In July 1996, Oracle signed a letter agreement with Pier Carlo Falotti to work from Geneva, Switzerland, as senior vice president for Europe, the Middle East, and Africa for $1 million in annual salary. The letter provided that Oracle would grant Falotti an initial option to purchase 600,000 shares of Oracle stock and that once Falotti accepted Oracle’s offer, they would enter into an employment contract subject to Swiss law. Oracle and Falotti subsequently signed several additional letter agreements and an employment agreement, all of which were governed by Swiss law. There were no references to stock options in the subsequent letters or the agreement. During Falotti’s employment, all stock option grants were governed by Oracle’s 1991 Long-Term Equity Incentive Plan. This Plan, along with a Grant Agreement and an Exercise Notice Agreement, collectively formed Oracle’s Stock Option Agreement and included a California choice-of-law provision. The Stock Option Agreement also provided that all disputes regarding stock option grants would be decided by Oracle’s compensation committee and that the committee’s decisions were binding on both Oracle and the employee.
On May 31, 2000, four days before his options were to vest, Falotti was terminated. However, Falotti told Oracle’s CEO that under Swiss law, he could not be fired because he was ill and unable to work. Oracle’s compensation committee met and unanimously decided Falotti had “ceased to be employed” on May 31, 2000, and could not exercise any stock options after that date. Oracle filed a declaratory relief action seeking a declaration that Falotti could not exercise the $10 million of options that vested after May 31, 2000, and that he was not entitled to any stock option damages in lieu of the unexercised options. Falotti counterclaimed that Swiss law provided that before he could be terminated; there was a two-month notice period during which he was entitled to wages and benefits. What will Oracle argue? What will Falotti argue? Who should win? [Oracle Corp. v. Falotti, 319 F.3d 1106 (9th Cir. 2003).]