The opinion of the court was delivered by: McMAHON, District Judge.
MEMORANDUM DECISION AND ORDER DENYING IBM'S MOTION FOR JUDGMENT ON THE
PLEADINGS EXCEPT AS TO ITS SECOND COUNTERCLAIM
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.
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
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
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