Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

LEVY v. LUCENT TECHNOLOGIES

January 13, 2003

MICHAEL LEVY, PLAINTIFF,
v.
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.

I.

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 ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.