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Swafford v. International Business Machines Corp.

United States District Court, N.D. California, San Jose Division

October 11, 2019




         Plaintiff David Swafford (“Swafford”) brings the instant lawsuit against Defendant International Business Machines Corporation (“IBM”). Before the Court is IBM's motion for summary judgment. Having considered the parties' briefs, the relevant law, and the record in this case, the Court GRANTS in part and DENIES in part IBM's motion for summary judgment.

         I. BACKGROUND

         A. Factual Background

         Swafford is a resident of Santa Clara County, California and a software sales representative at IBM since 2009. ECF No. 71 (“SAC”) ¶¶ 7, 13. IBM is a New York corporation with its principal place of business in the state of New York. Id. ¶ 8. Swafford's compensation as an IBM sales representative consisted of a base salary plus commissions. ECF No. 91-3 (“Swafford Depo.”) at 48:8-11, 151:11-17. This case concerns Swafford's commission payments (also referred to as “incentive payments”) and IBM's commission plan and policies.

         1. Facts Related to IBM's Commission Payments.

         Swafford had a written commission plan known as the Incentive Plan Letter (“IPL”) for the second half of 2016 that covered the sales period from July 1, 2016 through December 31, 2016. ECF No. 83-7 (“IPL”). The IPL provided that Swafford's sales quota for the second half of 2016 was $512, 600. IPL at 2. The IPL also provided information about Swafford's commissions.

         First, the IPL provided that, without an IPL in place, an employee is “not eligible to receive any related incentive payments.” Id. The IPL also defined the “Plan” as the incentive plan information contained in the IPL and at IBM's Worldwide Incentives Workplace website. Id.

         Second, the IPL provided that IBM had the right to make changes to incentive payment rates or quotas. Id. at 3. The IPL stated:

Right to Modify or Cancel: The Plan does not constitute an express or implied contract or a promise by IBM to make any distributions under it. IBM reserves the right to adjust the Plan terms, including, but not limited to, changes to sales performance objectives (including management-assessment objectives), changes to assigned customers, territories, or account opportunities, or changes to applicable incentive payment rates or quotas, target incentives or similar earnings opportunities, or to modify or cancel the Plan, for any individual or group of individuals, at any time during the Plan period up until any related payments have been earned under the Plan terms. Managers below the highest levels of management do not know whether IBM will or will not change or adopt any particular compensation plan; they do not have the ability to change the Plan terms for any employee; nor are they in a position to advise any employee on, or speculate about, future plans. Employees should make no assumptions about the impact potential Plan changes may have on their personal situations unless and until any such changes are formally announced by IBM.


         Third, the IPL provided that IBM could change incentive payment calculations resulting from errors. Id. The IPL stated:

Adjustments for Errors: IBM reserves the right to review and, in its sole discretion, adjust or require repayment of incorrect incentive payments resulting from incomplete incentives processes or other errors in the measurement of achievement or the calculation of payments, including errors in the creation or communication of sales objectives. Depending on when an error is identified, corrections may be made before or after the last day of the full-Plan period, and before or after the affected payment has been released.


         The IPL also provided that IBM may review significant transactions:

Significant Transactions: IBM reserves the right to review and, in its sole discretion, adjust incentive achievement and/or related payments associated with a transaction which (1) is disproportionate when compared with the territory opportunity anticipated during account planning and used for the setting of any sales objectives; or for which (2) the incentive payments are disproportionate when compared with your performance contribution towards the transaction.

Id. at 4.

         Finally, the IPL explained how incentive payments are earned under the Plan:

Full-Plan Earnings: Regardless of your start date, your incentive payments are earned under the Plan terms, and are no longer considered Plan-to-Date advance payments, only after the measurement of complete business results following the end of the full-Plan period or (if applicable) after the measurement of complete business results after the date you left the Incentive Plan early. Incentive payments will be considered earned only if you have met all payment requirements, including: (1) you have complied with the Incentive Plan, the Business Conduct Guidelines and all other applicable IBM employment policies and practices; (2) you have not engaged in any fraud, misrepresentation or other inappropriate conduct relating to any of your business transactions or incentives; (3) and the customer has paid the billing for the sales or services transaction related to your incentive achievement.


         Despite the IPL, IBM repeatedly made representations that Swafford's commissions would be uncapped. In particular, Swafford regularly received PowerPoint presentations, which IBM called “education” for IBM employees, that described the terms of the commission plans. See Swafford Depo. 81:8-20; ECF No. 83-23 (“2H 2016 PowerPoint presentation”) at 1. These PowerPoint presentations stated that commissions for IBM sales people were uncapped. See Swafford Depo. 79:1-13.

         During the second half of 2016, Swafford received and reviewed a PowerPoint presentation entitled “Our Purpose, Values & Practices” relating to “Your 2016 Incentive Plan” (the “2H 2016 PowerPoint presentation”). 2H 2016 PowerPoint presentation at 1. The 2H 2016 PowerPoint presentation stated that it served as “the primary 2016 education for IBM sales employees. It provides the information you need to understand your 2016 plan.” Id. The 2H 2016 PowerPoint presentation also stated four times that “payments” and/or “earnings opportunit[ies]” are “uncapped.” Id. at 10, 11, 14, 15. When Swafford reviewed the 2H 2016 PowerPoint presentation, Swafford understood these statements to mean that his commissions would be uncapped, and that “when you're uncapped, there's no limit to what you can earn.” Swafford Depo. at 78:19-20. The 2H 2016 PowerPoint presentation did not reference any of the disclaimer provisions contained within the IPL. See 2H 2016 PowerPoint presentation. Swafford's former second line manager, Richard Wirtenson (“Wirtenson”), testified that IBM did not cap commissions in order to incentivize sales representatives to sell as much as they can. ECF No. 83-5 (“Wirtenson Depo.”) at 96:3-6.

         2. The Sabre and Oracle Deals.

         In 2016, Swafford worked on behalf of IBM to close two major deals for IBM products and services with Oracle (“Oracle Deal”) and Sabre (“Sabre Deal”). Wirtenson Depo. at 103:13- 24, 104:1-15. Swafford testified that these deals were each challenging because Oracle was a competitor of IBM, Swafford Depo. at 103:17-25, and because Sabre had been considering moving away from IBM products, Swafford Depo. at 119:17-25, 120:1-3. During the relevant time period, Swafford's first line manager was Mark Briggs (“Briggs”), and Swafford's second line manager was Wirtenson. ECF No. 91-1 (“Martinotti Depo.”) at 19:1-16. Briggs testified that Swafford performed exceptionally well in closing these deals for IBM. ECF No. 83-2 (“Briggs Depo.”) at 78:15-16 (“Dave did an outstanding job closing multiple large transactions.”).

         3. Swafford's Allegations that IBM Capped His Commissions.

         As a result of the Oracle and Sabre Deals, Swafford far exceeded his $512, 600 quota for the second half of 2016. Indeed, Swafford's revenue credit across all of the deals that he closed in the second half of 2016, including the Oracle and Sabre Deals, was approximately $4, 983, 275. Wirtenson Depo. at 35:9-13. On the basis of these amounts, Swafford's commission payment amount for the second half of 2016 was initially calculated to be $950, 997.64. Id. at 34:1-2, 8- 20; Swafford Depo. 176:15-20.

         Ordinarily, this commission payment would have been given to Swafford in January 2017. Swafford Depo. at 53:15-18. However, because Swafford exceeded his quota for the second half of 2016 by more than 400%, Swafford's commission payment amount triggered an internal review. Martinotti Depo. at 18:19-25, 19:1-25, 22:1-24. In particular, Swafford's commission triggered an automatic review by his first and second line managers, Briggs and Wirtenson, as well as his third line manager, Don Leeke (“Leeke”). Id. at 22:1-25, 23:1-5. Swafford had previously been subject to automatic review on the basis of large commission amounts that Swafford received in 2015. Swafford Depo. at 51:18-20. However, Swafford had believed that the purpose of this review was to “make sure a contract is signed, the amounts are correct, and- you know, and no decimal points missing, no approvals missing.” Id. at 51:20-23.

         On January 12, 2017, IBM's commissions team in Brazil sent a request to Briggs to review and approve Swafford's achievement and commission payment amounts. ECF No. 83-8 at 3. Briggs approved of the amounts. Id. at 2-3. On January 16, 2017, the commissions team then sent a request to Wirtenson to review and approve the amounts. Id. at 2. Wirtenson also approved of the amounts. Id. at 1. Finally, the commissions team sent a request to Leeke to review and approve the amounts. Id.

         Leeke expressed concern about the size of the proposed commission payment. ECF No. 83-9 at 2. Leeke requested confirmation of the underlying figures as well as “a short business justification to support results and payout.” Id. Briggs responded and provided additional information about the relevant transactions, and Briggs also indicated that “[t]hese wins were all led by and closed by Dave Swafford.” Id. at 1. Leeke continued to express concern, however. Leeke contacted several other IBM employees and opined that the proposed commission payment amount to Swafford was “insane” relative to the industry baseline. Id. Laurie Evans (“Evans”), another IBM executive, agreed with Leeke that the proposed amount was “way too steep of a pay out, ” and asked whether IBM had caps. ECF No. 83-10 at 1; Martinotti Depo. at 62:3-4.

         Leeke requested a copy of Swafford's IPL and asked whether it contained “a cap or language that allows for management limit on payout” because the proposed commission payment to Swafford seemed “excessive.” ECF No. 83-11 at 2. Another IBM employee directed Leeke to the IPL Adjustments for Error and Significant Transactions provisions and said that “these are 2 paragraphs that address this.” Id. at 1. Leeke then suggested that IBM reset Swafford's quota to “around $4M, ” which would have the effect of reducing Swafford's achievement to “roughly 250% attainment and a great payout but obviously less than what is below.” Id.

         Evans informed Leeke that another IBM employee had told Evans that “IBM does not cap IQPs (!), ” and Evans therefore suggested that Leeke “check with HR and Legal” before proceeding. ECF No. 83-12 at 1. However, Leeke testified that Leeke believed “IBM can cap” individual commissions, so long as IBM did not cap an employee's overall earnings. ECF No. 91-2 (“Leeke Depo.”) at 31:8-11, 98:11-18.

         Eventually, Leeke did not approve of the proposed commission payments to four IBM employees: Swafford, two other sales representatives on Swafford's team, and their first line manager, Briggs. ECF No. 83-14 at 1. On February 15, 2017, Leeke informed Wirtenson and several other IBM employees that Leeke was uncomfortable paying Swafford and the other members of Swafford's team commissions greater than 250% of their quotas. Id. Leeke indicated that he arrived at this conclusion because Leeke did not believe that the quotas for these employees “accurately represented the yields we expect from our partner/channel teams, ” and because Leeke did not believe the “team moved mountains for this attainment.” Id. Wirtenson expressed concern about Leeke's decision. Id. According to Wirtenson, if “the team knew they would get capped at 250%, we would have probably book [sic] $5M less, ” and Wirtenson worried that he would “lose a few good people over this.” Id.

         Wirtenson wrote to Leeke to persuade him not to go forward with the plan to limit Swafford and the other members of his team to 250% of their quotas. ECF No. 83-15 at 1. Wirtenson argued that if Leeke intended to proceed with his approach, however, “a better way would be to have a hard cap in the IPL's.” Id.

         On February 23, 2017, Briggs sent Swafford an email with the subject line, “2016 Commissions Cap, ” in which Briggs informed Swafford that Swafford's commission would be “capped at 250% of plan.” ECF No. 83-32 at 1.

         Briggs also sent a similar email to another member of Swafford's team who would be impacted by Leeke's proposal. See ECF No. 83-22 at 3. Briggs copied Wirtenson and Scott Kingston (“Kingston”), another second line manager, on both of these emails. ECF Nos. 83-32 at 1, 83-22 at 3. Kingston had overall responsibility for IBM's embedded software sales program in North America. Wirtenson Depo. at 121:3-18. Kingston responded to Briggs and complained that Leeke's approach would lead to a “loss of a sense of integrity” on the part of IBM. See ECF No. 83-22 at 3. Kingston explicitly worried that reducing commission payments to Swafford's team would “undermine [IBM's] own promise” to the IBM sales representatives. Id. at 2. In particular, Kingston asserted that to “change the plan after the game is over is not fair, and no one can rationalize it otherwise honestly.” Id. at 1. Kingston strenuously argued that IBM should not go forward with Leeke's proposal or engage in arbitrary capping in general: “Plus it's just not an honorable way for a [sic] ethical company to react. I believe in honest, fairness, and integrity. We have a team that believes in us. If we don't handle this better, none of them will trust us again. We need to reconsider this.” Id. at 2.

         In March 2017, Wirtenson proposed three alternative approaches that would result in Swafford's receipt of a larger commission than Leeke had proposed. ECF No. 83-17 at 4. Wirtenson testified that he made these suggestions because Wirtenson “didn't think that 250 percent, which was called a cap, was fair, ” and Wirtenson “was trying to come up with something that [he] believed was more in the line with what [he] thought Dave [Swafford] should earn.” Wirtenson Depo. at 174:14-19. Of these options, Wirtenson proposed that IBM “deal cap” the Oracle and Sabre Deals “at 150% of [Swafford's] quota.” ECF No. 83-17 at 4. Wirtenson explained that if Leeke still believed that the resulting payment to Swafford “is too rich, we could cap all of his deals individually at 100% of his quota, which would probably knock the payment down another 100K.” Id. Leeke ultimately approved Wirtenson's suggestion to “deal cap” the Oracle and Sabre Deals at 150% of Swafford's quota. Id. at 3. Accordingly, Swafford was ultimately paid $709, 679.13 in commissions for the second half of 2016, not the $950, 997.64 that had been initially calculated before the reductions.[1] Id. at 1.

         On May 1, 2017, Swafford wrote an email to Wirtenson in which Swafford requested an explanation for why Swafford was not fully paid for the Oracle and Sabre Deals. ECF No. 83-31 at 2. Wirtenson replied that Wirtenson had “made the recommendation to Don [Leeke] that we pay on all other deals 100% but CAP the Oracle and Sabre transactions at 150% of your quota on each.” Id. at 1. Wirtenson said that this explained the reduction in Swafford's commissions for the Oracle and Sabre Deals. Id. Wirtenson and Briggs both testified that they had never before seen a reduction of commissions in similar circumstances at IBM. Wirtenson Depo. 138:8-21; Briggs Depo. 44:17-20.

         B. Procedural History

         Swafford filed his initial complaint against IBM on August 14, 2018, which alleged that IBM owes him unpaid commissions related to the Oracle and Sabre Deals. ECF No. 1. Swafford's initial complaint asserted claims for: (1) breach of oral and/or implied contract; (2) quantum meruit; (3) unjust enrichment; (4) fraudulent misrepresentation; (5) negligent misrepresentation; (6) violation of the California Labor Code; (7) violations of the California Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200; and (8) punitive damages. Id.

         On October 19, 2018, IBM moved to dismiss Swafford's initial complaint. ECF No. 24. On November 2, 2018, Swafford filed his first amended complaint. ECF No. 32. As a result, the Court denied as moot IBM's motion to dismiss Swafford's initial complaint on November 12, 2018. ECF No. 39.

         In his November 2, 2018 amended complaint, Swafford asserted claims for: (1) “[v]iolation of California Labor Code”; (2) violations of the UCL, Cal. Bus. & Prof. Code § 17200; (3) fraudulent misrepresentation; (4) negligent misrepresentation; (5) quantum meruit; (6) unjust enrichment; and (7) punitive damages.

         On November 16, 2018, IBM moved to dismiss Swafford's first amended complaint. ECF No. 42. On April 17, 2019, the Court issued an order granting in part with prejudice, granting in part without prejudice, and denying in part IBM's motion to dismiss Swafford's first amended complaint (“Order on the Motion to Dismiss”). ECF No. 69.

         On May 16, 2019, Swafford filed his second amended complaint (“SAC”). ECF No. 71 (“SAC”). In the SAC, Swafford asserts claims for: (1) violations of the UCL, Cal. Bus. & Prof. Code § 17200; (2) fraudulent misrepresentation; (3) negligent misrepresentation; (4) quantum meruit; (5) unjust enrichment; and (6) punitive damages. SAC ¶¶ 55-105. IBM answered the SAC on May 28, 2019. ECF No. 74.

         IBM filed the instant motion for summary judgment on July 25, 2019. ECF No. 82 (“Mot.”). Swafford opposed the motion for summary judgment on August 21, 2019, ECF No. 83 (“Opp.”), and IBM replied on September 5, 2019, ECF No. 85 (“Reply”). Further, on September 30, 2019, IBM ...

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