Lucente v. Intern. Business Machines Corp.

• Decision Date: 05 October 2000
• Docket Number: No. 99 Civ. 3987(CM).,99 Civ. 3987(CM).
• Parties: Edward E. LUCENTE, Plaintiff, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant.
• Court: U.S. District Court — Southern District of New York

Page 336

117 F.Supp.2d 336

Edward E. LUCENTE, Plaintiff, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant.

No. 99 Civ. 3987(CM).

United States District Court, S.D. New York.

October 5, 2000.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David R. Quittmeyer, Douglas L. McCoy, Hand Arendall, L.L.C., Mobile, AL, for Edward E. Lucente, plaintiff.

Peter T. Barbur, Cravath, Swaine & Moore, New York City, for I.B.M., defendant.

MEMORANDUM DECISION AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT, DENYING DEFENDANT'S CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT ON ISSUES OF LIABILITY AND GRANTING IN PART AND DENYING IN PART DEFENDANT'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT ON THE MEASURE OF DAMAGES

McMAHON, District Judge.

Summary

Plaintiff Edward Lucente sued International Business Machines Corporation ("IBM") for payment of stock options and restricted stock granted to him over the course of his thirty years of employment with IBM, which IBM had withheld after Lucente took up employment with a competitor. Lucente moved for summary judgment on the grounds that IBM's noncompetition provisions are not enforceable against him. IBM filed several cross-motions on issues of liability and damages. For the reasons stated below, Plaintiff's motion for summary judgment on the issue of liability is granted and the Defendant's cross-motions addressing liability are denied. Defendant's motion for partial summary judgment on the question of damages is granted in part and denied in part. A trial will be held to determine damages.

I FACTUAL BACKGROUND

The following facts are undisputed:

Edward Lucente worked for IBM from 1961 until 1991. During the course of his 30-year employment at IBM, Lucente participated in several incentive award programs, including a program through which he was awarded certain restricted stock and another which awarded him stock options. The purpose of such awards is twofold: to promote loyalty to the company, and to tie executive compensation to stock performance and thus to the profitability and growth of the company. As is typical of such executive incentive programs, Lucente's stock and stock option awards were subject to certain forfeiture-for-competition provisions,¹ which authorized IBM to cancel any deferred, unpaid or unexpired awards if Lucente ever went to work for any company that IBM deemed a competitor. The clauses contain no limitations for time, place and scope. These noncompete clauses state, in essence, that an executive is entitled to receive the awards for as long as he remains in the employ of IBM or, in the event he leaves IBM, he does not do so to work for a company that competes with IBM.

By 1991, Lucente had been promoted to the position of President of the Asia-Pacific Operation, and was one of a handful of senior executives reporting directly to the CEO, John Akers. In late 1990, Akers, unhappy with the results in the Asia-Pacific Division, told Lucente that it would be in the best interests of both Lucente and IBM if Lucente sought employment elsewhere. (Akers Dep. at 95). Lucente, believing that he was being asked to leave IBM, pursued an opportunity at Northern Telecom. With the express understanding from Akers and IBM that his move to Northern Telecom would be deemed not to be competitive with IBM (and thus would not trigger forfeiture of his long-term compensation package), Lucente retired from IBM in February 1991. As part of his retirement package, IBM paid Lucente a lump-sum severance equivalent to approximately one year's salary, or $675,000. Lucente worked for Northern Telecom in the position of Senior Vice President, Marketing until November 1992, when he announced his resignation, to take effect March 1993.

On April 14, 1993, Lucente joined Digital Equipment Corporation ("Digital"), where he worked for approximately one year. On April 15, 1993, IBM notified Lucente that IBM was canceling his outstanding stock options and restricted stock awards, because IBM deemed Lucente's employment at Digital to be "competitive employment." (Letter to Lucente from Donald Edman, Apr. 15, 1993, attached to Plaintiff's Aff. as Exh. 1.) IBM did not demand reimbursement of the $675,000 severance payment at that time.

Over the years, Lucente has sought, without success, to have IBM reverse the forfeiture decision. He filed this suit on February 24, 1999.

Procedural History

Lucente sued for breach of contract to recover restricted stock and stock options, damages and related relief. IBM filed two counterclaims: (1) to recover the $675,000 severance payment IBM made to Lucente in 1991, and (2) to recover payments IBM made on behalf of Lucente to a tax reconciliation account maintained while he was an IBM employee. Lucente has conceded that IBM should prevail on the later counterclaim. He emphatically contests the former.

IBM moved under Fed.R.Civ.P. 12(c) for judgment on the pleadings. This Court denied IBM's motion, except with respect to the uncontested tax reconciliation claim, which Plaintiff has satisfied. See Lucente v. IBM, 75 F.Supp.2d 169 (S.D.N.Y.1999) Familiarity with this opinion is presumed. In pertinent part, I observed that forfeiture for competition clauses were sometimes enforceable under New York law without regard to their reasonableness, but only when the employee had the choice of remaining in the employ of the employer who seeks to restrict his moving to a competitor. Id. at 172-173 (discussing Post v. Merrill Lynch, et al., 48 N.Y.2d 84, 421 N.Y.S.2d 847, 397 N.E.2d 358 (1979)). And I concluded that judgment on the pleadings would be inappropriate because nothing in the pleadings suggested that IBM either did or would have offered Lucente such a choice in the unusual circumstances of the case. Id. at 174.

Following discovery, Plaintiff now moves for summary judgment on all his claims and for summary judgment dismissing IBM's counterclaim for return of the severance payment. Instead of confining its arguments to the opposition papers to Plaintiff's motions that it filed, IBM has taken the tack of filing four additional separate motions for partial summary judgment to resolve the various legal issues in the case. This was a blatant attempt by IBM to circumvent this Court's rules on page-limits for motion papers and briefs. IBM's papers were duplicative. They were also far less persuasive than Plaintiff's concise opposing papers, which came well within the page limitations.

First, IBM seeks a declaration that the restricted stock awards are subject to forfeiture-for-competition under the terms of IBM's variable compensation plan. Second, IBM moves for a declaration by the Court that, so long as Lucente had a choice to remain at IBM when he retired in 1991, the employee choice doctrine applies to IBM's cancellation of his stock options and restricted stock in 1993, and precludes any inquiry into the "reasonableness" of the relevant forfeiture-for-competition provisions. Third, IBM moves for partial summary judgment on the proper measure of damages or, in the alternative, in limine to exclude the expert report and testimony of John Vaught, which underlies Plaintiff's damages claim. Fourth, IBM moves for dismissal of Plaintiff's statute of limitations, laches and estoppel defenses to its counterclaim. The first and second motions address the legal issues at the heart of Lucente's claim and are disposed of in connection with Plaintiff's motion for summary judgment. The issues raised in the fourth motion were briefed by Plaintiff in his motion for summary judgment on the counterclaim and are therefore addressed in the discussion of that claim. I address the question of damages last.

II PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

Summary judgment is appropriate where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. See Fed. R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A genuine issue for trial exists if, based on the record as a whole, a reasonable jury could find in favor of the non-movant. See Liberty Lobby, 477 U.S. at 248, 106 S.Ct. 2505. In making its determination, the court must resolve all ambiguities and draw all reasonable inferences in favor of the non-movant. See id. at 255, 106 S.Ct. 2505. To defeat summary judgment, the non-moving party must go beyond the pleadings and "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Because the record before this Court is devoid of any evidence from which a reasonable jury could find in favor of the Defendant on any of Plaintiff's claims for breach of contract, summary judgment is granted to Plaintiff on the issue of liability.

A. The Restricted Stock was Subject to Noncompete Provisions

It is undisputed that between 1981 to 1990, Lucente was awarded 11,162 shares of restricted stock under the "IBM Variable Compensation Plan" (the "1982 Plan") and a predecessor plan, and 1,121 restricted shares under the "IBM Long-Term Performance Plan" (the "1989 Plan"). (Answer ¶ 3; Plaintiff's Mem. of Law in Support of Motion for Summary Judgment, Exh. 4.) It is also undisputed that from 1983 to 1991, Lucente was awarded options for 126,739 shares of IBM stock pursuant to the 1989 Plan. (Plaintiff's Mem. of Law in Support of Motion for Summary Judgment, Exh. 5.)

1. The 1982 Plan

As a threshold matter, Plaintiff argues that the 11,162 shares issued to him under the 1982 Plan are not subject to forfeiture for competition, and that he is thus entitled to those shares as a matter of law. Lucente's argument is based on the fact that the forfeiture for competition clause of the 1982 Plan refers only to conditions placed on awards for which IBM is obligated to "make payment" as opposed to awards that IBM "delivers" to the...