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Showing 16 posts from January 2014.

The Inbox, Pre-Super Bowl Edition

Here at Suits by Suits Polar Vortex Centre, the debate rages even as the hours tick down to kickoff: who should we root for in Sunday’s big game, the Denver Broncos or the Seattle Seahawks?  Both teams’ home bases, from our point of view, have much to commend them in terms of the executive employment issues we love so much.  Seattle is home to Robinson Cano’s almost-quarter-billion-dollar deal with the Seattle Mariners – maybe not C-suite, but a great employment arrangement in and of itself.  Colorado, on the other hand, has given us some toothy stories over the years: from kidnapping to wrongful termination related to speech and a neat case on national origin discrimination.  

But since our beloved Washington football club was essentially eliminated from contention in about, er, October, none of it has really mattered much to us. 

In any event, before you dig into the chili and chicken wings (or not), here are some of the week’s most interesting happenings that concern executive-employer relationships:

Highland v. Daugherty: Part 2 -- Daugherty Responds

In Part 1 of this post, we looked at a heated executive employment dispute that is being tried in Dallas.  The case involves a former hedge fund executive, sued by his former employer for allegedly not returning 59,000 confidential documents when he resigned and for trying to poach the firm’s clients.  The Dallas Morning News has full coverage here and here

The trial is forcing both sides to air things about the other – and themselves – that they would likely not want raised in a public forum.  In Part 1, for example, we noted how Highland executives testified that a compensation program had to be stopped after the executive, Daugherty, left the firm, because (as the Dallas Morning News put it) Daugherty “engaged in conflict of interest transactions” for the compensation program.  Surely Highland would rather not have raised that issue publicly.  But that’s what aggressive litigation sometimes forces parties to have to do to win their case – which is the cautionary tale of the Highland v. Daugherty trial.   Read More ›

Highland v. Daugherty: All We Need Here Is JR Ewing, Part 1

Many of the executive employment disputes we write about focus on one or two key issues – the enforcement of a non-compete clause in an employment agreement, for instance, or the odd ways a severance package can work

A case being heard in Dallas, however, brings together a whole set of executive-employment-related problems in one place: alleged defamation, corporate confidential information allegedly not returned by a departing executive in breach of a written employment agreement, compensation demands and agreements that were never put in writing, and an executive’s desire to work part-time from home.  Throw in alleged self-dealing and conflict of interest allegations against the executive – who ran a specialty investment team at the employer, a large hedge fund – and you have the sort of intense, angry dispute that used to be featured on a soap opera set in Dallas that captivated the nation in the 1980s

Without, of course, the famous shower scene.   Read More ›

The Inbox - January 24, 2014

  • woman refusing cashIBM CEO Virginia “Ginni” Rometty said on Tuesday that she is passing up her annual bonus after the company missed its quarterly earnings expectations and its annual revenues declined in 2013.
  • Meanwhile, former Yahoo COO Henrique de Castro’s severance, with an estimated value of $60 million, is being called one of the largest golden parachutes ever for a fired executive.   See our post earlier this week explaining how employment agreements can lead to severance payments even to executives who were asked to leave for poor performance.
  • We don’t know whether de Castro got to take his personal data with him.  The Wall Street Journal reported this week that 21 percent of companies remotely wipe clean data from phones and tablets used by employees for work activities when an employee quits or is fired, even where the employee owns the device and even where the employee stored personal data on the device.
  • The U.S. Court of Appeals for the Third Circuit (see Erica Plaso v. IJKG opinion) affirmed the judgment against a consultant who sued the hospital where she had worked for a hostile working environment, claiming that she was sexually harassed on the job.  The Third Circuit agreed with the trial court that the hospital wasn’t the consultant’s employer for purposes of Title VII, and that her employer was the consulting company that contracted with the hospital to provide services.     

Conditioning Severance Payments on Releasing the Company - Another Lesson from Family Dollar Stores' Recent Firing of Its COO

Dollar in Shopping CartYou may have been left with the impression from our post on Tuesday that Family Dollar Stores is getting a raw deal because the company has to pay former COO Mike Bloom $4.8 million after letting him go for what it saw as poor performance. As we explained, this may be counterintuitive, but it’s consistent with the severance provisions of Bloom’s employment agreement. Besides complying with its contractual obligations, however, the company is getting something in return for the severance: a release from Bloom.

Bloom’s employment agreement, which is typical of executive employment agreements, provides that, upon his termination, the Company’s obligation to pay him severance is conditioned on Bloom "deliver[ing] to the Company a fully executed release agreement . . . which shall fully and irrevocably release and discharge the Company . . . from any and all claims . . . ."

This provision of Bloom’s employment agreement illustrates a best practice for companies when they are contemplating severance provisions in employment agreements at the time of hiring, or even standalone severance agreements that are negotiated at the end of employment: don’t agree to pay severance without getting a release from the executive in return. That way, while it may be painful to write that severance check, at least the company can know that it should not have any future trouble from the executive, the break is clean and the company and executive can move on to whatever’s next. For executives’ part, to the extent that they have the bargaining leverage, they should also insist that any release be mutual – that is, that, just as the executive releases the company from any claims, the company releases the executive from any claims. That way, the executive will also be able to move on without having to look back.

Why the COOs of Yahoo and Family Dollar Stores Have Been Fired for Poor Performance But Will Get Millions in Severance - Further Adventures in "With" and "Without Cause" Terminations under Executive Employment Agreements

yahooLast week, Yahoo’s Marissa Mayer fired COO Henrique de Castro, reportedly because she was not satisfied with his job performance. By some estimates, de Castro will receive severance exceeding $60 million after only 15 months on the job. Also last week, Family Dollar Stores let go COO Mike Bloom because the company was not happy with his performance, and apparently was not moved by Bloom’s Undercover Boss gambit. Bloom is set to receive $4.8 million in severance after slightly more than two years on the job.

What gives? How is it that these former executives are receiving large severance payments after they were asked to leave for poor performance on the job? The definition of "cause" in their severance agreements is what gives – a topic we explored recently here at Suits by Suits in connection with the dispute over former iGate CEO Phaneesh Murthy’s termination. In the iGate case, the company contends that it terminated Murthy for cause and thus owes him no severance. Murthy’s employment agreement provides that he does not get severance in the event of a "with cause" termination, and that "cause" includes violating company policy. The company contends that Murthy’s failure to report his romantic relationship with an employee to the Board was "cause" for his termination because it violated company policy.

In the Yahoo and Family Dollar Store cases, assuming that de Castro and Bloom were let got for poor performance, unless poor performance is "cause" under their employment agreements, they will reap the severance benefits provided for in their agreements for "without cause" terminations. Read More ›

The Inbox – Ramping Up Edition

No, this headline is not a pun about the closed on-ramps to the George Washington Bridge.  Rather, it’s meant to acknowledge that as the New Year gets into full swing, folks are starting to ramp up their analysis of ongoing issues in disputes that involve executives and their employers.  We’ve seen a number of interesting stories and summaries cross our desk:

  • Ben James of Law360 published a thorough recap of the lingering questions about Dodd-Frank’s whistleblower protections.  We’ve got one more question: will the Supreme Court’s upcoming decision in Lawson v. FMR LLC (we covered the oral argument here) affect a whistleblower’s choice between initially pursuing a Dodd-Frank claim in federal court, or filing a Sarbanes-Oxley claim with the Department of Labor?  Right now, some courts are putting a narrow construction on who can sue under Dodd-Frank, so if the Lawson Court takes an expansive view of Sarbanes-Oxley, it may give new life to that statute as an appealing option for whistleblowers.
  • What’s not ramping up: romance in the home of the new president of Alabama State University.  Debra Cassins Weiss of ABA Journal reports that Gwendolyn Boyd, who is single, will not be allowed to “cohabit with a romantic partner in the university residence so long as she is single,” according to her employment contract.  Boyd says she has “no issue” with the provision.  Sorry, suitors.  (Which, by the way, would be a good name for our group of loyal readers.)
Read More ›

No Longer California Dreamin’: Court Rejects Employees’ Bid To Send Case ‎To Golden State

Ashwin Dandekar and Emily Hua live in California.  They worked for Campbell Alliance, a biopharma consulting group, in California.  Yet when Campbell Alliance sued Dandekar and Hua for violating their noncompete and confidentiality agreements, it sued them in federal court in North Carolina.  And the judge in New Bern has now denied the employees’ bid to send the case back to California, meaning they will have to litigate 3,000 miles away from home.  Campbell Alliance Group, Inc. v. Dandekar, No. 5:13-CV-00415-FL (Jan. 3, 2014).  What gives?

A forum selection clause, that’s what.  Typically, in federal court, a court has the discretion to transfer a case to any other district where it “might [otherwise] have been brought,” in order to serve “the convenience of the parties [and] the interest of justice.”  28 U.S.C. § 1404(a).  In making the transfer decision, courts consider the plaintiff’s choice of forum, the residence of the parties, the convenience of parties and witnesses, and other factors that involve whether it’s easier and makes more sense to litigate a case in one location over another.  But when there’s a forum selection clause – i.e., a provision in a contract that says a lawsuit over it shall be brought in a particular state – that clause can be a significant factor in the transfer analysis.  Indeed, in a decision one month ago, the Supreme Court confirmed that forum-selection clauses should typically decide the issue of which federal court should hear a case.  Atlantic Marine Construction Co. v. U.S. Dist. Ct. for the Dist. of Texas, No. 12-929 (Dec. 3, 2013). Read More ›

A-Rod, Part III: What About 60 Minutes?

Alex RodriguezIf you’re following our coverage of the Alex Rodriguez story at all (See our Part 1, a general primer; and Part 2 on the specifics of the 162-game suspension), you probably watched last night’s 60 Minutes, which contained interviews with Tony Bosch of Biogenesis, who claims that he personally administered banned Performance Enhancing Substances to Alex Rodriguez; MLB executive Rob Manfred; and one of Alex Rodriguez’s attorneys, Joseph Tacopina, Esq.

Concurrent with the airing of the program, sports journalists began reporting that the Major League Baseball Players Association (“MLBPA,” the players’ union) was “furious” at MLB’s participation in the TV program.  The MLBPA subsequently issued the following statement:

MLB's post-decision rush to the media is inconsistent with our collectively-bargained arbitration process, in general, as well as the confidentiality and credibility of the Joint Drug Agreement, in particular.  After learning of tonight's "60 Minutes" segment, Players have expressed anger over, among other things, MLB's inability to let the result of yesterday's decision speak for itself.  As a result, the Players Association is considering all legal options available to remedy any breaches committed by MLB.

Let’s evaluate those two arguments. Read More ›

Michigan Prof Gave Up Privilege Over Communications With His Attorney When He Gave Up His Hard Drive, Martoma Court Rules

University of Michigan Ann ArborPicture an employee who finds himself in legal trouble or has a dispute with his employer, and hires a personal attorney to work through the issue.  The employee might think that his communications with his attorneys are privileged and immune from discovery in litigation.  But what if the employee uses his work computer to store those communications, and then hands over his computer to his employer upon resignation?  How does that affect the privilege?

A recent ruling from Judge Gardephe of the U.S. Southern District of New York answers this question in a way that employees in this situation won’t like.  The ruling involves the ongoing trial of Mathew Martoma of SAC Capital Advisors for alleged insider trading.  (For press coverage of the trial, see CNN and the New York Times.)  A key witness against Martoma will be Sidney Gilman, a former professor at the University of Michigan who says that he provided tips to Martoma about a failing drug trial.  In advance of trial, Martoma’s lawyers asked the court to order Gilman to produce his attorneys’ work product.  They argued that Gilman had knowingly waived any privilege over that work product because it was stored on hard drives that Gilman returned to the University when he resigned.

The court sided with Martoma and against Gilman and the U.S. government, which joined Gilman in arguing against disclosure.  Judge Gardephe ruled that at the time Gilman returned his hard drives, he was in an “adversarial posture” with the University because it had announced that it was investigating his activities.  By “returning electronic devices” to his adversary that “contained alleged work product material, Dr. Gilman waived whatever work product protection might otherwise exist with respect to the materials stored on these devices.”  Gilman argued that his disclosure was involuntary because he was pressured to return the devices or lose his pension benefits.  But Judge Gardephe disagreed, writing that “pressure is not sufficient to demonstrate that production is involuntary.”  Rather, production through “compulsory legal process” is required in order to show that a disclosure was involuntary and not a waiver. Read More ›