The Inbox -- Three Day Weekend Edition (5/24/2013)

As we here at Suits by Suits get ready for a rare (but welcome!) three-day weekend, you might want to kick back, relax, and enjoy the week in disputes between executives and their employers.  We'd say crack open a cold one for us as well, but given that it's before noon on a Friday and you're probably at work, that might not be the best advice we've ever given.  On a related note:  this blog does not provide legal advice or constitute an attorney-client relationship.

• Former Windsor Health Group CEO Michael Muchnicki has sued his former employer in federal court in Atlanta, seeking $2 million in severance pay and $3 million in punitive damages and attorneys' fees in connection with his termination in 2012.  Muchnicki's lawsuit alleges that he was initially terminated "without cause" (which would have entitled him to approximately $2 million in severance pay and bonuses), but after he met with internal auditors, the company retaliated and changed his status to "terminated for cause," eliminating the severance pay.
• We believe that Facebook continues to pose some of the most interesting questions in employment law; and we've written about some of those issues here, here, here, here, and here.  Today we've learned that the U.S. Court of Appeals for the Fourth Circuit has heard oral argument in a wrongful termination case as to whether clicking the "Like" button on Facebook constitutes protected freedom of speech for purposes of the First Amendment.  We'll be sure to let you know what the 4th Circuit decides.
• As you may know, the Americans With Disabilities Act (ADA), 42 U.S.C. § 12101 et seq. requires certain employers, inter alia, to make "reasonable accommodations" for its otherwise-qualified employees with mental and physical disabilities; we've previously discussed how that can lead to lawsuits.  This week, in an editorial in the Washington Times, Luke Rosiak argues that the revisions to the American Psychiatric Association's Diagnostic and Statistical Manual of Manual Disorders (the "DSM-V"), which sets forth the criteria for diagnosing and classifying mental disorders, could result in increased diagnoses of mental disabilities and disorders, which in turn could increase the number of lawsuits filed against employers pursuant to the ADA.  The DSM-V is the first update to the APA's manual in thirteen years and includes updated criteria for mental disorders as well as recognizes new disorders that have been diagnosed by mental health professionals.
• Relatedly:  BMO Harris Bank has agreed to a $400,000 settlement with fourteen of its former employees in connection with allegations brought by the EEOC pursuant to the ADA that BMO Harris had illegally terminated the employees after they had taken medical leave instead of provided reasonable accommodations that would have enabled them to return to work.
• And more in EEOC news, as the agency issued a press release announcing that it had filed suit against The Founders Pavilion, Inc., a New York-based nursing and rehabilitation center, on the grounds that the center had improperly asked prospective applicants and employees for family medical history in violation of the 2008 Genetic Information Nondiscrimination Act (GINA); this comes on the heels of a $50,000 settlement entered into by fabric distributor Fabricut that was also brought by the EEOC pursuant to GINA where an employer required prospective employees to turn over family medical history.
• We've previously analyzed the "say-on-pay" provisions of Dodd-Frank (and see also this Inbox item); this week, the Wall Street Journal's "Corporate Intelligence" column concluded that investors are "exercising more influence over executive pay," and highlights the perceived pros and cons from within the financial industry.  Intriguingly, one finding is that despite cutting back on executive compensation and perks, the average shareholder may not see those efforts paying off in terms of the stock price.  It's worth a read. 
• An interesting twist on the usual suit by suit:  Earlier this year, Asian Coast Development (Canada) Ltd., a developer currently constructing a luxury casino and resort in Vietnam ("Ho Tham Strip"), placed its CEO Lloyd Nathan on administrative leave, allegedly on the grounds that it was investigating potentially improper conduct on Nathan's part that could be grounds for termination.  Now, Nathan has sued the developer's holding company, Harbinger Capital Partners, and others alleging that he was wrongfully forced out.  The Complaint alleges:  "To date, ACDL has provided Nathan no information about the basis of its supposed belief that grounds exist to terminate him for cause, no update as to the supposed investigation mentioned in the April 5 letter, and no further information about its plans regarding Nathan's employment with ACDL."
• Yesterday, a federal court jury ruled that former Commerce Bankcorp founder Vernon Hill was not entitled to the $17.2 million in severance pay, stock options, and accrued interest he sought in connection with his 2007 ouster after Commerce Bankcorp was acquired by TD Bank (and settled federal allegations that Hill had entered into real estate transactions that allegedly benefited his family).
• Of course, it's not just private-sector bonuses that are coming under fire.  Last week, Inspector General Brian D. Miller issued a report criticizing the General Services Administration for handing out $160,000 in performance bonuses to various senior executives under its "Peer-2-Peer" awards program, which ran from 2009 to 2011.  The report challenges the bases and methods by which the awards were given out; the Obama administration has responded that the program has been eliminated and that "bonuses are coming down to their lowest levels in five years."
• On the other hand, the Miami Herald reports that Miami city commissioners are considering a vote next week that would allow the outgoing city clerk, auditor, city attorney and city manager to return from retirement while still collecting six-figure pensions from the city.
• Finally, we'll end with a feel-good story involving the San Francisco Giants' pitcher, Jeremy Affeldt, a left-handed specialist who currently sports a fine 2.70 ERA pitching in relief for the first-place Giants.  The New York Daily News dubbed Affeldt "the most honest athlete ever" after learning that he returned a $500,000 overpayment to the Giants in 2010.  After agreeing to a $4 million deal, Affeldt learned that the signed contract mistakenly said "$4.5 million", and brought the error to the team's attention.  Although Giants Assistant GM Bobby Evans concluded that Affeldt would have had the right to keep the mistakenly-awarded extra money, the reality isn't quite so clear.  (The Giants would have had to have taken Affeldt to court and proven the mistake, and several practical considerations would have made that challenging -- but not impossible.)  And in the end, Affeldt signed a 3-year, $18 million contract extension with the Giants this past offseason.

From Flowers And Cemeteries To Barbecue And Beaches: How We Got Memorial Day

While we’re a blog about disputes between executives and companies, we can’t overlook those significant days when those companies and executives pause for a national holiday.  Through our first year, we’ve looked at how holidays – when most business stops and courts close (putting a brief halt to the disagreements we cover) – came to be, and their impact on the American workspace. 

Regular readers will guess where we’re going today.  Assuming you are not one of the 35 million-odd Americans traveling more than fifty miles for the traditional start to summer – and if you are, put down the device on which you’re reading this and watch the road, as someone is likely braking in front of you – read on for our look at how we got to enjoy Memorial Day. Read More ›

Against the Odds, High Court Will Hear Whistleblower Case

Yesterday, the Supreme Court announced that it will hear the case of Jackie Hosang Lawson and Jonathan Zang, two former Fidelity employees who seek to reverse the dismissal of their Sarbanes-Oxley whistleblower claims.  In this post last week on Suits by Suits, we outlined Lawson and Zang’s petition to the Court and described the long odds that petitioners face when they ask the Supreme Court to review their cases.  The U.S. government also didn’t do Lawson and Zang any favors when it told the Court that it shouldn’t take their case.  Now that Lawson and Zang have bucked the odds, they might be feeling like they bought that lucky PowerBall ticket.

The Court has outlined the question presented by Lawson and Zang’s case as follows: 

Section 806 of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, forbids a publicly traded company, a mutual fund, or “any ... contractor [or] subcontractor ... of such company [to] ... discriminate against an employee in the terms and conditions of employment because of” certain protected activity. (Emphasis added). The First Circuit held that under section 1514A such contractors and subcontractors, if privately-held, may retaliate against their own employees, and are prohibited only from retaliating against employees of the public companies with which they work.

. . .

Is an employee of a privately-held contractor or subcontractor of a public company protected from retaliation by section 1514A?

To prevail, Lawson and Zang must convince the Court that the answer is yes. Read More ›

The Inbox - May 17, 2013

May flowers are blooming, and so is the Suits by Suits news:

• CEO dismissals hit a 10-year high in 2012, according to The Corporate Board’s study of CEO succession practices.  Matteo Tonello of the Corporate Board published this summary of the study on the Harvard Law School Forum on Corporate Governance and Financial Regulation.
• The Anderson County Council is talking settlement in its long-running dispute with former county administrator Joey Preston, reports Bill Poovey of GSA Business.   The South Carolina legislators have spent $3 million in legal fees in their unsuccessful effort to recover Preston’s $1 million severance package.  That money would have bought a lot of Skins’ hot dogs.
• We previously brought you the story of David Nosal, a former Korn/Ferry executive who was facing trial on charges of gaining unauthorized access to Korn/Ferry’s system and stealing trade secrets.  Joanne Lublin of the Wall Street Journal reports that the trial did not turn out well for Nosal: he was convicted on all counts.  Nosal told Lublin that he is confident that the verdict will be reversed.
• New Mexico legislators criticized the large buyout offered to the new head coach at the state university, reported Alex Goldsmith at kqre.com.  Craig Neal will get $1 million plus up to $300,000 if the school decides to fire him in the next four years.  In his defense, Neal could have pointed to Mike Krzyzewski, who received $9.7 million from Duke in 2011 (when, incidentally, the Blue Devils lost to 15-seed Lehigh in the NCAA tournament).
• More sports news: Sean Newell of Deadspin reports that warm and fuzzy coach Bill Belichick and the New England Patriots may have cut a player, Kyle Love, because he was diagnosed with diabetes.  Newell’s post discusses the Americans with Disabilities Act, which could have protected Love from termination based on his condition, and the at-will employment doctrine.

Supreme Court Considering Whether to Accept Sarbanes-Oxley Whistleblower Case

Only a handful of employment cases make it all the way to the Supreme Court’s august chambers at One First Street.  That’s largely because the Court has discretion whether or not to review cases decided by lower courts of appeals.  Thousands of unhappy litigants file petitions for writ of certiorari every year, asking for review from the highest court in the land.  Almost all are turned away.

Tomorrow, the Court will consider whether to accept an appeal by Jonathan Zang and Jackie Lawson in a case that has significant implications for the Sarbanes-Oxley whistleblower protection provision, 18 U.S.C. § 1514A.  Section 1514A, which was passed as a response to the Enron and other financial scandals of the early 2000s, prohibits public companies, as well as “any other officer, employee, contractor, subcontractor, or agent of such company,” from retaliating against “an employee” for protected activity.  The issue in Zang and Lawson’s case is whether Section 1514A protects employees of privately-held companies, if those companies are working as contractors for public companies. Read More ›

Farmers Insurance Wins Summary Judgment on Ex-Employee’s Breach of Contract

As we’ve covered before on Suits by Suits, summary judgment can be a powerful weapon for a party to a civil lawsuit.  By granting summary judgment, a court can resolve a claim before trial, meaning that it’s never heard by a jury.  The standard for granting summary judgment, found in Rule 56 of the Federal Rules of Civil Procedure, is well-known to civil litigators: it is appropriate when there are no genuine issues of material fact and the case can be decided as a matter of law. 

In a recent case from the District of Minnesota, Farmers Ins. Exchange v. West, the Farmers Insurance Group used summary judgment effectively on both offense and defense.  First, it won a ruling that its former district manager, Theodore West, breached his appointment agreement and that Farmers suffered damages as a result.  Then, on defense, it knocked out West’s counterclaims for breach of contract and discrimination.

So what happened in West’s case, and why did Farmers prevail? Read More ›

The Inbox - May 10, 2013

This week in Suits by Suits:

• Credit Suisse Group AG sued its former Vice President of Emerging Markets, Agostina Pechi, seeking a temporary restraining order barring Ms. Pechi from soliciting Credit Suisse clients.  According to the complaint, Ms. Pechi -- now employed by Credit Suisse's competitor, Goldman Sachs -- engaged in "an after-hours document raid" of confidential information from Credit Suisse which she allegedly emailed to her personal account before leaving the firm.  One interesting wrinkle here is that Ms. Pechi had an arbitration clause in her employment agreement requiring arbitration of all employment-related grievances, but Credit Suisse filed suit, claiming that "a court order was needed to prevent [it] from being harmed in the interim."  We've previously suggested that mandatory arbitration clauses may not always be a benefit to employers; and, if you're curious as to whether Credit Suisse's filing could be construed as a waiver of its right to arbitrate, you might want to check out our two-part series on waiver here (Part 1) and here (Part 2).
• We've previously analyzed the "say-on-pay" provisions of Dodd-Frank (and see also our this Inbox item); now we have a new wrinkle.  A few days ago, Heinz's shareholders passed a nonbinding vote to deny outgoing CEO Bill Johnson a $56 million golden parachute that includes accelerated stock options.  Advisors say that the vote "doesn't hold up the deal [to take Heinz private]" which we interpret to mean that Johnson will get his money.
• Residential Capital, LLC -- a bankrupt mortgage company owned by Ally Financial, Inc., which is in turn majority-owned by the U.S. Government -- has requested approval from a New York Bankruptcy judge to pay $7.8 million in severance pay to outgoing executives, with payments capped at $136,000 for two senior execs.  The motion notes that the employees would have been "entitled to sums well in excess of the $136,000 cap" had they remained with the company.
• A case study in why clawbacks are hard:  Anderson County, South Carolina is deciding whether to continue to pursue litigation to force its former county administrator, Joey Preston, to repay a $1.1 million severance package he received in 2008 in light of allegations of ethical violations, fraud, and breach of fiduciary duties.  However, a state court found in Preston's favor on Thursday and required the county to pay Preston $700,000 in attorneys' fees.  Anderson County now estimates that it has spent $3 million trying to recover the $1.1 million from Preston.
• Finally, Bloomberg BNA has posted a nice summary article analyzing the Supreme Court's April 24, 2013 decision in University of Texas Southwestern Medical Center v. Nassar, which addresses various evidentiary issues in the context of an employee's Title VII retaliation claim. 

Martensen v. Koch, Venue, and You

Yesterday we looked at a California federal court decision in Martensen v. Koch, in which ex-Oxbow executive Kirby Martensen has sued billionaire William Koch, alleging kidnapping, false imprisonment, conspiracy, and other claims related to his alleged treatment at the hands of Oxbow employees at the Bear Ranch in Colorado.  Specifically, we looked at what the decision means in terms of whether a court can maintain personal jurisdiction over an out-of-state defendant; in the Martensen case, the clear take-away is that committing any portion of an alleged wrong within a state counts as having committed the wrong within that jurisdiction.  So even though most of Kirby Martensen’s kidnapping and false imprisonment allegations relate to conduct that took place in Colorado, because he was allegedly placed on a private plane owned by Oxbow and flown to Oakland, California before being released, the court found that (for purposes of personal jurisdiction) Martensen’s alleged false imprisonment “that began on [Koch]’s private ranch by [Koch]’s agents [in Colorado] continued unbroken until [Martensen]’s release in Oakland, California,” and thus gave rise to personal jurisdiction over Koch in California.

Personal jurisdiction, however, is only the first step in the process of figuring out where you can and should be sued.  Personal jurisdiction determines whether a court has any power over you at all, and is based on the principle – expressed in depth in yesterday’s post – that if you have never set foot in the state of Wyoming, you cannot be compelled to appear in Court in Wyoming.(*)  But just because a state has personal jurisdiction over you doesn’t mean that state is the best place to handle a dispute.  This is the question of venue.  Read on. Read More ›

Martensen v. Koch, Personal Jurisdiction, and You

As you probably know, we here at Suits by Suits have been fascinated by the strange case of Kirby Martensen, the former Oxbow Group executive who alleged that he was kidnapped and falsely imprisoned by billionaire William Koch.  We teased for you last week that Koch’s motion to dismiss, to strike, and in the alternative to transfer venue of the case from California to Colorado was denied, and the case will proceed.

Now, we’ve gotten our hands on the judge’s decision and had a chance to review it in depth; particularly if you’re a civ pro geek like me, it’s worth a read.  Even if you’re not, the decision helps any potential litigant -- and really, isn’t that all of us? -- understand where we can expect to sue or be sued.  Read on.... Read More ›

The Inbox, May Day Edition

As a blog focused on employment issues, we’d be remiss if we didn’t at least note that the week that’s ending included May Day, which has long been known as International Workers’ Day.  Although this day’s somewhat curious history includes support from Marxists, Socialists, and the Catholic Church, it really got its start after a bloody bombing and riot in Chicago’s Haymarket Square.  

Fortunately for us at Suits-by-Suits, the employment disputes we deal with most – mainly executives and the companies that employ them – don’t lead to bloody confrontation, only (sometimes) litigation.  Though even litigation sometimes has its moments. 

Anyway, here’s what has come over that transom that has piqued our interest:  Read More ›