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Tatom v. Ameritech Corp.

September 18, 2002

MICHAEL TATOM, PLAINTIFF-APPELLANT,
v.
AMERITECH CORPORATION AND AMERITECH INFORMATION SYSTEMS, INC., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 683--Ronald A. Guzmán, Judge.

Before Coffey, Easterbrook, and Rovner, Circuit Judges.

The opinion of the court was delivered by: Rovner, Circuit Judge.

ARGUED JUNE 7, 2001

After announcing his early retirement from Ameritech Corporation ("Ameritech") in January 1997, Michael Tatom ("Tatom") accepted a job with U.S. West. Because Ameritech considered U.S. West to be one of its competitors, it informed Tatom that he would not be paid his annual incentive award for 1996. In addition, Ameritech decided to cancel the unvested stock options that the company had issued to Tatom pursuant to its Long Term Incentive Plan rather than to accelerate the vesting of those options; it also cancelled Tatom's vested options as of the end of January 1997, leaving Tatom only a short window of time in which to exercise those options. Tatom subsequently filed this action claiming, inter alia, that Ameritech had breached its contractual obligations to him in withholding the 1996 incentive award and canceling his stock options. In a thorough opinion, the district court granted summary judgment in favor of the defendants on these and the other claims that Tatom asserted. Tatom v. Ameritech Corp., No. 99 C 683, 2000 WL 1648931 (N.D. Ill. Sept. 28, 2000) (Guzmán, J.). Tatom appeals that decision insofar as it disposed of his contractual arguments vis à vis his incentive award and stock options. We affirm.

I.

By the time that Tatom announced his early retirement from Ameritech on January 16, 1997, he had worked for the company and its predecessors for more than twenty-five years and had risen to the post of Vice President for Operations in the Custom Business Services unit ("CBS") of Ameritech's wholly-owned subsidiary, Ameritech Information Systems ("AIS"). The CBS unit provided both regulated and non-regulated communications services for large businesses both within the United States and around the world. As CBS' Vice President for Operations, Tatom spearheaded the effort to review and streamline its services and managed to cut costs by twenty-five to thirty percent.

For 1996, the year prior to his departure from Ameritech, Tatom received two documents describing the components of his compensation for that year. These two documents form the basis for Tatom's claim that Ameritech was contractually obligated to pay him a bonus for 1996.

The first of these documents was a twenty-page statement entitled "Total Compensation: Your 1996 Total Compensation Opportunity," which described all of the components of Tatom's anticipated compensation. R. 49, Tatom Dep. Ex. 6. As a senior executive, Tatom had been designated a "Corporate Resource" level employee, which status entitled him to a broader array of compensation than other managerial employees. The components of Tatom's compensation included his cash compensation (comprising a base salary plus an annual incentive award), long-term incentives (an annual award of stock options, with dividend equivalents), welfare benefits (health care plans and disability and dismemberment insurance), life insurance, and retirement benefits. The Total Compensation statement was customized to the extent that it was printed with Tatom's name on the cover page and contained specific information about his base salary, a target annual incentive payment, and the number of stock options granted to him. The statement indicated that Tatom's target bonus for 1996 was $50,500. A "Notes About Your Statement" section at the conclusion of this document stated, inter alia:

Every effort has been made to ensure the accuracy of the information reported in this statement. However, errors can occur. In all cases, benefits that become payable to you will be made in accordance with the various plans and insurance contracts, which are always the governing documents. R. 49, Tatom Dep. Ex. 6 at 18.

The second document that Tatom received was a nine-page brochure entitled "CBS Rewarding for Success," which provided an overview of the cash compensation program for CBS employees like Tatom. R. 49, Tatom Dep. Ex. 13. Included in that overview was a discussion of the formulas used to calculate an employee's base salary as well as his annual incentive (bonus) compensation. The final page of that brochure contained the following disclaimer:

Notice Custom Business Services reserves the right to amend or cancel the CBS Compensation Program in whole or in part at any time without notice. It also reserves the right to reduce, modify, or withhold awards based on such factors as regulatory events, changes in business conditions, or individual performance. CBS also reserves the right to decide all questions and issues arising under the CBS Compensation Program and its decisions are final. The CBS Compensation Program is a statement of CBS' intentions and does not constitute a guarantee that any particular amount of compensation will be paid. It does not create a contractual relationship or any contractually enforceable rights between CBS and the employee. R. 49, Tatom Dep. Ex. 13 at D139 (emphasis in original).

As we have mentioned, Tatom's compensation package included long-term incentives in the form of stock options, which Tatom received in 1992, 1994, 1995, and 1996. Each issue of stock options was governed by a stock option grant agreement that established a timetable for when the options vested (meaning that Tatom could then exercise the option to purchase a specified number of shares at a particular price). By the time Tatom left Ameritech's employ in 1997, he had accumulated options to purchase 19,750 shares of Ameritech stock. As of his resignation, 13,784 of those options had vested, while 5,966 of them (granted to him in 1995 and 1996) had not.

The stock option grant agreements each contained a provision providing for the accelerated vesting of an employee's options under certain circumstances. As relevant here, the agreements provided that the employee would gain the immediate right to exercise any and all unvested options in the event of either the employee's normal retirement or, alternatively, his early retirement "with the Company's approval" after the year in which the options were issued. See, e.g., R. 49, Tatom Dep. Ex. 26 at D273 ¶ 3, D275 ¶ 3.

The stock option grant agreements also provided for an extended period of time during which an employee could exercise vested options upon retirement. An employee would normally have only thirty days in which to exercise vested options upon separation from the company. However, as explained in a summary of Ameritech's Long Term Incentive Plan ("LTIP"):

Upon normal retirement (age 65) or approved early retirement . . . [v]ested stock options generally remain exercisable until the earlier of five years from your retirement date or the original expiration ...


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