310 F.3d 243 (2nd Cir. 2002), 01-7857, Lucente v. International Business Machines Corp.

Docket Nº:01-7857, 01-7993.
Citation:310 F.3d 243
Party Name:Edward E. LUCENTE, Plaintiff-Appellee-Cross-Appellant, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant-Appellant-Cross-Appellee.
Case Date:November 04, 2002
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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310 F.3d 243 (2nd Cir. 2002)

Edward E. LUCENTE, Plaintiff-Appellee-Cross-Appellant,

v.

INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant-Appellant-Cross-Appellee.

Nos. 01-7857, 01-7993.

United States Court of Appeals, Second Circuit

November 4, 2002

Argued: June 5, 2002.

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Peter T. Barbur, Cravath, Swaine & Moore, New York, N.Y. (Donald J. Rosenberg, Theresa K. Mohan, International Business Machines Corporation, White Plains, NY, of counsel), for Defendant-Appellant-Cross-Appellee.

Douglas L. McCoy, Hand Arendall, 1.1.C, Mobile, AL (David R. Quittmeyer, on the brief), for Plaintiff-Appellee-Cross-Appellant.

Before: KEARSE and MCLAUGHLIN, Circuit Judges, and DANIELS, District Judge.[*]

MCLAUGHLIN, Circuit Judge.

IBM appeals from a decision of the United States District Court for the Southern District of New York (McMahon, J.) granting summary judgment to Edward E. Lucente on his breach of contract claim and dismissing IBM's breach of contract counterclaim. IBM contends that the district court's action was improper principally because there are disputed issues of fact regarding Lucente's departure from IBM. IBM also challenges the district court's grant of leave to Lucente to amend his Complaint, as well as the court's method of calculating damages. In his cross-appeal, Lucente challenges the district court's damages calculation.

Because the district court inappropriately resolved numerous issues of material fact in Lucente's favor and abused its discretion in granting Lucente leave to amend his Complaint, we reverse.

BACKGROUND

I. Facts

This being an appeal from a grant of summary judgment to Lucente, we view the deposition testimony, affidavits, and documentary evidence in the light most favorable to IBM, the non-moving party. Roge v. NYP Holdings, Inc., 257 F.3d 164, 165 (2d Cir. 2001).

Plaintiff worked for IBM for about thirty years before he retired in February 1991. When he retired, Lucente was the President of IBM's Asia Pacific Division, based in Tokyo, and he reported directly

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to John Akers, IBM's Chief Executive Officer ("CEO").

A. Lucente's Restricted Stock and Stock Option Awards

During his tenure at IBM, Lucente participated in several incentive compensation plans, including the 1982 Variable Compensation Plan (the "1982 Plan") and the 1989 Long-Term Performance Plan (the "1989 Plan") (collectively, the "Plans"). Under these Plans, IBM awarded Lucente stock options and restricted stock as part of his compensation. These Plans, of course, were designed to retain key executives and to give them a proprietary interest in the company by linking their compensation to IBM's profitability and growth. For these reasons, both Plans contained "forfeiture-for-competition" provisions, permitting IBM to cancel an employee's unexercised stock options and restricted stock if he went to work for an IBM competitor after leaving IBM. The forfeiture provisions contained no limitations for time, place, or scope. Both Plans provided that New York law governs all determinations made under the Plans.

When he retired, Lucente had been awarded 12,283 shares of restricted stock (11,162 under the 1982 Plan and 1,121 under the 1989 Plan) as well as 126,739 stock options (under the 1989 Plan). Lucente's stock options were freely exercisable from the first anniversary of the date of the award until ten years after that date. IBM had awarded Lucente's options between May 1983 and January 1991 at exercise prices ranging between $96.69 and $159.50 per share. Thus, his options were set to expire at various dates between May 1993 and the end of January 2001. Lucente had not exercised any of his stock options prior to his retirement.

The restricted stock operated under a different timetable than his stock options. Under the Plans, an employee who retired would receive the stock out of escrow on the date of his retirement or on his sixtieth birthday, whichever came later. In 1993, however, IBM changed its Plan provisions so that the limitations on restricted stock awards would be lifted no later than one year after an employee's retirement, regardless of his age. When he retired in 1991 Lucente was not yet sixty, and therefore expected to receive his restricted stock award on his sixtieth birthday (January 1, 2000). (Under the 1993 revision, Lucente would have received his stock in the fall of 1993.)

B. Lucente's Retirement from IBM

In the fall of 1990, some few months before he retired, Lucente began to sense that he was no longer in favor at IBM. For example, during a visit to Tokyo in October 1990, Akers reversed a major decision that Lucente had made. Two months later, Akers told Lucente that his business plan for the coming year was unacceptable and that Akers was sending another executive to Tokyo to work as Lucente's assistant group executive. Eventually, Akers informed Lucente that he was being replaced in Tokyo.

During their discussions about what awaited Lucente when he returned from Tokyo, Akers told him to expect a job of lesser responsibility. This was so, according to Akers, because there were only two or three jobs of responsibility similar to the Tokyo position in the entire company. Although Akers never offered Lucente a specific position before he retired, Akers did raise the possibility that Lucente might pursue various senior positions in the company. In their discussions, Akers encouraged Lucente to seek the best opportunity that he could find, either within IBM or, ominously, at another company.

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Thereafter, Lucente accepted a position at Northern Telecom. Lucente had met with Paul Stern, the CEO of Northern Telecom, in the summer of 1990, to discuss employment possibilities. In the fall of 1990, Lucente had several meetings with Stern and others at Northern Telecom. Lucente joined Northern Telecom as the Senior Vice President of Marketing, with a general understanding that he would eventually serve as President and Chief Operating Officer, and potentially succeed Stern as CEO, of the company. Lucente received a salary of $750,000 per year at Northern Telecom, approximately $100,000 more than his yearly salary at IBM, as well as stock options and a variety of other benefits.

When he retired, IBM told Lucente that Northern Telecom would not be deemed an IBM competitor, thereby ensuring that he would, keep his IBM restricted stock and stock options while working at Northern Telecom. In February 1991, IBM and Lucente entered into a letter agreement (the "Letter Agreement"). This letter, sent by W.E. Burdick, Senior Vice President of Personnel at IBM, and signed by Lucente, set out the details of Lucente's retirement:

In connection with your retirement from IBM, we will pay you a special payment of $675,000. . . .

. . .

Following your retirement, other than your employment with Northern Telecom, which we deem not to be competitive or in conflict with the best interests of IBM based on the facts in your situation, you shall not engage in any activity as an employee, consultant, or director, personally or with any firm or organization, that is or becomes, in IBM's sole opinion, a competitor of IBM or its subsidiaries, or is otherwise prejudicial to or conflicts with the interests of IBM. This agreement is in addition to the provisions of the IBM Employee Confidential Information and Invention Agreement. . . . Your outstanding stock options and restricted stock continue to be subject to the Termination of Employment sections of the IBM Stock Option Plans, the 1989 Long Term Performance Plan, and the [1982] IBM Variable Compensation Plan.

Additionally, by virtue of his thirty years at IBM, Lucente retired with his full IBM pension of approximately $250,000 per year.

C. IBM's Cancellation of Lucente's Incentive Awards

Lucente worked at Northern Telecom for two years. When another executive was named President of the company, Lucente realized that he would not succeed Stern. He resigned from Northern Telecom and began looking for another job.

In early April 1993, Lucente considered accepting the position of Vice President of Worldwide Sales and Marketing at Digital Equipment Corporation ("Digital"), an IBM competitor. On April 8th, 1993, concerned about the status of his IBM restricted stock and stock options, Lucente consulted IBM before signing the Digital agreement (he had already verbally accepted) to inquire whether his employment at Digital would affect his IBM restricted stock and stock options. Four days later, IBM's General Counsel, Dan Evangelista, told Lucente that working for Digital would indeed be a violation of his noncompete agreements. Nevertheless, on April 14th, Lucente chose to accept Digital's offer: a base salary of $630,000, a minimum bonus of $150,000, as well as thousands of shares of Digital stock and stock options.

On April 15, 1993, IBM sent a letter (the "cancellation letter") to Lucente informing

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him that his restricted stock and stock options were now cancelled as a result of his employment with Digital. On this date, all of Lucente's stock options were "underwater"; that is, their exercise prices (between $96 and $159) were greater than the market price for IBM shares ($48). Over the next few years, Lucente repeatedly asked IBM to reconsider this decision. IBM, however, refused to reverse its decision. Regrettably for Lucente, IBM's stock price increased considerably after 1993.

II. Proceedings Below

Because of the unusual turn of events this case experienced before the district court, we set out a detailed procedural history below.

A. Lucente's Complaint

Lucente filed his Complaint ("Original Complaint") in Alabama state court in 1999. IBM removed the case to the United States District Court for the Southern District of Alabama and...

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