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Chen v. Fleetcor Technologies, Inc.

United States District Court, N.D. California, San Jose Division

March 23, 2017

NAIDONG CHEN, et al., Plaintiffs,


          LUCY H. KOH United States District Judge

         Plaintiffs Naidong Chen (“Chen”) and Kumar Manindra (“Manindra”) (collectively, “Plaintiffs”) bring this suit for breach of contract and tort against Fleetcor Technologies, Inc. (“Defendant”) for alleged misconduct related to the vesting of Plaintiffs' stock options. Before the Court is Defendant's Motion for Summary Judgment. ECF No. 55 (“Mot.”). Having considered the submissions of the parties, the relevant law, and the record in this case, the Court GRANTS in part and DENIES in part Defendant's Motion for Summary Judgment.

         I. BACKGROUND

         A. Factual Background

         1. Start of Chen's and Manindra's Employment with Defendant

         In March 2013, Defendant acquired the enterprise business unit of TeleNav, Inc (“TeleNav”). Plaintiffs were employees in the enterprise business unit at TeleNav when it was acquired. Plaintiffs were given the option of remaining TeleNav employees, becoming employees of Defendant's, or looking for new work. ECF No. 58-1 at 253, Deposition of Kumar Manindra (“Manindra Depo.”) at 55:1-13; ECF No. 58-1 at 216, Deposition of Naidong Chen (“Chen Depo.”) at 56:1-57:20. Chen was considered a “key employee” in the transaction: the deal could have been canceled if Chen did not agree to become an employee of Defendant. ECF No. 58-1 at 107, Deposition of Jeff Lamb (“Lamb Depo.”) at 27:4-12 (“Q. And so if Frank Chen had not accepted an offer of employment to join FleetCor, FleetCor would have canceled the merger with Telenav? A. Correct.”).

         In March of 2013, Defendant sent Plaintiffs offer letters whose purpose was to “describe the general terms and conditions of [Plaintiffs'] employment with FleetCor.” ECF No. 56 at 101 (“Chen Offer Letter”); ECF No. 56 at 156 (“Manindra Offer Letter”). Chen was offered a base annual salary of $188, 000, an annual bonus up to 20% of Chen's base salary, and a “retention bonus” of $14, 000 after 6 months. Chen Offer Letter at 1. Manindra was offered an annual base salary of $158, 000, an annual bonus of 5% of Manindra's base salary, and a retention bonus of $10, 500 after 6 months and an additional retention bonus of $7, 500 after one year. Manindra Offer Letter at 1. In June of 2013, Chen's base salary was modified by a second, identically worded offer letter to $195, 500, but the terms of the offer letter otherwise remained identical. ECF No. 156 at 103.

         Chen and Manindra were also offered “FleetCor Performance Stock Options” in the offer letters. Chen was offered 10, 000 stock options, and Manindra was offered 1, 500 stock options. The offer letters contained the following language regarding the stock options:

You will be awarded 10, 000 of FleetCor Performance Stock Options. We will work together to establish the performance criteria over the next month. These options require Board approval which we will seek as soon as administratively practical. All options will be granted at the then fair market value.

Chen Offer Letter at 1; see also Manindra Offer Letter at 1 (containing identical language except indicating 1, 500 stock options were awarded).

         The offer letters also contained an “Employment At Will” section that stated: “This letter does not create a contract of employment or a contract for benefits. Your employment relationship with FleetCor is at-will. At either your option or FleetCor's option, your employment may be terminated at any time, with or without cause or notice.” Chen Offer Letter at 2; Manindra Offer Letter at 2. On a signature line that stated “Accepted By, ” Chen and Manindra each signed their respective offer letters. Chen Offer Letter at 2; Manindra Offer Letter at 2.

         2. Representations Concerning Vesting of the Stock Options From May 2013 to June 2014

         No written representations were provided to Chen or Manindra concerning the performance criteria that were to be used to determine whether the stock options would vest. However, Plaintiffs provide evidence of multiple oral representations concerning the stock options and their vesting schedule. In a declaration filed in support of the opposition to the instant motion for summary judgment, Chen states that Carrie Kasitz, a human resources representative of Defendant, and Jeff Lamb, Chen's and Manindra's supervisor, made representations concerning the vesting of the stock options before Chen signed the employment agreement in March of 2013. ECF No. 58-2, Declaration of Naidong Chen (“Chen Decl.”) ¶ 6. Specifically, Chen declares that Kasitz stated that “all of the Options would vest after [Chen's] first year of employment if we did well.” Id. Plaintiffs also file a declaration in which Manindra states that Kasitz made the same representations to Manindra and that Chen relayed Lamb's statements to Manindra. ECF No. 58-3, Declaration of Kumar Manindra (“Manindra Decl.”) ¶ 6, 10.

         Although Chen's and Manindra's declarations indicate that Lamb's statement regarding the options vesting within one year only mention the timeline for vesting rather than performance criteria, Chen's own deposition statements indicate that Lamb's representations were conditional on the business doing well. See ECF No. 56 at 28, Chen Depo. at 82 (“[Lamb] said if we're doing well, we can vest the whole-the whole 10, 000 shares one time . . . . He was not very specific [on the meaning of ‘doing well'].”).

         On April 25, 2013, the Compensation Committee for Defendant's Board of Directors (the “Compensation Committee”), approved the grant of the options to Chen and Manindra. ECF No. 58-1 at 22-27, Deposition of Crystal Williams, Defendant's Global Vice President of Human Resources (“Williams Depo.”) at 114-119. However, the Compensation Committee did not establish any performance criteria for vesting of the stock options. Id.

         “A few months after” Chen began working at FleetCor, “Lamb told [Chen] that 50% of the Options would vest in 2014 [the following year].” Id. ¶ 10; Manindra Decl. ¶ 10 (indicating that Chen told Manindra about these statements). As with Lamb's statements that occurred before Chen and Manindra began working for Defendant, deposition testimony indicates that the vesting was not unconditional, but was tied to reaching certain goals. See ECF No. 58-1 at 112-13, 123-24, Deposition of Jeff Lamb (“Lamb Depo.”) at 41-44 (Lamb stating that he had set goals tied to vesting, but that he had noted to Chen and Kumar that those goals had not yet been approved), 68-69 (Lamb indicating that he told Chen and Manindra that he had “submitted the goals detailed in the attached and that they should therefore work towards these objectives” and that Chen and Manindra “proceeded with the understanding that if certain [financial] targets were met they would vest in 50 percent of their performance options”).

         After one year, in April 2014, even though Chen and Manindra's division met the goals set by Lamb, the Compensation Committee decided to vest 25% of Chen and Manindra's stock options rather than 50%. Chen Decl. ¶ 11; Williams Depo. at 142-43. At the meeting concerning vesting, Ronald Clarke, Defendant's CEO, stated that Defendant did not need to vest 50% of the stock options because the standards set by Lamb had never been “formally approved.” Williams Depo. at 142-43.

         3. Representations Concerning Performance Criteria from May 2014 to June 2015

         After Defendant vested 25% of the options rather than 50% of the options, “Lamb called [Chen] to apologize for not getting the 50% vesting that he had promised a few months earlier. But he told [Chen] that 50% of the Options would vest in 2015 and the remaining 25% would vest in 2016.” Chen Decl. ¶ 11; see also Manindra Decl. ¶ 11. Chen was also awarded 2, 500 additional unvested stock options in compensation for not reaching 50% vesting. Chen Decl. ¶ 11.

         On May 5, 2014, Lamb proposed new performance criteria to Clarke and Williams for vesting that would occur by 2015. ECF No. 58-1 at 174. These performance criteria did not involve solely financial goals, but goals for the success of a particular app on which Chen and Manindra had been working. Id. These performance criteria were never approved by the Compensation Committee or Clarke, ECF No. 58-1 at 74 (“Additional performance criteria were proposed but not approved by the Compensation Committee.”), and were never communicated to Chen or Manindra, Chen Decl. ¶ 12; Manindra Decl. ¶ 12.

         Approximately one month later, in June 2014, Chen transferred from working on the apps to working for Defendant's Chief Information Officer, John Reed. ECF No. 58-1, May 22, 2014 Email from Lamb to Williams Concerning Start of Transfer (“May 22, 2014 Email”). Chen stopped all work on the apps described in the 2014-2015 proposed performance criteria by around June or July 2014. Chen Decl. ¶ 12. Around June or July 2014, Manindra also transferred positions and stopped working on the apps. Manindra Decl. ¶ 12. Lamb and Williams acknowledge that Chen's and Manindra's transfer would have a negative impact on the apps (and implicitly on the criteria Lamb had proposed for Chen's and Manindra's options to vest). See May 22, 2014 Email; Williams Depo. at 177.

         On November 14, 2014, Lamb sent an email to another employee of Defendant's that stated that “[i]t is looking highly unlikely that any of [the options] will vest beyond what was vested last year.” ECF No. 58-1 at 168, Nov. 14, 2014 Email from Lamb to Mike Scarbrough. By the end of 2014, Williams also knew “it was certain” that the criteria set by Lamb were not going to be achieved, and that Chen's and Manindra's former “division was failing.” Williams Depo. at 69. Chen and Manindra were not informed by Williams or Lamb that the app-based proposed performance criteria were unlikely to be satisfied or impossible to satisfy at the time when Williams and Lamb discovered that information. Chen Decl. ¶ 12; Manindra Decl. ¶ 12.

         From May 2014 to June 2015, Chen and Manindra sent repeated questions to Williams and Lamb about when the options would vest. For example, on September 3, 2014, Manindra emailed Williams and stated that he had been told that his stock options would vest at the “end of the year.” ECF No. 58-3 at 12. Williams responded that “[o]ur performance vested stock options are generally a three year vest.” Id. Also, from April 2015 to June 2015, Manindra sent Williams six emails about the vesting of the stock options, but Williams did not respond. Manindra Decl. ¶ 16. Chen emailed his then-supervisor Reed in February 2015 and August 2015 asking about the vesting of both his and Manindra's stock options, but the record contains no indication that Reed responded. ECF No. 58-1 at 207-08.

         On June 30, 2015, Defendant's Chief Financial Officer Eric Dey (“Dey”) asked Lamb and Williams about the vesting of the stock options via email. ECF No. 58-1 at 85. In response, Williams stated that “no criteria was established or the criteria wasn't met and the shares were forfeited. The second is more convenient, but it isn't quite true.” Id. at 84.

         4. End of Employment with Defendant

         While it is unclear exactly when, by August 2015, Chen and Manindra learned that the performance criteria for the vesting of their stock options were based on apps on which they were no longer working. Manindra Decl. ¶ 17 (“Around August 2015, I was told by Chen's boss, John Reed, that the Options were gone and would never be available because some unspecified App-based performance criteria were not attained.”); Chen Decl. ¶ 12 (“I only found out about these App-based vesting criteria sometime around August 2015.”); Chen Depo. at 193 (“John Reed told me the remaining stock options were already gone. He said, we can start a new plan for you.”). The evidence in the record indicates that Chen and Manindra both performed well during their time working for Defendant. Chen Decl. ¶ 17; Manindra Decl. ¶ 18.

         Chen and Manindra assert that they would not have worked for Defendant or continued working for Defendant from 2013 to 2015 if they had known that the stock options were essentially impossible to vest. Plaintiffs expert estimates that Chen lost $538, 875 and Manindra lost $135, 188 due to the lack of vesting. ECF No. 58-1 at 281. Moreover, after leaving, Chen and Manindra obtained higher-paying jobs. See ECF No. 58-1 at 242 (indicating that Chen received an offer from eDriving with a $255, 000 base salary and approximately 80, 000 stock options); ECF No. 58-1 at 272 (indicating that Manindra received an offer from LinkedIn with a $215, 000 base salary and restricted stock units with a value of approximately $800, 000).

         B. Procedural History

         On December 10, Plaintiffs filed the instant case in the California Superior Court for the County of Santa Clara. ECF No. 1 Ex. A. On January 8, 2016, Defendant removed the case to federal court, and asserted diversity jurisdiction pursuant to 28 U.S.C. § 1332. ECF No. 1.

         On January 12, 2017, Defendant filed the instant Motion for Summary Judgment. ECF No. 55 (“Mot.”). On January 26, 2017, Plaintiff filed an opposition, ECF No. 58 (“Opp'n”), and on February 2, 2017, Defendant filed a reply, ECF No. 60 (“Reply”).


         A. Summary Judgment

         Summary judgment is proper where the pleadings, discovery and affidavits demonstrate that there is “no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). Material facts are those which may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Id.

         The party moving for summary judgment bears the initial burden of identifying those portions of the pleadings, discovery and affidavits which demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Cattrett, 477 U.S. 317, 323 (1986). Where the moving party will have the burden of proof on an issue at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. However, on an issue for which the opposing party will have the burden of proof at trial, the moving party need only point out “that there is an absence of evidence to support the nonmoving party's case.” Id. at 325.

         Once the moving party meets its initial burden, the nonmoving party must go beyond the pleadings and, by its own affidavits or discovery, “set forth specific facts showing that there is a genuine issue for trial.” Fed.R.Civ.P. 56(e). The court is only concerned with disputes over material facts and “factual disputes that are irrelevant or unnecessary will not be counted.” Anderson, 477 U.S. at 248. It is not the task of the court to scour the record in search of a genuine issue of triable fact. Keenan v. Allen, 91 F.3d 1275, 1279 (9th Cir. 1996). The nonmoving party has the burden of identifying, with reasonable particularity, the evidence that precludes summary judgment. Id. If the nonmoving party fails to make this showing, “the moving party is entitled to judgment as a matter of law.” Celotex Corp., 477 U.S. at 323.

         At the summary judgment stage, the court must view the evidence in the light most favorable to the nonmoving party: if evidence produced by the moving party conflicts with evidence produced by the nonmoving party, the judge must assume the truth of the evidence set forth by the nonmoving party with respect to that fact. See Leslie v. Grupo ICA, 198 F.3d 1152, 1158 (9th Cir. 1999).

         B. State Law in Diversity Cases

         “In determining the law of the state for purposes of diversity, a federal court is bound by the decisions of the highest state court.” Albano v. Shea Homes Ltd. P 'ship, 634 F.3d 524, 530 (9th Cir. 2011). If the state's highest court has not decided an issue, it is the responsibility of the federal courts sitting in diversity to predict “how the state high court would resolve it.” Id; AirSea Forwarders, Inc. v. Air Asia Co., Ltd., 880 F.2d 176, 186 (9th Cir. 1989) (internal quotation marks omitted). In the absence of clear authority, the Court looks for guidance from decisions of the state appellate courts and other persuasive authorities, such as decisions from courts in other jurisdictions and treatises. Strother v. S Cal. Permanente Med. Grp., 79 F.3d 859, 865 (9th Cir. 1996). “In assessing how a state's highest court would resolve a state law question[, ] . . . federal courts look to existing state law without predicting potential changes in that law.” Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 939 (9th Cir. 2001).


         Plaintiffs assert five causes of action: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) common count for services rendered (an accounting for services rendered), (4) negligent misrepresentation, and (5) fraudulent concealment.[1]Defendant argues that each of the causes of action fail and also makes evidentiary objections. The Court addresses each cause of action in turn and then discusses Defendant's evidentiary objections.

         A. Breach of Written Contract

         Plaintiffs argue that the following provision found in the offer letters (hereinafter referred to as “Stock Option Provision”) has been breached:

You will be awarded 10, 000 of FleetCor Performance Stock Options. We will work together to establish the performance criteria over the next month. These options require Board approval which we will seek as soon as administratively practical. All options will be granted at the then fair market value.

Chen Offer Letter at 1; see also Manindra Offer Letter at 1 (containing identical language except that he was only awarded 1, 500 stock options).[2]

         It is undisputed that Plaintiffs were awarded the promised number of stock options here. However, it is also undisputed that the “performance criteria” referred to in the second sentence of the Stock Option Provision were never established. Plaintiffs' complaint asserts that Defendant “breached these agreements because it [1] never established any performance criteria for either Chen or Manindra, [and] [2] it never worked with Chen or Manindra to establish those criteria.” Compl. ¶ 26.

         Plaintiffs' two theories of breach imply that there are two obligations arising from the performance criteria provision. On the one hand, Plaintiffs assert that the provision contains an obligation to “work together” to establish performance criteria. On the other hand, Plaintiffs assert that, rather than just an agreement to work together to establish criteria, the offer letters create an affirmative obligation for Defendant to set performance criteria.

         Defendant argues that no breach of contract occurred in this case because no enforceable written contract was formed between Plaintiffs and Defendant as to stock options. In the alternative, Defendant argues that Plaintiffs cannot bring a breach of contract claim because Plaintiffs also violated the terms of the offer letters.

         1. ...

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