Cochran v. Quest Software, Inc.

• Decision Date: 29 April 2003
• Docket Number: No. 02-2326.,02-2326.
• Citation: 328 F.3d 1
• Parties: Brian COCHRAN, Plaintiff, Appellant, v. QUEST SOFTWARE, INC., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 1

328 F.3d 1

Brian COCHRAN, Plaintiff, Appellant, v. QUEST SOFTWARE, INC., Defendant, Appellee.

No. 02-2326.

United States Court of Appeals, First Circuit.

Heard April 10, 2003.

Decided April 29, 2003.

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Gaetano J. DeLuca, for appellant.

Laurence J. Donoghue, with whom Morgan, Brown & Joy, LLP was on brief, for appellee.

Before SELYA and LYNCH, Circuit Judges, and YOUNG,^* District Judge.

SELYA, Circuit Judge.

Plaintiff-appellant Brian Cochran sued his quondam employer, defendant-appellee Quest Software, Inc. (Quest), claiming, inter alia, (1) that Quest's wrongful termination of his employment caused him to lose the benefit of valuable but unvested stock options; (2) that, prior to his firing, Quest unlawfully rescinded some stock options; and (3) that Quest shortchanged him in calculating the amount of options that had vested before his employment ended. The district court wrote a thoughtful rescript and granted summary judgment in the defendant's favor. Cochran v. Quest Software, Inc., 2002 WL 1998248, 2002 U.S. Dist. LEXIS 16204 (D.Mass. Aug. 19, 2002). Cochran appeals. We affirm.

I. BACKGROUND

In accordance with the settled praxis for appellate review of summary judgments, see, e.g., Suarez v. Pueblo Int'l, Inc., 229 F.3d 49, 53 (1st Cir.2000), we rehearse the facts in the light most favorable to the summary judgment loser (here, the plaintiff).

In early 1999, the plaintiff learned that the defendant was expanding its sales force. He began to explore possible opportunities and, on February 25, 1999, the defendant offered him a position as a regional sales manager. The offer letter outlined the proposed duties, scope of responsibility, emoluments, and the like. The compensation package included a proposed grant of options for 60,000 shares of Quest stock "with the standard vesting schedule." That phraseology permitted the plan administrator to impose a vesting schedule not "more restrictive than twenty percent per year vesting, with initial vesting to occur not later than one year after the issuance date."

The plaintiff accepted the offer on March 2, 1999, and began his new job a week later. At that time, the plaintiff signed an acknowledgment indicating that he had received, and understood, the employee handbook. Among other things, the acknowledgment form provided:

I understand and agree that employment with Quest Software is not for a specified term and is at the mutual consent of both Quest Software and me. Either [Quest] or I can terminate the employment relationship at-will, with or without reason, at any time.

On November 30, 1999, the defendant's stock split three-for-two. This resulted in an increase in the plaintiff's options from 60,000 to 90,000 shares, and a proportionate decrease in the exercise price. At around the same time, the defendant furnished the plaintiff with a vesting schedule and the plaintiff signed a document assenting to it. The schedule indicated that twenty percent of the options would vest on April 1, 2000 — all along, the parties have assumed this to be the one-year anniversary date, and we indulge that assumption — and an additional thirteen percent would vest every six months thereafter for the next two and one-half years. The remainder of the options would vest on April 1, 2003. All vesting was contingent on the plaintiff's continued employment.

The employment relationship did not go smoothly. In January of 2000, the plaintiff met with his immediate superior, Douglas Garn, who expressed disappointment in his performance. Garn told the plaintiff that the defendant might well recall some of his stock options. On March 23, 2000, this prediction became a reality; the plan administrator sent the plaintiff a written notice that his unvested options had been reduced by 27,500 shares. On March 27, 2000, the plaintiff signed a form acknowledging this change. It is important to note that the reduction occurred before any of the options had vested and left the plaintiff with options for 62,500 shares.

On March 31, 2000, Quest stock split two-for-one. This split doubled the number of shares subject to the stock options and further reduced the exercise price. The next day, the plaintiff reached the first vesting milestone. Twenty percent of his options, covering 25,002 shares, vested at that time.¹ He continued to work for the defendant until July 10, 2000, when he was cashiered. He neither asked for nor received a specific reason for his termination. Subsequently, he exercised the vested portion of his stock options, buying 25,002 shares at a bargain price of $1.19 per share and immediately reselling them for $55 per share. His remaining stock options lapsed upon the cessation of his employment.

Dissatisfied with his treatment, the plaintiff sued in a Massachusetts state court seeking to enforce the remainder of his stock options or, in the alternative, to recover damages. Citing diversity of citizenship and the existence of a controversy in the requisite amount, the defendant removed the action to the United States District Court for the District of Massachusetts. See 28 U.S.C. §§ 1332(a), 1441. After the completion of pretrial discovery, the parties cross-moved for summary judgment.

The district court granted the defendant's motion and denied the plaintiff's counterpart motion. The court determined that the plaintiff was an at-will employee subject to termination at any time; that the stock options vested periodically (contingent on future employment); and that the defendant had the right to cancel the unvested stock options upon the plaintiff's discharge. Cochran, 2002 WL 1998248 at *6-7, 2002 U.S. Dist. LEXIS 16204, at *22-*23. The court also upheld the partial rescission that had occurred in March of 2000, concluding that the parties had entered into a mutually agreed modification of the employment agreement and that the plaintiff's continued employment constituted valid consideration for this modification. Id. 2002 WL 1998248 at *7, at *23. Thus, the plaintiff held vested options for only 25,002 shares upon his ouster. Id. 2002 WL 1998248 at *1, at *6.

The plaintiff moved for reconsideration, asking the district court to reexamine its determination anent consideration and to recalculate the number of shares that had vested on April 1, 2000. The court summarily denied the motion. This appeal ensued.

II. STANDARD OF REVIEW

This court reviews grants of summary judgment de novo. See Plumley v. S. Container, Inc., 303 F.3d 364, 369 (1st Cir.2002); Suarez, 229 F.3d at 53. We decide for ourselves whether "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c). A fact is material if its resolution might affect the outcome of the case under the controlling law. United States v. One Parcel of Real Property (New Shoreham, R.I.), 960 F.2d 200, 204 (1st Cir.1992). A genuine issue exists as to such a fact if there is evidence from which a reasonable trier could decide the fact either way. Id.

In conducting this canvass of the record, we must take the evidence in the light most flattering to the party opposing summary judgment, indulging all reasonable inferences in that party's favor. Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir.1990). This does not mean, however, that we must swallow the predicate for the nonmovant's opposition hook, line, and sinker; among other things, we safely may ignore "conclusory allegations, improbable inferences, and unsupported speculation." Medina-Muñoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir.1990). This framework is not altered by the presence of cross-motions for summary judgment. See Blackie v. Maine, 75 F.3d 716, 721 (1st Cir.1996) (explaining that the court must mull each motion separately, drawing inferences against each movant in turn).

III. DISCUSSION

We now turn to the merits of the plaintiff's asseverational array. Refined to bare essence, he makes three arguments. First, he charges that the defendant wrongfully terminated his employment. Second, he alleges that, prior to his dismissal, the defendant illegally rescinded some of his stock options. Finally, he challenges the district court's computation of the number of options that had vested before he was handed his walking papers. We address each argument in turn.

As a threshold matter, though, we first must determine what law to apply. It is elementary that a federal court sitting in diversity jurisdiction must borrow the substantive law of the forum state. Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The forum state's choice-of-law tenets are part of its substantive law, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), and Massachusetts courts generally apply the law of the state that has the most significant relationship to the litigation. See Bushkin Assocs., Inc. v. Raytheon Co., 393 Mass. 622, 473 N.E.2d 662, 668-69 (1985).

In this instance, we need not undertake an archeological dig to locate the case's center of gravity. It is settled in this circuit that when the parties have reached a plausible agreement about what law governs, a federal court sitting in diversity jurisdiction is free to forgo independent inquiry and accept that agreement. See Borden v. Paul Revere Life Ins. Co., 935 F.2d 370, 375 (1st Cir.1991). Thus, we follow the parties' lead and apply the substantive law of Massachusetts.

A. Wrongful Termination.

The plaintiff's wrongful termination claim rests initially on the premise that he was not an at-will employee, but, rather, an employee for a term of years. In his view, a definite term of employment can — and should — be implied from the text of the offer letter. This is wishful...