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International Business Machines Corp. v. Naganayagam

United States District Court, S.D. New York

November 21, 2017

International Business Machines Coiporation Plaintiff,
v.
Nagaseelan Naganayagam Defendant.

          OPINION & ORDER

          NELSON S. ROMAN, UNITED STATES DISTRICT JUDGE

         Plaintiff International Business Machines ("IBM") brings this action against Defendant Nagaseelan Naganayagam ("Naganayagam") for breach of contract, alleging that it is due $112, 260.81 for the value of rescinded stock options and equity awards previously given to Defendant-a former employee of IBM.

         Presently before the Court is Plaintiffs motion for summary judgment and Defendant's cross-motion pursuant to Rule 37 of the Federal Rules of Civil Procedure for spoliation sanctions. For the reasons that follow, Plaintiffs' motion is GRANTED and Defendants' motion is DENIED.

         BACKGROUND

         I. Factual Background

         The following undisputed facts are taken from the parties' respective Rule 56.1 statements, [1] affidavits, and exhibits submitted in support of their motions. Disputed facts along with the allegations made in the parties' operative pleadings will be discussed as relevant.

         IBM is an information technology corporation organized under the laws of the State of New York, with its headquarters and principal place of business in Armonk, New York. (Defendant's Local Civil Rule 56.1 Counterstatement of Material Facts ("Def.'s 56.1 Reply"), ¶ 1, ECF No. 62.) Defendant is a former employee of IBM who served as a Vice President in the Global Business Services Division of IBM Australia. (Id. ¶ 3.)

         During the course of his employment at IBM, Defendant received long term incentive and equity awards under the terms and conditions of IBM's Long Term Performance Plan (the "Plan") and Equity Award Agreements dated June 8, 2009, June 8, 2010, June 8, 2011, and June 8, 2012 (collectively the "EAAs"). (Id. ¶¶ 5, 10.) Under the EAAs, Defendant was granted Restricted Stock Units ("RSUs"), which were scheduled to vest on later dates in accordance with his continued employment with IBM. (Id. ¶ 11.) Both the Plan and the various EAAs include terms for the possible cancellation and rescission of the awards granted to Defendant. (Id. ¶¶ 8, 14, 16.) Namely, Section 13(a) of the Plan states, in pertinent part:

"[IBM] may cancel, rescind, suspend, withhold or otherwise limit or restrict any unexpired, unpaid, or deferred Awards at any time if the Participant. . . engages in any 'Detrimental Activity.' For the purposes of this Section 13, 'Detrimental Activity' shall include: (i) the rendering of services for any organization or engaging directly or indirectly in any business which is or becomes competitive with the Company, or which organization or business, or the rendering of services to such organization or business, is or becomes otherwise prejudicial to or in conflict with the interests of the Company.

(Decl. of Barbara M. Maisto in Supp. for PL's Mot. for Summ. J. ("Maisto Decl."), Ex. G, 1999 Long-Term Performance Plan, at 9, ECF No. 60.)

         Section 13(b) of the Performance Plan further provides that if a Participant "fails to comply with the provisions of [Section 13(a)] prior to, or during the Rescission Period, then any exercise, payment or delivery may be rescinded within two years after such exercise, payment or delivery." (Mat 10.)

         Similarly, the various EAAs executed by Defendant during his employment reiterate that "IBM may cancel, modify, rescind, suspend, withhold or otherwise limit or restrict [the] Award[s] in accordance with the terms of the Plan, including, without limitation, canceling or rescinding this Award if [the Participant] render[s] services for a competitor piior to, or during the Rescission Period." (Def.'s 56.1 Reply ¶ 13.) Under the terms of the EAAs, the scope of the Rescission Period is defined as twelve months. (Id.)

         In June of 2013, the RSUs awarded to Defendant in June of 2009, 2010, 2011, and 2012 vested and were released into Defendant's Morgan Stanley Smith Barney account. (Id. ¶¶ 17-20.) As a result, Defendant realized gains totaling $112, 260.81. (Id. ¶ 21.)

         Subsequently, Defendant voluntarily resigned from IBM on March 31, 2014. (Id. ¶ 23.) On April 7, 2014-roughly one week after his resignation from IBM-Defendant became employed by Computer Science Corporation ("CSC") as Vice President, General Manager, and Managing Director for its Australia/New Zealand Region. (Id. ¶ 24.) CSC is an information technology corporation that provides services including application management, infrastructure, business consulting, technology and systems integration and enterprise resource planning to clients in the banking, healthcare, and insurance industries. (Id. ¶ 25.)

         In connection with his employment for CSC, Defendant accepted the written terms of an offer letter dated February 27, 2014 (the "Offer Letter"). (Id. ¶ 33.) This Offer Letter included a non-compete provision, under which Defendant agreed that he "would not compete with CSC by joining IBM." (Id. ¶ 37, Maisto Decl., Ex. O, Offer Letter, at 2.) Further, the Offer Letter contained an indemnification provision, stating that "CSC will indemnify [Defendant] for any loss in IBM equity value resulting from violation of [his] non-competition agreement with IBM." (Id. ¶ 35.)

         II. Procedural Background

         Plaintiff initiated this action by filing the Complaint on October 09, 2015, seeking to enforce the terms of the contract and rescind the aforementioned pecuniary gains awarded to Defendant. Specifically, Plaintiff argues that CSC and IBM are competitors, making Defendant's employment with CSC a "detrimental activity" under the terms of the Plan. (Compl. ¶¶ 36-37, ECFNo. 1.)

         On February 24, 2016, this Court issued a discovery plan and referred this case to Magistrate Judge Lisa Margaret Smith. (Civil Case Discovery Plan and Scheduling Order, ECF No. 25; Order Referring Case to Magistrate Judge, ECF No. 24.) Shortly thereafter, Defendant served his first set of interrogatories and requests for production of documents, which included "requests for all documents relating to Defendant's employment with IBM, Defendant's departure from IBM, and documents relating to Defendant's defenses." IBM v. Naganayagam, No. 15-CV-7991(NSR)(LMS), slip op. at 2 (S.D.N.Y.Dec. 09, 2016). IBM produced certain documents, but otherwise broadly retorted that the document requests were "vague, ambiguous, unduly burdensome and overbroad." Id In June of 2016, Defendant was deposed by Plaintiffs counsel. (Decl. of Justin V. Sumner in Opp. to PL's Mot. for Summ. J. ("Sumner Decl."), Ex. C, Nagaseelan Dep., June 29, 2016, ECF No. 63.) During his deposition, Defendant described working on "strategic business paper[s]" in which IBM identified their marketplace competitors during his employ at IBM. (Id. at 101:4-25.) Defendant claimed these strategic plans omitted any mention of CSC as an IBM competitor in Australia and New Zealand. Id. While Defendant admitted he did not possess these documents, he testified to their existence and asserted that they are in IBM's possession. (Id.)

         In July of 2016, Defendant's counsel deposed IBM employee Lisa Caldwell. (Sumner Decl., Ex. H, Lisa Caldwell Dep., July 11, 2016.) During her deposition, Caldwell testified that while she was "sure" she had sent and received emails regarding Defendant's departure from IBM, no "hold" was ever placed on her emails or other documents. (Id. at 27:8-28:22.) Similarly, during a deposition held on July 26, 2016, another IBM employee-Sudhir Mattoo, the Human Resources Leader in Defendant's division at IBM-testified that he was never asked to retain emails he sent or received about Defendant's departure from IBM. (Sumner Deck, Ex. F, Sudhir Mattoo Dep. 43:3-7, July 26, 2016.)

         On August 4, 2016, Plaintiff submitted a letter to this Court seeking leave to file a motion for summary judgment. (ECF No. 33.) The very next day, Defendant's counsel indicated their intention to proceed with a motion for spoliation sanctions relating to IBM's alleged failure to preserve e-mails relevant to the present litigation. (ECF No. 34.)

         On August 29, 2016, Defendant requested that Plaintiff produce all documents that evidence, relate, or refer to: "(1) IBM's strategic business plans for the Australia and New Zealand markets between January 1, 2013 and June 1, 2015, (2) companies IBM identified as competitors for the Australia and New Zealand markets between January 1, 2013 and June 1, 2015, (3) [Defendant's] defense that CSC is not a competitor of IBM for the purposes of IBM's Long Term Performance Plan." Naganayagam, 15-CV-7991(NSR)(LMS), slip op. at 3 (internal quotation marks omitted). IBM objected to the request for production, arguing that Defendant's request was untimely, disproportionate to the needs of the case, and sought the production of privileged, highly confidential and proprietary material. Id.

         On October 31, 2016, Defendant filed amotion to compel production of "IBM's strategic plans for Australia and New Zealand, e-mails related to Defendant's departure from IBM that were referenced in Lisa Caldwell's deposition, a list of Defendant's accounts, and Defendant's own e-mails from the course of his employment at IBM." Id. at 5. Plaintiff filed an opposition to the motion to compel reiterating its aforementioned objections and arguing that based on the testimony of the deponents and an apparent concession of defense counsel during a prior conference, it was settled that IBM and CSC are competitors-rendering the requested material irrelevant. Id. at 5-6.

         Judge Smith issued an Opinion and Order on December 9, 2016, denying Defendant's request to compel the production of both his own emails and client account information as well as Lisa Caldwell's emails, finding that Defendant had failed to establish the relevance of these materials. However, Judge Smith ruled that Plaintiff was ...


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