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Former Employee’s Claims for Bonus Payments Disallowed Where Bonus Was a Mere Expectancy

By Evan T. Miller

On November 13, 2012, Chief Judge Kevin Gross of the United States Bankruptcy Court for the District of Delaware issued a Memorandum Opinion in In re Powermate Holding Corp., et al. (Case No. 08-10498 (KG)), disallowing a former employee’s (the “Claimant”) claims for a pro rata share of earned bonuses for his pre-petition and post-petition work. The Court rejected the Claimant’s argument that an active bonus program was in place or should have been put in place at the time of his employment which would have given him a basis to receive a bonus. The Court also declined, in the absence of a finalized incentive program, to establish what targets would trigger a bonus or to determine whether the Claimant had met the hypothetical standards he asserted he met.

The Claimant had acted as Powermate’s general counsel in an independent contractor capacity for several years prior to being hired as a full-time, staff employee at the end of 2007. At the time he was hired full-time, the possibility of a bankruptcy filing loomed. The offer letter that the Claimant signed set forth certain employment details with Powermate, with the bonus clause (the “Clause”) being particularly germane to this dispute. The Clause stated that while Powermate had not yet finalized its 2008 Incentive Plan (the “Plan”), “it is expected that [the Claimant] would be a participant in the Plan”. The Plan, however, was never finalized.

In March 2008, Powermate filed for Chapter 11 bankruptcy relief, while the Claimant’s employment continued until May 30, 2008. Thereafter, the Claimant filed two proofs of claim (the “Claims”) for a pro rata share of allegedly earned bonuses for his pre-petition and post-petition work, asserting that Illinois law required finalization of the Plan based on an alleged promise to do so in the Clause. The Post-Effective Date Committee (the “Committee”) objected to the Claims, arguing that there was no such promise in the Clause and that the Clause created a mere expectancy.

Judge Gross agreed with the Committee, finding the Clause’s language to be precatory in nature when compared with the language of the other, more definitive clauses in the same offer letter. According to the Court, the Clause did not obligate Powermate to finalize the Plan or issue a bonus. As a result, the Court dismissed the Claimant’s argument that Illinois law applied since, even though a contract existed between the Claimant and Powermate, there was no contractual right to a bonus. Lastly, even if Illinois law did apply, “the Court is not in the business of knowing what targets [the Claimant] would need to meet or how to evaluate [the Claimant’s] performance…” Thus, the Claims were disallowed.

A copy of the opinion can be found here.

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