United States District Court, N.D. California, San Jose Division
ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANT'S MOTION FOR SUMMARY JUDGMENT RE: DKT. NO.
H. KOH UNITED STATES DISTRICT JUDGE.
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.
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.
Facts Related to IBM's Commission Payments.
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.
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.
the IPL provided that IBM had the right to make changes to
incentive payment rates or quotas. Id. at 3. The IPL
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
the IPL provided that IBM could change incentive payment
calculations resulting from errors. Id. The IPL
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.
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
Id. at 4.
the IPL explained how incentive payments are earned under the
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.
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.
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.
The Sabre and Oracle Deals.
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.”).
Swafford's Allegations that IBM Capped His
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.
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
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.
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.
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.”
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.
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.
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
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.
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
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. Id. at
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.
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.
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
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.
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.
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.
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 ...