Tredway v. Merck & Co. Inc

On Appeal from the United States District Court for the Western District of Tennessee.
Before SILER and CLAY, Circuit Judges; STAFFORD, District Judge. [FN*]
FN* The Honorable William Stafford, Senior United States District Judge for the Northern District of Florida, sitting by designation.

PER CURIAM.
1)Appellant, Alfred S. Tredway ("Tredway"), filed this action against Merck & Company, Inc. ("Merck"), challenging Merck's determination that Tredway forfeited all stock options upon leaving Merck's employment. The district court entered summary judgment in Merck's favor, and Tredway appeals that ruling. We affirm.

Tredway began his employment with Merck in 1989 as a sales representative in the Memphis region. In 1991, he accepted a position as business manager for an unincorporated division of Merck known as the Astra/Merck Group. The Astra/Merck Group marketed a pharmaceutical; Prilosec, produced by Astra AB, a Swedish company. Merck's contract with Astra AB provided that when annual Astra/Merck sales of Astra's products reached a certain trigger point, Astra AB could elect to operate the Astra-Merck business unit as a 50/50 joint venture with Merck. Tredway knew when he accepted the position as business manager of the Astra/Merck Group that Astra could elect to become a 50% owner of the business unit if and when the trigger figure was reached.

On November 1, 1994, after the trigger figure was in fact reached, a new company, Astra Merck, Inc. ("AMI"), was formed. From November 1, 1994, to December 31, 1994, Merck leased the employees of the Astra/Merck Group to AMI. Thereafter, in accordance with their "Transfer Consummation Agreement" ("TCA"), Merck, Astra AB, and AMI agreed that AMI would offer employment, commencing as of January 1, 1995, to those individuals furnished to AMI as employees under the employee lease agreement. Tredway was one of the Merck employees who was covered by the employee lease agreement and the TCA.

On or about December 15, 1994, Tredway received a letter explaining that, while his employment with Merck would end, he would maintain the same employment status with AMI effective January 1, 1995. The letter confirmed that the offer of employment was for his current position and salary as of January 1, 1995, and that all of his Merck service would count as Astra Merck service. Tredway admitted at his deposition that he knew his office, staff, salary, and responsibilities would be the same with AMI as when he was employed by Merck.

After deciding to decline the transfer to AMI, Tredway contacted Amy Fariss ("Fariss") in Merck's human resources department and advised her that he wanted to remain with Merck after December 31, 1994. Fariss informed Tredway that remaining with Merck was not an option.

In or about October 1994, Tredway began to explore employment opportunities outside of Merck and AMI. On December 24, 1994, he accepted a position with
United HealthCare Corporation as Executive Director of Complete Health-- Memphis. Tredway began work on his new job on December 30, 1994.

During his tenure with Merck, Tredway received 987 stock options. With exercise dates beginning no sooner than September 6, 1996, none of these options was yet exercisable when Tredway left Merck in December, 1994. When Fariss advised Tredway that remaining with Merck was not an option, she also advised him that he would lose his stock options if he refused the transfer to AMI. Merck's incentive stock option plan ("ISP") provided that:

(e) Termination of Employment. Upon termination of a Stock Option grantee's
employment (for any reason other than retirement, death or termination for
deliberate, willful or gross misconduct), Stock Option privileges shall be
limited to the shares which were immediately exercisable on the date of such
termination. The Committee, however, in its discretion, may provide that any
Stock Option granted may become exercisable in accordance with a schedule to
be determined by the Committee.

The Rules and Regulations promulgated under the ISP provided in pertinent part:
VI. STOCK OPTIONS--TERMINATION OF EMPLOYMENT
A. Resignation /Termination--Upon the termination of a grantee's employment
for any reason other than [separation, retirement, death, or misconduct],
exercise privileges shall be limited to those [Nonqualified Stock Options] or
[Stock Appreciation Rights] granted under any feature of the Plan which were
exercisable at the date of such termination, unless determined otherwise by
the Committee. Such privileges shall expire unless exercised within three
months after the date of such termination, unless determined otherwise by the
Committee, but in no event after the expiration of the Option Period....
B. Separation--If the Committee determines that a grantee's employment is
terminated at an employer's initiative due to lack of work because, for
example, the employer eliminates the grantee's job or divests itself of a
business resulting in the grantee's loss of employment with the employer,
then the grantees' Centennial, Discretionary, Inaugural, Ownership, and
effective July 1994, those Annual and Quarterly Award grants awarded in 1992
or later shall continue to become exercisable according to their terms;
provided, however, that any such grant shall expire if not exercised during
the 12 months following the later of the date the grant first becomes
exercisable or the date of the separation....
C. Retirement -....
D. Death -....
E. Misconduct -....
F. Joint Venture Service--For the purposes of this section, termination shall
not include the assumption and retention by a grantee of a position in any
joint venture or other business entity in which the Company shall directly or
indirectly have a significant business or ownership interest.

Tredway filed suit April 30, 1998. On April 30, 1999, the trial judge granted Merck's motion for summary judgment, deciding, as a matter of law, that Merck's ISP, together with the Rules and Regulations promulgated thereunder, unambiguously set out five categories of "terminations:" namely, "terminations" occasioned by (1) separation, (2) retirement, (3) death, (4) misconduct, and (5) any reason other than separation, retirement, death, and misconduct. The trial judge also found that there was no genuine issue of material fact as to the nature of Tredway's "termination" or departure from Merck. Specifically, the district court found that Tredway's termination was not occasioned by retirement, death or misconduct; nor was it a "separation" occasioned by lack of work resulting from the elimination of his job or the sale or divestiture of a business. The district court instead found that, by refusing to transfer to Merck's joint venture, Tredway placed his "termination" in the for-any-other- reason category, under which category stock option grantees, including Tredway, forfeited all stock options not exercisable on the date of termination.

On appeal, Tredway argues that there were and are genuine issues of material fact as to whether his position was "eliminated," whether there was a "divestiture," and whether he was "involuntarily terminated." We disagree. Because our de novo review of the record convinces us that the district judge's decisions were correct, we AFFIRM.