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November 2, 1999


The opinion of the court was delivered by: McMAHON, District Judge.


In February 1991, plaintiff Edward Lucente, the President of the Asia Pacific Operation of defendant IBM, "retired" after 30 years employment at IBM. (I place the verb in quotation marks because Mr. Lucente's retirement may have been involuntary and in lieu of his being otherwise terminated.) At the time Mr. Lucente's employment ended, IBM signed a letter agreement in which the corporation agreed to make a rather substantial "special payment" ($675,000) to Mr. Lucente.

From 1981 until his retirement, Mr. Lucente participated in two executive compensation programs — the IBM Varible Compensation Plan and the IBM 1989 Long Term Performance Plan — pursuant to which he was awarded restricted stock and stock options. Both of these plans contained forfeiture for competition clauses, which authorized IBM to cancel any unexpired, unpaid or deferred awards if Lucente went to work for any company that IBM deemed to be a competitor. The forfeiture for competition clauses are unrestricted as to time, place and scope; on their face, they appear to bar plan participants from ever accepting any employment with a competing computer company without forfeiting their accrued and vested benefits.

Upon his retirement, Lucente accepted a job at Northern Telecom, a company that one might imagine to be a direct competitor of IBM. Nonetheless, as part of the 1991 letter agreement, IBM deemed Mr. Lucente's employment "not to be competitive or in conflict with the best interests of IBM." The letter agreement specified, however, that Lucente's outstanding stock options and restricted stock remained subject to the forfeiture for competition provisions of the relevant IBM incentive compensation plans, and Lucente agreed that, following his retirement, he would "not engage in any activity as an employee, consultant, or director, personally or with any firm or organization, that is or becomes, in IBM's sole opinion, a competitor of IBM or its subsidiaries, or is otherwise prejudicial to or conflicts with the interests of IBM."

In April 1993, Lucente left Northern Telecom and went to work for Digital Equipment Corporation ("Digital") as Vice President of Worldwide Sales and Marketing. IBM, taking the position that this employment was competitive, canceled Lucente's outstanding restricted stock and stock options.

Six years later, Lucente has sued IBM, contending that IBM's actions constitute a breach of its obligations under the two plan documents. Alternatively, Lucente argues that the Variable Compensation Plan is unenforceable and/or void or voidable. IBM has counterclaimed for return of its substantial severance payment to Lucente, on the ground that Lucente's acceptance of employment with Digital violated the terms of his separation letter, as well as for payment of $40,790.14 owed by Lucente to IBM pursuant to a tax reconciliation account. IBM has moved for judgment on the pleadings as to both Lucente's claims and its counterclaims.

Except for IBM's counterclaim relating to the tax reconciliation account, as to which Lucente admits liability, IBM's motion is denied.

1. Choice of Law: New York or Alabama?

The first issue to be decided is whether New York or Alabama law applies. Lucente's employment had no contact whatever with Alabama, where he now lives and where he originally filed this action — a fact recognized by the Alabama judge, who transferred the matter to this Court on IBM's motion. Moreover, the Plans are both governed by New York law. Nonetheless, Lucente argues that the law of Alabama should apply in determining the enforceability of the forfeiture-for-competition plans.

Because the case was originally brought in the State court in Alabama, Alabama choice of law principles apply in this, the transferee forum. Van Dusen v. Barrack, 376 U.S. 612, 639, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964). Lucente argues that Alabama public policy against forfeiture for competition clauses is so strong as to override the contract's choice of governing law. IBM disputes Lucente's reading of Alabama law, but also argues that Alabama's lack of a materially greater interest in this dispute, coupled with New York's significant relationship to the dispute mandates the application of New York law under Alabama's choice of law rules — even if the forfeiture for competition clauses offend Alabama public policy.

There is no need for this Court to resolve the parties' dispute over the extent to which Alabama does or does not recognize forfeiture for competition provisions, because it is quite clear that Alabama does not have a materially greater interest in this dispute than does New York, nor does it have the most significant relationship to the dispute. IBM, which is headquartered in New York, employs executives who participate in its compensation plans throughout the world. Both IBM and the State of New York have a strong interest in having the provisions of these world-wide compensation plans interpreted in an uniform manner. Executive compensation plans would be essentially worthless if their terms meant different things to different participants based on a participant's residence. This is even more true when the participant moved to his non-New York place of residence after retirement, so that the residence bore no relationship whatever to the IBM/employee working relationship, as is the case here.*fn1

Because plaintiff has not established all three conditions necessary for the application of Alabama law to this dispute, the law of the contract ...

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