Courtright v. B.N.Y. Holdings (New Jersey) Corporation

A-7217-96T1 (N.J. Super. App. Div. 1998) (Unpublished)
  • Opinion Date: September 24, 1998

CORPORATIONS; STOCK OPTIONS—A stock option agreement that gives the employer discretion to allow early vesting of rights does not require the employer to treat all option holders alike when exercising that discretion.

In this and a consolidated action, Chirico v. B.N.Y. Holdings (New Jersey) Corporation, three former bank executives filed suit against their former employer which had recently completed a merger with another bank. These former executives and thirteen others had been granted options to purchase company stock. The options had strict vesting requirements. After the merger, the option agreements continued with the same vesting requirements except that they now applied with regard to the new entity’s stock. The new entity authorized eight executives to exercise their options to purchase the new stock when they left the new company’s employ after the merger, despite the fact that some of the options had not yet vested. Unlike those top tier executives, the plaintiffs were allowed to exercise only their vested options. They alleged that allowing the options of some executives to vest early, while not allowing others to vest, violated the New Jersey Business Corporation Act, the implied covenant of good faith and fair dealing, the reasonable expectations of “at will” employees who receive a benefit in consideration of continued employment, and the New Jersey business judgment rule.

The lower court disagreed, rejected each of the complaining executives’ arguments and dismissed their claims. It held that the stock incentive plan and the individual stock option agreements gave unfettered discretion to the employer to accelerate vesting or to decline to do so. The court reasoned further that the disgruntled executives were not deprived of anything to which they were entitled merely because the company allowed the stock options of certain other executives (who had facilitated the merger) to vest sooner than expected. The Appellate Court affirmed this decision for the reasons stated in the lower court’s opinion.