Court Opinion

ID: 3003705
Source: CourtListenerOpinion
Date Created: 2015-09-24 22:30:52.739023+00
Date Added: 2024-06-11T11:45:53.983394
License: Public Domain

In the

United States Court of Appeals
               For the Seventh Circuit

No. 08-3725

D EREK L EWITTON,
                                                    Plaintiff-Appellee,
                                  v.

ITA SOFTWARE, INCORPORATED ,
                                               Defendant-Appellant.

             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
              No. 07 C 4210—Robert M. Dow, Jr., Judge.

   A RGUED S EPTEMBER 24, 2009—D ECIDED O CTOBER 28, 2009

 Before B AUER, K ANNE, and E VANS, Circuit Judges.
   E VANS, Circuit Judge.     Three months after Derek
Lewitton stopped working for ITA Software, Inc. he
attempted to exercise options to purchase 138,900 shares
of ITA stock. According to Lewitton, those shares vested
pursuant to his employment contract during his 25-
month tenure with ITA. When ITA refused to allow
Lewitton to purchase more than 34,722 shares, Lewitton
filed this suit in Illinois state court claiming that ITA
2                                              No. 08-3725

breached the employment contract. ITA removed the
case to federal court under diversity jurisdiction, and
eventually Lewitton moved for summary judgment. The
district court determined that the employment contract
unambiguously establishes a system granting Lewitton
options to purchase 5,556 shares per month, subject to
forfeiture only if certain triggering events occur. Because
the court found that no triggering events had taken place,
it concluded that Lewitton is entitled to exercise his
remaining options to purchase an additional 104,178
shares. With this finding, the court granted summary
judgment to Lewitton. ITA appeals.
  The facts are undisputed. ITA is an airline information
technology and services provider that offers a product
called QPX—an airfare shopping and pricing engine that
compares and sorts billions of flight combinations for
online travel agents. Although QPX is a shopping tool, it
does not have the capability to book reservations or
purchase tickets. To bridge this gap, ITA began developing
a new travel distribution system called 1U, which was
expected to offer the kind of online reservations and
purchasing services that QPX lacks. Early in 2005, ITA
anticipated that the general rollout of 1U would take
place between April and June of that year.
  In April 2005, ITA and Lewitton entered into an employ-
ment contract agreeing that Lewitton would serve as ITA’s
vice-president of sales. He was hired to, among other
things, supervise ITA’s development and marketing of the
1U program. The employment contract sets up a compen-
sation system granting Lewitton “qualified stock options
No. 08-3725                                                3

to purchase up to 200,000 shares of ITA common stock” at
a price of $10 per share. Those options “will vest . . . in
equal monthly installments of 5,556 shares each . . . except
that the first twelve months of options will all vest at
[Lewitton’s] one-year anniversary.”
  Although Lewitton’s shares vested on a monthly basis
after he reached the one-year mark, the contract provides
that “up to 150,000 of the options will be subject to forfei-
ture” depending on whether ITA achieved certain
revenue goals. According to the contract’s forfeiture
clause, “10,000 options will be retained for each $10 million
dollars of ITA’s gross revenues for the 12-month period
from June 1, 2006, through May 31, 2007 (the “Assessment
Period”).” The contract states that ITA would determine
the revenues for the Assessment Period after it com-
pleted its internal accounting for the month of May 2007.
But the contract further provides that in the event that
ITA’s “development schedule for 1U is materially deferred
from the schedule presently contemplated, then the
Assessment Period will be deferred accordingly—i.e., if
the development schedule were to be delayed by two
months, the Assessment Period would be August 1, 2006
through July 31, 2007.”
   Neither the development of 1U nor Lewitton’s em-
ployment proceeded as the parties expected when they
entered the contract in April 2005. ITA had trouble
getting airlines and travel agents to commit to using 1U,
and the program was scaled back significantly. Eventually,
the only work ITA put into 1U were efforts to preserve
its economic investment in the program. Lewitton’s
4                                               No. 08-3725

employment with ITA ended on May 21, 2007 (the parties
do not explain how or why). Three months later, Lewitton
attempted to exercise 138,900 options of ITA shares—5,660
options for each month of his 25 months with ITA. ITA
permitted Lewitton to exercise only 34,722 options, taking
the position that the remaining 104,178 options were
forfeited pursuant to the contract’s forfeiture clause.
  We review the district court’s grant of summary judg-
ment to Lewitton de novo, keeping in mind that summary
judgment is particularly appropriate in cases involving
contract interpretation. See Tingstol Co. v. Rainbow Sales
Inc., 218 F.3d 770, 771 (7th Cir. 2000). Under Illinois
law—which, the parties agree, governs our interpretation
of the employment contract—our primary goal in con-
struing the contract is to give effect to the parties’ intent
as expressed in the terms of their written agreement. See
Gallagher v. Lenart, 874 N.E.2d 43, 58 (Ill. 2007). We first
ask if the language of the contract is ambiguous, which
is a question we determine as a matter of law. Id. A con-
tract is ambiguous if its terms are indefinite or have a
double meaning. Hampton v. Ford Motor Co., 561 F.3d 709,
714 (7th Cir. 2009). If the contract is unambiguous, “we
must enforce it as written.” Id. Only if the “contract’s
language is susceptible to more than one interpretation”
would we look to extrinsic evidence to determine the
parties’ intent. Camico Mut. Ins. Co. v. Citizens Bank, 474
F.3d 989, 993 (7th Cir. 2007).
  The principal question we must resolve in this appeal
is whether the employment contract unambiguously
allows Lewitton to exercise all of the shares he accumu-
No. 08-3725                                                5

lated during his 25-month tenure with ITA. The district
court determined that the contract sets up a grant of up
to 200,000 options—vesting at a rate of 5,660 per
month—subject to forfeiture if certain revenue goals were
not met by the end of the Assessment Period. Because
the contract specifies that the Assessment Period would
be deferred if the development schedule for 1U were
“materially deferred,” and because the parties agree
that 1U’s development did not progress as they intended,
the court found that the Assessment Period was never
triggered. Accordingly, the court concluded that
Lewitton was not required to forfeit his vested options.
ITA contends that the term “materially deferred,” is
ambiguous and was never meant to apply in the event
that 1U was put on the back burner indefinitely. Rather,
according to ITA, the term “materially deferred” references
a situation where 1U is put on hold for an identified
interim period while ITA resources are temporarily
diverted elsewhere.
  The district court correctly determined that the term
“materially deferred” is unambiguous. The contract
specifies that if ITA’s “development schedule for 1U is
materially deferred from the schedule presently contem-
plated, then the Assessment Period will be deferred
accordingly . . . .” As the district court noted, “materially
deferred” is not a technical term; its ordinary meaning
is “significantly delayed.” This straightforward
definition is reinforced by the contract itself, which uses
the terms “defer” and “delay” interchangeably. In the
contract’s example illustrating the meaning of “materially
deferred,” it explains that if the 1U development
6                                                No. 08-3725

schedule were “delayed” by two months, then the Assess-
ment Period would be delayed by two months. It follows
from the everyday meaning of “materially deferred”
and the contract’s own example that the parties intended
for the rollout of the 1U program to precede the start of
the Assessment Period. ITA concedes that the rollout of 1U
did not proceed according to the schedule the parties
contemplated on the date of the contract, nor has it oc-
curred to date. Given that concession, the district court
correctly determined that the Assessment Period never
began and, accordingly, that the forfeiture provision
does not apply.
   ITA argues that allowing Lewitton to exercise his vested
options ignores the “central concept” of the contract,
which, according to ITA, is that Lewitton is entitled to
exercise more than 50,000 options only to the extent
that ITA met certain revenue goals during his employ-
ment. ITA explains that none of the other ITA executives
earn more than 50,000 options per year. ITA asserts that
its CEO initially resisted the contract’s extra 150,000-share
allotment to Lewitton but eventually agreed to the
contract as written because he understood that Lewitton
would keep the extra shares only if he was able to
generate significant additional revenue for ITA based on
the rollout of 1U.
  ITA’s description of the contract’s “central concept”
relies heavily on extrinsic evidence of the negotiations
that preceded the contract. But extrinsic evidence cannot
be used to create ambiguity where none otherwise exists,
see Murphy v. Keystone Steel & Wire Co., 61 F.3d 560, 565 (7th
No. 08-3725                                                 7

Cir. 1995), and it is misplaced here where the contract
includes an integration clause stating that the writ-
ten agreement “supersedes all prior agreements, under-
standings or negotiations.” The integration clause dem-
onstrates that ITA and Lewitton formally decided “to
protect themselves against misinterpretations which
might arise from extrinsic evidence,” and that they
agreed that the “negotiations leading to the written
contract are not the agreement.” See Air Safety, Inc. v.
Teachers Realty Corp., 706 N.E.2d 882, 885 (Ill. 1999). Having
agreed to be bound by the contract as written, it is par-
ticularly unavailing for ITA to attempt to cloud the con-
tract’s interpretation with post-hoc explanations of its
state of mind at the time the contract was inked.
  At its core, ITA’s argument is one of fairness; it argues
that enforcing the contract as written unfairly rewards
Lewitton above and beyond what ITA considers the
value of his contributions to the company. But the
contract includes mechanisms that ITA could have used
to change the stock-option allotment or to strip Lewitton
of his vested shares without invoking the Assessment
Period. For example, the contract states that if ITA
changed Lewitton’s responsibilities so that he is
“not primarily involved with 1U, then we will together
negotiate a new standard” for the vesting and exercise
of his stock options. Moreover, the contract states that
additional shares could be forfeited if the ITA board of
directors decided that Lewitton was not fulfilling his
responsibilities. ITA did not invoke either of these
clauses during Lewitton’s employment to bring his stock-
option compensation in line with its perception of the
8                                             No. 08-3725

value of Lewitton’s employment. ITA’s failure to pursue
these options takes the sting out if its assertion that
enforcing the contract as written results in a windfall
to Lewitton.
  ITA next argues that even if the contract is unambiguous
the district court improperly resolved a question of mate-
rial fact when it concluded that ITA had deferred the 1U
program until an unspecified later date rather than scrap-
ping it altogether. According to ITA, there is a genuine
dispute over whether the 1U program was delayed or
terminated. But this is just another attempt to create
ambiguity where none exists. At the summary judgment
stage ITA submitted an affidavit from its CEO, Jerry
Wertheimer, describing the then-current status of the
1U program. Wertheimer said that he “concluded in
consultation with the ITA board that ITA should reduce
the resources” devoted to 1U, and that at the time of
summary judgment there were “no full time resources
devoted” to the project. In its answers to Lewitton’s
interrogatories, ITA described the development of 1U as
being “significantly scaled back,” and admitted that
work was still being done on the project to protect ITA’s
investment in the program. ITA points to no evidence
supporting its new characterization of the program as
having been “terminated.” Its repeated description of the
program as having been “scaled back” or “reduced” is
consistent with the conclusion that the project was
delayed rather than terminated. There simply is no evi-
dence pointing to a genuine dispute that a fact finder
must resolve.
No. 08-3725                                                 9

  Finally, ITA argues that even if the contract entitles
Lewitton to the additional 104,178 options, we must
remand this case to the district court to determine
whether the options are valid. According to ITA, the
validity of Lewitton’s options turns on Delaware law (ITA
is a Delaware corporation), which requires any instru-
ment granting a stock option to specify the period of
time in which the options must be exercised. ITA points
out that the district court’s judgment does not say when
Lewitton must exercise the options. ITA thus concludes
that a remand is necessary to determine whether “those
options must be exercised within ninety days, or some
other defined period of time, or are invalid altogether.”
  ITA’s request for a remand is puzzling given its agree-
ment—memorialized by the district court in an agreed
order—that in the event the court found Lewitton was
entitled to exercise more than 34,722 shares, ITA would
not argue that the options were invalid because they
were not exercised within 90 days of his termination. By
assenting to the agreed order, ITA waived any right to
raise that argument on appeal. See Repa v. Roadway Exp.,
Inc., 477 F.3d 938, 942 (7th Cir. 2007) (noting that waiver is
the intentional abandonment of a known right). ITA
further agreed that “the district court’s order will deter-
mine how and when Mr. Lewitton may purchase any or
all of the Disputed Shares.” The court failed to specify a
date by which Lewitton must exercise his remaining
options, but there is nothing in the agreed order saying
that the judgment must conform to ITA’s view of Delaware
law. Instead of filing a motion to correct the judgment
pursuant to Federal Rule of Civil Procedure 59(e), ITA
10                                             No. 08-3725

requests a remand for the district court to resolve a hypo-
thetical conflict that may arise if ITA refuses to allow
Lewitton to execute the district court’s judgment by
exercising his options. Should that day arrive, Lewitton
may look again to the courts to resolve the conflict.
 The judgment of the district court is A FFIRMED.

                          10-28-09