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A federal judge improperly ruled in favor of former IBM executive Edward W. Lucente in his fight over millions of dollars in stock options, the 2nd U.S. Circuit Court of Appeals has ruled. Finding that a jury should be allowed to decide the “bedrock question” of whether Lucente quit or was fired by the computer giant, the 2nd Circuit reversed Southern District of New York Judge Colleen McMahon, who had granted him summary judgment. “In deciding a motion for summary judgment, the district court’s function is not to weigh the evidence or resolve issues of fact,” the appeals court said in Lucente v. International Business Machines, 01-7857. “[I]t is confined to deciding whether a rational juror could find in favor of the non-moving party.” By 1991, Lucente had worked at IBM for 31 years and risen to become head of the Amonk, N.Y., company’s Asian-Pacific division. After being told that he would be losing some responsibilities, Lucente left the company and signed on with Northern Telecom Ltd., a job that IBM told Lucente would not violate the company’s non-compete policy. But the company felt differently two years later when Lucente moved to Digital Equipment Corp., which IBM viewed as a direct competitor. After IBM invoked a “forfeiture-for-competition” clause and revoked Lucente’s stock options, he filed suit in the Southern District. Judge McMahon granted summary judgment for Lucente on his breach of contract claim and IBM appealed to the 2nd Circuit, arguing that genuine issues of fact remained to be decided by a jury, and not McMahon. Writing for the 2nd Circuit, Senior Judge Joseph M. McLaughlin said New York law frowns on restrictive employment covenants with “one salient exception,” where an employee “has been afforded the choice between not competing (and thereby preserving his benefits) or competing (and thereby risking forfeiture).” The so-called employee choice doctrine, he said, turns on three factors. An employer who invokes the doctrine must show a “continued willingness to employ the party,” the doctrine cannot be used where an employee is fired without cause, and finally, “the factual determination whether an employee was involuntarily terminated is generally not appropriate for summary judgment,” he said. “Applying these standards to the present case, the district court’s grant of summary judgment on Lucente’s breach of contract claim was erroneous,” Judge McLaughlin said. “In finding that Lucente had been involuntarily terminated by IBM … the district court resolved numerous factual discrepancies in Lucente’s favor. In doing so, the court usurped the jury’s province as fact-finder.” Of the many factual issues in dispute, the appeals court said, was IBM’s claim that Lucente checked with IBM’s counsel on the “forfeiture-for-competition” clause before taking the job at Digital Equipment, and that he was told by counsel that he would lose his stock options if he moved to the competitor but took the job anyway. Another issue, McLaughlin said, was that former IBM Chief Executive John Akers claimed to have discussed the possibility of Lucente moving to another position in the company, a claim McLaughlin said was “ignored” by the district court. Similarly, the appeals court said, Judge McMahon “ignored evidence presented by IBM that Lucente’s move to Northern Telecom was voluntary,” including his higher base salary at the new company, the opportunity to succeed the CEO at Northern Telecom, and the fact that Lucente “met with the CEO of Northern Telecom in the summer of 1990, several months before he began to sense that he was no longer in favor at IBM.” The 2nd Circuit also reversed McMahon’s dismissal of a breach of contract counterclaim brought by IBM against Lucente. PROVISIONS UNRELATED Judge McMahon had found that the agreement’s non-competition provisions were unrelated to a $675,000 severance payment to Lucente being challenged by IBM. In addition, she found that the non-competition provisions were unreasonable as a matter of law. “We find both of these conclusions erroneous,” Judge McLaughlin said. Finally, the 2nd Circuit found that the lower court erred in allowing Lucente to amend his complaint to change his theory of recovery. Senior Judge Amalya Kearse and Southern District Judge George B. Daniels, sitting by designation, joined in the opinion. Peter T. Barbur of Cravath, Swaine & Moore and Donald J. Rosenberg and Theresa K. Mohan, both of IBM, represented the company. Douglas L. McCoy and David R. Quittmeyer of Hand Arendall in Mobile, Ala., represented Lucente.

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