CA1: negligently misrepresenting stock option terms

First Marblehead v. House, No. 06-1114 (12/22/06). An employer had a incentive stock option plan. The employees were told that the options had a ten-year exercise period. But, it later emerged that if the employee left, the options expired three months after the employee left. The company's lawyers knew this, and the company's lawyers told management that this little detail was pretty big. The record does not indicate whether this information was distributed.

As you probably can guess, someone fell into this trap. And sued. While a motion for summary judgment was pending on contract, promissory estoppel claims, the plaintiff was granted a motion to compel to production of the memo from the company's lawyers. The plaintiff amended his complaint to include a "negligent misrepresentation" claim. The court then granted summary judgment on the initial claims under the contract and promissory estoppel theories. Then, to make it perfectly clear whose side it was one, the court, on its own motion, granted summary judgment on the negligent misrepresentation theory.

The First agrees that there was no contract or promissory estoppel claims, because of Delaware law's bar on equitable claims in the face of board-approved stock option language, even where grave injustice against the proletariat results. (Okay, I am laying on the Marxist rhetoric rather thick today, but since it is Christmas, we should all be shunning capitalism in favor of good will towards men, which is, like totally Marxist. Right?) Likewise, the First finds that he can't prevail on the "reasonable reliance" elements of the promissory estoppel claims, because he was no "babe in the woods."

But the First holds that Massachusetts law applies to the negligent misrepresentation claims. The court points out that no affirmative representations are necessary, and the letter from the lawyers pretty much shows that they were failing to disclose something. Secondly, it was unclear whether the plaintiff really was a babe in the woods or not, and his deposition testimony did not make him look like a financial or legal wiz.