The Advisors' Blog

– Liz Dunshee

Here’s a dispute out of Delaware – Batty v. UCAR International – in which a company and their former employee of 34 years are arguing over $1.5 million because of ambiguous defined terms in a nearly 20-year-old agreement. You’d think they’d settle! But there must be good reasons not to do that (yet) – which is lucky because now we all get to see how things blew up and carefully check our own forms. This blog from Steve Quinlivan explains why the court recently denied the company’s motion to dismiss:

The defendants argued that “accrued Incentive Compensation” was limited to cash compensation and thus excluded equity awards. The defendants relied on Section 1(f), which defined “Incentive Compensation” as “any compensation, variable compensation, bonus, benefit or award paid or payable in cash under an Incentive Compensation Plan.”

According to the defendants, Section 1(f)’s phrase “paid or payable in cash” modifies all preceding nouns (“compensation, variable compensation, bonus, benefit or award”). In the alternative, the defendants argued that they prevail even if “paid or payable in cash” modifies only the nearest noun, “awards,” because equity awards are “awards” and thus subject to the cash limitation. To bolster their interpretation, the defendants point to the definition of “Incentive Compensation Award,” which too is limited to “cash payment or payments awarded to [Batty] under any Incentive Compensation Plan.”

The Court noted the defendants’ interpretation of Section 2(a)(ii) was reasonable, but that it was not the only reasonable interpretation. Just as conceivable, according to the Court, was that the term “Incentive Compensation” could mean certain items that may be paid in cash or equity (“compensation, variable compensation, bonus, benefit”) as well as one item that is only paid or payable in cash (“award”). According to the Court, under this interpretation, regardless of whether the equity awards are “paid or payable in cash,” they would be included in Batty’s accrued Incentive Compensation. Because Section 2(a)(ii) is susceptible to multiple reasonable interpretations, the defendants’ motion to dismiss failed.