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DEREK LEWITTON v. ITA SOFTWARE

November 30, 2010

DEREK LEWITTON, PLAINTIFF,
v.
ITA SOFTWARE, INC., DEFENDANT.



The opinion of the court was delivered by: Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Before the Court are two motions filed by Plaintiff Derek Lewitton: (1) a motion for an order to show cause why Defendant ITA Software should not be held in contempt [59], and (2) a motion for leave to join Google, Inc. as a third-party defendant [61]. For the reasons set forth below, the motion for an order to show cause and for contempt order [59] is denied, and the motion to join Google [61] is denied without prejudice. In addition, the Court sets forth the timing and terms (the "how and when") under which Plaintiff may exercise the stock options to which he is entitled under this Court's (and the Seventh Circuit's) prior orders and rulings.

I. Factual and Procedural Background*fn1

This case concerns Plaintiff Derek Lewitton's right to exercise stock options that he was granted while an employee of Defendant ITA Software. On April 14, 2005, ITA -- an airline information technology and services provider -- and Lewitton executed an employment contract (the "employment contract" or "employment letter"), pursuant to which Lewitton became ITA's vice president of sales. The contract provided that:

[ITA] will grant [Lewitton], subject to approval by the ITA Board of Directors, qualified stock options to purchase up to 200,000 shares of ITA common stock, pursuant to ITA's Stock Option Plan. The exercise price will [be] equal to the fair value of the stock on the date the options are approved by the Board. These options will vest as follows[:] in equal monthly installments of 5,556 shares each, on each anniversary of [Lewitton's] employment for the next three years, except that the first twelve months of options will all vest at [Lewitton's] one-year anniversary. [See 1, Ex. A to Ex. 1, at 1.] The contract added that upon termination of employment, "all rights to unvested stock options will terminate and the disposition of all vested but unexercised options will be subject to the Stock Option Plan." [Id., at 2-3.] ITA's Board of Directors subsequently approved an options grant to Lewitton at $10 per share. According to the Stock Option Plan, the options were to expire 10 years from the date on which they were granted.

Lewitton's employment at ITA ended on May 31, 2007. (The cause and manner of the termination are unclear and do not appear to be germane to the current dispute.) ITA informed Lewitton upon his termination that he must exercise all options within 90 days of his departure. As of August 17, 2007, Lewitton exercised stock options to the extent permitted by ITA, purchasing 34,722 shares of ITA common stock. Lewitton subsequently sought to exercise options for additional shares, but was not allowed to do so.

Within 90 days of his departure from ITA, Lewitton filed suit in the Circuit Court of Cook County, Illinois, seeking declaratory relief as to his right to exercise options to the remaining ITA shares. Lewitton alleged in his complaint that, as of the termination of his employment with ITA, he possessed vested but unexercised rights to 138,889 shares of ITA common stock (calculated by multiplying the 5,556 shares that vested after each of the 25 months that Lewitton was employed by ITA) at $10 per share. Subtracting the 34,722 options that he was permitted to exercise from the 138,889 shares to which he claimed to be entitled, Lewitton asserted a right to purchase an additional 104,178 shares of ITA stock.

ITA removed the suit to federal court on July 26, 2007. On July 31, 2007, Judge St. Eve entered an "Agreed Order" [14] submitted by the parties. The order stated:

If the district court determines that at the date Lewitton's employment with ITA terminated, Lewitton had vested options to purchase in excess of 34,722 shares of ITA common stock (the "Disputed Shares"), ITA agrees that it will not assert that Lewitton's right to purchase the Disputed Shares expired or that he is barred from purchasing them because the option to purchase the Disputed Shares was not exercised or the shares purchased within ninety days following the termination of his employment with ITA. In the event that Mr. Lewitton is determined to have been entitled to exercise options to purchase Disputed Shares, Mr. Lewitton and ITA agree thatthe district court's order will determine how and when Mr. Lewitton may purchase any or all of the Disputed Shares. [14 (emphasis added).] Lewitton filed a motion for summary judgment [22], arguing that there was no genuine issue of material fact in dispute and that he was entitled as a matter of law to exercise his options to purchase the 104,178 disputed shares.

The case was transferred from Judge St. Eve to this Court on December 6, 2007, as part of this Court's initial calendar. [See 29.] This Court set an initial status hearing for January 11, 2008. At the initial status hearing, it was agreed that discovery would be stayed pending disposition of Lewitton's motion for summary judgment. The parties made reference to Judge St. Eve's July 2007 order [14] in the initial joint status report that they filed shortly before the January 11 status hearing [see 35],*fn2 but never again mentioned that order, either in their briefing on the summary judgment motion (see [23], [32], [38]) or in any post-judgment motion.

The Court granted summary judgment in favor of Lewitton on September 29, 2008. [See 47.] In so doing, the Court noted that ITA's April 14, 2007, employment contract with Lewitton was a fully integrated, unambiguous document that granted Lewitton 200,000 options that were subject to forfeiture upon fulfillment of two independent conditions: (1) that Lewitton was terminated within the first year of his employment, or (2) that certain performance goals were not met as of the end of an initial employment assessment period. [See 47, at 14.] The Court determined that none of the 200,000 options were subject to forfeiture pursuant to either condition. [See id. at 14-15.] Accordingly, the Court held that Lewitton was "entitled to purchase 104,178 additional shares of ITA common stock at a price of $10 per share, in accordance with the terms of the employment letter." [See id. at 16.]

ITA did not file a motion to amend or alter the judgment pursuant to Federal Rule of Civil Procedure 59(e), but rather appealed the Court's decision to the Seventh Circuit. See generally Lewitton v. ITA Software, Inc., 585 F.3d 377 (7th Cir. 2009). On appeal, ITA argued, inter alia,that this Court incorrectly interpreted the employment contract with respect to whether Lewitton was entitled to the 104,178 shares. Id. at 380-81. ITA argued in the alternative that, should the Seventh Circuit affirm this Court's interpretation of the contract, the case should be remanded to determine "whether 'th[e] options must be exercised within ninety days, or some other defined period of time, or are invalid altogether.'" Id. at 381-82. ITA's argument rested on an interpretation of Delaware state law that requires any instrument granting a stock option to state the time period during which the option must be exercised. Id.

The Seventh Circuit affirmed this Court's judgment that Lewitton was entitled to the 104,178 disputed options. Lewitton, 585 F.3d at 382. In addressing ITA's argument that a remand was necessary to determine the time frame for exercising the options, the Seventh Circuit stated:

ITA's request for a remand is puzzling given its agreement -- memorialized by the district court in an agreed order -- that in the event the court found Lewitton was entitled to exercise more than 34,722 shares, ITA would not argue that the options were invalid because they were not exercised within 90 days of his termination. By assenting to the agreed order, ITA waived any right to raise that argument on appeal. See Repa v. Roadway Exp., Inc., 477 F.3d 938, 942 (7th Cir. 2007) (noting that waiver is the intentional abandonment of a known right). ITA further agreed that "the district court's order will determine how and when Mr. Lewitton may purchase any or all of the Disputed Shares." The court failed to specify a date by which Lewitton must exercise his remaining options, but there is nothing in the agreed order saying that the judgment must conform to ITA's view of Delaware law. Instead of filing a motion to correct the judgment pursuant to Federal Rule of Civil Procedure 59(e), ITA requests a remand ...


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