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Lawson v. Sun Microsystems, Inc.

United States Court of Appeals, Seventh Circuit

June 30, 2015

DAVID LAWSON, Plaintiff-Appellee/Cross-Appellant,
SUN MICROSYSTEMS, INC., Defendant-Appellant/Cross-Appellee

Argued, January 9, 2014

Appeals from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 1:07-cv-00196-RLY-MJD -- Richard L. Young, Chief Judge.

For David R. Lawson (13-1502, 13-1503), Plaintiff - Appellee: Alexander P. Pinegar, Attorney, Church, Church, Hittle & Antrim, Noblesville, IN.

For Sun Microsystems, Incorporated (13-1502, 13-1503), Defendant - Appellant: Kim F. Ebert, Attorney, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Indianapolis, IN; Thomas M. Peterson, Attorney, Morgan, Lewis & Bockius Llp, San Francisco, CA.

Before MANION and SYKES, Circuit Judges, and GRIESBACH, District Judge.[*]


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Sykes, Circuit Judge.

David Lawson sold computer maintenance and support services for StorageTek, Inc., mostly to large corporations. He was paid a base salary and commissions on his sales under an annual incentive plan promulgated by the company. Sun Microsystems, Inc., acquired StorageTek in August 2005. At the time Lawson

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was working on a large sale to JPMorgan Chase & Co., but the deal did not close until March 2006. If StorageTek's 2005 incentive plan applied, Lawson would earn a seven-figure commission, perhaps as high as $1.8 million. If instead the sale fell under Sun's 2006 incentive plan, his commission would be far less--about $54,000. Sun determined that the 2006 plan applied and tendered the lower commission. Lawson refused it and sued for breach of contract and violation of Indiana's Wage Claim Statute. He argued that the 2005 plan continued in effect through at least March 2006, when the JPMorgan Chase deal was finalized.

The district court rejected the statutory wage claim but submitted the contract claim to a jury, which found in favor of Lawson and awarded $1.5 million in damages. Sun appealed, and Lawson cross-appealed to challenge the district court's ruling on the statutory claim.

We reverse and remand with instructions to enter judgment for Sun. The sale did not qualify for a commission under the terms of the 2005 plan. Although the original plan documents said the plan would remain in effect until superseded by a new one, a September 2005 amendment set a definite termination date for the plan year: December 25, 2005. To earn a commission under the 2005 plan, sales had to be final and invoiced by that date. Because Lawson's sale wasn't finalized and invoiced until March 2006, Sun is entitled to judgment as a matter of law. This conclusion necessarily defeats the cross-appeal.

I. Background

The parties' briefs are laden with inscrutable acronyms and sales jargon specific to StorageTek and Sun. We will simplify where possible, but some peculiar terms are unavoidable.

StorageTek was a technology company specializing in data storage. The company sold hardware and software used to back up and recover data stored on centralized servers. It also provided maintenance and support services for its products and similar products sold by third parties. Many of its customers were large corporations.

Lawson worked for StorageTek as a Services Sales Executive II. In that position he sold computer maintenance and support contracts to customers in a defined territory. At the time in question, he was paid a base salary of $75,000 plus commissions on his sales.

A. StorageTek's Incentive Plan

Every year StorageTek issued three documents that defined Lawson's compensation for that year. The first, called a " Sales Executive Incentive Plan," explained the compensation plan's general terms and conditions, including the terms under which sales would qualify for commissions. The second document, the " Incentive Plan Administration Document" or " IPAD," explained how commissions would be calculated and also contained additional terms and conditions applicable to StorageTek's North America sales territory. Finally, the " Quota Document" detailed Lawson's individualized sales goals and expected commissions.

The first of these documents incorporated the other two by reference, so together the three documents constituted Lawson's entire compensation agreement. The documents specified that Lawson's employment was at will. We'll refer to the plan documents collectively as the " incentive plan" (or just the " plan" ) unless the context requires otherwise.

As a general matter, StorageTek's incentive plan imposed three basic requirements for a sale to qualify for a commission:

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(1) the sale must be for " Enterprise Support Services" or " Remote Managed Services" ; (2) the contract must meet StorageTek's revenue recognition standards; and (3) the sale must be final and the customer invoiced for the transaction. The sale at issue here initially pertained to Enterprise Support Services, a term with its own technical meaning. With some exceptions, these were contracts to support third-party (not StorageTek's) software and equipment.

This litigation concerns the 2005 incentive plan. To receive commission credit for new business under the terms of that plan, a new contract had to be executed and invoiced during StorageTek's 2005 fiscal year, which was calendar year 2005. The plan also awarded commissions for contracts executed before calendar 2005 but invoiced on " January 1, or later in 2005."

Renewal business was treated differently under the plan. StorageTek did not compensate renewed contracts as generously as new contracts. The company parceled out its existing service contracts between its sales executives by territory. Sales executives could claim commissions for renewals of the contracts assigned to them in their annual incentive plans.

If a sales executive thought a certain sale deserved special treatment, the executive could file a written request with the company's North America Incentive Plan Committee, with copies to local management. The committee would review the request and notify the sales executive of its decision. StorageTek's 2005 incentive plan closed with this section, the meaning of which is central to this case:

This Plan is effective as of January 1, 2005, regardless of the specific date of publication or distribution, and supersedes all prior Plans, provisions, precedents, compensation arrangements, memoranda and incentive programs. It will remain in effect until a subsequent plan, or amendment to the Plan, becomes effective. All sales eligible for quota credit under this Plan, or any amendment, by the end of the fiscal year 2005 will be payable under this Plan. Sales not eligible will be payable under the Plan in effect at the time quota credit is earned. Incentives are not earned and are not wages until all requirements under this ...

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