Artuso v. Vertex Pharmaceuticals Inc.

• Decision Date: 18 February 2011
• Docket Number: No. 10–1798.,10–1798.
• Citation: 637 F.3d 1
• Parties: Anthony ARTUSO, Plaintiff, Appellant,v.VERTEX PHARMACEUTICALS, INC., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

637 F.3d 1

31 IER Cases 1549

Anthony ARTUSO, Plaintiff, Appellant,

v.VERTEX PHARMACEUTICALS, INC., Defendant, Appellee.

No. 10–1798.

United States Court of Appeals, First Circuit.

Heard Jan. 5, 2011.Decided Feb. 18, 2011.

David W. Krumsiek, with whom Perry, Krumsiek & Jack, LLP was on brief, for appellant.Alan D. Rose, with whom Amy R. Silverman and Rose, Chinitz & Rose were on brief, for appellee.Before BOUDIN, Circuit Judge, SOUTER,^* Associate Justice, and SELYA, Circuit Judge.SELYA, Circuit Judge.

This case involves a dispute about what emoluments are due to an ousted executive under an employment agreement (the Agreement). The district court dismissed the complaint for failure to state a claim upon which relief could be granted. See Fed.R.Civ.P. 12(b)(6). The plaintiff now appeals the dismissal of his claims for breach of contract and breach of an implied covenant of good faith and fair dealing. Discerning no error, we affirm.

I. BACKGROUND

Because this appeal follows a dismissal for failure to state a claim, we draw the facts from the complaint and those documents fairly incorporated into it. See SEC v. Tambone, 597 F.3d 436, 438 (1st Cir.2010) (en banc); Nisselson v. Lernout, 469 F.3d 143, 150 (1st Cir.2006).

The defendant, Vertex Pharmaceuticals, Inc., is based in Cambridge, Massachusetts. In the spring of 2008, an executive search firm acting on its behalf contacted plaintiff-appellant Anthony Artuso to gauge his interest in changing jobs. The plaintiff, then a highly paid executive at a rival pharmaceutical company, turned a deaf ear to these initial overtures. But the defendant persisted, and negotiations soon began.

The defendant stressed the availability of challenging work: it envisioned that the plaintiff would assume major responsibility in the marketing of a promising new drug. It also painted a glowing picture of the prospects for lucrative financial rewards; in that regard, it proposed that the plaintiff would receive equity—stock and stock options—as part of a generous compensation package.

The plaintiff ultimately succumbed to these blandishments and, on June 26, 2008, the parties signed the Agreement. Its terms are of paramount importance here.

The Agreement specified that the plaintiff would serve as an at-will employee of the defendant with the title of vice-president for strategic planning. It displaced the earlier negotiations through an integration clause, which stated that the Agreement would “constitute the complete agreement between [the plaintiff] and [the defendant] regarding employment matters and will supersede all prior written or oral agreements or understandings on these matters.”

As to compensation, the Agreement provided for a hiring bonus, an annual base salary, and “start-up equity.” This start-up equity included the following:

Restricted Shares—3,000 You will receive a restricted stock grant pursuant to Vertex's 2006 Stock and Option Plan. One quarter of the restricted shares will vest on each anniversary of your employment start date for as long as you remain employed by Vertex. Any shares that have not vested at the end of your employment will be forfeited.

Stock Options—25,000

In addition to your restricted stock grant, you will be granted a non-qualified stock option pursuant to Vertex's 2006 Stock and Option Plan.... The common stock subject to your stock option will vest in 16 quarterly installments over four years.

The specific terms and conditions of the equity grants will be set forth in grant agreements, which, among other things, will incorporate the terms and conditions of ... Vertex's 2006 Stock and Option Plan.

The Stock and Option Plan incorporated by reference into this portion of the Agreement provided in pertinent part:

Except as otherwise provided in the applicable Stock Agreement ..., if a Participant ceases to be an Employee ... with the Company ... before the Participant has exercised all Stock Rights, the Participant may exercise any Stock Right granted to him or her to the extent that the Stock Right is exercisable on the date of such Termination of Service. Any such Stock Right must be exercised within three months after the date of the Participant's Termination of Service....

In addition, the Agreement stipulated that the plaintiff would be allowed to participate in the defendant's performance bonus program. The Agreement cited that participants in this program were eligible to receive cash bonuses at the end of each calendar year. Awards were pegged to 30% of an employee's base salary, modified by a factor in the range of 0–150%. The factor depended on the performance of both the employee and the company. In the end, however, bonus awards were “at the discretion” of the company's board of directors. The Agreement did not circumscribe this discretion in any way.

The plaintiff worked under the Agreement for some sixteen months, beginning on July 14, 2008. During this interval, he received glittering performance reviews and the defendant experienced exceptional growth (some of which was tied to the marketing of the new drug).

Despite this auspicious beginning, the relationship did not last. On December 1, 2009, the plaintiff was told that, as part of a reorganization, his position would be eliminated and his employment terminated. The defendant assured the plaintiff that this decision was unrelated to any shortfall in his job performance. The denouement came swiftly; the plaintiff's last day of work was December 4, 2009.

At the time of the plaintiff's departure, some of his stock options had vested. The defendant afforded him the opportunity to exercise those options. Asserting that he was entitled to more, the plaintiff sought to receive his unvested stock options. He also asked for a prorated bonus for calendar year 2009. The defendant rejected both of these requests.

Invoking diversity jurisdiction, see 28 U.S.C. § 1332(a), the plaintiff brought suit in the United States District Court for the District of Massachusetts. He sought through the suit to obtain damages to compensate him for the loss of the unvested stock options and the denial of a prorated bonus. His complaint propounded claims for negligent and intentional misrepresentation, promissory estoppel, breach of contract, and breach of an implied covenant of good faith and fair dealing. The defendant moved to dismiss all of the plaintiff's claims.

On June 8, 2010, the district court granted the defendant's motion. The court, ruling from the bench, concluded that nothing in the Agreement entitled the plaintiff to either the unvested stock options or a prorated bonus. This timely appeal followed.

II. ANALYSIS

We review a district court's disposition of a motion to dismiss for failure to state a claim de novo. See Centro Medico del Turabo, Inc. v. Feliciano de Melecio, 406 F.3d 1, 5 (1st Cir.2005). In conducting that review, we accept as true all well-pleaded facts set forth in the complaint and draw all reasonable inferences therefrom in the pleader's favor. Tambone, 597 F.3d at 441.

With certain exceptions not relevant here, a complaint only needs to contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Although there is no need for “detailed factual allegations,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). Accordingly, a complaint must include more than a rote recital of the elements of a cause of action; it must include “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “If the factual allegations in the complaint are too meager, vague, or conclusory to remove the possibility of relief from the realm of mere conjecture, the complaint is open to dismissal.” Tambone, 597 F.3d at 442 (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955).

Pleading standards are one thing; substantive law is another. In a diversity case, pleading standards are a matter of federal law. See Hanna v. Plumer, 380 U.S. 460, 473, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965); Alt. Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23, 32 (1st Cir.2004). Substantive law has a different source: a federal court sitting in diversity must apply the substantive law of the forum state. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). This includes application of the state's conflict of law principles, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), so the choice of state law is not always mechanical.

For present purposes, we may eschew a choice of law analysis. In determining which state's law applies, a diversity court is free to honor the parties' reasonable agreement. See Borden v. Paul Revere Life Ins. Co., 935 F.2d 370, 375 (1st Cir.1991). In this case, both parties have acknowledged that Massachusetts law controls. We accept that plausible premise.

With this backdrop in place, we turn to the task at hand. This appeal, as framed by the plaintiff, boils down to two sets of claims. First, he contends that the defendant's refusal to afford him the benefit of the unvested stock options and to pay him a prorated bonus worked a breach of the Agreement. Second, he contends that these same failures breached an implied covenant of good faith and fair dealing. We address these sets of claims separately.

A. Breach of Contract.

In Massachusetts, contract interpretation is in the first instance a matter of law for the court. Basis Tech. Corp. v. Amazon.com, Inc., 71 Mass.App.Ct. 29, 878 N.E.2d 952, 958–59 (2008). Unless the court determines that an ambiguity exists, “the terms of an employment...