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Lewitton v. Ita Software

January 24, 2011

LEWITTON
v.
ITA SOFTWARE, INC.



Name of Assigned Judge Sitting Judge if Other or Magistrate Judge Robert M. Dow, Jr than Assigned Judge

CASE

TITLE

DOCKET ENTRY TEXT

For the reasons stated below, Plaintiff's motion for modification of the November 30 order [110] is granted in part and denied in part. Consistent with the discussion at the January 14 hearing and in the exercise of its authority to "protect and effectuate" its prior rulings (see McCann v. Kerner, 436 F.2d 1342, 1343 (7th Cir. 1971)), the Court clarifies its November 30 order as follows: (1) ITA is required to cashlessly exercise Lewitton's ITA options in the event that the ITA-Google merger closes before the passing of the deadline for the exercise of Lewitton's options; and (2) ITA must take formal Board action on any request by Lewitton to use ITA shares instead of cash to either exercise his options or cover his tax withholding obligations upon exercise. In view of the period of time that lapsed while the parties effectuated the clarification to the November 30 order pertaining to Lewitton's request for Board action, the Court tolls by five days the 60-day period provided in the November 30 order. Accordingly, the deadline for the exercise of Lewitton's options is extended to February 3, 2011. The Court respectfully denies Lewitton's motion in all other respects.*fn1

STATEMENT

This case dates to 2007, when Plaintiff Derek Lewitton tried to exercise his stock options after leaving his employment with Defendant ITA. When ITA refused to allow Lewitton to exercise all of the options to which he believed he was entitled, this litigation commenced.

The litigation came to a head, or so it seemed, when Lewitton moved for summary judgment. In September 2008, the Court ruled in his favor, holding that he was entitled to exercise 104,178 shares of ITA stock at $10 per share. In October 2009, the Seventh Circuit agreed. And because this case did not present an issue worthy of Supreme Court review, that was the end of the story -- or so one would have thought. Not so.

The long tail of this litigation stems from the fact that, in addition to the issue briefed by the parties at summary judgment, another issue had been placed on the Court's plate by agreement of the parties while the case was pending on the docket of the previously assigned judge -- namely, how and when Lewitton was to exercise the options that the Court determined rightly belonged to him. Although the issue was raised in the Seventh Circuit, neither party raised it in the district court either in the summary judgment briefing or in a motion between the date on which the summary judgment opinion was issued and the date on which the appeal was taken. The Seventh Circuit declined to take up the issue itself or to remand the matter to this Court to resolve it, presumably because the court of appeals anticipated that the parties would work it out on their own. The court of appeals did, however, expressly state that Lewitton could return to the courts to seek redress should the issue not be resolved independently.

That is exactly what has come to pass. Lewitton did not take prompt action to exercise his options, believing that he had 10 years within which to do so under the terms of ITA's Stock Option Plan. When Lewitton did act (after ITA announced its plans to merge with Google), ITA demurred, insisting that he was too late. Lewitton then filed a contempt motion [59], calling upon the Court to determine whether ITA was correct in asserting that the options had expired or whether Lewitton was correct in insisting that he still had many years to exercise his rights to obtain the shares.

As the Court explained in its November 30, 2010, order [109], neither party's position in regard to the timing issue was tenable in light of (1) the parties' stipulation that the Court was to determine how and when Lewitton must exercise the options and (2) the Seventh Circuit's observation that the Court had authority to so determine if the parties did not resolve the questions on their own. And so when the parties returned to court last year, the Court endeavored to perform the task that the parties assigned to it back in 2007 to determine "the how and when" -- by setting a deadline for Lewitton to exercise the options to which he was (and is) entitled as a result of prevailing in this litigation, and thereby to give effect to the courts' rulings. See 28 U.S.C. § 2202 ("[f]urther necessary or proper relief based on a declaratory judgment or decree may be granted, after reasonable notice and hearing, against any adverse party whose rights have been determined by such judgment"); see also Powell v. McCormack, 395 U.S. 486, 499 (1969) ("declaratory judgment can * * * be used as a predicate to further relief"); McCann v. Kerner, 436 F.2d 1342, 1343 (7th Cir. 1971) (court may grant further relief "in order to 'protect and effectuate' its previous [declaratory] judgment").

Specifically, the Court determined that a 60-day period provided sufficient time for Lewitton to exercise his option rights. In selecting that time period, the Court was cognizant of (1) the age of the dispute, (2) the impending ITA-Google merger, (3) the parties' statements at the extended August 24 hearing, and (4) the fact that both parties had had ample opportunity to prepare to consummate the transaction in the event that the Court ordered it to go forward.

Again, the Court believed that its ruling would lay the litigation to rest. However, the parties have once more returned with a dispute -- this time concerning "how" rather than "when" Lewitton must exercise his options to the ITA shares. In regard to that issue, the Court's November 30 order stated as follows:

As to 'how' Lewitton may exercise his options, the Court hereby rules that Lewitton must tender to ITA the funds necessary to exercise any or all 104,178 options at $10 per share and otherwise comply with the obligations of every other ITA option holder seeking to exercise options.

[See 109 (emphasis added).] That seemingly innocuous statement has generated yet another storm of briefing pursuant to Lewitton's motion for reconsideration [110]. The parties agree that in the wake of the November 30 order, Lewitton contacted ITA seeking to exercise his options. It appears from the correspondence to which the parties referred in the recent briefing that Lewitton first indicated that he would exercise his options in cash. However, on December 16, Lewitton sent ITA 34,722 shares of ITA stock as payment for those options. ITA returned the shares and informed Lewitton that, ...


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