Reversing a lower court’s summary judgment, theDelaware Supreme Court foundthat former CEO of First USA, Inc; Richard Vague’s questions of fact require a trial. The case was remanded back to a lower court for trial.
Vague, who served in the CEO role from 1992 to 1999, was granted the disputed stock options in 1995 and 1996. When Vague decided to retire in 1999, he inquired about his severance package and stock options. The firm’s general counsel, Clinton Walker, told Vague and his accountant that the retiring CEO would have three to five years to exercise his options. Walker made this determination based on the information provided to him by the company’s Human Resource Manager. Further, Bank One, which acquired First USA in 1999, sent Vague an optionee summary as of December 30, 1999, that showed expiration dates in 2005 and 2006.
The information was incorrect and subsequent optionee summaries show the correct exercise deadline of August 21, 2000. However, Vague did not review those statements, and as a result, the options expired unexercised, resulting in a loss in excess of $5 million.
Vague filed suit claiming fraud and negligent misrepresentation on the part of Bank One. The Court of Chancery granted summary judgment to Bank One finding the former CEO’sreliance on Bank One’s misrepresentations of the exercise date of his stock options was unreasonable as a matter of law and that Bank One had no obligation to cure its misrepresentations by alerting Vague that its initial statements were wrong.
The Delaware Supreme Court disagreed with this finding. ” The question of whether one’s reliance was reasonable generally is a question of fact that cannot be determined on summary judgment,” the state supreme court said.
On appeal, Vague argued he was relying on information provided to him by the company’s general counsel thatwas confirmed in the first summary he received. Even though the later statements were correct, the high court notes “Vague had no reason to believe contained any new or different information.”
“Vague was a departing Chief Executive Officer, who was relying on the bank’s general counsel to give him accurate information involving millions of dollars. Under these circumstances, we cannot say as a matter of law that it was unreasonable of Vague to expect that Bank One would notify him directly of any change in the option expiration dates,” the court ruled.
The case is Vague v. Bank One Corp. , Delaware, Number 511,2003.