Int'l Bus. Machs. Corp. v. Mueller

INTERNATIONAL BUSINESS MACHINES CORPORATION, Plaintiff, v. UWE MUELLER, Defendant.

No. 14-CV-9221 (KMK)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

September 27, 2017

OPINION & ORDER

Appearances:

Jerome P. Coleman, Esq.

Barbara M. Maisto, Esq.

Steven A. Zuckerman, Esq.

Putney Twombly Hall & Hirson LLP

New York, NY

Counsel for Plaintiff

Daniel Turinsky, Esq.

Eric J. Wallach, Esq.

DLA Piper US LLP

New York, NY

Counsel for Defendant

KENNETH M. KARAS, District Judge:

Plaintiff International Business Machines Corporation ("IBM" or "Plaintiff") brings this Action against Defendant Uwe Mueller ("Defendant" or "Mueller"), alleging that it is due $1,114,088 for the value of the gain received by Defendant for stock options and equity awards previously granted during the course of Defendant's employment. (See generally Compl. (Dkt. No. 1).) Before the Court is Defendant's Motion To Dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) (the "Motion"). For the reasons to follow, Defendant's Motion is denied.

I. Background

A. Factual Background

The following facts are drawn from Plaintiff's Complaint, and are taken as true for the purpose of resolving the Motion.

IBM is a New York corporation, organized under the laws of the State of New York and with its principal place of business in New York. (See Compl. ¶ 1.) Defendant, a citizen of the Republic of Germany, is a former employee of IBM, who served as a Managing Director for IBM in Munich, Germany and was responsible for selling IBM products and services to the BMW Group. (See id. ¶¶ 2-3.) While employed with IBM, Defendant participated in the IBM 2001 Long-Term Performance Plan (the "Performance Plan") and various Equity Award Agreements ("EAAs"), wherein he received stock options and equity awards (collectively, "Awards") pursuant to the Terms and Conditions of "Your Equity Award: Effective June 8, 2011" ("Terms and Conditions," collectively with the Awards, the "Award Agreements"). (Id. ¶¶ 4, 13.) According to Plaintiff, the purpose of the Performance Plan was to "attract, motivate and retain selected employees . . . by making long-term incentive and other awards under the Plan, thereby providing Participants with a proprietary interest in the growth and performance of the Company." (Id. ¶ 8.)

The Award Agreements each contain cancellation and rescission provisions that the Parties each agreed to as part of the distribution of any such Awards delivered in the course of employment at IBM. Section 13(a) of the Performance Plan provides, in relevant 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 servicesto such organization or business, is or becomes otherwise prejudicial to or in conflict with the interests of the Company.

(Id. ¶ 15 (emphasis omitted).) Section 13(b) of the Performance Plan covers those Awards that have already been granted and provides that if a Participant "fails to comply with [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." (Id. ¶ 16.) This Rescission Period is defined in the EAAs as the 12 months immediately following "any exercise, payment or delivery pursuant to an Award." (Id. ¶ 45.) These EAAs establish additional terms and conditions by which "IBM may cancel, modify, rescind, suspend, withhold or otherwise limit or restrict [the Awards]" if Defendant were to "render services for a competitor prior to, or during the Rescission Period." (Id. ¶ 17.) Acceptance of the Awards is contingent upon this "Cancellation and Rescission" portion of the EAAs. (Id. ¶ 18.)

The Performance Plan further specifies in Section 15(e) that the Performance Plan and all EAAs are governed by New York law and that recipients of Awards have submitted to the exclusive jurisdiction and venue of the federal or state courts of New York, County of Westchester, to resolve disputes arising out of, or related to, the Performance Plan or any related EAAs. (See id. ¶ 33; see also Aff. of Catherine Hall in Supp. Of Def.'s Mot. To Dismiss ("Hall Aff.") Ex. A ("Performance Plan") at 9 (Dkt. No. 32).)¹ The Terms and Conditions incorporated into the EAAs include nearly identical language to that of the Performance Plan. (See Compl. ¶ 34; see also Hall Aff. Ex. Ex. C ("2003-2007 EAAs"), D ("Terms and Conditions") at 4, E("2011 EAA").)² Both documents also provide that a recipient of Awards must pay all costs and expenses incurred by Plaintiff, including reasonable attorney's fees, in the event that Plaintiff prevails in an action to enforce the Performance Plan terms of any EAAs. (See Compl. ¶ 35-36.)

In 2011, Defendant began to exercise the Awards he had received between 2003 and 2007. (See id. ¶ 31; see also Hall Aff. Ex. F ("Stock Exercise Confirmations").)³ Specifically, Defendant exercised nonqualified stock options on April 21, 2011 resulting in a gain in the amount of $122,552. (See Compl. ¶¶ 23-24.) Four days later, on April 25, 2011, Defendant exercised additional nonqualified stock options valued at $441,222. (See id. ¶¶ 25-26.) Then, on December 5, 2011, Defendant exercised the final nonqualified stock options at issue, valued at $505,643. (See id. ¶¶ 27-28.) Additionally, on June 8, 2011 Defendant exercised 654 restricted stock units ("RSUs") that were valued at $44,672. (See id. ¶¶ 29-30.) By the end of 2011, after the exercise of these Awards, Defendant had realized a total gain of $1,114,088. (See id. ¶ 32.) Defendant proceeded to terminate his employment with IBM on March 31, 2012. (See id. ¶ 9.) He soon thereafter commenced employment with Ernst & Young ("EY") in April 2012, which Plaintiff determined to be Detrimental Activity under Section 13(a) of the Performance Plan occurring within the 12 month Rescission Period. (See id. ¶¶ 10, 12, 31, 37.) Via letter dated May 11, 2012, Plaintiff notified Defendant that, on the basis of this determination, it had rescinded the gains received and demanded that Defendant repay the $1,114,088.22 in Awards that had been paid during the Rescission Period by June 15, 2012. (See id. ¶¶ 39-40.)

Plaintiff alleges that it is due payment in the amount of $1,114,088, as well as all costs, expenses, and fees incurred by Plaintiff in connection with this Action, as Plaintiff alleges it is owed and entitled to payment in the total amount of the gain received through exercise of the Awards. (See id. ¶¶ 54-56.)

B. Procedural Background

Plaintiff initiated this Action by filing the Complaint on November 20, 2014. (See Dkt. No. 1.) On August 12, 2015, counsel for Defendant submitted a letter to the Court requesting permission to file a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) and providing notice of an intent to raise an issue of German law pursuant to Federal Rule of Civil Procedure 44.1. (See Dkt. No. 14.) On August 13, 2015, counsel for Plaintiff submitted a letter to the Court in response. (See Dkt. No. 15.) On July 18, 2016, the Court entered a scheduling Order wherein the Court instructed Defendant to file his Motion To Dismiss by September 2, 2016, Plaintiff to file its response by October 21, 2016, and Defendant to file his reply by November 18, 2016. (See Dkt. No. 23.)

Defendant filed its Motion and supporting papers on September 2, 2016. (See Dkt. Nos. 24-27.) Plaintiff filed opposition papers on October 21, 2016, (see Dkt. No. 29-32), and Defendant filed a reply on November 18, 2016, (see Dkt. No. 33-34). On November 22, 2016, Plaintiff sought leave to file a sur-reply on the basis that Defendant's reply papers relied upon new information that "was available to Defendant at the time his underlying motion papers were filed." (Dkt. No. 36.)⁴ On November 28, 2016, Defendant filed a letter in response to Plaintiff's request for leave to file a sur-reply. (See Dkt. No. 35.) On November 28, 2016, the Courtentered an order permitting Plaintiff to file a sur-reply and instructed Plaintiff to file its sur-reply by no later than December 30, 2016. (See Dkt. No. 36.) Plaintiff proceeded to file its sur-reply on December 30, 2016. (See Dkt. No. 37.)

II. Discussion

A. Standard of Review

The Supreme Court has held that although a complaint "does not need detailed factual allegations" to survive a motion to dismiss, "a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration and internal quotation marks omitted). Indeed, Rule 8 of the Federal Rules of Civil Procedure "demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "Nor does a complaint suffice if it tenders naked assertions devoid of further factual enhancement." Id. (alteration and internal quotation marks omitted). Rather, a complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. Although "once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint," id. at 563, and a plaintiff must allege "only enough facts to state a claim to relief that is plausible on its face," id. at 570, if a plaintiff has not "nudged [his] claims across the line from conceivable to plausible, the[] complaint must be dismissed," id.; see also Iqbal, 556 U.S. at 679 ("Determining whether a...