Employee-owned stock retired at a fraction of its value: Quantum meruit: Financial losses: Verdict.

Law Reporter, Jun 2003

James v. Commonwealth Energy Corp., Cal., Orange County Super. Ct., No. 01CC02611, Dec. 10, 2002.

Commonwealth Energy Corporation (Commonwealth) offered its salespeople stock options as an incentive to sell company stock during the company's start-up phase. The corporation was not registered and the salespeople were not licensed by the state, making the sales illegal. A group of 15 salespersons earned stock options, as well as commissions totaling over $4 million. Commonwealth's founder left the company, and his successor began a program of retiring stock options. The officer allegedly offered the employees a sum that represented only a fraction of the value of the stock options that they held.

The salespeople sued the corporation, alleging breach of contract. Defendant contended that plaintiffs had received the stock options as promised, but had declined to exercise them due to tax considerations, among other things. The court precluded plaintiffs from pursuing the breach of contract action and refused to allow testimony from plaintiffs' expert as to the value of the stock. Plaintiffs proceeded on a quantum meruit theory of recovery.

A jury awarded $2.74 million. Defendant's motions for judgment notwithstanding the verdict and a new trial were denied. Defendant has filed a notice of intent to appeal.

Plaintiffs' Counsel

*Eric V. Traut, Santa Ana, Cal.

*James R. Traut, Santa Ana, Cal.