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Showing 17 posts from March 2013.

The Inbox - March 29, 2013

Grab your matzoh or Scotch cream eggs or whatever your favorite snack is this time of year and settle in for this week’s Inbox on Suits by Suits:

Shareholders Can Have Their Say on Executive Pay, But Not Much Else

ShareholderBallotEarlier this week, we noted that, when shareholders go to court to challenge executive compensation as excessive, they are often unsuccessful because courts generally defer to the business judgments of corporate boards.  So, what’s a shareholder who strongly disagrees with how much a company is paying management to do?  The shareholder could vote with her feet by selling her shares.  Or, she could propose that the company’s executive compensation practices or the board that approved them be put to a vote at the next shareholders’ meeting.  Shareholder proposals like these often face stiff opposition by management, and could be left off the agenda all together if management obtains permission from the SEC to exclude them. Read More ›

Tom Horton's Severance is Probably in the Golden Parachute Bag if the Court Applies the Business Judgment Rule Rather Than Section 503(c) of the Bankruptcy Code

ParachuteThe U.S. Trustee in American’s Chapter 11 bankruptcy proceedings is challenging American’s $19.8 million golden parachute for its CEO Tom HortonThe Trustee contends that the $19.8 million payment is too much under Section 503(c) of the Bankruptcy Code because $19.8 million is more than 10 times the mean severance payment to non-management employees.  American responds that Section 503(c) and its limit on severance payments does not even apply because American – the debtor in the bankruptcy – won’t be paying Horton’s severance.  Rather, the $19.8 million will be paid after the proposed merger between American and US Airways is completed by the new company that will be formed in the merger.   According to American, because Section 503(c) doesn’t apply, the bankruptcy court should defer to the company’s business judgment regarding Horton’s severance. Read More ›

The Inbox - March Madness Edition

HerculesSince you’re already giving up all productivity during the big dance, why not check out the latest in Suits by Suits?

  • Bloomberg says that Hercules Offshore has defeated a “say on pay” lawsuit brought by a shareholder who claimed that the Hercules board should not have ignored an investor vote that the company’s executive compensation was too high.  Was defeating this lawsuit one of the fabled “Twelve Labours”?
Read More ›

How Does That Burden of Proof Work Again? The Second Circuit’s Recent Sarbanes-Oxley Decision Explains

Scales of JusticeEarlier this month, we blogged about an important decision by the U.S. Court of Appeals for the Second Circuit in Bechtel v. Administrative Review Board, a Sarbanes-Oxley whistleblower case.  In Bechtel, thecourt upheld the Department of Labor’s denial of a whistleblower claim, even though it found that the administrative law judge (“ALJ”) had applied the wrong legal standard. 

So how did the ALJ get the law wrong?

To understand the ALJ’s error, it’s important to understand how the governing law defines the burden of proof in a Sarbanes-Oxley case.  Read More ›

You’ve Got (Unprivileged) Mail: Court Rules That Prosecutors Can Use E-mail Sent by Personal Attorney to Employee’s Work Account

Email padlockEmployees use their work e-mails for all kinds of communications, from the business-related to the personal and private.  When a dispute arises, however, it’s getting more difficult to keep those private e-mails from seeing the light of day.

For example, last week’s Inbox highlighted one recent decision in which a New York federal court ruled that an executive had “no reasonable expectation of confidentiality or privacy” in his work e-mail.  United States v. Finazzo, No. 10-CR-457 (E.D.N.Y. Feb. 19, 2013).  Read More ›

The Inbox - March 15, 2013

Send up the white smoke!  After a week spent locked inside our offices -- or, for some of us, inside courtrooms -- your (usually) infallible Suits by Suits lawyers have finally voted on this week's Inbox:

  • Wednesday, three top multinational banks -- Citigroup, Capital One, and Wells Fargo -- all agreed to broaden their clawback policies after requests by the New York City Comptroller's Office.  Clawback policies enable an employer to recover compensation, stock options, bonuses, and other monies from former high-ranking executives who are later determined to have engaged in financial misconduct.  We are going to review the specific policies when released and will keep you updated.  The City Comptroller's press release can be read here.
  • We've said it before and we'll say it again:  your corporate emails are not private!  In one of a series of rulings in U.S. v. Finazzo, the U.S. District Court for the Eastern District of New York ruled that an executive "has no reasonable expectation of privacy or confidentiality in any communications" made through a work email account where the employer disclosed that it reserved the right to monitor an employee's usage of the system.
  • On Wednesday, Steve Jacobs, the former CEO of the Las Vegas Sands outpost in China, sued casino magnate Sheldon Adelson, alleging (among other things) that Adelson ordered him to threaten the head of Macau's government, Chief Executive Edmund Ho, for "not playing ball" in connection with condominiums that the Sands was trying to sell in Macau.  Jacobs was fired from Sands China in July of 2010 and subsequently filed a wrongful termination suit in October of that year.  On a totally unrelated note, Casino is one of our favorite movies.
  • Coincidentally, a former housekeeper sued Casino actress Sharon Stone -- co-star of the aforementioned film, as well as -- and do you really need to be told this? -- Total Recall, Basic Instinct, and many others, accusing Ms. Stone of retaliatory termination after the maid requested paid medical leave for injuries allegedly sustained while carrying Ms. Stone's groceries.  A spokesperson for Ms. Stone claims that the charges are "utterly baseless."
  • This one isn't a movie starring Arnold Schwarzenegger -- but perhaps it should be.  A 62-year-old man wrestled a shark out to sea in order to save children on a beach in Australia.  That's the good part.  The bad part?  Someone videotaped the heroic shark-wrestling; it went viral (because of course it did), and was viewed by the hero's employer -- a children's charity, no less -- who had been told the man and his wife were on sick leave.  The shark-wrestler (and his wife, who had been employed by the same charity) were subsequently fired.  As Rick Perry might say:  "oops."  (Side note for the eventual movie adaptation:  According to Wikipedia, the Governator is 65.)
  • Reporter Bryant Ruiz Switzky of the Washington Business Journal brought our attention to a very interesting report issued by Ernst & Young, and now we pass that along to you:  the Big Four firm warns corporate directors that they are "being watched" carefully by shareholders and should tweak executive compensation and other issues accordingly.  If you're involved in pay issues, you need to read this report.
  • On Monday, Dr. David Naarian of Philadelphia, PA sued his former partners in 3B Orthopaedics PC over the sale of their medical practice to Aria Health, claiming that he had been defrauded out of more than $800,000 in the $4 million sale.
  • Our friends at the Harvard Law School Forum on Corporate Governance and Financial Regulation have published yet another relevant article, this one by Noam Noked, "Dealing with the SEC's Focus on Protecting Whistleblowers."
  • Relatedly:  just this week, a federal judge drastically reduced a jury's award to a whistleblower.  In 2009, Weihua Huang was terminated by the University of Virginia in retaliation for reporting U.Va's alleged mismanagement of grant money and a jury awarded him $160,000 in back pay and $500,000 in compensatory damages.  Earlier this week, the trial judge granted U.Va's motion to reduce the compensatory damages awarded by the jury by 80% -- from $500,000 to $100,000 -- on the grounds that the award was "not proportional" to the injury suffered.  As is typical in these cases, the court compared the award to other jury awards within the district.
  • Troubles continue for the venture capital industry; we've discussed the case of Ellen Pao in considerable depth (here and here, for starters), but this week, we learned that another venture capital firm, CMEA Capital, is facing allegations of sexual and racial misconduct in the workplace, including sexually explicit behavior towards three former female employees.
  • Career development coach Stacey Hawley, writing for Forbes, has penned an article entitled "Negotiating An Employment Agreement," that offers some practical tips to the executive on the move.
  • And finally:  who says CEOs aren't human?  When VeriFone ousted CEO Doug Bergeron on Monday, he penned a weepy goodbye letter, telling staff "I will always love you and I will always love VeriFone."  No word if he read the letter aloud while playing Celine Dion music softly in the background, but apparently he read our advice to departing CEOs (unlike outgoing Groupon CEO Andrew Mason).

More on Covenants Not To Compete: A Proposed Massachusetts Law Gets A Big ‎Endorsement

MassachusettsIf you’re a regular Suits by Suits reader – and if you aren’t, why not? – you know that we think California’s first-in-the-nation law prohibiting essentially all covenants not to compete in employment contracts is going to be a major factor in future executive employment agreements and disputes across the country.  Indeed, we’ve been keeping track as other states respond in various ways to the California law.  (For details on the California law and its implications, see our prior piece, the “State by State Smackdown.”)

In our March 1 Inbox, we flagged a bill under consideration by the Massachusetts state legislature, House Bill No. 1715, which would establish that noncompete clauses of six months or less are presumptively reasonable, and clauses exceeding six months can be enforced if the court finds that the employee has (a) breached a fiduciary duty, (b) taken company property, or (c) earned at least $250,000 per year in annualized compensation.

The status quo in Massachusetts (and the majority of states) permits covenants not to compete, subject to a case-by-case judicial balancing test that considers the interests of the former employer against the hardships to the employee and the public.

It is tempting, then, to view House Bill No. 1715 as a “halfway point” between the existing law in Massachusetts and California’s outright ban.  Under this view, the new proposed legislation would be seen, politically, as moving Massachusetts in the direction of California and away from upholding noncompete agreements.  And indeed, thanks to some excellent reporting by Don Seiffert, an Associate Editor at the Boston Business Journal, we’ve discovered that’s precisely the view of Massachusetts Governor Deval Patrick (D).

Read on.... Read More ›

The Basics: "Hacking," the Computer Fraud and Abuse Act, and You

Computer HackerToday we're going to look at a federal statute that is increasingly becoming central to disputes between outgoing executives and their former employers -- a statute originally designed to prohibit computer "hacking."

Now, if you’re anything like me, when you hear the word “hacking,” you probably envision Matthew Broderick using a dial-up modem to break into his high school’s computer and change his grades.  (In fact, Broderick pulled this same trick twice in the 1980s; first in WarGames and then again in Ferris Bueller’s Day Off.)  Indeed, if you asked the average person to define “hacking,” they would probably come up with something like WarGames; that is, they would consider hacking to be breaking into a computer or network to which you were not given permission to access, in order to do something nefarious, like changing your grades or starting World War III.

It probably comes as no surprise that after those blockbuster movies (and some real-life events, too), Congress enacted a statute to prohibit “hacking” back in the heyday of the 1980s.  That statute – the Computer Fraud and Abuse Act (“CFAA”) – is still the law today, and is codified at 18 U.S.C. §§ 1030.

But what you might not know is that in many areas of the country, there's a court-interpreted disconnect between the CFAA’s definition of hacking and Matthew Broderick.  That disconnect, in turn, has become a very real issue today for departing executives and their employers.  For example, if you’ve been fired and you delete files off of your laptop before returning it, you may be civilly and even criminally liable under the CFAA in some jurisdictions.  (International Airport Centers, LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006).  (Less relevant – but more salacious – is the Justice Department’s efforts to prosecute a mom under the CFAA for lying about her age on MySpace.)  United States v. Drew, 259 F.R.D. 449 (C.D. Calif. 2009).

It all depends on how the courts in your area interpret the CFAA.  Read on.... Read More ›

The Inbox, Snowquester Edition

Here at the SuitsbySuits Tower in Washington, D.C., we’re closing the week of the Snowquester that Wasn’t, a snowstorm that could have given us a large thumping of snow but turned out to be…well, more disappointing than a playoff loss by you-know-who.  The chatter about the storm has, though, led to a rare mea culpa by a prominent weather blog and pretty much kicked off the Virginia governor’s race in a dispute over one candidate’s tweet about safety in the snow. 

In any event, things other than a poem-inducing non-blizzard happened this week, and here are the highlights: Read More ›