• March 24, 2017

Update (March 24, 2017): Sr. U.S. District Court Judge David S. Doty’s opinion in the dispute described below makes the case look like a no-brainer. Plaintiff Ayala had an agreement with his employer, CyberPower, that his salary would be $X until the business had revenue of over $Y million (at which time he would get a raise). Based on this, Mr. Ayala argued that CyberPower had given him an open-ended term of employment for as long as it took CyberPower to reach revenue of $Y million. That is, Mr. Ayala argued that the agreement changed his employment status from “at-will” employment, which it had been.

Among other things, Mr. Ayala’s position required him to take the position that he could not quit his job without breaching the contract if CyberPower did not hit the revenue target.

Making the case even weaker for Mr. Ayala, the agreement that included this salary arrangement expressly provided that “It [was] not a multiyear commitment or employment contract for either party.”

It is ironic that Judge Doty found the contract unambiguous when U.S. Mag. Judge Franklin J. Noel had previously found it ambiguous, a finding that Sr. U.S. District Court Judge Michael J. Davis reviewed and agreed with.

I think Judge Doty got it right and the case simply illustrates the overwhelming challenge of predicting the course of civil litigation. One has to wonder whether the case would have dismissed from the get-go had it been before another judge.

We note that Judge Doty, in his opinion in favor of CyberPower entertains the possibility that someone could find the agreement ambiguous. Either way, he concludes that CyberPower won the case. So maybe the case had to go through fact discovery and the summary judgment process rather than being decided on a motion to dismiss, as frustrating as that must have been for CyberPower.

Original post (October 28, 2015) (under the headline: Getting to Maybe: A Practical Example of Real-World Non-Negotiation (a.k.a. Lovett & Leave Him?): “Getting to Yes” is a classic 1981 book about negotiation by Harvard Law School Professor Roger Fisher. I find books and presentations on how to negotiate frustrating because, in my opinion, negotiations are far too contextual to lend themselves to any global precepts. Consequently, the advice is either obvious or untenable or both.

The lawsuit of Daniel Ayala vs. Shakopee, MN-headquartered CyberPower Systems (USA), Inc., pending before U.S. District Court Judge Michael J. Davis (D. Minn.) is a classic example of “getting to maybe.” Negotiations sometimes conclude with semi/quasi-intentional defects perilously close to the hearts of negotiated agreements. That is, for the sake of preserving the appearance of agreement, people sometimes agree not to agree.

Mr. Ayala’s case against his former employer, CyberPower, is straight-forward. He worked for about six years at CyberPower, very successfully, and had hopes one day of running the company. The company owner, Robert Lovett, encouraged Mr. Ayala’s hopes.  But when Mr. Lovett got real about succession planning, he decided to transfer the power of CyberPower to his own son, Brent Lovett, who also worked at CyberPower, rather than to Mr. Ayala.

Esau and Jacob. 2014. Canvas, oil. 80 x 90. Artist A.N. Mironov. https://goo.gl/OS3SFM

Esau and Jacob. 2014. Canvas, oil. 80 x 90. Artist A.N. Mironov. https://goo.gl/OS3SFM

(Life Practice Pointer: Diverting the course of a bloodline is not a new path to power but it is not an easy one. When Son works for Dad, bet on Son to succeed Dad. )

In light of the rebuff to Mr. Ayala’s leadership expectations and in recognition that Mr. Ayala was a successful part of the ever-growing CyberPower, Papa Lovett knew that he would need to come up with something attractive to keep Mr. Ayala with the company.

“Something attractive to keep Mr. Ayala with the company” means “more money.”

But beyond money was the question of Mr. Ayala’s job tenure and job security at CyberPower, a question that was not explicitly addressed in the 2012 “Compensation Agreement” between the parties, a question that became topical when Brent Lovett fired Mr. Ayala.

Mr. Ayala had been a CyberPower “at-will employee” for six years when Mr. Lovett announced his succession plan. As many Minnesota Litigator readers know (and as all should know), under an “at-will” employment agreement, you can be fired at any time for any reason (or no reason) (except for illegal discrimination) (at least under current Minnesota law).

Therefore, the value of promises of future lucrative raises in future years is small if not accompanied by some assurance of tenure of one kind or another.

The obvious solution would have been for the two sides to negotiate and directly tackle this issue of the term of Mr. Ayala’s new agreement. Was it to continue as “at will”? Presumably that would have been unacceptable to Mr. Ayala because it would make the future promises illusory (or, at best, risky). Was it to have a term (one year? five years?) or any prerequisites for any job termination (for example, requiring “for cause” termination only)?


Robert Goddard, 1926, with the first liquid fueled rocket

This is not rocket science, right?

It is difficult to believe that both CyberPower and Mr. Ayala failed to recognize that their Compensation Agreement had some ambiguity as to Ayala’s employment status. It seems more likely that each agreed to a muddy-muddled contract in the hope and expectation that, if the issue ever had to be decided, it would be decided in their favor.

Mr. Ayala had to rely on the fact that the Compensation Agreement does not say anywhere that it is an “at-will” employment agreement (as his earlier employment agreement had said) and also the agreement provides that it “outlines the new salary and bonus structure to remain in place until $150 million USD is reached” (which was a great deal more revenue than CyberPower was pulling in at the time the agreement was negotiated and entered into).

CyberPower probably felt just as convinced that the Compensation Agreement did not change Mr. Ayala’s pre-existing “at-will” employment status because it did not say otherwise and, indeed, the Compensation Agreement expressly provided that the agreement was “not a multiyear commitment or employment contract for either party.”

Photo by Jonathan Rotondo-McCord

Photo by Jonathan Rotondo-McCord

Lawyers have a name for these semi/quasi-intentionally ambiguous contract terms. They call it “kicking the can.” Some problems are too thorny to be definitively resolved today so parties to contracts “kick the can down the road” to address some later day, maybe, if necessary….

And sometimes these cans can act like land-mines that blow up attorney-client relationships. Parties to agreements with such buried bombs of ambiguity will later remind their lawyers that they had been assured that the risk would not materialize or that, if it did, it would likely be decided in their favor.

We do not know whether Mr. Ayala or the Lovetts had legal advice when they “kicked the can” in the 2012 Compensation Agreement. But, if they did, for the sake of any lawyers involved, I hope they advised their respective clients that the contract, as drafted, with arguably circuitous and internally inconsistent and/or confusing language, should have given no one certainty…

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