Lucas v. International Business Machines Corporation

Background

Daniel Lucas alleged that he became an IBM employee in April 2014 after IBM acquired the company where he worked. He sold software and cloud-storage subscriptions to corporate customers until resigning in July 2019. IBM paid him a base salary and commissions under six-month Incentive Plan Letters. According to the complaint, those plans provided an upfront commission of either 8% or 5% on each sale, plus an additional 3% commission paid monthly on some sales.

Lucas alleged that IBM stopped paying commissions on renewal and expansion sales during roughly his final year of employment. He also alleged that IBM failed to credit some 2018 sales when calculating his 3% monthly commissions for January through June 2019, including a sale to Dolby that was moved to another territory or sales group. He claimed that IBM employees had acknowledged that he was owed commissions and that IBM later paid only part of what it owed. His complaint sought approximately $219,000 and asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, intentional misrepresentation, false promise, negligent misrepresentation, quasi-contract or quantum meruit, and California waiting-time penalties.

IBM moved to dismiss every claim under Rule 12(b)(6), which tests whether a complaint states a legally sufficient claim. IBM argued principally that the Incentive Plan Letters gave it broad discretion to change commission terms and withhold payments. Lucas argued that the letters were contracts, allowed only prospective changes or adjustments in specified circumstances, and had to be read together with California Labor Code section 2751, which requires certain commission agreements to be written and to explain how commissions will be calculated and paid.

Court’s Analysis

The court held that the Incentive Plan Letters appeared contractual at the pleading stage because they did not contain the express disclaimer found in many other IBM plans and set out specific commission rates. The court found that the provision allowing IBM to modify or cancel the plans could be interpreted as allowing only prospective changes, rather than changes to commissions Lucas had already earned. The provisions concerning adjustments for errors and review of specific transactions also appeared to limit IBM’s authority to particular circumstances. The court concluded that Lucas had adequately alleged that he earned commissions under the plans and that IBM failed to pay them.

The court therefore denied IBM’s motion as to Lucas’s breach-of-contract claim. It also denied the motion as to the implied-covenant claim because it declined to conclude at the pleading stage that the plans gave IBM unlimited discretion to withhold commissions.

For the intentional-misrepresentation and false-promise claims, the court applied Federal Rule of Civil Procedure 9(b), which requires fraud allegations to describe the alleged misconduct with particularity, including the who, what, when, where, and how. The court found that Lucas provided sufficient detail concerning an alleged October 11, 2018 email from IBM senior vice president Jason Gartner promising continued 3% monthly commissions for certain fourth-quarter 2018 sales even if the customer later moved to another territory or sales group. The court allowed the fraud claims to proceed insofar as they concerned unpaid commissions on Lucas’s Dolby sale.

The court found the remaining fraud allegations insufficiently specific because Lucas generally did not identify the customers, commission amounts, payments IBM made, or total amounts allegedly due. It also found that Lucas had not adequately explained how later acknowledgments by IBM employees were intended to defraud him or how he relied on them. The court granted IBM’s motion in part as to the intentional-misrepresentation and false-promise claims and dismissed those claims with leave to amend, except as to the Dolby-sale allegations. The court rejected IBM’s arguments that Lucas failed to plead intent to defraud or reasonable reliance for the surviving fraud claims.

The court denied IBM’s motion as to negligent misrepresentation because Lucas sufficiently alleged reasonable reliance. It also allowed Lucas to pursue quasi-contract or quantum meruit in the alternative. Quantum meruit is an equitable claim seeking payment for the reasonable value of services, but the court noted that factual and legal questions remained about whether the Incentive Plan Letters were enforceable contracts and whether they provided an enforceable obligation to pay commissions. Finally, the court denied the motion as to California waiting-time penalties because it declined to dismiss the underlying contract claim and commissions can qualify as wages under the California Labor Code.

Disposition

Judge Joseph C. Spero ordered that IBM’s motion to dismiss was granted only as to Lucas’s intentional-misrepresentation and false-promise claims, and only to the extent those claims were based on representations and unpaid commissions other than those related to Lucas’s sale to Dolby. The motion was otherwise denied. Lucas was permitted to file an amended complaint addressing the dismissed claims by May 29, 2020. If he did not do so, IBM was required to answer the remaining claims by June 12, 2020.