United States Court of Appeals

For the First Circuit

No. 07-1549

MARIO MARIASCH,

Plaintiff, Appellant,

v.

THE GILLETTE COMPANY,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Richard G. Stearns, U.S. District Judge]

Before 

Lipez, Circuit Judge,

Cyr, Senior Circuit Judge, 

and Howard, Circuit Judge.

Alvin S. Nathanson, with whom Nathanson & Goldberg, PC was on

brief for appellant.

Richard P. Ward, with whom David C. Potter and Ropes & Gray,

LLP were on brief for appellee. 

March 27, 2008
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LIPEZ, Circuit Judge. In this diversity case, Mario O.

Mariasch, a citizen of California, claims that The Gillette

Company, his former employer and a Delaware Corporation, wrongfully

rejected his attempt to exercise stock options that he acquired in

1995 and 1996 as part of his executive compensation package. After

Mariasch retired from Gillette on April 22, 2002, he had three

years to exercise these options pursuant to Gillette's 1971 Stock

Option Plan ("Stock Option Plan"). Mariasch tried to exercise the

options seven days after the three-year period lapsed and was

rebuffed by Gillette. He now argues that principles of contract

law and equity required Gillette to accept this late exercise.

The district court granted summary judgment for Gillette,

primarily on the authority of our decision in First Marblehead

Corp. v. House, 473 F.3d 1 (1st Cir. 2006), where we held that

Delaware law requires the strict application of the terms and

conditions of a board-approved stock option plan. We agree with

the district court's analysis and affirm its grant of summary

judgment. 

I.

The following facts are drawn from the pleadings and

depositions. Where the facts are disputed, we view the record in

the light most favorable to Mariasch, the nonmoving party. First

Marblehead, 474 F.3d at 3. 
 Under the Internal Revenue Code, ISOs and NQSOs are treated 1

differently for tax purposes, with the former having more favorable

tax treatment in exchange for greater restrictions on their use.

I.R.C. §§ 421-23.

 The Stock Option Plan dictates that if the NQSOs had been 2

issued prior to April 21, 1994, a retiree would have only two years

from the termination date to exercise those options. 

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Before retiring in 2002, Mariasch worked at Gillette for

over thirty years, rising to the level of Senior Vice President for

New Business Development at Oral-B Laboratories, a Gillette

subsidiary. As part of his compensation package for most of his

tenure, he received two types of Gillette stock options --

incentive stock options ("ISOs") and non-qualified stock options

("NQSOs"). He acquired over 210,000 shares of Gillette stock by 1

exercising these options.

The stock options at issue here are the NQSOs granted to

Mariasch in 1995 and 1996. The terms governing the stock options

were set forth in the 1971 Stock Option Plan, which provided that

active employees must exercise their NQSOs within ten years of the

date that the options were issued and that retired employees must

exercise their options within three years of their official

termination date.2

In 2000, as part of Gillette's 1998 Reorganization and

Realignment Program, Mariasch's position as a senior vice president

was eliminated and his employment was terminated. On July 10,

2000, Mariasch and Gillette entered into a Termination Settlement
 Although Mariasch's departure was not voluntary, the parties 3

agree that Mariasch's departure would be treated as a retirement

for the purposes of the Stock Option Plan. Both parties use

termination date and retirement date interchangeably. 

 Mariasch exercised his ISOs in a timely manner and there is 4

no dispute regarding these options. 

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Agreement ("Termination Agreement") that provided for Mariasch to

receive his base pay during the settlement period -- the sixtyeight weeks following his release date. Pursuant to the

Termination Agreement, the close of the settlement period, April

22, 2002, would be deemed his termination date and retirement

date. Mariasch would then have three months from that date to 3

exercise his ISOs and three years to exercise his NQSOs. The 4

Termination Agreement included a Massachusetts choice-of-law

provision.

On April 29, 2005, Mariasch attempted to exercise his

disputed NQSOs by contacting the plan agent, Merrill Lynch, who

informed him that the options had expired on April 21, 2005. Upon

hearing this, Mariasch emailed Gillette, writing, "I made an honest

mistake on the due date to exercise two stock options that were due

three years after retirement." Mariasch says that he thought his

retirement date was May 1, 2002 because in 2002 he received a pay

stub that listed May 1, 2002 to May 31, 2002 as a payment period.

Also, Mariasch states that he failed to exercise the disputed NSQOs

before the expiration date because he did not receive the usual

"friendly reminder" letter or a call from either Gillette or
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Merrill Lynch telling him that they were about to expire. He

asserts that Gillette had sent him a "friendly reminder" letter

prior to the expiration of stock options for over twenty years and

then abruptly stopped sending him a reminder in 2005.

After Gillette persisted in its refusal to allow him to

exercise his 1995 and 1996 options, Mariasch filed suit against

Gillette in the federal district court in Boston. On assorted

theories, he sought a declaratory judgment that he should be

permitted to exercise the disputed options. After Gillette moved

for summary judgment, the district court granted the motion,

largely on the basis of our prior decision in First Marblehead.

Mariasch now appeals.

II. 

We review the district court's grant of summary judgment

de novo. First Marblehead, 473 F.3d at 5. Summary judgment is

proper if, viewing the record in the light most favorable to the

nonmoving party, "there is no genuine issue as to any material fact

and . . . the moving party is entitled to judgment as a matter of

law." Fed. R. Civ. P. 56(c); First Marblehead, 473 F.3d at 5.

"Once the moving party avers the absence of genuine issues of

material fact, the nonmovant must show that a factual dispute does

exist, but summary judgment cannot be defeated by relying on

improbable inferences, conclusory allegations, or rank
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speculation." Ingram v. Brink's, Inc., 414 F.3d 222, 228-29 (1st

Cir. 2005).

A. Choice-of-Law

In this diversity case we must follow the applicable

state laws. See, e.g., Phoung Luc v. Wyndham Mgmt. Corp., 496 F.3d

85, 88 (1st Cir. 2007). The parties dispute which state's laws

should apply, with Mariasch contending that Massachusetts law

applies to his claim and Gillette responding that Delaware law

applies. To determine which state's laws are applicable, we look

to the choice-of-law jurisprudence of Massachusetts, the forum

state. Lexington Ins. Co. v. Gen. Accident Ins. Co. of Am., 338

F.3d 42, 46 (1st Cir. 2003)("In determining what state law is

relevant, a federal court must apply the choice-of-law framework of

the forum state.").

Massachusetts applies the internal affairs doctrine,

which "recognizes that only one State should have the authority to

regulate a corporation's internal affairs - matters peculiar to the

relationships among or between the corporation and its current

officers, directors, and shareholders - because otherwise a

corporation could be faced with conflicting demands." Edgar v. MITE

Corp., 457 U.S. 624, 645 (1982). The state with authority over a

corporation's internal affairs is the state of incorporation.

Harrison v. NetCentric Corp., 744 N.E.2d 622, 628 (Mass. 2001)

("Traditionally, we have applied the law of the State of
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incorporation in matters relating to the internal affairs of a

corporation . . . ."); see also Mass. Gen. Laws ch. 156D, § 15.05(c)

("[A] foreign corporation organization and internal affairs and the

liability of its stockholders and directors shall be governed by the

laws of the jurisdiction under which it is organized."). Since

Gillette was incorporated in Delaware, Gillette's internal affairs

are governed by Delaware law.

Mariasch's claims fall within the purview of the internal

affairs doctrine because stock option plans are considered matters

pertaining to the internal affairs of a corporation. In Rogers v.

Guaranty Trust Co. of New York, the Supreme Court decided that the

plaintiff's claims must be assessed under New Jersey law, the state

in which the defendant corporation was incorporated, because

"[u]nquestionably the steps taken and proposed to formulate and

carry out the [stock option] plan constitute the conduct and

management of the internal affairs of the [] company." 288 U.S. 123,

129 (1933); see Fredericks v. Georgia-Pacific Corp., 331 F. Supp.

422, 424 (E.D. Pa. 1971) (explaining that when a stock option plan

is silent as to the applicable state law, courts have uniformly

determined the validity and construction of stock options by

applying the laws of the state of incorporation); Ellis v. Emhart

Mfg. Co., 191 A.2d 546, 550 (Conn. 1963) ("The issuance of stock

option plans by the defendant involves its internal affairs, and any

controversy resulting therefrom is controlled by [the law of the
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state of incorporation]."); Beard v. Elster, 160 A.2d 731, 735 (Del.

1960) ("The issuance of stock option plans by Delaware corporations

involves the internal affairs of a Delaware corporation and is,

therefore, controlled by the laws of Delaware."). Here, as

defendant argues, "Gillette's shareholders specifically approved how

many shares of Gillette stock could be issued under the 1971 Stock

Option Plan. Thus, issues relating to when one is entitled to the

issuance of stock pursuant to the 1971 Stock Option Plan affects

Gillette's relationship with the shareholders."

Nonetheless, Mariasch argues that the Stock Option Plan

is not subject to the internal affairs doctrine and the law of

Delaware since it was incorporated by reference into the Termination

Agreement, which says that "[t]his Agreement shall be governed by

and construed in accordance with the laws of the Commonwealth of

Massachusetts." Gillette correctly responds that Mariasch had the

benefits provided by the Stock Option Plan prior to becoming party

to the Termination Agreement. The purpose of the Termination

Agreement was to provide him with settlement pay and other benefits

that he did not previously have. As Gillette puts it, "The

additional pay and benefits were the consideration for a release of

all claims." Rather than incorporating the Stock Option Plan or

modifying its terms in any way, the Termination Agreement simply

referred to it "for detailed information on the exercise of Stock

Options." The Termination Agreement did delay Mariasch's retirement
 Mariasch also argues that because the Termination Agreement 5

is a bilateral contract and the Stock Option Plan is incorporated

by reference, the disputed NQSOs are subject to the terms of a

bilateral contract. According to Mariasch, the deadlines in a

bilateral contract are strictly enforced only if the contract

explicitly states that time is of the essence. Since the

Termination Agreement has no such language, Mariasch argues that

the deadlines set forth in the Stock Option Plan and incorporated

by reference into the Termination Agreement should not be strictly

enforced. However, since we find that the Termination Agreement

does not incorporate the Stock Option Plan by reference and

Mariasch's interests in the disputed NQSOs are only subject to the

terms of the Stock Option Plan, we reject the bilateral contract

argument on this basis alone. 

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date, which had the effect of giving him more time to exercise his

options that had to be exercised within three years of retirement.

That limited interaction between the Termination Agreement and the

Stock Option Plan is a far cry from the incorporation that Mariasch

claims. Consistent with the internal affairs doctrine, we must

apply Delaware law when assessing Mariasch's claim that Gillette

should have permitted him to exercise his options beyond the

expiration date for such exercise.5

B. Applicability of First Marblehead

We addressed the law of Delaware as it applies to the

timely exercise of stock option plans in First Marblehead. There,

Gregory House, pursuant to a board-approved plan, had to exercise

his ISOs within three months of resigning from First Marblehead

Corporation. Id. at 3. Although House allowed the three month

period to lapse, he sought to exercise his options several years

later. Id. at 4. First Marblehead sought a declaratory judgment
House also raised successfully a negligent misrepresentation 6

claim that has not been advanced by Mariasch. First Marblehead, 473

F.3d at 9-11. 

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that House's ISOs had expired three months after his resignation and

House filed a cross-complaint alleging that he should be permitted

to exercise his options on contractual and equitable grounds. Id.

After House lost at summary judgment, he appealed to us. Id. at 5.

In rejecting his contractual and equitable claims, we 6

noted that, pursuant to Delaware law, "every corporation may create

and issue . . . rights or options . . . such rights or options to

be evidenced by or in such instrument or instruments as shall be

approved by the board of directors." Del. Code Ann. tit. 8, §

157(a); see First Marblehead, 473 F.3d at 6. We added that Delaware

courts have observed that the issuance of corporate stock pursuant

to a written board-approved plan is "an act of fundamental legal

significance having a direct bearing upon questions of corporate

governance, control and the capital structure of the enterprise.

The law properly requires certainty in such matters." First

Marblehead, 473 F.3d at 6 (quoting STAAR Surgical Co. v. Waggoner,

588 A.2d 1130, 1136 (Del. 1991)). Relatedly, the strict enforcement

of a board-approved stock issuance plan serves the important policy

of "preserv[ing] the board's broad authority over the corporation

and . . . protect[ing] the certainty of investors' expectations

regarding stock." Id. (quoting Grimes v. Alteon, Inc., 804 A.2d

256, 258 (Del. 2002)). Therefore, Delaware courts have denied
For example, the Stock Option Plan allows the Personnel 7

Committee to extend the period in which a voluntarily terminated

employee can exercise his NQSOs from seven days to three months. 

 Sensibly, Mariasch does not argue that First Marblehead is 8

distinguishable on the ground that ISOs were at issue there as

opposed to the NQSOs at issue here. 

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claims for equitable relief "even in situations when that might

generate an inequitable result" because of the importance of strict

adherence to statutory requirements regarding the issuance of stock.

Id. (quoting Liebermann v. Frangiosa, 844 A.2d 992, 1004 (Del. Ch.

2002)).

Here, the Stock Option Plan provides for a Personnel

Committee with the authority to award ISOs and NQSOs to employees

of Gillette and its subsidiaries. In limited circumstances set

forth in the Stock Option Plan, the Personnel Committee can extend

the period in which an optionee may exercise his options. However, 7

the period within which a retired employee can exercise his NQSOs

is not subject to an extension by the Personnel Committee. The

Stock Option Plan provides without exception that retired employees

with NQSOs have three years from the date of termination to exercise

their options.

For all of the reasons cited in First Marblehead, this

option period must be strictly enforced. Requiring Gillette to 8

allow a deviation from the terms of the Stock Option Plan would

undermine the board's authority over the issuance of stocks, thereby

creating unpredictability for investors in contravention of Delaware
 Mariasch also argues that the Personnel Committee could have 9

extended the exercise period for the disputed NQSOs to ten years.

He cites provisions from the Stock Option Plan in support of his

position, but these provisions are not applicable by their own

terms. The Stock Option Plan says: "Options granted to employees

are exercisable as determined by the Committee, except that the

maximum option period is ten years from the date of grant." This

reference to the ten-year option period pertains exclusively to

current employees and not retired employees like Mariasch.

Similarly, Mariasch quotes language that gives the Personnel

Committee authority to extend exercise periods to ten years for

employees who were discharged for cause. This provision is also

inapplicable to Mariasch since his termination was characterized as

a retirement.

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law. Moreover, it would limit the Personnel Committee's ability to

allocate stock options to employees. Under the Stock Option Plan,

the reserved shares become subject to future grants when stock

options expire. If the deadlines for exercising stock options were

not strictly enforced, the Personnel Committee would not know how

many shares were available for grant.

Mariasch argues that First Marblehead does not apply to

his claims because the Stock Option Plan does not include a fixed

option period that must be strictly enforced. To support this odd

notion, he cites the word "may" in the clause which says that

options "exercisable at the time of the termination, may be

exercised within the period shown below" (emphasis added). In his

view, the word "may" means that the Personnel Committee had the

right to extend the three-year period for the exercise of NQSOs by

retired employees. This argument is unpersuasive. The word "may" 9

does not make the length of the option period permissive. Rather,
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that word simply gave Mariasch the choice during the three-year

period to exercise his options. Mariasch had no contractual right

under Delaware law to exercise his NQSOs after the three years

lapsed.

C. Equitable Claims

We also apply Delaware law to Mariasch's equitable

claims. In First Marblehead we acknowledged that, in limited

circumstances, Delaware law might, on equitable grounds, permit a

brief extension in a stock option period which the corporation

should be estopped from denying. Id. at 8 (citing Ostler v. Codman

Research Group, Inc., 241 F.3d 91, 94 (1st Cir. 2001), where we

validated a two-day extension of the stock option exercise deadline

while noting that such "minor extension[s] of an option exercise

deadline . . . . to cope with last-minute emergencies" were rarely

allowed); cf. id. (denying House's request for an extension because

"[w]hile a two-day extension arguably would not frustrate

management's ability to make capital decisions with certainty, a

delay of years could have a significant impact"). Mariasch contends

that the circumstances in this case justify a brief extension of the

option period. Gillette, he says, engaged in inequitable conduct

when it ceased to provide him notice of the option exercise deadline

after twenty years of providing such notice. He also emphasizes

that he is only asking for a seven-day grace period.
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By virtue of his own testimony, Mariasch defeats his

claim of equitable estoppel. At his deposition, Mariasch was

presented with a letter dated March 21, 2002 from Gillette. The

first sentence read, "I have enclosed your retirement package as of

April 22, 2002." When questioned whether he understood that his

retirement date was April 22, 2002, Mariasch responded

affirmatively. Gillette's counsel later asked Mariasch, "But, when

you retired, you understood that you had to exercise them [the 1995

and 1996 NQSOs] within three years of your retirement date, right?"

Mariasch once again answered in the affirmative. Moreover, when

Mariasch attempted to exercise his disputed NQSOs by contacting the

plan agent, Merrill Lynch, who informed him that the options had

expired on April 21, 2005, he emailed Gillette the following

message: "I made an honest mistake on the due date to exercise two

stock options that were due three years after retirement."

Under Delaware law, "[t]o establish estoppel it must be

shown that the party claiming estoppel lacked knowledge or the means

of obtaining knowledge of the truth of the facts in question."

Waggoner v. Laster, 581 A.2d 1127, 1136 (Del. 1990). Based on

Mariasch's deposition testimony and the content of the email

Mariasch sent to Gillette, it is clear that Mariasch knew that the

disputed options lapsed on April 21, 2005. Mariasch must bear the
Mariasch's equitable estoppel claim fails on other grounds 10

as well. As noted earlier, Mariasch claims on appeal that he

failed to exercise the disputed NSQOs before the expiration date

because he did not receive the usual "friendly reminder" letter or

a call from either Gillette or Merrill Lynch telling him that they

were about to expire. He asserts that Gillette had sent him a

"friendly reminder" letter prior to the expiration of stock options

for over twenty years and then abruptly stopped sending him a

reminder in 2005. However, by his own admission, he was not

waiting for a "friendly reminder" when he attempted to exercise his

options on April 29, 2005. Thus, his equitable estoppel claim

predicated on alleged reliance on receiving "friendly reminders"

from Gillette is unavailing. 

 Citing Delaware cases for the proposition that "equity 11

abhors a forfeiture," see, e.g., Hillman v. Hillman, 903 A.2d 798,

812 n.43 (Del. Ch. 2006), Mariasch argues that he is entitled to

equitable relief from the forfeiture of his stock options. We

disagree for the same reason that Mariasch does not prevail on his

equitable estoppel claim -- he is responsible for his own loss.

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responsibility for not acting on that knowledge. He cannot impose 10

the cost of his mistake on Gillette.11

Affirmed.