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Vermont Supreme Court reverses ruling over MyWebGrocer phantom shares

By Takesha Thomas | Dec 13, 2018

MONTPELIER, Vt. (Legal Newsline) – The Supreme Court of Vermont has reversed a trial court ruling in a dispute between a man and his former employer over the payment of phantom shares.

"We reverse the trial court’s decision regarding whether MyWebGrocer breached the parties’ agreement and vacate the jury’s verdict and damages awards in connection with (David) Tanzer’s claim that MyWebGrocer breached the covenant of good faith and fair dealing. We also reverse the trial court’s decision at summary judgment on Tanzer’s statutory claim and conclude that the value of the phantom shares falls within the relevant statutory definition of wages," Justice Karen Carroll wrote.

Tanzer had appealed the Superior Court, Chittenden Unit’s decision arguing that the amount he allegedly was due under the phantom share plan did not fall within the definition of wages under Vermont’s wage statutes. MyWebGrocer had appealed the ruling that it breached the agreement.

MyWebGrocer provides web-based e-commerce systems for grocery stores nationwide. Tanzer was hired in 2000 as the company’s principal database architect, according to the court ruling. He was terminated in 2008. 

As part of his employment compensation agreement, the ruling states Tanzer was given membership in the company’s phantom share plan. According to the ruling, Tanzer’s phantom share agreement "provided that his phantom shares would vest at a rate of 1/36 per month after successful completion of an initial post-employment probation period. He also received lump sum phantom share awards that vested over a specified period of years, and, for a period of his employment, also received vested phantom shares per pay period in lieu of a portion of his salary."

Attorneys for Tanzer claimed that he had 103,576 vested shares in the plan when he was terminated in 2008, arguing that MyWebGrocer had withheld shares due to him. 

According to the ruling, MyWebGrocer offered Tanzer "$538,667.45 for the phantom shares he had accrued during his employment. He was also offered $50,885.81 from a $16,500,000 escrow account that the parties to the merger had created by agreement and that would be paid out if certain conditions were met."

Tanzer disputed the valuation, arguing that "the plan provided that phantom shareholders collectively would receive 10 percent of the total merger consideration upon payout and that MyWebGrocer’s valuation gave phantom shareholders between 7 and 8 percent of the merger consideration," the ruling states.

During trial, MyWebGrocer argued that through the years there were several versions of the company's phantom share plan, including plans from 2000, 2001, 2005, 2008, and 2009.

"Each version of the plan also included a provision stating that the plan would be amended if MyWebGrocer converted from an LLC to a corporation other than through holding an initial public offering (IPO), and provided a means for converting the distributional interest associated with vested phantom shares to shares of stock in the event of an IPO," the ruling states.

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