Cutbirth v. Clipper Windpower

Filed 6/3/08 Cutbirth v. Clipper Windpower CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

Michael D. Cutbirth (respondent) was the president of Clipper Windpower, Inc. (appellant). Pursuant to an employment agreement (Employment Agreement), he was granted options to purchase appellant's stock. There was no time period for the exercise of the stock option in the Employment Agreement. After respondent left the company, appellant refused to allow him to exercise the options. Appellant contended that the options had terminated pursuant to the provisions of its incentive stock option plan (Plan) which provided a three month period for the exercise of the options.

Respondent filed a complaint for breach of contract and declaratory relief. Following a court trial, a judgment was entered declaring that respondent "shall have a reasonable term in which to exercise options vested under the Employment Agreement, which term shall be no less than five years from the date of entry of any final judgment in this matter." Appellant appeals from this judgment.

Appellant contends that the trial court erroneously concluded that (1) the Employment Agreement is an integrated writing not subject to the Plan three-month expiration provision, (2) an implied term of the Employment Agreement is that respondent shall have a reasonable period of time in which to exercise the options, (3) five years is a reasonable period of time, and (4) respondent is not estopped from denying that his stock options expired three months after the termination of his employment. We affirm.

Facts

The Plan was adopted in July 2001. It provided for the issuance of both incentive and nonqualified (also known as nonstatutory) stock options.^[1] Each option was required to "be evidenced by an Option Agreement, which shall be executed by the Optionee and an officer of the Company and which shall contain such terms and conditions as the Administrator [of the Plan] shall determine consistent with this Plan."

In December 2001, appellant and Energy Spectrum Partners (ESP) signed a letter of intent whereby ESP agreed to purchase preferred stock from appellant in exchange for up to $10 million. The agreement was subject to numerous conditions. One of the conditions was that ESP would be permitted to conduct a due diligence review of appellant's business. The due diligence review included the review and approval of stock options granted by appellant. In addition, ESP required that respondent and other key employees execute written employment contracts.

On April 23, 2002, the securities purchase agreement between appellant and ESP was consummated. On that same date, the parties executed the Employment Agreement. Section 5.3 of the Employment Agreement was the only section that pertained to stock options. It provided: "Employee shall be granted options to purchase five hundred thousand (500,000) shares of Common Stock of the Company, at a strike price of $.0.50/share pursuant to the terms of the Stock Option Agreement attached hereto as Exhibit 'B'. Two hundred thousand (200,000) shares shall be deemed vested as of the Effective Date, one hundred fifty thousand (150,000) shares shall vest as of December 31, 2002 and 75,000 shares shall vest December 31, 2003 and 2004, respectively." However, Exhibit "B" was not attached to the Employment Agreement.

Section 25 of the Employment Agreement was an integration clause that provided: "Complete Agreement. This Agreement constitutes the entire understanding between the parties hereto relating to the matter herein contained and supersedes all prior agreements and understandings between the parties, oral or written."

Section 24 of the Employment Agreement provided: "No amendments or variations of the terms and conditions of the Employment Agreement shall be valid unless the same is in writing and signed by all of the parties hereto."

On April 23, 2002, Thor Gjerdrum, the secretary of appellant, certified that in April 2002 the company had amended and restated the Plan. The Plan, as amended and restated, was attached to Gjerdrum's certification. Section 4.3.3 of the Plan provided that an option shall expire three months after the termination of employment. This provision was required for an option to qualify as an incentive stock option under section 422(a)(2) of the Internal Revenue Code (26 U.S.C.  422(a)(2)). It was not required for nonstatutory stock options. (See fn. 1 ante.)

Attached to the Plan was a document entitled, "Employee Stock Option Agreement" (hereafter the Stock Option Agreement) which was to be signed by the option holder and appellant upon the grant of a stock option. Section 1.4.1 of the Stock Option Agreement provided that the option shall terminate 90 days "after the date on which the Optionee ceases to be an employee of the Company . . . ."

On December 1, 2003, respondent gave 90 days advance written notice to appellant of his intent to terminate his employment. After the termination of his employment, he did not exercise his options within the three-month period specified in the Plan. Thus, pursuant to the Plan, his options would have expired.

In September 2005 each outstanding option to purchase shares of appellant was exchanged for two options to purchase shares of Clipper Windpower PLC (hereafter Clipper PLC), a public limited company organized under the laws of England and Wales. Clipper PLC proceeded with an initial public offering of its shares on the Alternative Investment Market of the London Stock Exchange. The exercise price per share of Clipper PLC was one-half the exercise price per share of appellant.

The parties agreed that, when respondent's employment terminated, he had vested options entitling him to purchase 437,500 shares of appellant at an exercise price of $.50 per share. Thus, if respondent's vested options are exercisable, he would be entitled to exchange them for options to purchase 875,000 shares of Clipper PLC at an exercise price of $.25 per share. (CT 1187) At the time of trial (August 2006), the price per share of Clipper PLC was approximately $9.00. Accordingly, at the time of trial, appellant's vested options, if exercisable, were worth approximately $7,656,250 ($9 x 875,000 = $7,875,000 less the exercise price of $218,750 ($.25 x 875,000 = $218,750) = $7,656,250).

Four witnesses testified at the trial: respondent; Dr. Geoffrey Deane, appellant's former chief technology officer; Daniel Reicker, appellant's corporate counsel; and James Dehlsen, appellant's chairman and chief executive officer (CEO) as well as administrator of the Plan.^[2] Their testimony may be summarized as follows:

Respondent

ESP wanted appellant to sign employment agreements with "founding employees," which included "that group of employees that . . . had joined the company early on . . . ." Respondent negotiated his Employment Agreement with Dehlsen. They did not discuss whether the options granted to respondent by the Employment Agreement would be incentive or nonstatutory.

When respondent signed the Employment Agreement, he was aware that the Stock Option Agreement was in existence. But it had not yet been "finalized." The Stock Option Agreement was a "template" that "was intended for future employees," not for founding employees like himself. Respondent believed that section 5.3 of the Employment Agreement "constitute[d] the Stock Option Agreement all by itself without an Exhibit B." Therefore, he believed that the Employment Agreement was complete without Exhibit B.

When respondent signed the Employment Agreement, he understood that the stock options granted to him would be subject to the Plan. He was aware of the three-month early termination provision of section 4.3.3 of the Plan, but he had "been

advised by Dan Reicker [corporate counsel] that the [Plan] administrator had the authority to not have the early termination provision." Reicker further stated that "the [P]lan would accommodate a 10-year [option] term without an early termination provision . . . ."

During negotiations of the Employment Agreement, respondent and Dehlsen agreed that respondent's options would have a 10-year term. The omission of the 10-year term from the Employment Agreement was "inadvertent." Respondent and Dehlsen discussed the three-month early termination provision of the Plan, and Dehlsen "told [him] that [this provision] would not apply to [his] stock options."

Respondent discussed the lack of Exhibit B with Dr. Geoffrey Deane, another founding employee. There was no Exhibit B attached to Deane's employment agreement, which included a stock option provision virtually identical to section 5.3 of respondent's Employment Agreement. Respondent told Dehlsen that Deane "was concerned that there was not an Exhibit B, and he wanted to make sure that there were no conditions or restrictions that were going to be imposed on his options . . . ." Dehlsen "confirmed that was correct." Respondent communicated this information to Deane.

Dr. Geoffrey Deane

Deane contacted Thor Gjerdrum, appellant's secretary, about the missing Exhibit B. Gjerdrum said that Exhibit B did not exist. He "suggested there was something in the works, it was not complete, and . . . it wouldn't apply to [Deane] anyway." Deane also spoke to respondent, who confirmed that Exhibit B "did not exist and it did not pertain to [Deane] anyway." On April 23, 2002, Deane signed his employment agreement.

Deane resigned from appellant in June 2002. At that time, he had vested options entitling him to purchase 14,000 shares. He was not informed that his options would expire if he did not exercise them within three months after his termination.

In November 2003 Deane received an agreement from appellant entitling him to exercise nonstatutory options to purchase 14,000 shares of the company's stock. The agreement, signed by Dehlsen, was denominated as a "Consultant/Contractor Stock Option Agreement." But Deane had not done consulting work for appellant after his resignation. Deane exercised the options in late 2005.

Daniel Reicker

During its due diligence review, ESP decided that it wanted to make a number of changes to the Plan and the Stock Option Agreement. The Stock Option Agreement, which was supposed to have been attached as Exhibit B to the employment agreements, was still being revised by ESP when the employment agreements were signed on April 23, 2002. However, at that time "the form of the [Stock Option Agreement] was there, everybody knew what the agreement was basically going to say and what it was going to look [like]." Changes were subsequently made to the Stock Option Agreement, but they were "largely cosmetic."

The Stock Option Agreement was going to apply "to all options granted under the [P]lan." ESP would not have permitted any exceptions. But ESP knew that Exhibit B had not been attached to the employment agreements. Respondent never told Reicker that the Stock Option Agreement did not apply to him.

The three-month early expiration provision of section 4.3.3 of the Plan applied to all stock options, incentive and nonstatutory. The administrator of the Plan did not have the authority to waive this provision.^[3] Reicker discussed the provision with respondent, who clearly understood that all stock options would expire three months after the option holder's termination of employment. All stock options issued to employees, such as respondent, were incentive options.

James Dehlsen

During negotiations of Respondent's Employment Agreement, Dehlsen engaged in discussions with him that "followed the idea that he would be like other employees of the company in the way he participated with stock [options], and that would be with an incentive plan." Dehlsen never granted nonstatutory stock options to respondent. The options "were all incentive." "There was no discussion of a separate plan with [appellant]." Dehlsen also did not discuss what would happen to respondent's options if his employment were terminated. He offered respondent an option term of five years from the date of the Employment Agreement.

When Dehlsen signed respondent's and Deane's employment agreements on April 23, 2002, he believed that the Stock Option Agreement to be attached as Exhibit B had already been fully executed. It was respondent's responsibility, as president, to see that this had been accomplished. If the Stock Option Agreement had not been fully executed, he would have expected respondent to have so informed him. But respondent mentioned nothing about it. Respondent "had seen the [Stock Option Agreement] template, and I assumed that when we went to completing that financing [with ESP] everything had been wrapped up." Respondent "was responsible for documentation."

Statement of Decision

The trial court issued a 16-page statement of decision which included the following findings:

(1) The Employment Agreement is an integrated document insofar as it concerns respondent's stock options. The parties "intended [it] to be a final and complete expression of their intent." Thus, pursuant to the parol evidence rule, the terms of the agreement "cannot be varied by reference to other prior or contemporaneous documents or agreements, including those set forth in the Plan."

(2) Pursuant to section 24 of the Employment Agreement, it may be modified only by a writing executed by the parties.

(3) "While the parties may have contemplated an agreement on additional terms, which would be included as Exhibit 'B' to the Employment Agreement, no such agreement was ever reached . . . ." The Stock Option Agreement in existence on the date of execution of the Employment Agreement "was a 'draft' subject to further review and revision . . . ." Appellant "did not intend for language in the draft . . . to apply to [respondent], Dr. Deane, or other 'founding' employees of [appellant]." Appellant "signed the Employment Agreement knowing no draft Stock Option Agreement was attached."

(4) "Section 1.19 of the Plan defines a 'nonqualified stock option' as an option 'not designated as an Incentive Stock Option by the Administrator.' [Respondent's] options were never designated a[s] Incentive Stock Options, and, therefore they are non-statutory or 'nonqualified options.' "

(5) The period during which respondent could exercise his vested options was not accelerated by the termination of his employment. "[Appellant] indicated through its words and conduct that the restrictions in the Plan did not apply to options awarded to 'founding' employees," such as appellant. Therefore, "the restrictions in Section 4.3.3 of the Plan do not apply to [appellant's] options." Furthermore, "[appellant's] corporate counsel advised that the accelerated termination provision was not required for non-statutory options issued under the Plan, and [appellant] made similar statements in response to questions about the options by Dr. Geoffrey Deane."

(6) "Although the Employment Agreement is silent, the law implies a reasonable time for the exercise of options." "[F]ive years from the date of judgment constitutes a reasonable term in which [respondent] may exercise options granted to him under the Employment Agreement."

(7) Respondent had no duty to advise appellant that the Plan and draft Stock Option Agreement did not apply to him. Thus, respondent is not estopped from denying that his options are subject to section 4.3.3 of the Plan.

The Trial Court Did Not Err In Concluding that the Employment

Agreement Is an Integrated Document and that Respondent's Options

Did Not Expire Three Months After the Termination of His Employment

Appellant contends that the trial court erroneously concluded that the Employment Agreement is an integrated document. Appellant argues that section 5.3, the stock option provision, is "incomplete on its face." According to appellant, the parties intended that the options be granted pursuant to the terms of the Plan and the Stock Option Agreement, both of which provided that the options shall expire three months after the termination of the option holder's employment.

"When the parties to a written contract have agreed to it as an 'integration' - a complete and final embodiment of the terms of an agreement - parol evidence cannot be used to add to or vary its terms. [Citations.] . . . []  The crucial issue in determining whether there has been an integration is whether the parties intended their writing to serve as the exclusive embodiment of their agreement." (Masterson v. Sine (1968) 68 Cal.2d 222, 225.) "An integration may be partial rather than complete: The parties may intend that a writing finally and completely express only certain terms of their agreement rather than the agreement in its entirety. [Citation.] If the agreement is partially integrated, the parol evidence rule applies to the integrated part. [Citations.]" (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 953.) On the other hand, "parol evidence is always admissible to interpret the written agreement. [Citations.]" (Esbensen v. Userware Internat., Inc. (1992) 11 Cal.App.4th 631, 637.)

"In determining the intent of the parties regarding whether the written agreement is integrated, the court must attempt to place itself in the same situation in which the parties found themselves at the time of contracting. [Citation.]" (Haggard v. Kimberly Quality Care, Inc. (1995) 39 Cal.App.4th 508, 518.) The court must "consider the writing itself, including whether the written agreement appears to be complete on its face; whether the agreement contains an integration clause; whether the alleged parol understanding on the subject matter at issue might naturally be made as a separate agreement; and the circumstances at the time of the writing. [Citations.]" (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., supra, 109 Cal.App.4th at pp. 953-954.)

"Where . . . the trial court's interpretation of the agreement did not turn on the credibility of extrinsic evidence and did not require a resolution of a conflict in that evidence, we make an independent determination as to whether the agreement was integrated. [Citation.]" (Haggard v. KimberlyQuality Care, Inc., supra, 39 Cal.App.4th at p. 517, fn.4.) On the other hand, where the trial court's interpretation involves a question of fact based on conflicting extrinsic evidence, "[r]eview of the trial court's determination is subject to 'the same deference on appeal as any other ruling of the court on an issue of fact.' [Citations.] Under the applicable 'substantial evidence' test, we review the record in the light most favorable to respondent[], we do not weigh the evidence, and we indulge all intendments and reasonable inferences which favor sustaining the trier of fact's findings. [Citation.]" (Heller v. Pillsbury Madison & Sutro (1996) 50 Cal.App.4th 1367, 1382, fn. omitted.) "All conflicts must be resolved in favor of the respondent . . . ." (Munoz v. Olin (1979) 24 Cal.3d 629, 635-636.) "[A] reasonable construction of the agreement by the trial court which is supported by substantial evidence will be upheld. [Citations.]" (In re Marriage of Fonstein (1976) 17 Cal.3d 738, 746-747.)

Appellant contends that, in determining whether the Employment Agreement is integrated, the trial court did not consider extrinsic evidence. This contention is not supported by the record and is, therefore, without merit. In its statement of decision, the court expressly made findings based on the extrinsic evidence. Moreover, the court stated that it had "heard and considered parol evidence to the extent permitted under Code of Civil Procedure  1856."^[4] Because the extrinsic evidence is conflicting, we apply the substantial evidence rule.

In reviewing the trial court's construction of the Employment Agreement, we disregard evidence of the unexpressed subjective intent of the parties. " ' "A contract must be interpreted to give effect to the mutual, expressed intention of the parties." . . . "Contract formation is governed by objective manifestations, not the subjective intent of any individual involved. [Citations.] The test is 'what the outward manifestations of consent would lead a reasonable person to believe.' [Citation.]" [Citation.]' [Citation.] The question, then, is not what [the parties] subjectively intended, but what a reasonable person would believe the parties intended." (Beard v. Goodrich (2003) 110 Cal.App.4th 1031, 1038; see also Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., supra, 109 Cal.App.4th at p. 956 ["The parties' undisclosed intent or understanding is irrelevant to contract interpretation."].)

There are factors tending to show that the Employment Agreement is not an integrated document. Section 5.3 is incomplete on its face because it refers to Exhibit B, which is missing. Furthermore, an understanding on the expiration of respondent's stock options might naturally be made as a separate agreement.

Nevertheless, viewing the extrinsic evidence in the light most favorable to respondent and resolving all conflicts in his favor, substantial evidence supports the trial court's conclusion that the parties intended the Employment Agreement to finally and completely express the terms of their agreement concerning stock options. Substantial evidence also supports the trial court's conclusion that the parties did not intend respondent's options to expire three months after the termination of his employment. Thor Gjerdrum, appellant's secretary, told Deane that Exhibit B had not yet been completed and "that it wouldn't apply to [him] anyway."^[5] Dehlsen, chairman and CEO of appellant as well as administrator of the Plan, told respondent "that there were no conditions or restrictions that were going to be imposed on [Deane's] options . . . ." (RT 119) The stock option provision in Deane's employment agreement was virtually identical to section 5.3 in respondent's Employment Agreement, and both agreements were signed by Dehlsen on the same date. It follows that Exhibit B was not intended to apply to both Deane's and respondent's options. It also follows that, like Deane's options, respondent's options were not intended to be subject to conditions or restrictions other than those set forth in the Employment Agreement.

Furthermore, during negotiations of respondent's Employment Agreement, Dehlsen told respondent that the three-month expiration provision of the Plan would not apply to his stock options. Reicker, appellant's corporate counsel, advised respondent that Dehlsen, as the Plan administrator, had the authority to waive this provision. A subsequent memorandum from Reicker's law firm, dated May 19, 2002, stated: "For non-statutory options, [the expiration] period may be any period that the Plan Administrator chooses to establish."

Moreover, the Employment Agreement contained an integration clause providing that the agreement constituted "the entire understanding between the parties" and superseded "all prior agreements and understandings between the parties, oral or written." While such a clause is not conclusive on the issue of integration, "it certainly helps to resolve the issue." (Gerdlund v. Electronic Dispensers International (1987) 190 Cal.App.3d 263, 270-271.)

Finally, appellant permitted Deane to exercise his stock options more than three years after he had resigned from the company. Pursuant to the stock option agreement provided by appellant to Deane in November 2003, his stock options were nonstatutory, not incentive options. Appellant, therefore, did not enforce against Deane the three-month expiration provision of the Plan. Because Deane was entitled to exercise his options as nonstatutory options, appellant should have been equally so entitled.

Appellant argues that the Employment Agreement could not have constituted an integrated document in view of respondent's testimony that, when he signed the agreement, he understood that his stock options would be subject to the Plan. But, as discussed above, respondent's unexpressed subjective understanding is irrelevant. "[T]he parties' expressed objective intent, not their unexpressed subjective intent, governs. [Citations.]" (Vaillette v. Fireman's Fund Ins. Co. (1993) 18 Cal.App.4th 680, 686.) In any event, respondent's testimony shows that he understood his stock options would not be subject to the three-month expiration provision of the Plan. The trial court made note of this in its statement of decision: "[I]n testifying that he believed the options granted to him under the Employment Agreement were subject to the Plan, [respondent] also testified he believed that section 4.3.3 of the Plan did not require early acceleration of non-statutory options granted under the

Plan . . . ."

We recognize that according to the testimony of Reicker and Dehlsen, the Employment Agreement was not an integrated document and respondent's options expired three months after the termination of his employment. But the trial court impliedly discredited their testimony and credited the testimony of respondent and Deane. We are bound by this determination of credibility: " 'Although an appellate court will not uphold a judgment or verdict based upon evidence inherently improbable, testimony which merely discloses unusual circumstances does not come within that category. [Citation.] To warrant the rejection of the statements given by a witness who has been believed by a trial court, there must exist either a physical impossibility that they are true, or their falsity must be apparent without resorting to inferences or deductions. [Citations.] Conflicts and even testimony which is subject to justifiable suspicion do not justify the reversal of a judgment, for it is the exclusive province of the trial judge or jury to determine the credibility of a witness and the truth or falsity of the facts upon which a determination depends. [Citation.]' [Citations.]" (People v. Thornton (1974) 11 Cal.3d 738, 754, disapproved on another ground in People v. Flannel (1979) 25 Cal.3d 668, 684, fn. 12.)

Accordingly, the trial court did not err in concluding that the Employment Agreement was an integrated document and that respondent's options did not expire three months after the termination of his employment.

The Trial Court Did Not Err in Concluding that an

Implied Term of the Employment Agreement Is that

Respondent Shall Have Five Years to Exercise His Options

Appellant contends that the trial court lacked the authority to imply a reasonable period of time for the exercise of respondent's options. Because the Employment Agreement is silent on this issue, the trial court had the requisite authority. "When an option agreement is silent as to the time for exercise, the optionee must exercise his option within a reasonable time. [Citation.]" (Alpern v. Mayfair Markets (1953) 118 Cal.App.2d 541, 547; see also Allen v. Smith (2002) 94 Cal.App.4th 1270, 1281 ["A reasonable

option period and mode of acceptance may be implied where none are specified in the contract . . . ."].)

Appellant argues that the five-year period implied by the trial court was not a reasonable time. "The question of what constitutes a reasonable time is ordinarily one of fact, to be determined from all the circumstances of the particular case. Where the facts are not disputed, the question is one of law." (Alpern v. Mayfair Markets, supra, 118 Cal.App.2d at p. 547.) Where the facts are disputed, the substantial evidence rule applies. (See Professional Engineers in California Government v. Kempton (2007) 40 Cal.4th 1016, 1032; Fuller-Austin Insulation Co. v. Highlands Ins. Co. (2006) 135 Cal.App.4th 958, 978.)

Here the facts are disputed. Dehlsen testified that he had offered respondent an option term of five years from the date of the Employment Agreement. Respondent, on the other hand, testified that he and Dehlsen had agreed on a 10-year term. The trial court reasoned as follows: "Both the testimony of Mr. Dehlsen and [respondent], as well as the language contained in the draft employment agreements, indicated that the parties discussed various terms between five and ten years in which the options might be exercised. As such, five years from the date of judgment constitutes a reasonable term in which [respondent] may exercise options granted to him under the Employment Agreement." In view of Dehlsen's testimony that he had offered a five-year term, substantial evidence supports the trial court's finding.

Appellant contends that the implied five-year term conflicts with Delaware law, which applies because it is a Delaware Corporation. We need not consider whether the implied term conflicts with Delaware law. Pursuant to the Employment Agreement, California law is controlling. The agreement provides that it "shall be construed and enforced pursuant to the laws of the State of California."

Strong policy considerations favor the enforcement of choice-of-law provisions that have been entered into freely and voluntarily by parties who have negotiated at arm's length. (See Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 464-465.) Appellant provides no analysis explaining why the choice-of-law provision here should be disregarded. On the other hand, in its statement of decision, the trial court provided a convincing analysis explaining why the choice-of-law provision should be applied: "[T]here was a substantial, reasonable relationship between the transaction and California. The Employment Agreement was executed by the parties in California, for work to be performed in California, by an employee domiciled in California whose specified principal place of business was to be in California. [Appellant's] principal place of business also was in California, and its directors and the majority of its shareholders were domiciled in California as well."

Appellant further contends that the implied five-year term without the three-month expiration provision of the Plan "creates an option contract that was never authorized by [appellant's] Board of Directors and which was beyond the authority of CEO Dehlsen to grant." But a memorandum from Reicker's law firm dated May 19, 2002, states that the three-month expiration provision applies only to incentive stock options. "For nonstatutory options, this period may be any period that the Plan Administrator chooses to establish."

Irrespective of whether Dehlsen had express authority, he had implied authority to waive the three-month expiration provision for nonstatutory options. This implied authority arose from his position as chairman, CEO, and administrator of the Plan. (See Memorial Hospital Ass'n of Stanislaus County v. Pacific Grape Products Co. (1955) 45 Cal.2d 634, 637.) It also arose from his control of the corporation's stock. When the Employment Agreement was signed, appellant's sole shareholders were Dehlsen Associates and the Dehlsen Family Trust. Dehlsen and his wife were trustees of the trust.^[6] In any event, appellant "is estopped to deny his authority by reason of having accepted the benefit of the contract . . . ." (Ibid.) 

Respondent Is Not Estopped from Denying that His Options

Expired Three Months after the Termination of His Employment

Appellant argues that respondent is estopped from denying that his stock options expired three months after the termination of his employment. The alleged estoppel is based on respondent's failure to inform appellant and ESP that his options were not governed by section 4.3.3 of the Plan and section 1.4 of the Stock Option Agreement.

"The doctrine of equitable estoppel is founded on concepts of equity and fair dealing. It provides that a person may not deny the existence of a state of facts if he intentionally led another to believe a particular circumstance to be true and to rely upon such belief to his detriment. The elements of the doctrine are that (1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel has a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury. [Citation.]" (Strong v. County of Santa Cruz (1975) 15 Cal.3d 720, 725.) "[A]lthough estoppel usually is based on affirmative conduct [citation], silence in the face of a duty to speak may support estoppel in some situations. [Citation.]" (Moore v. State Bd. of Control (2003) 112 Cal.App.4th 371, 384.)

Where, as here, the facts are disputed, '[t]he existence of an estoppel is generally a factual question. [Citation.] Therefore, we review the trial court's ruling in the light most favorable to the judgment and determine whether it is supported by substantial evidence. [Citations.]" (Feduniak v. California Coastal Com'n (2007)148 Cal.App.4th 1346, 1360.)

Substantial evidence supports the trial court's finding that respondent is not estopped from denying that his stock options expired three months after the termination of his employment. Respondent testified that Dehlsen had told him that the three-month expiration provision of the Plan would not apply to his stock options. Appellant, therefore, was not ignorant of the true state of the facts, and respondent had no duty to speak on this issue.

Disposition

The judgment is affirmed. Respondent shall recover his costs on appeal.

NOT TO BE PUBLISHED.

YEGAN, J.

We concur:

GILBERT, P.J.

COFFEE, J.

James W. Brown, Judge

Superior Court County of Santa Barbara

______________________________

Gary J. Hill, Timothy J. Trager; Hill, Trager & Colton, for Appellant.

David J. Cooper, Catherine E. Bennett, Jeffrey W. Noe; Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, for Respondent.

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^[1]"The Internal Revenue Code recognizes two types of employee stock options. If an employee stock option satisfies the conditions specified in title 26 United States Code section 422(b), thereby qualifying as an 'incentive' or 'statutory' stock option, the employee is not required to recognize taxable income upon either the grant or exercise of the option; the employee recognizes income only upon sale of the purchased stock, generally at favorable capital gains rates. [Citations.] Recipients of 'nonstatutory' [also known as nonqualified] stock options - i.e., those that do not satisfy the requirements of section 422(b) - must recognize income at the time of either grant or exercise of the stock options, as well as any capital gain upon sale of the stock. [Citation.]" (Falkowski v. Imation Corp. (2005) 132 Cal.App.4th 499, 515, fn. 16.) To qualify for the preferential tax treatment applicable to incentive stock options, the option generally must be exercised no later than three months after the termination of the option holder's employment. (26 U.S.C. 422(a)(2).) No such requirement applies to nonstatutory stock options.

^[2]James Dehlsen testified that both he and his son, Brent, were administrators of the Plan. But Reicker testified that he "understood as a practical matter that Mr. [James] Dehlsen was the plan administrator, although [he] assumed that [James Dehlsen] was also acting in conjunction with the other member of the board, which was Brent Dehlsen." In view of Reicker's testimony, we refer to James Dehlsen [hereafter Dehlsen] as the administrator of the Plan.

^[3]But a memorandum from Reicker's law firm dated May 19, 2002, states that the 90-day early expiration provision of section 1.4 of the Stock Option Agreement applies only to incentive stock options. "For nonstatutory options, this period may be any period that the Plan Administrator chooses to establish."

^[4]Code of Civil Procedure section 1856, subdivision (g), provides that the parol evidence rule "does not exclude other evidence of the circumstances under which the agreement was made or to which it relates, as defined in Section 1860, or to explain an extrinsic ambiguity or otherwise interpret the terms of the agreement . . . ." Section 1860 provides: "For the proper construction of an instrument, the circumstances under which it was made, including the situation of the subject of the instrument, and of the parties to it, may also be shown, so that the judge be placed in the position of those whose language he is to interpret."

^[5]For the first time in his reply brief, appellant contends, "The [statements] of Mr. Gjerdrum [were] erroneously admitted over Appellant's hearsay objection and motion to strike." "Ordinarily, contentions not raised in appellant's opening brief are deemed waived. [Citation.]" (Baugh v. Garl (2006) 137 Cal.App.4th 737, 746.) In any event, appellant's contention is without merit. Gjerdrum's out-of-court statements were not hearsay because they were not "offered to prove the truth of the matter stated." (Evid. Code,  1200, subd. (a).) Instead, they were offered to prove the parties' intent.

^[6]Appellant's private placement memorandum for a securities offering, dated March 12, 2002, shows that 69.3 percent of the common stock was owned by Dehlsen Associates, LLC, and 29.7 percent was owned by the Dehlsen Family Trust. Dehlsen Associates, LLC, in turn, was owned 70 percent by Dehlsen and 30 percent by his son, Brent.