Donaldson v. Digital General System

Henry Donaldson, former president and chief operating officer of Digital General System (DGS), sued DGS for refusing to honor his alleged right to exercise stock options after he left the company. The court affirms the summary judgment granted in favor of the defendant.

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Click here for the full text of this decision FACTS:Henry Donaldson, former president and chief operating officer of Digital General System (DGS), sued DGS for refusing to honor his alleged right to exercise stock options after he left the company. Donaldson’s employment agreement provided him 150,000 shares of incentive stock options and purported to permit him to exercise the option up to one year following his termination of employment with the company. Donaldson also executed a related incentive stock option agreement effective the same day as the employment agreement. The option agreement provided only a 30-day period after termination in which to exercise the option. Both were subject to the company’s stock option plan (the plan), which allowed only 30 days after termination in which to exercise incentive stock options. The trial court made findings and conclusions and held that the 30-day time period in the option agreement prevailed over any apparently conflicting time frame in the other documents. The trial court also held that, even if Donaldson had one year to exercise the option, his failure to submit written demand was not excused by any conduct of DGS. Thus, any attempt he made to exercise the option orally was ineffective. Donaldson appealed, asserting error in the trial court’s construction of the contract and asserting the evidence was legally and factually insufficient to support the judgment. HOLDING:Affirmed. On appeal, Donaldson argues that 1. his contract with the company permitted him to exercise the option within one year, not merely three months, after his termination; 2. his failure to submit a written demand to exercise the option was excused by DGS’s actions; and 3. there is no or insufficient evidence to support the take-nothing judgment against him. The court concludes, as the trial court did, that Donaldson’s agreements with DGS are ambiguous concerning the intended time limit in which to exercise the option. The court disagrees with Donaldson’s contention that there was “undisputed” evidence that the parties intended the one-year provision to apply rather than the 30-day limit in the option agreement. DGS’s chairman of the board testified he thought he told Donaldson’s lawyer the terms seemed “all standard kind of stuff to me.” He also testified, “We discussed 150,000 shares of options under the normal routine, although we didn’t specifically get into dotting I’s and crossing T’s in that negotiation.” Importantly, the chairman could not recall having any discussion with Donaldson about the one-year provision or any other specific contract language. The court concludes that there is more than a scintilla of evidence to support the trial court’s finding that the parties’ intended the standard 30-day limit in the option agreement to apply. The court also concludes, as did the trial court, that the written-notice requirement was not excused by any act of DGS and that Donaldson’s failure to deliver a written notice was fatal to his claim that DGS breached the contract. OPINION:Bridges, J.; Morris, Bridges, and Richter, JJ.

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