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Smith v. Zipcar, Inc.

United States District Court, D. Massachusetts

August 27, 2015

ZIPCAR, INC., Defendant

          For Michael Smith, a single person, Plaintiff, Counter Defendant: T. Jeffrey Keane, LEAD ATTORNEY, KEANE LAW OFFICES, SEATTLE, WA; Ellen J. Zucker, Erica F. Mastrangelo, Burns & Levinson LLP, Boston, MA; Lawrence P Murray, Burns & Levinson, Boston, MA.

         For Zipcar, Inc., a Delaware corporation, Defendant: Ashley E. Tessier, E. Macey Russell, Gary D. Finley, Alison C. Reif, Choate, Hall & Stewart, Boston, MA; Laura T Morse, LANE POWELL PC, SEATTLE, WA.

         For Avis Budget Group, Inc., Third Party Witness: Gary D. Finley, Choate, Hall & Stewart, Boston, MA.

         For Zipcar, Inc., a Delaware corporation, Counter Claimant: E. Macey Russell, Gary D. Finley, Alison C. Reif, Choate, Hall & Stewart, Boston, MA.

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         Patti B. Saris, Chief Unites States District Judge.


         This case stems from Plaintiff Michael Smith's 47-day employment at Zipcar, the Boston-based car sharing company. While Plaintiff was negotiating his executive compensation package, which included stock options, Zipcar was contemplating a possible merger with Avis Budget Group (Avis). When the merger later went

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through, the stock options became worthless. After his employment terminated, Plaintiff brought this action alleging, among other things, that Zipcar engaged in fraud and negligent misrepresentation by failing to disclose the merger talks, and that Zipcar breached his employment contract by failing to award him appropriate severance.

         Defendant moved for summary judgment on all claims[1] (Dkt. No. 94). After hearing (Dkt. No. 124), Defendant's motion for summary judgment is ALLOWED IN PART and DENIED IN PART.


         The facts are construed in the light most favorable to Plaintiff.

         A) Employment Negotiations

         In September 2012, Zipcar set out to find a new " Executive Vice President, Technology." It retained an executive search firm, which recruited Smith. Then employed by Disney, Smith had previously worked for such blue-chip technology companies as Microsoft and Google. Over the course of fall 2012, Plaintiff met with Zipcar's then-CEO Scott Griffith and other senior executives. Impressed with Smith's qualifications, Zipcar made him an employment offer on November 15, 2012. This initial offer, however, was not to Smith's liking. In negotiations with the company's Human Resources Director, he sought enhanced stock options and a " Chief Technology Officer" (CTO) title. A new offer was made on November 27; this too was rejected, and the negotiations pressed on.

         On December 11, Zipcar sweetened its offer, and Smith accepted. The final compensation package featured a grant of 105,000 options, to vest over a four-year period. The package also included an annual salary of $290,000; an annual bonus equal to fifty percent of salary; a $25,000 relocation stipend; and, eligibility for additional stock options at Zipcar's discretion.

         Under the Employment Agreement, Smith was an at-will employee. His contract provided for severance payments under two scenarios. If Smith resigned for " Good Reason" or was fired without cause before a " Change of Control," he would receive 6 months' salary, or $145,000. If, however, he resigned for Good Reason or was terminated without cause after a Change of Control, he would receive a year's salary, plus his targeted bonus, amounting to 1.5 years of pay, or $435,000. " Change of Control" was defined, in relevant part, as " the sale of all or substantially all of the capital stock." Exh. 14. Good Reason was defined, in relevant part, as " a material adverse change in your office, duties, salary, benefits or responsibilities made without your prior written consent." Id. Under the contract, Smith was required to " set forth in specific detail the facts supporting" his reasons for separating. Id. If Zipcar adequately " cured" those issues within 30 days, then Smith would be deemed to have resigned without Good Reason.

         B) The Merger

         Unbeknownst to Plaintiff, at the time he accepted the CTO job, Zipcar was in discussions with several different companies about financing options. Some of these corporate suitors simply wanted to make an equity investment in Zipcar; others wanted

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to buy the company outright. On November 17, two days after Plaintiff was first offered employment, Avis sent a letter to Zipcar expressing its interest in acquiring the company. At the same time that Plaintiff was negotiating his compensation package, Zipcar's lawyers and investment bankers were performing due diligence on Avis,[2] as well as nine other companies: two executed confidentiality agreements, and seven others showed informal interest. On December 31, 2011, twenty days after Smith's employment agreement was signed, Zipcar and Avis signed a merger agreement.

         The following morning, on New Year's Day, Zipcar CEO Scott Griffith reached out to Plaintiff to inform him of the deal. Plaintiff was surprised, but reaffirmed his enthusiasm for the CTO opportunity and his intent to commence employment on January 21. Plaintiff began work as planned. Concurrently, he engaged in discussions with Corbis, a Seattle-based technology company, about employment opportunities there.

         When Plaintiff asked Griffith how the potential deal would affect his stock options, Griffith assured him that Avis would craft an alternative, comparable long-term incentive package (" LTIP" ). To further assuage Smith's concerns, Zipcar offered to amend his employment contract to enhance the post-Change in Control severance to 24 months' salary. Counterproposals were exchanged in mid-February but an agreement was not reached. Frustrated that details of the alternative package had yet to materialize, and apparently unsatisfied with the enhanced severance offer, on March 5, 2013, Plaintiff gave notice of his intent to terminate his employment for Good Reason. Under the terms of his Employment Agreement, this triggered the 30-day cure period. In an e-mail to Griffith, Plaintiff avowed a desire to continue working at Zipcar during the cure period and a hope that the LTIP issue would be resolved. He wrote:

I have every intention of staying engaged for the foreseeable future and I am open to a period of discussion (we should discuss that would take, but I'd expect at least 30 days) around a contract that would work.

         Exh. 36 (emphasis added). Zipcar, however, terminated Plaintiff's employment on March 8, 2013. Plaintiff responded four days later by filing this lawsuit. In April 2013, Smith commenced employment at ...

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