dissenting.
I dissent. The majority opinion interprets a written contract between the company and its employees to exclude a specific provision of the contract which clearly prevents the exercise of one stock option without first exercising an earlier option. It bases its decision, in part, on Langer v. Iowa Beef Packers, Inc., 420 F.2d 365 (1970) which based its holding, in part, on the fact that the specific provision of the contract in this case was not present in the contract in the Langer case. Langer, supra, 420 F.2d at 369-70. The reliance on Langer by the majority is misplaced.
In this case, the blockage provision, on its own, is clearly reasonable. Where a company’s stock price declines significantly, as IBP’s did, the blockage provision may have the effect of rendering other employee stock options worthless, but such an event is foreseeable and not necessarily unfair. Further, it is entirely consistent with the purposes of a stock option plan, as it: 1) gives employees a true proprietary interest in the company, in the sense that they may either win or lose depending on the success of the company, and 2) thereby motivates employees to work harder to make the company a success. Thus, the holding in Langer has no application to this case because the blockage provision alone makes the plaintiffs’ stock options worthless.
In Schwieger’s case, the only provision which made his stock options worthless was the blockage provision. At the time of his termination, his earlier issued, high-priced stock option was fully exercisable. The termination provision merely had the effect of forcing him to exercise that option within three months of his termination. He apparently chose not to because of the loss he would incur by exercising that option. Because IBP’s stock price did not rise significantly in that three-month period, his stock option remained worthless.
Rather than following accepted principles of contract law the majority has deleted a provision of a written contract to achieve a result favorable to the employee. In stating that “an employee’s refusal to abide by the conditions of the option only incurs an unfavorable tax treatment to that employee now, and has no effect on IBP itself” ignores the fact that this suit by the employees is for damages which they allege total well over one million dollars. It is hard to see how the court’s decision today could possibly “have no effect on IBP itself.”
I would affirm the judgment of the district court.