Smith v. Zipcar, Inc.

• Decision Date: 27 August 2015
• Docket Number: Civil Action No. 1:13-cv-11430-PBS
• Citation: 125 F.Supp.3d 340
• Parties: Michael Smith, Plaintiff, v. Zipcar, Inc., Defendant.
• Court: U.S. District Court — District of Massachusetts

125 F.Supp.3d 340

Michael Smith, Plaintiff,

v.Zipcar, Inc., Defendant.

Civil Action No. 1:13-cv-11430-PBS

United States District Court, D. Massachusetts.

Signed August 27, 2015

T. Jeffrey Keane, Keane Law Offices, Seattle, WA, Ellen J. Zucker, Erica F. Mastrangelo, Lawrence P Murray, Burns & Levinson, Boston, MA, for Plaintiff.

Ashley E. Tessier, E. Macey Russell, Gary D. Finley, Alison C. Reif, Laura T Morse, Lane Powell PC, Seattle, WA for Defendant.

MEMORANDUM AND ORDER

SARIS, Chief Judge

I. INTRODUCTION

This case stems from Plaintiff Michael Smith's 47-day employment at Zipcar, the Boston-based car sharing company. While Plaintiff was negotiating his executive compensation package, which included stock options, Zipcar was contemplating a possible merger with Avis Budget Group (Avis). When the merger later went through, the stock options became worthless. After his employment terminated, Plaintiff brought this action alleging, among other things, that Zipcar engaged in fraud and negligent misrepresentation by failing to disclose the merger talks, and that Zipcar breached his employment contract by failing to award him appropriate severance.

Defendant moved for summary judgment on all claims¹ (Dkt. No. 94). After hearing (Dkt. No. 124), Defendant's motion for summary judgment is ALLOWED IN PART and DENIED IN PART .

II. FACTUAL BACKGROUND

The facts are construed in the light most favorable to Plaintiff.

A) Employment Negotiations

In September 2012, Zipcar set out to find a new "Executive Vice President, Technology." It retained an executive search firm, which recruited Smith. Then employed by Disney, Smith had previously worked for such blue-chip technology companies as Microsoft and Google. Over the course of fall 2012, Plaintiff met with Zipcar's then-CEO Scott Griffith and other senior executives. Impressed with Smith's qualifications, Zipcar made him an employment offer on November 15, 2012. This initial offer, however, was not to Smith's liking. In negotiations with the company's Human Resources Director, he sought enhanced stock options and a "Chief Technology Officer" (CTO) title. A new offer was made on November 27; this too was rejected, and the negotiations pressed on.

On December 11, Zipcar sweetened its offer, and Smith accepted. The final compensation package featured a grant of 105,000 options, to vest over a four-year period. The package also included an annual salary of $290,000; an annual bonus equal to fifty percent of salary; a $25,000 relocation stipend; and, eligibility for additional stock options at Zipcar's discretion.

Under the Employment Agreement, Smith was an at-will employee. His contract provided for severance payments under two scenarios. If Smith resigned for "Good Reason" or was fired without cause before a "Change of Control," he would receive 6 months' salary, or $145,000. If, however, he resigned for Good Reason or was terminated without cause after a Change of Control, he would receive a year's salary, plus his targeted bonus, amounting to 1.5 years of pay, or $435,000. "Change of Control" was defined, in relevant part, as "the sale of all or substantially all of the capital stock." Exh. 14. Good Reason was defined, in relevant part, as "a material adverse change in your office, duties, salary, benefits or responsibilities made without your prior written consent."Id. Under the contract, Smith was required to "set forth in specific detail the facts supporting" his reasons for separating. Id. If Zipcar adequately "cured" those issues within 30 days, then Smith would be deemed to have resigned without Good Reason.

B) The Merger

Unbeknownst to Plaintiff, at the time he accepted the CTO job, Zipcar was in discussions with several different companies about financing options. Some of these corporate suitors simply wanted to make an equity investment in Zipcar; others wanted to buy the company outright. On November 17, two days after Plaintiff was first offered employment, Avis sent a letter to Zipcar expressing its interest in acquiring the company. At the same time that Plaintiff was negotiating his compensation package, Zipcar's lawyers and investment bankers were performing due diligence on Avis,² as well as nine other companies: two executed confidentiality agreements, and seven others showed informal interest. On December 31, 2011, twenty days after Smith's employment agreement was signed, Zipcar and Avis signed a merger agreement.

The following morning, on New Year's Day, Zipcar CEO Scott Griffith reached out to Plaintiff to inform him of the deal. Plaintiff was surprised, but reaffirmed his enthusiasm for the CTO opportunity and his intent to commence employment on January 21. Plaintiff began work as planned. Concurrently, he engaged in discussions with Corbis, a Seattle-based technology company, about employment opportunities there.

When Plaintiff asked Griffith how the potential deal would affect his stock options, Griffith assured him that Avis would craft an alternative, comparable long-term incentive package ("LTIP"). To further assuage Smith's concerns, Zipcar offered to amend his employment contract to enhance the post-Change in Control severance to 24 months' salary. Counterproposals were exchanged in mid-February but an agreement was not reached. Frustrated that details of the alternative package had yet to materialize, and apparently unsatisfied with the enhanced severance offer, on March 5, 2013, Plaintiff gave notice of his intent to terminate his employment for Good Reason. Under the terms of his Employment Agreement, this triggered the 30-day cure period. In an e-mail to Griffith, Plaintiff avowed a desire to continue working at Zipcar during the cure period and a hope that the LTIP issue would be resolved. He wrote:

I have every intention of staying engaged for the foreseeable future and I am open to a period of discussion (we should discuss that would take, but I'd expect at least 30 days ) around a contract that would work.

Exh. 36 (emphasis added). Zipcar, however, terminated Plaintiff's employment on March 8, 2013. Plaintiff responded four days later by filing this lawsuit. In April 2013, Smith commenced employment at Corbis, though he separated from the company six months later.

After the filing of the lawsuit, but before the cure period was set to end, the Zipcar-Avis deal closed on March 14, 2013. Zipcar is now a wholly-owned subsidiary of Avis.

C) LEGAL STANDARD

Summary judgment is appropriate when there is "no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). To prevail on a motion for summary judgment, the moving party must demonstrate that there is an "absence of evidence supporting the non-moving party's case." Sands v. Ridefilm Corp. , 212 F.3d 657, 660 (1st Cir.2000) (citing Celotex Corp. v. Catrett , 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). The burden then shifts to the non-moving party to set forth specific facts showing that there is a genuine issue of material fact for trial. Quinones v. Houser Buick , 436 F.3d 284, 289 (1st Cir.2006). A genuine dispute exists where the evidence is "sufficiently open-ended to permit a rational factfinder to resolve the issue in favor of either side."

Nat'l Amusements, Inc. v. Town of Dedham , 43 F.3d 731, 735 (1st Cir.1995). A material fact is "one that has the potential of affecting the outcome of the case." Calero – Cerezo v. U.S. Dep't of Justice, 355 F.3d 6, 19 (1st Cir.2004).

In deciding a motion for summary judgment, the Court must view the facts in the light most favorable to the non-moving party, and draw all reasonable inferences in their favor. Sands , 212 F.3d at 661. The Court is required to "determine if there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Id. (quotation marks omitted). A party cannot avoid summary judgment by merely relying on "conclusory allegations, improbable references, and unsupported speculation." Fennell v. First Step Designs, Ltd. , 83 F.3d 526, 535 (1st Cir.1996) (quotation marks omitted); see also Conward v. Cambridge Sch. Comm. , 171 F.3d 12, 18 (1st Cir.1999) (refusing to "indulge rank speculation or unsupportable hyperbole" at the summary judgment phase).

D) DISCUSSION

A) Fraud and Deceit/Misrepresentation (Counts I and II)

The thrust of Plaintiff's fraud and misrepresentation claims is that Zipcar engaged in fraud³ when it failed to disclose the merger discussions with Avis while it was negotiating Plaintiff's compensation. Zipcar counters that it was under no duty to disclose the potential acquisition.

Under Massachusetts law, the tort of fraud requires proof that "(1) the defendant made a misrepresentation of fact; (2) it was made with the intention to induce another to act upon it; (3) it was made with the knowledge of its untruth; (4) it was intended that it be acted upon, and that it was in fact acted upon; and (5) damages directly resulted therefrom." Equip. & Sys. For Indus., Inc. v. Northmeadows Constr. Co., 59 Mass.App.Ct. 931, 798 N.E.2d 571, 574 (2003).

In the absence of an affirmative misrepresentation, an action for fraud requires "both concealment of material information and a duty requiring disclosure." Sahin v. Sahin , 435 Mass. 396, 758 N.E.2d 132, 138 n. 9 (2001) ; Hinchey v. NYNEX Corp. , 144 F.3d 134, 145 (1st Cir.1998). Under Swinton v. Whitinsville Sav. Bank and its progeny, the "rule of nonliability for bare nondisclosure" is well-settled in Massachusetts. 311 Mass. 677, 42 N.E.2d 808, 809 (1942) (finding the seller of a home not liable for fraud for failing to disclose a termite infestation the seller knew about when the transaction was made at arm's length). Defendants cannot be found liable for "concealment in the simple sense of mere failure to reveal, with nothing to show any peculiar duty to speak." Id. at 808.

Massachusetts courts generally rely on the Restatement (Second) of Torts § 551 to determine the circumstances...