## Facts

- Donald R. Scribner worked for WorldCom’s Operator Services Division from about 1991 to mid-1997 and was regarded as an exemplary employee.
- WorldCom granted Scribner stock options in 1995 (9,000 shares) and 1996 (2,000 shares).
- The option plan and contracts provided that unvested options would become immediately exercisable if Scribner was terminated “without cause.”
- The plan and contracts did not define “with cause” or “without cause.”
- The plan vested a Stock Option Committee with broad authority to interpret plan terms, including determining whether a termination was “with cause” or “without cause,” and stated the committee’s determinations were conclusive and binding.
- WorldCom negotiated the sale of the Operator Services Division to ILD Communications, Inc., and needed key employees, including Scribner, to move to ILD for the transaction to succeed.
- WorldCom terminated Scribner to facilitate the sale and allow him to be rehired by ILD; the termination was not based on performance deficiencies or misconduct.
- Scribner sought to exercise his options on the view that he was terminated “without cause,” triggering acceleration.
- WorldCom treated the termination as “with cause” for option purposes and refused to accelerate vesting, despite not asserting deficient performance.

## Issues

1. Whether an employer may treat a business-driven termination (not based on employee performance or misconduct) as a termination “with cause” under a stock-option plan that does not define “cause,” even if the plan grants the employer broad interpretive discretion.
2. Whether the employer’s discretionary “with cause” determination violated Washington contract law, including the implied covenant of good faith and fair dealing and the employee’s reasonable expectations.

## Decision

- The Ninth Circuit reversed the summary judgment for WorldCom and remanded.
- The court held that, on these facts, “termination with cause” could only reasonably mean termination for deficient performance (or similar employee fault).
- The court concluded that WorldCom could not use its interpretive discretion to label a sale-related termination as “with cause” to avoid the acceleration consequence tied to “termination without cause.”
- The court emphasized that discretionary interpretive authority in the plan remained subject to the implied covenant of good faith and fair dealing.

## Legal Principles

- Undefined terms in employment-related option agreements are construed using their ordinary meaning and the parties’ objective manifestations, not unilateral post hoc meanings supplied by the employer.
- In the employment context, absent a special definition, “termination with cause” ordinarily denotes employee fault such as deficient performance or misconduct, not a termination driven solely by business restructuring or asset sales.
- Contractual discretion to interpret plan terms, even if labeled “conclusive and binding,” must be exercised consistently with the implied covenant of good faith and fair dealing.
- A party with discretionary power may not exercise that discretion to defeat the other party’s reasonable contract-based expectations or to nullify a promised benefit (such as vesting upon “termination without cause”).
- Summary judgment is improper where the moving party’s interpretation is legally unreasonable under the governing contract principles and undisputed facts.

## Conclusion

The Ninth Circuit held that WorldCom could not, consistent with ordinary contract meaning and Washington’s good-faith requirement, classify a business-motivated termination as “with cause” to prevent stock-option acceleration, and it reversed and remanded for further proceedings.


Scribner v. WorldCom, Inc., 249 F.3d 902 (9th Cir. 2001)