Big Blue Scores Big Win

Second District US Court of Appeals judge Colleen McMahon issued a summary judgment reinstating IBM’s case against former executive Edward Lucente and the dispute over millions of dollars of stock options in Lucente v International Business Machines.

The summary judgment says a jury should be allowed to investigate the issue of dismissal or voluntary departure and ultimately decide the case.

The Court of Appeals judgment is a reversal of a lower court’s summary judgment, which ruled in favor of Lucente, finding no legal grounds to uphold IBM’s non-compete challenge.

Big Blues

Lucente had been employed with IBM for 31 years, having worked his way up to the head of their Asian-Pacific division.   In 1991 he was informed that he would be losing some of his responsibilities.   He left to sign with Northern Telecom, Ltd. and IBM informed Lucente that such a move would not violate his non-compete clause.

However, two years later Lucente moved to Digital Equipment Corp, a company IBM viewed as a direct competitor.   IBM invoked a “forfeiture-for-competition” clause that revoked Lucente’s stock options.

Lucente filed suit in the Southern District of New York, where Judge Joseph McLaughlin ruled New York law frowns on “restrictive employment covenants with ‘one salient exception'” in which the employee must decide between not competing and preserving benefits or competing and risking forfeiture.

The District Court issued a summary judgment in Lucente’s favor.   IBM appealed.

Too Many Unanswered Questions

Judge McMahon found the lower court has resolved too many factual discrepancies in Lucente’s favor, “usurping the jury’s province as a fact-finder”.   

The Appeals Court referenced two disputes in particular:   Claims that Lucente had consulted with IBM before taking the Digital Equipment post, where he was told that such a move would cause forfeiture of his stock options and IBM’s CEO offering the possibility of Lucente moving to another position within the company before his initial departure.

McMahon found that a jury should be given the chance to decide the “bedrock question” of Lucente’s dismissal being voluntary or otherwise.