . . . duress ... is lost if, after the circumstances that made it voidable have ceased to exist, he does not within a reasonable period of time manifest to the other party his intention to avoid it.” As a general matter, comment (a) to § 381 provides that “what time is reasonable depends on all the circumstances, including the extent to which the delay was or was likely to be prejudicial to the other party . . . .’’Comment (a) to § 381 adds, however, that “[o]rdinarily, if the party with the power of avoidance retains during the delay something that he has received from the other party, avoidance will be precluded by the rule stated in § 380.” Section 380 (1) of the Restatement (Second), in turn, provides that “[t]he power of a party to avoid a contract for . . . duress . . . is lost if, after the circumstances that made the contract voidable have ceased to exist, he . . . acts with respect to anything that he has received in a manner inconsistent with dis-affirmance.” Read in its entirety, therefore, the Restatement equates the retention of benefits with “delay [that is] prejudicial to the other party” and imposes strict time constraints on the avoidance for duress under such circumstances.

Application of the principles of the Restatement to the uncontroverted facts in this case lends strong support to the judgment of the trial court. The plaintiff nonetheless argues that the trial court abused its discretion in granting the defendant’s motion to set aside the jury verdict. His argument is in two parts. As a general proposition, he relies on cases that have held that the affirmance or disaffirmance of a voidable contract depends on the intent of the person with the power to avoid. More specifically, he maintains that in the circumstances of his case, the jury could reasonably have found that he did not intend to ratify the termination agreement. We disagree.

The plaintiff maintains that the governing principle for analysis of his case is the general principle that ratification of a voidable contract is ordinarily a matter of intent. Russell v. Dean Witter Reynolds, Inc., 200 Conn. 172, 186, 510 A.2d 972 (1986). As the plaintiff acknowledges, however, intent may be inferred from silence as well as from affirmative acts. Hartford Accident & Indemnity Co. v. South Windsor Bank & Trust Co., 171 Conn. 63, 72, 368 A.2d 76 (1976). The question necessarily becomes, therefore, whether the trial court abused its discretion in concluding that, as a matter of law, the plaintiff could no longer disaffirm the severance agreement in this case.

The plaintiff maintains that there was such an abuse of discretion because the plaintiff could not have been expected to decide whether to disaffirm the severance agreement while he was preoccupied with his need to find alternate employment as an engineer. That argument is unpersuasive for three reasons. First, it does not explain why the plaintiff did not raise his claim when, in the spring or summer of 1986, he abandoned that search and undertook instead to become a real estate investor. Second, it focuses on the foreseeable difficulties that the plaintiff encountered as a result of the noncompetition clause, a clause that bears no relationship to the claim of duress that he is now pursuing. Third, it assumes that a contracting party can retain the benefits of a severance agreement for seventeen months and yet not ratify its terms, simply by turning his attention elsewhere. The plaintiffs job search did not deprive him of the opportunity to consider the validity of the severance agreement; indeed, his unsuccessful search for an engineering position at an acceptable salary furnished the occasion for retaining legal counsel and for correspondence with the defendant on this very subject.

The case law in other jurisdictions demonstrates that the dispositive question is not why the plaintiff chose not to disaffirm a contract that is voidable for duress, but whether, once the duress had ceased, he had the opportunity to do so. These cases hold, in accordance with the Restatement, that ratification results, as a matter of law, “if the party who executed the contract under duress accepts the benefits flowing from it or remains silent or acquiesces in the contract for any considerable length of time after opportunity is afforded to annul or avoid it.” Gallon v. Lloyd-Thomas Co., 264 F.2d 821, 826 (8th Cir. 1959) (ten months too long); Abbadessa v. Moore Business Forms, Inc., 987 F.2d 18, 23 (1st Cir. 1993) (five months too long); DiMartino v. Hartford, 636 F. Sup. 1241, 1252 (D. Conn. 1986) (two months too long); Schmalz v. Hardy Salt Co., 739 S.W.2d 765, 767-68 (Mo. App. 1987) (three months too long); Powell v. Oman Construction Co., 25 App. Div. 2d 566, 566, 267 N.Y.S.2d 862 (1966) (eleven months too long); McGee v. Stone, 522 A.2d 211, 214-15 (R.I. 1987) (eighteen months too long); see also 1 E. Farn-sworth, Contracts (1990) § 4.19, p. 443. The only case of duress that the plaintiff cites to the contrary; Furman v. Gulf Ins. Co. of Dallas, 152 F.2d 891, 894-95 (8th Cir. 1946); is a case in which, contrary to the facts of this case, the disaffirming party had received no contractual benefits.

The defendant consistently maintained, in the trial court, that the plaintiff had ratified the severance agreement as a matter of law by accepting its benefits and by allowing seventeen months to pass before raising his claim of coercion. The trial court denied the defendant’s motion for a directed verdict, presumably because it is sound judicial management to allow a case to go to the jury once it has been fully tried. The trial court, however, granted the motion to set aside the verdict for the plaintiff. We conclude that the trial court’s decision was not an abuse of its discretion.

The judgment is affirmed.

In this opinion Borden and Palmer, Js., concurred.

1 The period of delay was actually seventeen months.

2 Under the stock option plan, the plaintiff could exercise his vested options only while he was an employee of the defendant or within ninety days of the termination of his employment with the defendant.

3 On August 6,1985, the plaintiff had exercised his stock options in 40,000 shares by sending a letter and a check in the amount of $33,200.76 to the defendant’s president. The option prices and the share prices were such that the execution of the options on that date would have resulted in a net profit to the plaintiff of $167,000.

4 The record does not indicate that the delay in receiving the stock caused economic injury to the plaintiff.

5 These benefits included the following: full salary through December 31, 1985; medical benefits and the use of a car through December 31, 1985; and release of the plaintiff from all liability except for his obligations under certain previously executed noncompetition and nondisclosure agreements. The plaintiff received his final monetary compensation from the defendant on January 29,1986, when he was paid deferred compensation and interest in the amount of $16,500. Because of the extension of his employment through December 31, 1985, the plaintiff was able to exercise options to purchase an additional 8334 shares of stock on October 10, 1985.

6 In two letters dated September 10,1985, and October 15,1985, the plaintiff wrote to the defendant’s counsel with respect to certain Securities and Exchange Commission documents and to vacation pay; neither letter mentioned coercion or duress. Thereafter, on December 14, 1985, in a letter to the defendant’s chairman, the plaintiff indicated his concern for finding alternate employment but also acknowledged that he did not “wish to hurt [the defendant’s] company which has been good to me . . . .”

7 The noncompetition clause in the termination agreement cannot serve as an engine of continuing coercive conduct by the defendant because that clause predated the plaintiff’s termination. Thus, it had been a condition of the plaintiff’s employment with the defendant long before any claimed coercion, and the plaintiff has never claimed otherwise.

8 It is important to note what the plaintiff does not claim. He does not argue that his employment history with the defendant made it coercive for the defendant to terminate him under any and all circumstances. He does not contend that the severance agreement was inherently coercive because it incorporated by reference his prior agreement not to compete with the defendant by undertaking employment with specified competitors. He has not argued that he was coerced into signing the severance agreement by time pressure or that he, a college trained electrical engineer of sufficient means to exercise stock options, failed to understand the terms of the agreement or could not have sought the advice of counsel. Finally, he does not claim that any of the terms of the severance agreement were unconscionable or violative of good faith. The plaintiff’s only claim of duress is his own subjective interpretation of the offer for the severance agreement as an implied threat of interference with his stock options.

Although the plaintiff testified that he had not consulted with counsel about the termination agreement, he also testified that, in 1979, he had enlisted the support of counsel in order to obtain company stock to which he was entitled by virtue of his employment agreement. No later than April 22, 1986, he again enlisted the support of counsel to challenge the validity of the noncompetition clause in his original employment contract.