Exec not discharged in bad faith, says 1st Circuit.

Byline: Eric T. Berkman

A biotech company that terminated an executive before he reached certain equity incentives under his contract did not breach the implied covenant of good faith and fair dealing, the 1st U.S. Circuit Court of Appeals has ruled.

Abiomed hired plaintiff Keisuke Suzuki to help the company obtain Japanese regulatory approval of its "Impella" heart pump. Suzuki's employment agreement with Abiomed entitled him to 20,000 shares of the company's stock upon Japanese governmental approval.

The defendant terminated Suzuki a little more than a year before receiving such approval, and Suzuki asserted in a lawsuit that Abiomed did so to deprive him of earned compensation in violation of the implied covenant.

A U.S. District Court judge granted summary judgment to the defense, finding that Suzuki failed to show he was on the brink of achieving the relevant milestone at the time of discharge or that he had earned the shares in question by virtue of his past work.

The 1st Circuit affirmed, holding that Suzuki's termination did not violate the implied covenant under the "Fortune/Gram doctrine" laid out in the Supreme Judicial Court's 1977 Fortune v. Nat'l Cash Register Co. decision and its 1981 Gram v. Liberty Mutual Insurance Co. decision.

In Fortune, the SJC recognized bad faith when an employer fires an employee "on the brink" of successfully achieving a compensable milestone. Gram extended the doctrine to at-will employees who, having been discharged without good cause, lose compensation "clearly related" to "past service."

"[N]o reasonable factfinder could conclude that when Abiomed fired Suzuki, it deprived him of compensation that he had already earned by virtue of his past services," Judge Bruce M. Selya wrote for the court. "The undisputed facts establish that Suzuki understood he would be entitled to the 20,000 shares only upon final regulatory approval of the Impella devices a milestone that was far from assured at the time of his ouster and that was not reached until fifteen months later (after ... additional work)."

[box type="shadow" align="alignright" width="325px"]Suzuki v. Abiomed, Inc., Lawyers Weekly No. 01-253-19 (29 pages)

THE ISSUE: Did a biotech company that terminated an executive before he reached certain equity incentives under his contract breach the implied covenant of good faith and fair dealing?

DECISION: No (1st U.S. Circuit Court of Appeals)

LAWYERS: William T. Harrington and Christine A. Maglione, of...