AT&T Corp. v. Lillis
Delaware Supreme Court
970 A.2d 166 (2009)
Charles Lillis and other former officers and directors (option holders) (plaintiffs) of MediaOne Corp. held stock options granted under MediaOne’s 1994 stock-option plan (plan). The plan provided that if there was any change in MediaOne’s stock resulting from a consolidation, combination, reorganization, or similar transaction, each option granted under the plan would be adjusted in a way that did not worsen the option holder’s economic position. In 1999, after AT&T Corp. (defendant) acquired MediaOne, all MediaOne options converted into AT&T options. In 2001, after AT&T spun off its AT&T Wireless subsidiary (defendant), all AT&T options converted into adjusted AT&T options and new AT&T Wireless options. In 2004, after Cingular Wireless (Cingular) acquired AT&T Wireless, all in-the-money AT&T Wireless options were canceled in exchange for cash paid by Cingular, and all out-of-the-money AT&T Wireless options were canceled without any consideration paid. The option holders sued AT&T and AT&T Wireless, claiming Cingular’s acquisition of AT&T Wireless deprived the option holders of the economic value of their out-of-the-money AT&T Wireless options, in contravention of the plan. After AT&T admitted in its answer to the option holders’ complaint that the cancelation of the out-of-the-money AT&T Wireless options left the option holders worse off economically, the option holders moved for judgment on the pleadings. In its response to that motion, AT&T said AT&T Wireless was responsible for the option holders’ losses and that AT&T was seeking the same remedy for all holders of AT&T Wireless options in an arbitration proceeding with AT&T Wireless. AT&T lost the arbitration and then amended its answer by withdrawing its previous admissions. The trial court determined that the term “economic position,” as used in the plan, was ambiguous but, after looking at extrinsic evidence, including AT&T’s withdrawn admissions, agreed with the option holders that the term meant the full economic value of the options, including their intrinsic value and time value. The trial court awarded $11.3 million in damages to the option holders. AT&T appealed to the Delaware Supreme Court, which initially determined that AT&T’s withdrawn admissions related to other plans and thus should not have been considered by the trial court. On remand, the trial court reversed itself, ruling there was insufficient evidence to find that the option holders were entitled to an adjustment that accounted for both the intrinsic value and the time value of their out-of-the-money AT&T Wireless options. The option holders appealed to the Delaware Supreme Court.
Rule of Law
Holding and Reasoning (Berger, J.)
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