Haslund v. Simon Property Group, Inc.

United States District Court for the Northern District of Illinois · Contracts

Contractsemployment contractequity compensationambiguityindefinitenessshared meaningobjective theory of contractsbreach of contract

Facts

Simon Property Group hired Haslund in late 1999 to work for clixnmortar, and the written offer letter included salary, benefits, 15 vacation days, and "1% equity in clixnmortar.com, structure to be determined." The court found that both Haslund and Simon's authorized agent, Alshab, mutually understood this language to grant Haslund an immediate, unconditional, unrestricted 1% ownership interest upon her acceptance and commencement of employment. Haslund began work on December 27, 1999, repeatedly requested the promised equity, and Simon personally reassured her, but Simon Property Group never delivered the interest, any stock representing it, or substitute compensation. Third-party transactions later valued clixnmortar at over $53 million, including CPG's June 1, 2001 purchase of a 9.3% interest for $5 million.

Issue

Was Simon Property Group's promise to give Haslund 1% equity in clixnmortar enforceable despite its arguments that the term was ambiguous, indefinite, and inconsistent with Delaware law? If so, how should damages be measured for the failure to deliver that equity interest?

Rule

Under Illinois contract law, understandings and beliefs are effective only if shared, and when both contracting parties mutually agree on an idiosyncratic meaning of a term, that shared meaning is binding and enforceable. For breach of an obligation to deliver stock or an equity interest, damages are the fair market value of the property at the time of breach or within a reasonable time thereafter, and uncertainty in the amount of damages caused by the breaching party's misconduct is resolved against that wrongdoer. Prejudgment interest may be awarded for money withheld by unreasonable and vexatious delay, even if the amount required legal ascertainment, so long as it was determinable.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Seattle, Orion Harbor Ventures sent Priya Desai a written offer for a senior operations role at its new subsidiary, stating that she would receive "3% equity in North Dock Labs, details to follow." Priya and the company's authorized recruiting executive both discussed that phrase during negotiations and both understood it to mean an immediate, unrestricted 3% ownership interest once Priya accepted and started work.

If Orion later argues that the equity term is too indefinite to enforce because the details were left for later, how should a court most likely rule?

Explanation. Under the majority opinion, a disputed term is enforceable when the contracting parties shared the same understanding of its meaning. The court emphasized that understandings and beliefs are effective only if shared, and a mutually agreed idiosyncratic meaning binds the parties. Language leaving the "structure" or details for later does not defeat enforceability when it refers only to the mechanics of representation rather than the existence of the ownership right. (Derived from Haslund v. Simon Property Group, Inc. (n.d.).)