Contributing Editors: Kesha Tanabe, Tanabe Law & Austin Majeskie, University of St. Thomas Law
17-30673_Gander_Mountain_Key_Executives__1_.pdf
In In re Gander Mountain Company, 605 B.R. 875 (Bankr. D. Minn. 2019) the bankruptcy court sustained the trustee’s objection to claims filed by certain high-level employees (the “Key Executives”). The claims were disallowed because the plain language of the Key Employee Retention Plan (the “KERP”) and the Key Employee Incentive Plan (the “KEIP,” and together with the KERP, the “Key Employee Plans”) was unambiguous.
The court approved Key Employee Plans executed by and between the liquidating trustee and the Key Executives with (1) threshold, (2) target, (3) stretch, and (4) maximum bonus amounts based on the percentage of cash or value available to unsecured creditors and the number of stores sold or transferred at the Effective Date of the Plan. The Key Employee Plans state that: “Any bonus amounts earned under the Target, Stretch or Maximum opportunities shall be paid on the Effective Date of the Plan.”
The Key Executives argued that the language of the Plan was ambiguous about the deadline to satisfy the requirements for each tier and thus extrinsic evidence should be considered for the purpose of determining the applicable deadline.
The court disagreed, stating “the parol evidence rule specifically prohibits extrinsic evidence from being admitted to explain or contradict the meaning of an unambiguous contract.” Alpha Real Estate Co. of Rochester v Delta Dental Plan of Minn., 664 N.W. 2d 303 (Minn. 2003). The court reasoned that the bonuses must be determinable by the Effective Date if that is when they are to be paid. For the Key Executives to prevail, bonuses would have to be calculated after they had already been paid. Because such a result would be absurd, the “Effective Date” language was plain and extrinsic evidence need not be used to interpret the Plan.
The court then analyzed whether the Key Executives had met any of the bonus tiers set forth in the Key Employee Plans. The court held that only the threshold bonus had been earned. The target bonus required an estimated distribution to unsecured creditors of five percent or more, plus at least 35 stores must have been sold or transferred by the Effective Date. At the Effective Date, only 19 stores had been assumed and assigned. The court held that a natural and plain meaning of the phrase “sold or transferred” requires that the store leases be assumed or assigned. The court rejected the argument of the Key Executives that, at the time of Plan confirmation, the buyer had already contemplated reopening at least 70 stores according to press releases and SEC filings. The Court determined that this was irrelevant to the plain language of the Plan, which expressly required at least 35 stores to be “sold or transferred” and not simply “contemplated.”