United States District Court, Southern District of New York
January 13, 2003
MICHAEL LEVY, PLAINTIFF,
LUCENT TECHNOLOGIES, INC., DEFENDANT.
The opinion of the court was delivered by: Michael B. Mukasey, United States District Judge
OPINION AND ORDER
Plaintiff Michael Levy sues his former employer Lucent Technologies, Inc. ("Lucent") alleging that Lucent breached its contract with Levy by refusing to permit vesting of certain stock options he held. This court has jurisdiction under 28 U.S.C. § 1332 (2000), based on the parties' diversity of citizenship.*fn1 Both parties move under Fed.R.Civ.P. 56 for summary judgment. For the reasons set forth below, both motions are denied.
The following facts are undisputed unless described otherwise. In 1998, Lucent recruited and hired Michael Levy to be the Vice President of Sales in Lucent's Data-Networking Sales division ("DNS"). (Levy's 56.1 ¶ 1; Lucent's 56.1 Counter-Statement ¶ 1)
Lucent gave Levy an employment offer letter, dated July 17, 1998, which described his position as Vice President of DNS Sales and set forth his compensation ("Agreement" or "July 17 agreement"). (Gans Decl., Ex. F; Levy's 56.1 ¶ 2; Lucent's 56.1 Counter-Statement ¶ 2) The letter was signed by Curtis R. Artis, Senior Vice President, Human Resources, and was "[a]cknowledged and [a]greed to" by Levy on July 20, 1998. (Gans Decl., Ex. F) Pursuant to the Agreement, Lucent would pay Levy a base salary of $200,000 and cash bonuses based on performance. (Gans Decl., Ex. F; Levy's 56.1 ¶ 3; Lucent's 56.1 Counter-Statement ¶ 3)
A section of the Agreement entitled "Hiring Incentive" provided that Lucent would ask the Compensation Committee of its Board of Directors ("the Committee") to grant Levy certain stock options during his tenure at Lucent. These consisted of: 1) two separate option grants of 25,000 shares each, to be made within one month of Levy's date of employment ("the August 1998 options") and 2) an additional two separate option grants of 12,500 shares each, to be made after Levy had been employed at Lucent for one year ("the August 1999 options"). (Gans Decl., Ex. F; Levy's 56.1 ¶ 6; Lucent's 56.1 Counter-Statement ¶ 6) Both the August 1998 and the August 1999 options were divided into two series so that one series of each was subject to the "cliff vesting" method, under which the shares would vest and become exercisable by Levy three years after the date they were granted. The remaining series would vest and become exercisable by Levy at a rate of 25 percent each year after the date each was granted. (Gans Decl., Ex. F; Levy's 56.1 ¶ 7; Lucent's 56.1 Counter-Statement ¶ 7)
The "Hiring Incentive" section of the Agreement also provided that Lucent would ask the Committee to award Levy a onetime grant of 8,000 restricted units ("the Restricted Units") within one month of the date Levy was hired by Lucent. One-half of the Restricted Units would vest three years from the date of grant, and the remaining one-half of the Restricted Units would vest five years from the date of grant. (Gans Decl., Ex. F; Levy's 56.1 ¶ 8; Lucent's 56.1 Counter-Statement ¶ 8)
On page two of the Agreement, following the "Hiring Incentive" section, was a clause providing for the immediate vesting of Levy's stock options if, following a merger, he was terminated other than for cause or had his job responsibilities materially diminished ("the acceleration clause"). The acceleration clause provided:
For Stock Options granted to you under this "Hiring
Incentive" section, the Company will provide that in
the event that during the first 36 months of your
employment, the Company acquires another company in the
data networking industry, which has reported annual
revenues in excess of $1 billion, and within one year
after consummation of the acquisition, Lucent
terminates your employment other than for cause (as
defined below), or unsatisfactory performance (as
defined below), or there is a material diminution of
your job responsibilities without your consent, such
options will become immediately vested and exercisable
until the later of three years from the date of grant
or 90 days following termination, whichever is later.
(Gans Decl., Ex. F; Levy's 56.1 ¶ 11; Lucent's 56.1 Counter-Statement ¶ 11)
Page three of the Agreement contained a section entitled "Lucent Long Term Incentives." In this section was a provision, "Lucent Stock Options," under which Lucent would grant to Levy an additional 50,000 stock options for fiscal year 1999, which commenced on October 1, 1998 ("the October options"). The October options were to be granted in two series of 25,000 options, each with a term of ten years. The first series of October options were subject to "cliff vesting" at the end of three years, while the second series was to vest at a rate of 25 percent per year, beginning one year from the date of the grant. (Gans Decl., Ex. F; Levy's 56.1 ¶ 9; Lucent's 56.1 Counter-Statement ¶ 9)
The Agreement stated that the terms of both the stock options and the restricted units were set forth under the Lucent 1996 Long Term Incentive Program ("LTIP") document. (Gans Decl., Ex. F; Levy's 56.1 ¶ 3; Lucent's 56.1 Counter-Statement ¶ 3) Finally, the Agreement provided:
This letter is not an employment contract and should
not be construed or interpreted as containing any
guarantee of continued employment. The employment
relationship at the Company is by mutual consent
("Employment-At-will"). This means that managers have
the right to terminate their employment at any time and
for any reason. Likewise, the Company reserves the
right to discontinue your employment with or without
cause at any time and for any reason.
(Gans Decl., Ex. F)
On August 1, 1998, Levy began his employment at Lucent. (Levy's 56.1 ¶ 13; Lucent's 56.1 Counter-Statement ¶ 13) On August 3, 1998, the Committee voted to grant Levy 25,000 shares of Lucent stock — the August 1998 options. (Gans Decl., Ex. L; Levy's 56.1 ¶ 14; Lucent's 56.1 Counter-Statement ¶ 14) The same day, the Committee also granted the 8,000 Restricted Units. (Gans Decl., Ex. L) The Committee's Resolution regarding the grant stated that the August 1998 options were subject to the accelerated vesting clause but did not provide that the Restricted Units were covered by this clause. (Id.) After the August 1998 options were granted, Levy signed a "Nonstatutory Stock Option Agreement," which contained the acceleration clause. (Gans Decl., Ex. G; Lucent's 56.1 ¶ 14; Levy's 56.1 Counter-Statement ¶ 14) Levy also signed a "Restricted Stock Unit Award Agreement," that contained no provision f or accelerated vesting. (Rizzi Decl., Ex. 4) In conjunction with these agreements, he received a copy of the LTIP document. (Rizzi Decl., Ex. 1; Lucent's 56.1 ¶ 14; Levy's 56.1 Counter-Statement ¶ 14) All three of these documents were signed by Artis. (Rizzi Decl., Exs. 1, 4; Gans Decl., Ex. G)
On October 5, 1998, the Committee voted to grant Levy 50,000 shares of Lucent stock — the October options. (Levy's 56.1 ¶ 15; Lucent's 56.1 Counter-Statement ¶ 15) Levy signed a Nonstatutory Stock Option Agreement in conjunction with the grant of these options, which did not include an acceleration provision. Artis also signed this agreement. (Gans Decl., Ex. J; Levy's 56.1 ¶ 14; Lucent's 56.1 Counter-Statement ¶ 14)
Because of a stock split in February 1999, the number of stock options and restricted units granted or to be granted to Levy doubled. (Levy's 56.1 ¶ 16; Lucent's 56.1 Counter-Statement ¶ 16)
In January 1999, Lucent and Ascend, Inc. announced their intention to merge. (Levy's 56.1 ¶ 19; Lucent's 56.1 Counter-Statement ¶ 19) After the announcement of the Lucent-Ascend merger, in January and February 1999, Levy had a series of discussions with Daniel Stanzione, Levy's boss and the Chief Operating Officer of Lucent, regarding which of Levy's unvested stock options would accelerate in the event of a change in his job responsibilities. (Levy's 56.1 ¶ 20; Lucent's 56.1 Counter — Statement ¶ 20) Levy asserted at this time that the acceleration clause in his July 17, 1998 agreement applied to all of his stock options, including the October options, as well as to the Restricted Units. (Levy's 56.1 ¶ 21; Lucent's 56.1 Counter —Statement ¶ 21) Levy claimed that during negotiations regarding his employment agreement, Geoff Champion, who recruited Levy, led him to believe that all of these compensation components would be subject to accelerated vesting if his job was terminated or his responsibilities materially diminished. (Levy's 56.1 ¶ 21)
On March 19, 1999, Stanzione notified Lucent staff of planned changes in DNS job responsibilities as a result of the Lucent-Ascend merger. Under Stanzione's directive, Levy would no longer have responsibility for all DNS sales. (Levy's 56.1 ¶ 23; Lucent's 56.1 Counter-Statement ¶ 23) On the same day, following this announcement, Levy wrote an e-mail message to Stanzione regarding the changes to his job at Lucent. Levy wrote:
I would like to remain with Lucent and am enthusiastic
about the future. However, I believe it is important
that we articulate our agreement so that there is no
misunderstanding. The following points address matters
we have already discussed and agreed to and others that
I believe reflect our intent, that I would like you to
consider. If these terms are satisfactory, please
confirm your assent.
(Gans Decl., Ex. P; Levy's 56.1 ¶ 24; Lucent's 56.1 Counter-Statement ¶ 24)
The e-mail went on to set out five numbered points. Levy wrote first: "I will continue my employment with Lucent in a new position, Vice President of Worldwide Sales for the Enterprise data networking business and indirect channel sales." Second: "By removing service provider data networking sales from my responsibility, the `material diminution' clause of my contract is invoked, and my hiring incentives will be accelerated immediately upon completion of the merger." Third, Levy's compensation would remain the same. In paragraph four of the e-mail, Levy stated that he would limit his request for accelerated vesting at this time to the stock options and restricted units in the "hiring incentive" section of the offer letter despite his initial contention that the vesting of the October options had been triggered under the July 17 agreement. Levy stated next: "[T]his agreement cannot be terminated for 36 months from the acquisition except for cause or unsatisfactory performance . . .
Thus, my rights under our agreement, including the vesting rights of stock options, can only be terminated for those reasons." Finally, Levy stated in this paragraph, "material reduction in the scope of my responsibilities or level can only be with my consent, or all options will immediately vest." In the fifth paragraph of the e-mail, Levy wrote: "All other terms and conditions in the July 20, 1998 agreement remain in full force and effect." (Gans Decl., Ex. P)
Levy claims that Lucent was eager to induce him to stay at Lucent during the merger — he was the leader of DNS sales and had personally recruited a large portion of the DNS sales force. (Levy's 56.1 ¶ 27) Lucent admits that the company wanted Levy to stay during the pendency of the Ascend merger. (Lucent's 56.1 Counter-Statement ¶ 27) Stanzione stated in his deposition: "I felt that he was needed through this integration process, and I wanted him to feel content." (Stanzione Dep. at 48) Stanzione stated also: "The last thing I wanted during this critical integration process was a key person like Mike [Levy], who had recruited several key people, to be dissatisfied." (Stanzione Dep. at 94)
Stanzione sent Levy's March 19 e-mail to Artis. (Levy's 56.1 ¶ 28; Lucent's 56.1 Counter-Statement ¶ 28) Artis took notes on his copy of the e-mail. (Rizzi Decl., Ex. 7; Artis Dep. at 167-169) Next to Levy's statement in paragraph 4 that future "material reduction in the scope of my responsibilities or level can only be with my consent, or all my options will immediately vest," Artis wrote "no" and "outrageous." (Id.)
On April 20, 1999, Levy, Artis, and Stanzione met to discuss Levy's concerns. (Levy's 56.1 ¶ 28; Lucent's 56.1 Counter-Statement ¶ 28) Artis produced notes from this meeting (Rizzi Decl., Ex, 8) and sent Stanzione an e-mail that day reflecting his views on Levy's requests in his March 19 e-mail (Rizzi Decl., Ex. 9; Artis Dep. at 187-209) Artis wrote: "[H]ere is my response to Mike's requests." As to "Item 4," Artis wrote: "Agree that the company will accelerate the vesting of the 50,000 (pre-split) options described in paragraph 1 of the "hiring incentive section" and the restricted stock units described in that section. . . ." Artis wrote also: "Further agree that this agreement cannot be terminate for 36 months from the date of acquisition. . . ." (Id.) On April 21, Stanzione and Artis met again to discuss Levy's compensation requests. (Levy's 56.1 ¶ 29; Lucent's 56.1 Counter-Statement ¶ 29) Artis also produced notes from this meeting. (Rizzi Decl., Ex. 10)
During these few days in April, Artis and Stanzione came to a decision that as a result of the merger, Levy's job responsibilities would be "materially diminished" and Lucent would accelerate the vesting dates of the stock options in the "Hiring Incentive" section. (Lucent's 56.1 ¶ 34; Levy's 56.1 Counter-Statement ¶ 34)
An issue in dispute was whether the Restricted Units in the "Hiring Incentive" section of Levy's July 17 employment agreement were subject to accelerated vesting. Although the paragraph describing the Restricted Units was placed in the Hiring Incentive section of the agreement, the acceleration clause arguably applied only to the "Stock Options" (the August 1998 and 1999 options) in that section, and not to the Restricted Units. Artis spoke to several people who were involved in negotiating Levy's original employment, agreement to determine how to address Levy's contention that the Restricted Units were covered by the acceleration clause. Ultimately, Artis and Stanzione decided to allow these Units to accelerate. Artis said that Levy's contention that the Restricted Units were covered by the acceleration clause was "plausible" and that he and Stanzione gave Levy the "benefit of the doubt" regarding this issue. (Artis Dep. at 113-118, 221-222; Lucent's 56.1 ¶¶ 44-47)
On April 27, 1999, Levy sent Artis an e-mail restating his conditions for remaining at Lucent. (Gans Decl., Ex. Q; Levy's 56.1 ¶ 30; Lucent's 56.1 Counter-Statement ¶ 30) The e-mail began: "Thanks very much for your help as we have come to an agreement for a new position at Lucent, resolving the issues arising from my initial contract. In this memo I would like to detail the elements of our agreement so that there is no misunderstanding. If these terms concur with your understanding, please confirm your assent." (Gans Decl., Ex. Q)
This April 27 e-mail, like the March 19 e-mail, had five numbered points. First, Levy wrote: "I will continue my employment with Lucent in a new position. . . ." Second: "By removing direct service provider data networking sales from my responsibility, the `material diminution' clause of my contract is invoked, and my hiring incentive stock options and restricted stock units . . . will be vested and exercisable immediately upon closing the Ascend acquisition." Third: "My current compensation and level will not be lowered. . . ." Fourth:
In the event' that my employment is terminated other
than for cause or unsatisfactory performance . . . all
of my unvested stock options granted or to be granted
will immediately vest and be exercisable for one year.
Further, reduction in the scope of my material
responsibilities can only be with my written consent,
or all unvested options granted or to be granted will
immediately vest and be exercisable. The rights in
this paragraph are in addition to the base compensation
payment in the "Severance Benefit" paragraph (p.4) of
the current agreement.
(Gans Decl., Ex. Q) Finally, fifth: "All other terms and conditions of the July 20, 1998 agreement remain in full force and effect." The e-mail concluded with the following:
Curt, if you agree this letter accurately reflects our
agreement, please sign and date where indicated, or
respond by E-mail as soon as possible.
On behalf of Lucent Technologies, I consent to the
changes in the employment agreement between Lucent and
Michael Levy (July 20, 1998) as provided in this
letter. To the extent that this letter is inconsistent
with the terms of the employment agreement, this letter
Vice President, Personnel
(Gans Decl., Ex. Q)
The next day, on April 28, 1999, Levy and Artis met in Florida, where they were attending a Lucent officers' meeting. (Levy's 56.1 ¶ 34; Lucent's 56.1 Counter-Statement ¶ 34) In their depositions, Artis and Levy gave different accounts of this meeting.
Artis claimed he did not receive Levy's April 27 e-mail prior to the April 28 meeting (Artis Dep. at 230), and he did not recall Levy giving him a copy of the e-mail when they met. (Artis Dep. at 234-35) Artis said that at this meeting he told Levy that Levy's 50,000 options (the August 1998 options) would be accelerated. (Artis Dep. at 232) Artis said also that he "had figured out a way to request the same acceleration on the restricted stock units." (Artis Dep. at 233) Artis said: "[Levy] asked if I would put that in writing and I said no, we don't really need to put it in writing, I'll just make sure it happens." Then, according to Artis, "[Levy] said well, would you mind if I sent you an e-mail reflecting that?" Artis said he responded: "[D]o what you want to do. But I'm just telling you, Dan [StanziLone] and I have talked and we have agreed to your request." (Artis Dep. at 233) Artis asserted that he and Levy did not discuss the consequences of further diminution of Levy's job responsibilities — Levy's request in paragraph 4 of the April 27 e-mail regarding acceleration of the remaining options. (Artis Dep. at 243-245)
Levy gives a different account of the meeting. Levy did not recall whether he gave Artis a copy of the April 27 e-mail, but he said he brought a copy with him to the meeting and showed it to Artis. (Levy's Dep. at 145) Levy said: "I went over each one of the items with him in detail." (Levy's Dep. at 156) Levy said also: "I went over the five points with him, and . . . he seemed in agreement when I talked with him I guess he reserved judgment a little bit." (Levy's Dep. at 172) According to Levy: "[T]hat's why I sent him the memo a few days later confirming our conversation, saying "This is our agreement: . . . if you agree, please let me know by return E-mail or signature or whatever.' And then when he sent me that he agreed, I was very happy." (Levy's Dep. at 172) Levy said that at the April 28 meeting he and Artis specifically discussed his request in paragraph 4 that if his responsibilities were materially diminished again, all his options would vest. (Levy's Dep. at 156-57, 186) Levy claims that Artis told him that what he was asking for was reasonable, but he reserved judgment. Levy's impression was that Artis might have to check the request with someone else. (Levy's Dep. at 186-87)
On May 4, 1999, Levy forwarded to Artis a second copy of the April 27 e-mail. (Levy's 56.1 ¶ 37; Lucent's 56.1 Counter-Statement ¶ 37) On May 5, 1999, Artis responded to Levy by e-mail. He wrote: "Your attached e-mail accurately reflects our verbal agreement." (Gans Decl., Ex. 5; Levy's 56.1 ¶ 38; Lucent's 56.1 Counter-Statement ¶ 38) Later that day, Levy wrote back to Artis stating: "It is a great relief to know that this agreement is now done. As we discussed, efficient execution of this agreement is important to me because of certain real estate transactions, and I'm confident that you will ensure that goes smoothly as well." (Gans Decl., Ex. S; Levy's 56.1 ¶ 39; Lucent's 56.1 Counter-Statement ¶ 39)
Artis stated in his deposition that he only read the first two items of the e-mail before responding. Artis said: "I trusted Mike [Levy], I knew we had had a discussion about some very simple issues, I penned back a response — I should have read it, I didn't." (Artis Dep. at 273)
On June 23, 1999, one day before the closing of the Ascend merger, Artis prepared a memo to "clarify and correct" Levy's July 17, 1998 employment agreement and the Restricted Stock Unit Award Agreement of August 3, 1998. (Levy's 56.1 ¶ 45; Lucent's 56.1 Counter-Statement ¶ 45) This memorandum amended the Restricted Stock Award Agreement to include an accelerated vesting, stating that this was the "original intent." (Gans Decl., Ex. H) Artis could not recall in his deposition whether there was any Board action with respect to this change in the Restricted Units. (Artis Dep. 120-122) John Ingram, who worked for Artis, and Stanzione also could not recall whether the Board had been consulted about this change. (Stanzione Dep. at 58, 167; Ingram Dep. at 96-97) Levy maintains that Artis' actions with respect to the Restricted Units were "unilateral" and without Board approval. (Levy's 56.1 ¶ 49)
Artis or a member of his staff notified Paine Webber, apparently the transfer agent for Lucent shares, that Levy's August 1998 stock options were to become exercisable on or after June 24, 1999, the date of the Lucent-Ascend merger. (Lucent's 56.1 Counter-Statement ¶ 41-43) The Restricted Units were also accelerated and Levy exercised and sold these units along with the August 1998 options approximately one month after the closing of the merger. (Levy's 56.1 ¶ 49; Lucent's 56.1 Counter-Statement ¶ 49)
In July 1999, Levy contacted Artis about the acceleration of his August 1999 options. Artis testified that he told Levy that he could not accelerate these options because they had not been granted yet. (Artis Dep. at 278) At this time, Levy forwarded Artis the exchange of e-mails between them on April 27/May 4 and May 5. Levy pointed Artis to paragraph 2 of the April 27/May 4 e-mail, which stated that the August 1999 options would be priced according to the date of the merger and would immediately vest and be exercisable on this date. (Rizzi Decl., Ex. 15) Levy and Artis discussed in late July the issue of the August 1999 options. (Lucent's 56.1 ¶ 51-54; Levy's 56.1 Counter-Statement ¶ 51-54) Levy's August 1999 options were granted on August 2, 1999 and became immediately exercisable. (Levy's 56.1 ¶ 44; Lucent's 56.1 Counter-Statement ¶ 44)
In mid-August, Levy asked Artis to accelerate his October options. Levy claimed that in the months following the closing of the Lucent-Ascend merger, his job responsibilities diminished further: Responsibilities for Netcare DNS sales were transferred to another division, and the channel sales were never transferred to him. (Levy's 56.1 ¶ 50) In an e-mail dated August 17, Artis denied Levy's request for acceleration. (Levy's 56.1 ¶ 54; Lucent's 56.1 Counter-Statement ¶ 54; Rizzi Decl., Ex. 17) Artis stated that there was "never an intent to re-negotiate" Levy's original employment agreement, and that he had never discussed with Levy a provision for his remaining options to vest upon further diminution of his job responsibilities. (Rizzi Decl., Ex. 17)
On September 1, 1999, Stanzione informed Levy that Lucent had decided to eliminate Levy's position. (Levy's 56.1 ¶ 51; Lucent's 56.1 Counter-Statement ¶ 51) The termination was not for cause or unsatisfactory performance. (Levy's 56.1 ¶ 52; Lucent's 56.1 Counter-Statement ¶ 52)
In his deposition, Stanzione said that he believed the first time he saw the string of e-mails including Levy's, April 27/May 4 e-mails, and Artis' May 5 reply, was in September 1999. Stanzione said he was "surprised" by the e-mails. He said: "I was surprised that they had an agreement, particularly on item 4, which is not identical but reads very similar to what was previously written. . . . I was surprised to see an e-mail from Curt [Artis] agreeing to that since we — he, Curt and I — had discussed as well as the three of us with Mr. Levy that we did not do that kind of thing." (Stanzione Dep. at 154-55)
One week prior to Levy's last day of work, 12,500 of Levy's October options vested at an option price of $29.3594, pursuant to the original vesting terms of the October options grant. (Levy's 56.1 ¶ 56; Lucent's 56.1 Counter-Statement ¶ 56)
On January 3, 2000, with Lucent's stock valued at $74.3125, Levy exercised and sold his 12,5OO October options, with a profit of $44.95 per share. (Levy's 56.1 ¶ 59; Lucent's 56.1 Counter-Statement ¶ 59) Levy asserts that had Lucent given him the option to purchase the remaining 87,500 October options, he would have exercised and sold them on January 3, 2000, and made a profit of about $3.9 million. (Levy's 56.1 ¶ 60; Levy Decl. ¶ 5) He claims that he would have put the $3.9 million into tax-exempt municipal bonds and earned an interest rate of approximately 6 percent. (Levy's 56.1 ¶ 61-62; Levy Decl. ¶ 6)
Levy filed his complaint in this case on April 6, 2001. He alleged three causes of action against Lucent: 1) breach of contract regarding the October options; 2) breach of contract regarding his severance benefit; and 3) tortious interference with prospective economic relations. Levy voluntarily dismissed the second two causes of action. (Levy's Reply Mem. at 28) Thus, only the breach of contract claim regarding the October options remains.*fn2 For the reasons set forth below, both parties' motions for summary judgment on this claim are denied.
The parties' briefs treat New Jersey law as controlling. Such "implied consent . . . is sufficient to establish choice of law." Tehran-Berkeley Civil & Envtl. Eng'rs v. Tippetts-Abbett-McCarthy-Stratton, 888 F.2d 239, 242 (2d Cir. 1989).
A. Formation of a Contract
Levy claims that the exchange of e-mails between himself and Artis formed a binding contract. Levy asserts that in the identical e-mails sent on April 27, 1999, and May, 4, 1999, he set forth the terms on which he was willing to remain at Lucent in a new position. According to Levy, his e-mail was an offer, and Artis' reply — stating that Levy's e-mail accurately reflected their verbal agreement — was the acceptance. (Levy's Mem. at 15)
Levy claims that this agreement was supported by consideration. Levy states: "By agreeing to remain at Lucent through a critical period in which Lucent desperately needed his services, Levy relinquished his right to terminate his employment with Lucent, providing a significant benefit to Lucent, who had much to lose if Levy had left the company." (Levy's Mem. at 16) In return for the promise to stay, Levy argues, he asked for significant job responsibility, the acceleration of his August options and Restricted Units, and a guarantee that if he was terminated for cause or faced material diminution in his job responsibilities in the future, all of his unvested stock options would immediately vest. (Id.) Levy contends that the elements of a binding contract were present: offer, acceptance, and consideration.
Lucent argues that there was no consideration supporting any agreement. Lucent asserts that Levy was an at-will employee who could have left at any time. (Lucent's Mem. at
19) According to Lucent, Levy's "purported promise to stay put was itself not binding, and therefore of no value or benefit to Lucent, or detriment to Levy." (Lucent's Mem. at 20 n. 22)
Lucent is correct that Levy remained an at-will employee. Levy's e-mail message to Artis stated that he would continue to work at Lucent in a new position, but Levy did not promise to stay for any particular period of time. Levy's promise to stay, without a promise to stay for a certain duration of time, is not sufficient consideration to make any promises by Lucent binding.
However, Levy did in fact remain at Lucent during the merger and remained with Lucent until his job was terminated. In an at-will employment, the employer is bound to pay for services rendered by the employee at the rate fixed by the employer's promise. 2 Joseph M. Perillo & Helen H. Bender, Corbin on Contracts § 6.2, at 213 (rev'd ed. 1995). "An agreement for employment terminable at will of either party is not an enforceable contract when made. But performance rendered by the employee under it, before any notice of revocation, creates a unilateral contract binding the employer to pay the specified wage and to perform all other promises that he may have made in the agreement." 1 Joseph M. Perillo, Corbin on Contracts, § 4.2, at 566 n. 44 (rev'd ed. 1995)
The same reasoning supports enforcement of an employer's offer to pay an at-will employee a bonus or pension. 2 Perillo & Bender, supra, § 6.2, at 214-17 ("It is now recognized that [bonuses and pensions] are not pure gratuities but compensation for services rendered. The employer's promise is not enforceable when made, but the employee can accept the offer by continuing to serve as requested, even though the employee makes no promise. There is no mutuality of obligation, but there is consideration in the form of service rendered. The employee's one consideration, rendition of services, supports all the employer's promises, to pay the salary and to pay the bonus." (footnotes omitted))
Courts have used unilateral contract analysis to determine whether an employer's promise regarding compensation to an at-will employee is enforceable. See, e.g., Popovich v. Bekaert Corp., 474 S.E.2d 286, 288 (Ga. Ct. App. 1996) ("[A]n additional compensation plan offered by an employer and impliedly accepted by an employee, by remaining in employment, constitutes a contract between them. . . ." (internal quotation marks omitted)); Cunningham v. 4-D Tool Co., 451 N.W.2d 514, 517 (Mich. Ct. App. 1989) ("Employment contracts can generally be described as unilateral contracts, a unilateral contract being one in which the promisor does not receive a promise in return as consideration. The employer makes an offer or promise which the employee accepts by performing the act upon which the promise is expressly or impliedly based. The employer's promise constitutes, in essence, the terms of the employment agreement; the employee's action in reliance upon the employer's promise constitutes sufficient consideration to make the promise legally binding." (citations omitted)); Leone v. Precision Plumbing & Heating, Inc., 591 P.2d 1002, 1004 (Ariz. Ct. App. 1979) ("It is undisputed that if continued employment is bargained for in making a bonus offer, continued employment is sufficient consideration."); Fries v. United Mine Workers, 333 N.E.2d 600, 604 (Ill.App. Ct. 1975) (enforcing employer's promise to pay pension to employee noting that "[a]n employee may accept an offer of a pension by continuing to work"); see also Mark Pettit, Jr., Modern Unilateral Contracts, 63 B.U.L. Rev. 551 (1983) (noting the widespread judicial use of unilateral contract analysis in employment cases)
Levy's papers argue that the e-mails created a bilateral contract. According to Levy, his e-mail to Artis was the offer, Artis' reply the acceptance, and the exchange of promises was the consideration. (Levy's Mem. at 15) However, the e-mail exchange between Artis and Levy can be viewed instead as an offer by Lucent setting out the terms of Levy's compensation. A jury could find that by commencing and continuing work in the new Lucent position, Levy accepted the compensation terms. His rendering of services could be both acceptance of the offer and consideration supporting the agreement.
Levy and Lucent point to two New Jersey cases that discuss the consideration requirement in an employment contract. In Troy v. Rutgers, 774 A.2d 476 (N.J. 2001), the New Jersey Supreme Court considered whether faculty members at Rutgers could enforce a promise by the University not to change their status as calendar year appointees to academic year appointees. Calendar year appointees received more favorable pay. Id. at 478. The Court, denying summary judgment to Rutgers, held: "[A] fact finder may conclude that defendant promised plaintiffs individually that their status as [calendar year] appointees did not hinge on the performance of specific duties beyond the academic year and that that promise was intended to induce plaintiffs to remain at the University." Id. at 486. The Court said: "Further, a fact finder could conclude that that arrangement could constitute valuable consideration, namely, that plaintiffs enjoyed unconditional [calendar year] status and, in exchange, defendant enjoyed plaintiffs' decision to remain at Rutgers rather than to seek employment elsewhere." Id.
Levy argues that, under Troy there was consideration supporting the e-mail agreement. According to Levy, in order to induce him to stay at Lucent during the merger, Lucent promised him the various provisions in the e-mail agreement, including the promise that if he was terminated other than for cause or if his responsibilities were again materially reduced, his unvested stock options would vest. Levy asserts that in return he remained at Lucent, just as the faculty members stayed with their employer in Troy. (Levy Reply Mem. at, 10)
Lucent points to the New Jersey Supreme Court's decision in Shebar v. Sanyo Business System Corp., 544 A.2d 377 (N.J. 1988). In Shebar, the Court considered whether a promise by an employer (Sanyo) to an employed to terminate his job only for cause was enforceable. The plaintiff, previously an at-will employee, claimed that he had accepted a job offer at Sony and informed Sanyo of his intention to leave. According to the plaintiff, Sanyo told him that if he stayed he would have a job for the rest of his life. Id. at 380. The plaintiff decided to stay at Sanyo, but was later fired. The plaintiff claimed that Sanyo's promise constituted a binding promise to dismiss him only for cause. The Court denied summary judgment to Sanyo holding that a fact finder could conclude that the plaintiff gave consideration for Sanyo's promise. The Court stated: "Taking plaintiffs allegations as true, he agreed to relinquish his new position at Sony in exchange for job security at Sanyo. Sanyo, in turn, agreed to relinquish its right to terminate plaintiff's employment at will in exchange for the retention of a valued employee. Such bargained-for and exchanged promises furnish ample consideration for an enforceable contract." Id. at 383. The Court concluded: "We hold that in this case a jury could find that plaintiff gave valuable additional consideration by forgoing his employment at Sony. We caution that not every relinquishment of a prior job or job offer constitutes additional consideration to support the modification of an at-will employment into employment with termination for cause only." Id.
Lucent argues that the Court in Shebar based its decision on certain facts not present in Levy's case — i.e., that the employee gave up a job with another company. (Lucent's Mem. at 20) Lucent argues that under Sanyo, an employee must give "additional" consideration beyond simply continuing with employment — such as giving up another job offer — for the employer's promise to be binding. (Lucent's Reply Mem. at 7-8) Several courts have held that with regard to an employers' promise to convert at-will employment into a job that could be terminated only for cause, additional consideration, beyond merely providing services incident to the job, is required. See, e.g., Kovacs v. Elec. Data Sys. Corp., 762 F. Supp. 161, 165 (E.D. Mich. 1990); Stumpp v. Stroudsburg Mun. Auth., 658 A.2d 333, 335 (Pa. 1995); Shoen v. Amerco, Inc., 896 P.2d 469, 474 (Nev. 1995). There are no allegations that Levy turned down another job offer or even was seeking employment elsewhere.
The Courts in both Troy and Shebar discussed Woolley v. Hoffmann-La Roche. Inc., 491 A.2d 1257 (N.J. 1985). In Woolley, the New Jersey Supreme Court considered whether provisions promising job security contained in handbooks distributed by employers to employees were enforceable. The Court used unilateral contract analysis, stating that the employee manual is an offer that seeks the formation of a unilateral contract — the employees' bargained-for action needed to make the offer binding being their continued work when they have no obligation to continue." Id. at 1267. The Court concluded that in such a context, consideration would be "presumed." Id. at 1270. The Court in Shebar distinguished Woolley, stating that at issue in Woolley was whether the handbooks had established a company-wide termination policy, whereas Shebar concerned a particular contract with a particular employee. Shebar, 544 A.2d at 383. The Court in Shebar held that in the case of an individual contract, the breach of contract claim "should be analyzed by those contractual principles that apply when the claim is one that an oral employment contract exists." Id. at 383. The Court cited Shiddell v. Electro Rust-Proofing Corp., 112 A.2d 290 (N.J. 1954), which had held that whether an alleged oral promise for long-term employment creates an implied contract depends on "[t]he intent of the parties [that] may be ascertained from the language employed, from all attending circumstances, and from the presence or absence of the giving by the employee of consideration additional to the services incident to his employment." Id. at 296.
The Court in Troy found an alleged "special contract" with each plaintiff, as in Shebar, rather than a Woolley claim. See Troy, 774 A.2d at 485. However, Troy involved a promise related to work schedule and compensation, rather than job security. Although Troy cited Shebar in its discussion of the consideration requirement, there was no allegation in Troy that the plaintiffs turned down other job offers or were seeking employment elsewhere. Rather, the Court held a jury could find the consideration requirement was met because Rutgers made promises that were intended to induce the plaintiffs to remain at the University and the University benefitted from the plaintiffs' decision stay.*fn3
Levy's case is governed by Troy. Levy does not allege that Lucent promised to convert his employment from at-will to termination for cause only. Instead, Levy alleges Lucent made a promise regarding his compensation if his job was terminated or materially diminished. As in Troy, a jury could conclude that the terms set out in the e-mail exchange were intended to induce Levy to remain at Lucent. Indeed, Artis and Stanzione stated in their depositions that Lucent keenly wanted Levy to remain during the merger. (Stanzione Dep. at 48, 94; Artis Dep. at 186) A jury could find Lucent benefitted from Levy's remaining at Lucent, just as Rutgers benefitted from the faculty members' remaining at the school in Troy, and that Levy's performance of services — until Lucent terminated his employment — was consideration for the compensation terms set out in the e-mail. Therefore, Lucent is not entitled to summary judgment on the issue of consideration.*fn4
Levy will not be granted summary judgment on this issue either. There are disputed facts regarding what promises Lucent intended to make to Levy. In particular, Levy and Artis give conflicting accounts of what was discussed and decided during their meeting on April 28, 1999. Artis claimed that they never discussed the October options or the concept of vesting upon further diminution and that he had no intention of making this promise to Levy. Whether Artis intended to induce Levy to stay at Lucent by agreeing with the terms set out in the e-mail is an issue of fact that depends on whose testimony is credited. This credibility determination is for a jury.
2. Meeting of the Minds
Lucent argues also that the e-mails at issue were "cryptic and ambiguous" and no rational juror could find they reflect a meeting of the minds. Lucent says that there was a disconnect between the oral conversations among the parties and the written e-mails. According to Lucent, Artis and Stanzione believed, throughout the negotiations, that they were discussing the acceleration of the compensation components in the "Hiring Incentive" section of Levy's original employment agreement, including the August 1998 and 1999 options and the Restricted Units, and were not seeking to re-negotiate the vesting terms of the October options. (Lucent's Mem. at 16-19; Lucent's Reply Mem. at 3-5) In particular, Artis testified that he did not discuss with Levy on April 28 the possibility that vesting of the October options would accelerate as a consequence of any future job diminution. Lucent asserts also that it is "quite suspect" that the October options at issue were nowhere mentioned by name in Levy's April 27 e-mail. (Lucent's Mem. at 17-18)
Levy responds that paragraph 4 of his April 27 e-mail stated that Lucent would accelerate the vesting of all of his unvested stock options, which included the October options, if Lucent terminated his employment other than for cause or materially reduced his job responsibilities. Levy alleges that in his discussions with Stanzione and Artis he had repeatedly demanded this new acceleration clause and he specifically spoke to Artis about this provision on April 28. (Levy's Reply Mem. at 6-9)
As discussed above, for the e-mail exchange to be a binding contract, it must be viewed as a unilateral contract — the e-mails constituting an offer by Lucent regarding Levy's compensation, and Levy's continued work at Lucent the acceptance of the offer and consideration for the agreement.
The issue that determines whether Lucent intended to offer Levy the vesting of the October options is whether it was reasonable for someone in Levy's position to think that Lucent was making this offer. This is an objective test. Creek Ranch, Inc. v. N.J. Turnpike Auth., 383 A.2d 110, 114 (N.J. 1978) (""What kind of act creates a power of acceptance and is therefore an offer? It must be an expression of will or intention. It must be an act that leads the offeree reasonably to believe that a power to create a contract is conferred upon him.'") (quoting 1 Arthur Linton Corbin, Corbin on Contracts, § 11, at 25 (1962)); St. Paul Fire & Marine Ins. Co. v. Indemnity Ins. Co., 158 A.2d 825, 829 (N.J. 1960) ("[I]f the conduct of defendant objectively viewed, reveals a promise to pay, defendant must meet that obligation whatever may have been its unrevealed expectation."); see also 1 E. Allan Farnsworth, Farnsworth on Contracts § 3.10, at 235 (2d ed. 1998) ("Conduct that would lead a reasonable person in the other party's position to infer a promise in return for performance or promise may amount to an offer.")
There are disputed issues of material fact that bear on this matter. A reasonable jury could credit the testimony of Artis, who claims that he and Levy never discussed vesting of the October options, and decide it was not reasonable for Levy to think that Artis was making an offer to vest these options. However, a reasonable jury could instead credit Levy's testimony that he and Artis discussed the vesting of the October options in the April 28 meeting. Although Levy stated that Artis reserved judgment on his vesting request, a jury could find it was reasonable for Levy to think, after receiving the May 5 e-mail, that Artis had decided to grant his request. A jury could conclude that it was reasonable for Levy to think that if he stayed at Lucent, the company would be bound to vest the October options if his job was terminated or diminished.
3. Equitable Fraud
Lucent argues equitable fraud as an affirmative defense. In essence, Lucent argues that Artis and Levy reached an oral agreement on April 28 about the vesting of the August 1998 and August 1999 options, and the Restricted Units. Levy said he would commit the agreement to writing, and Artis trusted that the e-mail he received on May 5 accurately reflected their oral agreement. Lucent claims that the vesting of the October options was never mentioned in negotiations and Levy's insertion of the vesting clause covering these options amounted to equitable fraud that bars enforcement of the agreement. (Lucent's Mem. at 21-23)*fn5
Levy responds that he never hid or misrepresented what he wanted. Instead, throughout his negotiations with Lucent, he claims he took a consistent position: he wanted to make sure that if Lucent fired him or materially reduced his job responsibilities again, all his unvested stock options would be immediately exercisable. (Levy's Reply Mem. at l2-15) *fn6
The issue of equitable fraud in this case is tied to the issue of whether a contract was formed at all. If Levy tricked Artis in the way Lucent suggests, then Levy could not have reasonably thought Artis was making him an offer to accelerate the October options. If there was no offer, there can be no contract. Whether a contract was formed must be resolved by weighing the testimony of Artis and Levy, which cannot be done at the summary judgment stage.
Levy asserts that the parol evidence rule should bar Lucent from claiming that Artis never agreed to the terms of the April 27/May 4 e-mail. (Levy's Mem. at 20-21) However, the parol evidence rule does not bar testimony relating to whether parties actually entered into an agreement. See 3 Arthur Linton Corbin, Corbin on Contracts § 577 (1960) ("[I]t is certain that we need not begin excluding parol evidence until we know that a contract has been made."). Furthermore, parol evidence may be used to prove fraud. See Alexander v. CIGNA Corp., 991 F. Supp. 427, 437 (D.N.J. 1998) (stating that "introduction of extrinsic evidence to prove fraud in the inducement is a well-recognized exception to the parol evidence rule" under New Jersey law) (citing Winoka Village v. Tate, 84 A.2d 626 (N.J. Super. Ct. A.D. 1951)). Artis' testimony about negotiations with Levy can be used for these purposes.
B. Actual and Apparent Authority
Lucent argues that neither Stanzione nor Artis had the actual or apparent authority to amend the vesting date of the October options.*fn7 According to Lucent, even if a contract was formed, it is not enforceable against Lucent. Lucent maintains that the Board (or the Committee of the Board) had the exclusive authority to accelerate vesting dates, and because the Board never approved the vesting, Levy's claim must be denied. Lucent contends that Levy is a sophisticated executive who cannot plausibly argue that he really believed Stanzione or Artis had the apparent authority to change the vesting dates. (Lucent's Mem. at 24-27)
Lucent argues that the Board's Table of Delegations specifically limited Artis' role respecting stock options to "purely administrative and ministerial functions, like preparing the Stock Option Agreements for the employee's signature, after the Board had approved the grant and set its terms." (Lucent's Mem. at 26) The Table of Delegations provides that, with respect to the 1996 Long Term Incentive Program, the Senior Vice President of Human Resources — Artis' position — was "[a]uthorized to":
Execute plan amendments approved by the Board or
Corporate Governance and Compensation Committee and
make technical or Legally Required changes in
consultation with the Law Division
Prepare and execute all documents and agreements
necessary or appropriate in connection with awards
granted by the Board or Corporate Governance and
Adopt other administrative rules and procedures
(Gans Decl., Ex. E)
Levy responds that the Table of Delegations gave Artis the authority to accelerate options that had already been granted by the Committee. According to Levy, the e-mail contract was an agreement" that was "necessary or appropriate" in connection with awards granted by the Committee. Levy emphasizes that he is not arguing that Artis had authority to grant new options, but rather that he had the authority to agree to accelerate the vesting terms of options already granted by the Committee. Levy asserts that nothing in the grant of authority limits Artis to "ministerial' actions." (Levy's Reply Mem. at 17)
According to Lucent, its 1996 Long Term Incentive Program Program ("LTIP") document makes it clear that the Committee had the final say regarding Levy's stock options. Levy's stock options and restricted units were granted subject to the terms of the LTIP, which provided:
SECTION 3. Administration. The Plan shall be
administered by the [Corporate Governance and
Compensation Committee of the Board]. The Committee
shall have full power and authority . . . to (i)
select the Employees of the Company . . . to whom
Awards may from time to time be granted thereunder;
(ii) determine the type or types of Award to be
granted to each Participant thereunder; (iii)
determine the number of Shares to be covered by each
Award granted hereunder; (iv) determine the terms and
conditions, not inconsistent with the provisions of
the Plan, of any Award granted hereunder; . . . (vi)
interpret and administer the Plan and any instrument
or agreement entered into under the Plain; . . .
(viii) establish such rules and regulations and
appoint such agents as it shall deem appropriate for
the proper administration of the Plan; and (ix) make
any other determinations and take any other action
that the Committee deems necessary or desirable for
administration of the Plan. Decisions of the Committee
shall be final, conclusive and binding upon all
Persons, including the Company, any participant, any
shareowner, and any employee of the Company or any
SECTION 6. STOCK OPTIONS. Options may be granted
hereunder to Participants either alone or in addition
to other Awards granted under the Plan. Options may be
granted for no consideration or for such consideration
as the Committee may determine. Any Option granted
under the Plan shall be evidenced by an Award
Agreement in such form as the Committee may from time
to time approve. Any such Option shall be subject to
the following "terms and conditions and to such
additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall
(a) OPTION PRICE. The exercise price per share under an Option
shall be determined by the Committee in its sole discretion;
provided that except in the case of an Option pursuant to
a Substitute Award, such purchase price shall not be less than the
Fair Market Value of a Share on the date of the grant
of the Option.
(b) OPTION PERIOD. The term of each Option shall be fixed by the
Committee in its sole discretion; provided that no Incentive
Stock Option shall be exercisable after the expiration of ten years
from the date the Option is granted.
(c) EXERCISABILITY. Options shall be exercisable at such
time or times as determined by the Committee at or
subsequent to grant. Unless otherwise determined by
the Committee at or subsequent to grant, no Incentive
Stock Option shall be exercisable during the year
ending on the day before the first anniversary date of
the granting of the Incentive Stock Option.
(Rizzi Decl., Ex. 1) Lucent argues that these provisions make it clear that Lucent's Committee controls when stock options will vest.
Levy responds that the LTIP did not foreclose Artis from agreeing to accelerate the vesting terms of stock options that had already been granted by the Committee. Levy argues that although Section 6 gives the Committee authority to fix the vesting of stock options, it does not give the Committee exclusive authority to fix the vesting of stock options previously granted by the Committee. Under Section 6, both the price of stock options and the term of stock options (Section 6(a) and (b)), "shall be determined by the Commonittee in its sole discretion." However, Section 6(c) states only that "[o]ptions shall be exercisable at such time or times as determined by the Committee at or subsequent to grant" and does not give the Committee this power in its "sole discretion." (Levy's Reply Mem. at 18) Levy's options were "nonstatutory stock options" as opposed to "incentive stock options" — thus the last sentence of Section 6(c) does not apply. However, Levy argues that this sentence directs that only the Committee could alter the vesting date of Incentive Stock Options to make such options exercisable within one year of the grant date. The fact that no similar provision appears regarding the "nonstatutory" stock options, according to Levy, suggests the Committee did not have exclusive authority under the LTIP to set vesting dates of these options. (Levy's Reply Mem. at 18 n. 13)
"An agency relationship is created when one party consents to have another act on its behalf, with the principal controlling and directing the acts of the agent." Complaint of Beesley's Point Sea-Doo, Inc., 956 F. Supp. 538, 543 (D.N.J. 1997) (citing Sears Mortgage Corp. v. Rose, 634 A.2d 74, 79 (N.J. 1993)) . "Actual authority is the authority that a principal expressly or implicitly gives an agent." Automated Salvage Transp., Inc. v. NV Koninklijke KNP BT, 106 F. Supp.2d 606, 617 (D.N.J. 1999). "Express authority is manifested through the principal's words or other conduct," id., and arises when a principal ""specif[ies] minutely what the agent is to do,'" id. (quoting Restatement (Second) of Agency § 7 cmt. c (1958)).
No reasonable jury could find that the Table of Delegations and the LTIP document gave Artis express authority to change the vesting dates of options. The LTIP states that "Options shall be exercisable at such time or times as determined by the Committee at or subsequent to grant." The LTIP does not indicate that anyone other than the Committee may fix vesting dates. Nor does Levy suggest a meaningful' distinction based on the presence of the phrase "sole discretion" in Sections 6(a) and (b), and its absence from Section 6(c). Section 6(a) and Section 6(b) are structured in the same way: the Committee has "sole discretion" to set the price and term of options, except that the discretion is constrained in particular ways — purchase price must not be less than the fair market value of the share on the date of the grant (except with one type of option), and the term of Incentive Stock Options cannot be more than 10 years. Section 6(c) is structured differently. This provision states that options will be exercisable at the times determined by the Committee. The provision then sets a default rule: unless otherwise determined by the Committee, no Incentive Stock Option will be exercisable during the first year after the grant. The phrase "sole discretion" may have been included in Section 6(a) and (b) because the latter part of these provisions limited the Committee's discretion. No part of Section 6(c) limits the Committee's "discretion. The lack of the phrase "sole discretion" in Section 6(c) fails to raise an inference that someone other than the Committee has authority regarding vesting dates.
Neither the LTIP nor the Table of Delegations can be read as an express grant of authority to Artis to change vesting dates of options. The Table of Delegations provides that Artis has the authority to "[p]repare and execute all documents and agreements necessary or appropriate in, connections with awards granted by the Board or Corporate Governance and Compensation Committee." The "documents and agreements" referred to in the Table of Delegations include the agreements prepared by Artis and his staff in conjunction with the Committee's grant of awards. (See, e.g., Gans Decl, Ex. G) When viewed in conjunction with the LTIP, this sentence cannot reasonably be read as a grant of authority to Artis to change vesting dates of options.
Although no reasonable jury could find that Artis had express authority, a reasonable jury could find that Artis had implied authority. "There need not be an agreement between parties specifying an agency relationship. . . . Implied authority may be inferred from the nature or extent of the function to be performed, the general course of conducting the business, or from particular circumstances in the case." Sears Mortg. Corp., 634 A.2d at 79 (internal quotation marks and citations omitted)
Levy points out that Artis accelerated the vesting of Levy's Restricted Units without getting the approval of the Board. According to Levy, Lucent has offered no explanation for why Artis could accelerate the vesting of the Restricted Units, but lacked the authority to accelerate Levy's October options. Artis, in deciding to accelerate the Restricted Units, said the he was giving Levy the "benefit of the doubt" regarding the July 17, 1998 agreement and was "clarifying" or' "correcting" the agreement rather than changing it. (Lucent's 56.1 ¶ 47-48) However, it appears that prior to Artis' "clarification" of the agreement as to Restricted Units, Lucent was of the view that these units were not subject to acceleration. On August 3, 1998, the Committee granted Levy's Restricted Units but included no provision making these units subject to an acceleration clause. In the same document, the Committee granted Levy's August 1998 options, and specifically provided that these options were subject to accelerated vesting if Levy's job was terminated or diminished. (Gans Decl., Ex. L) Thus it appears that the Committee granted the Restricted Units without intending that they be subject to the accelerated vesting provision. Levy's Restricted Stock Unit Award Agreement, prepared after the Committee's grant, does not include an acceleration provision (Rizzi Decl., Ex. 4), whereas his Nonstatutory Stock Option Agreement, for the August 1998 options, does contain this provision (Gans Decl., Ex. G). However, Artis, apparently without seeking approval from the Committee, wrote a memorandum in June 1999 stating that the Restricted Units were covered by the acceleration clause, and directed Paine Webber to accelerate their vesting. (Levy's 56.1 ¶ 46)
Although it is possible that Artis' authority to vest stock options differed from his authority to vest Restricted Units, Lucent offers no source or explanation for such a difference.*fn8 Artis' acceleration of the Restricted Units suggests either that he also possessed the authority to agree to change the vesting provisions of the October options, or that he lacked authority to take the actions he took with regard to the Restricted Units. A reasonable jury could find that Artis' acceleration of the Restricted Units, and Lucent's apparent ratification of this action to Levy's direct benefit — Levy was able to sell these units in July 1999 — show that Artis had implied authority to change the vesting dates of the October options.
Even if a person is not an "actual agent," that person may be an agent by virtue of "apparent authority." Sears Mortgage, 634 A.2d at 79. "Apparent authority results from a manifestation by a person that another is "his agent, the manifestation being made to a third person and not, as when [actual] authority is created, to the agent." Restatement (Second) of Agency § 8 cmt. a (1958); see also Automated Salvage Transp., 106 F. Supp.2d at 618 ("Apparent authority arises in those situations where the principal causes persons with whom the agent deals to reasonably believe that the agent has authority."). Thus, actual authority is created by conduct of the principal toward the agent; apparent authority arises from conduct of the principal toward a third party.
"The rule is that the principal is bound by the acts of his agent within the apparent authority which he knowingly permits the agent to assume, or which he holds the agent out to the public as possessing. The question in every case depending upon the apparent authority of the agent is whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform the particular act in question." Am. Well Works v. Royal Indem. Co., 160 A. 560, 562 (N.J. 1932). The Court in American Well Works concluded: "[W]hen, as here, the party, relying upon such apparent authority, presents evidence which would justify a finding in his favor, he is entitled to have the question submitted to the jury." Id.; see also, Automated Salvage Transp., 106 F. Supp.2d at 619 ("Whether an agent is cloaked with apparent authority is a factual question. The often stated question for the trier of fact is whether the principal, by his voluntary actions, placed the agent "in such a situation that a person of ordinary prudence, conversant with general business practice, is justified in believing that the agent had authority to perform the act in question.") (citations omitted); Legge Indus. v. Joseph Kushner Hebrew Acad./JKHA, 756 A.2d 608, 621 (N.J. Super. A.D. 2000).
Lucent argues that the Board's exclusive authority to vest stock options should be "common knowledge," especially to a sophisticated corporate executive like Levy, who has had so much experience, and made so much money, with stock options." (Lucent's Mem. at 3). Lucent emphasizes that Levy received the LTIP document when he signed his employment agreement and his stock award agreements. (Lucent's 56.1 ¶ 14) According to Lucent, even if Levy's belief in Artis' authority was sincere, it was "patently unreasonable and unjustified given all of the record." (Lucent's Mem. at 26) Lucent asserts also that Levy, in making his apparent authority claim, cannot rely on either the Table of Delegations or Artis' memorandum regarding the Restricted Units because Levy saw these documents for the first time after discovery for this litigation commenced. (Lucent's Mem. at 27)
However, Levy need not base his apparent authority claim on either of these documents. At the time of the negotiations in April and May 1999, Levy had already signed award agreements relating to his Restricted Units and October options. Neither agreement provided for accelerated vesting, yet Artis accelerated the Restricted Units. Levy's ability to sell these Units in July 1999 suggests Lucent's acquiescence in Artis' actions. Levy provided services to Lucent — i.e., consideration — after he sold the Restricted Units in July 1999. A reasonable jury could find that Levy was justified in believing that Artis had authority to accelerate the vesting dates of the October options because he had accelerated the vesting dates of the Restricted Units.*fn9 Therefore, summary judgment for Lucent on this issue is not proper. Levy's summary judgment motion is denied also, as a jury could find instead that Levy's belief regarding Artis' authority was not justified.
Finally, Levy argues that Lucent is estopped to claim that the Board's approval was necessary to accelerate the vesting of Levy's October options. He reasons that because Lucent made Artis and his staff responsible for preparing compensation matters for submission to the Board, and they failed to do so with respect to Levy's October options, Lucent cannot now complain that the matter was not submitted to the Board. (Levy's Mem. at 26-28) Levy cites Ward v. Merrimack Mut. Fire Ins. Co., 753 A.2d 1214, 1218 (N.J. Super. Ct. App. Div. 2000), which states: "a party to a contract may not avail itself of a condition precedent where by its own conduct it has rendered compliance therewith impossible."
However, at issue in this case is whether Artis had the authority, without Board approval, to change vesting dates of stock options. For the contract to be binding against Lucent, Artis must have had actual or apparent authority to enter into the agreement. Lucent does not argue that' the Board's approval was necessary as a condition precedent to the formation of the contract, but rather argues that Artis lacked authority without Board approval. Therefore, Levy's estoppel argument fails.
For the reasons stated above, both parties' motions for summary judgment on the breach of contract claim regarding the October options are denied.