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© 2014 Zuckerman Spaeder LLP

A Closer Look At The Defamation Suit By Walgreen’s Former Finance Chief

The news hasn’t been great for Walgreen Co. over the past couple of months.  According to the Wall Street Journal, in early July, chief financial officer Wade Miquelon slashed his forecast for pharmacy unit earnings to $7.4 billion from $8.5 billion.  Miquelon left the company in early August.  Shortly thereafter, the Journal ran an article stating that Miquelon’s “billion-dollar forecasting error” had cost Miquelon his job and alarmed Walgreen’s big investors.

Now, Walgreen is fighting a battle on another front – against Miquelon.  Last week, Miquelon sued Walgreen in state court in Illinois, alleging that the company, its CEO, and its largest shareholder had defamed him.  According to Miquelon, the company’s big investors were told that Walgreen’s finance department was “weak” and had “lax controls.”

The four things that a defamation plaintiff must typically prove to prevail are: (1) the defendant made a false statement about him; (2) the statement was published, i.e., made, to one or more other persons; (3) the defendant was at least negligent in making the statement; and (4) the publication damaged the plaintiff.  Thus, if Walgreen and the other defendants can show that any harmful statements they made about Miquelon were true, they stand a good chance of defeating his claims.  On the other hand, as we covered in this article, if Miquelon can prove that the defendants engaged in a “premeditated scheme” to do him harm by falsely criticizing his performance, he might be able to recover a substantial verdict. Read More ›

Judge Approves $20 Million in Executive Bonuses From Bankrupt Company, Finding That Incentives Weren't "Lay-ups"

A bankruptcy can be hazardous to the health of an executive’s bonus check.  Sometimes, however, an executive can survive an attack on a bonus in a bankruptcy, and come out clean on the other side.  For example, we covered here how one executive succeeded in keeping most of his incentive payments based on the timing of those payments. 

Now, we have another lesson in how executives can keep their bonus checks despite a bankruptcy, from Judge Christopher S. Sontchi of the U.S. Bankruptcy Court for the District of Delaware.  The company at issue in the case was Energy Future Holdings Corp. (EFH), a holding company with a portfolio of Texas electricity retailers.  EFH filed for Chapter 11 bankruptcy in April of this year. Read More ›

The Inbox - There Will Be Damages

Last week, a Texas state court issued a whopping judgment in favor of a former employee of FE Services LLC. The case stemmed from an employment agreement between the founder of FE Services, doing business as Foxxe Energy, and a friend he enlisted to join the company. Founder James Stewart induced his friend, Marc Jan Levesconte, to work for the company with the promise of a significant cut of any future sale. Levesconte was terminated on the eve of the company’s $52 million acquisition by Ensign Services LLC. According to Law 360, Levesconte brought a breach of contract suit two years ago. Now, the court has decided that Ensign and Stewart owe him $16 million. You may recall the famous scene from There Will Be Blood where energy magnate Daniel Plainview taunts Eli with the milkshake metaphor (“I drink your milkshake!) and revels in his dominance of the oil-rich land. If Stewart drank Levesconte's milkshake, his (presumably) former friend Levesconte is now sipping from his own end of the straw.

As the term implies, a “trade secret” normally describes information kept confidential to prevent unfair competitive advantage. Is it possible that information housed on social media could also be protected as a trade secret? A California federal court will hold a trial on this novel question in Cellular Accessories For Less, Inc. v. Trinitas, LLC, No. CV 12-06736 DDP. The National Law Review discusses the suit in which Cellular Accessories sued a former employee, David Oakes, alleging breach of contract. Oakes, upon his departure, emailed himself a list of business contacts and other supporting information, and ultimately founded his own competing business, named Trinitas. He  continued to maintain his same business contacts on his LinkedIn profile. During his employment with Cellular Accessories, however, Oakes had signed an employment agreement and a statement of confidentiality which forbade the transfer of proprietary information, including the company's customer base. The confidentiality agreement further forbade the use or disclosure of such proprietary information. The company sued him for trade secret misappropriation under the California Uniform Trade Secrets Act and for breach of contract. Whether information is a trade secret under California law depends on whether the information is easily ascertained or otherwise available to the public. In this case, the court said, the parties hadn't given it enough detail to decide whether Oakes's contact list was actually available to everyone else who contacted him, and whether Oakes had control over the public availability of that list. Therefore, the court couldn't resolve the trade secrets issue on summary judgment (although it could resolve the breach of contract claim because Cellular Accessories had not established a loss). Perhaps equally interesting is the question of who owns the LinkedIn account. Can a trade secret belonging to Cellular Accessories exist in a public form essentially owned by the employee? We will keep you updated as the drama unfolds. Read More ›

Government Investigations: The Treacherous Path to Obtaining (and Keeping!) Defense Costs Paid Under D&O Policies

Bridge in disrepairFor my first foray into blog-writing, allow me to tell a cautionary tale intersecting two of my favorite topics: defending companies and individuals in government investigations and Directors and Officers (D&O) Liability Coverage. As a contract junkie who enjoys reading, interpreting, and arguing contract language, parsing through various interrelated D&O policy provisions to glean favorable language for my white collar clients offers hours of amusement (lest ye be worried about me, I do have other hobbies).  D&O policies can be effectively used to defray defense costs incurred due to a government investigation.  The trick is keeping the money. 

The recent suit between Protection Strategies, Inc. (PSI) and Starr Indemnity & Liability Co. in the Eastern District of Virginia, case 1:13-cv-00763-LO-IDD, illustrates how difficult keeping the money can be. PSI is an Arlington, Va.-based defense contractor. In January 2012, PSI received a subpoena from the NASA Office of the Inspector General and a search warrant issued by the United States District Court for the Eastern District of Virginia.  On February 1, 2012, the NASA OIG executed the search warrant at PSI’s headquarters.  In addition to the company itself, several of PSI’s current and former officers were informed that they were also targets of the NASA OIG investigation. PSI retained Dickstein Shapiro to represent it and hired separate counsel to represent the individual targets and other company employees. Read More ›

After Torching Laptop, CEO Feels the Heat of Sanctions

Computer on fireFire consumes all – including, perhaps, one CEO’s chance of winning his lawsuit.  Because G. Wesley Blankenship burned relevant evidence, the jury in his case will now be told that it should assume the lost documents were bad for him.  

Blankenship left his job as CEO of Security Controls, Inc. in early 2012.  He soon decided to put even more distance between himself and his employer by having a bonfire.  Into the flames went Blankenship’s laptop and his SCI paper files. 

This turned out to be a bad choice when Blankenship sued SCI and its directors in mid-2012, alleging that they weren’t giving him proper value for his shares in the company.  Blankenship’s lawyers eventually informed SCI of the fire, and SCI moved for sanctions, arguing that Blankenship had knowingly “spoliated” – i.e., destroyed – relevant evidence.  As we’ve previously discussed in this post, spoliation can have serious consequences for litigants.  Among these consequences are jury instructions that allow jurors to assume that the destroyed documents were detrimental to the party’s case. Read More ›

Show Some Consideration

Man washing carMost law students spend several weeks in a first-year contracts class studying the concept of consideration. Consideration, in essence, is what a contracting party receives in exchange for promising to do something. A promise without consideration is not an enforceable contract. If A promises to wash B’s car next Tuesday and fails to do so, B cannot sue A on Wednesday, because A’s promise lacked consideration. But if A promises to wash B’s car and B promises to give A $20, or $1, or a glass of water, the promise is enforceable and B can sue if A fails to perform. Courts generally do not examine the adequacy of consideration, only its existence.

Because consideration can be minimal, many lawyers forget about it after that first year of law school. But it remains a necessary element of most contracts, and it recently arose in a peculiar way in a Connecticut case involving a dispute over an employment contract. See Thoma v. Oxford Performance Materials, Inc., 153 Conn. App. 50 (2014).

The plaintiff in the case, Lynne Thoma, was an employee of a manufacturing company. During her employment the company obtained new financing, and the investor insisted that Ms. Thoma enter into an employment agreement. This “first agreement” gave Ms. Thoma a fixed salary plus benefits for a 24-month period with automatic 12-month renewals. The company could fire her without cause on 60 days’ notice, but it would then be obligated to pay her salary for the remainder of the term plus six months. The first agreement also included a noncompete provision for the period of Ms. Thoma’s employment plus six months thereafter.

The company almost immediately decided it did not like certain terms of the first agreement and it required Ms. Thoma to enter a second agreement, which by its terms stated that it superseded any prior agreements. The second agreement did not discuss salary or severance, but it expressly stated that Ms. Thoma was an at-will employee. It also included a noncompete provision with apparently inconsistent terms: one section stated that she would not compete “during the period of her employment” and the other said that if she was terminated she would “continue to comply” with the noncompete provision.

The company fired Ms. Thoma about 16 months after the parties executed these agreements. Ms. Thoma sued, claiming that the company breached the first agreement by firing her without notice before her term ended and by failing to pay severance. The company claimed that the second agreement allowed it to fire her without notice at any time and did not require severance payments. But the trial court found, and the appellate court agreed, that the second agreement was not enforceable because it lacked consideration. Read More ›

The Inbox - Liars, Titans and Terror Babies, Oh My!

Pregnant WomanIf executives lie and fudge credentials on their resumes, they may find their pantsuits on fire when falsehoods are discovered. For example, the Wall Street Journal recently reported that David Tovar, a top Wal-Mart spokesperson, was terminated recently when a bogus credential was discovered through the company’s promotion-vetting process. According to the Journal, liars and resume-fakers should beware of embellishing their credentials given the increased digitization of transcripts and diplomas. A company named Parchment, for example, houses these credentials in a secure database, allowing employers and employees to substantiate resume claims. Additionally, Pearson PLC has developed a digital platform whereby recipients of licenses and certifications can post “badges” to their profiles on websites like LinkedIn. It’s all in an effort to keep everyone honest, especially those who need a little nudging in that direction.  

The University of Detroit Mercy’s Titans athletic department has seen its share of controversy stemming from a lawsuit filed by former assistant basketball coach, Carlos Briggs. According to The Varsity News, Briggs claimed he was terminated for blowing the whistle on an affair between the athletic director and another assistant coach. A federal judge dismissed the case, asserting that no recognized cause of action arose from his colleagues’ extramarital relationship. Briggs is appealing with the hopes that an oral argument on the merits will give weight to his claims. Read More ›

Foreign Whistleblower Cashes in on Report to SEC

SECOn September 22, the Securities and Exchange Commission announced its largest award to date under its whistleblower program: $30 million.  The SEC said that the whistleblower, who lives in a foreign country, came to it with valuable information about a “difficult to detect” fraud. 

In the order determining the award (which is heavily redacted to protect the identity of the whistleblower), the SEC commented that the claimant’s “delay in reporting the violations” was “unreasonable.”  In arguing for a higher bounty, the claimant contended that he or she was “uncertain whether the Commission would in fact take action.”  This argument, however, didn’t support a “lengthy reporting delay while investors continued to suffer losses.” Read More ›

The Inbox - The Dude Abides

Coen BrothersEvery once in a while published legal opinions and pop culture intersect in such a cheeky, unexpected way as to cause minor ripples in the otherwise relatively calm waters of legal writing and reporting.  In what some have described as the footnote of the year according to Business Insider, a Texas Supreme Court Justice gave a wink and nod to a Coen Brothers’ favorite, The Big Lebowski, in a recent opinion.  The events in the underlying case might not have been as convoluted as The Big Lebowski’s plot, but it is worth noting.  The appellant, Robert Kinney, was a legal recruiter for BCG Attorney Search until 2004 when he left to create his own firm.  Some years later, Andrew Barnes, President of BCG, claimed that Kinney engaged in a kickback scheme while an employee of BCG.  Kinney then sued Barnes, accusing him of defamation and asking for permanent injunctive relief.  The trial court granted (and the appeals court affirmed) summary judgment, agreeing with Barnes that a permanent injunction would constitute impermissible prior restraint of free speech.   Now in the hands of the Texas Supreme Court and Justice Debra Lehrmann, the high court ultimately agreed with the finding.  As Justice Lehrmann dove into First Amendment law and jurisprudence in the opinion, she noted: Read More ›

Goldman Sachs Programmer Asks Third Circuit to Take Another Look at Advancement Case

Last week, we covered the Third Circuit’s decision that Goldman Sachs bylaws didn’t clearly establish a vice president’s right to advancement of his legal fees for his criminal travails.  The vice president, software programmer Sergey Aleynikov, isn’t giving up easily, however.

Law360 reports that Aleynikov has filed a petition for panel rehearing or rehearing en banc.  In the federal appellate courts, this is a step that parties can take when they disagree with the decision of the three-judge panel that heard their case.  In a panel rehearing, the panel can revisit and vacate its original decision; in a rehearing en banc, the entire Third Circuit could consider the issue.

Aleynikov contends in his petition that the panel misapplied a doctrine of contractual interpretation called contra proferentem.  In plain English, contra proferentem means that a court will read the written words of a contract against the party that drafted it.  The panel in Aleynikov’s case disagreed as to whether under Delaware law (which governs his dispute), the doctrine can be used to determine whether a person has any rights under a contract.  The two-judge majority said that it can’t, and therefore refused to use the doctrine when it decided whether Aleynikov – as a Goldman vice-president – fell within the definition of an “officer” entitled to advancement under the company’s bylaws.  In dissent, Judge Fuentes asserted that “Delaware has never suggested that there is an exception to its contra proferentem rule where the ambiguity concerns whether a plaintiff is a party to or beneficiary of a contract.”

In his petition, Aleynikov asks the whole Third Circuit to decide who is right: Judge Fuentes or the majority.  He also cites additional Delaware cases that he says support his position, including one “unreported case” that was brought to his counsel’s attention “unbidden by a member of the Delaware bar who read an article commenting on the panel’s decision in The New York Times on Sunday, September 7, 2014.”  Sometimes, to establish a right to advancement rights, it takes a village.