April 2013 Monthly Roundup

April showers bring May flowers, which, as the old joke goes, usually bring these. At ‎Suits by Suits, however, April brought a mix of interesting stories involving non-‎compete agreements, the mechanics of employment contracts, and all sorts of other ‎topics:‎

• Third Circuit Rejects Narrow Construction of Sarbanes-Oxley Whistleblower Claim
  Jason M. Knott | April 30, 2013
• Recent Breach of Contract Lawsuit Against Michael Keaton Illustrates Measuring Expectation Damages
  Ellen D. Marcus | April 24, 2013
• Why Didn't Rutgers Fire Basketball Coach Mike Rice for Cause?
  Ellen D. Marcus | April 23, 2013
• “You’ve Got…a  Non-Compete!”
  William A. Schreiner, Jr. | April 17, 2013
• Criminal Trial Begins in Case Against Former Executive Search Head
  Jason M. Knott | April 15, 2013
• California Continues to Go After Non-Competes
  P. Andrew Torrez | April 11, 2013
• California Strikes Down An Employee’s Agreement to Arbitrate on Substantive ‎Unconscionability Grounds (As “One-Sided”)‎
  P. Andrew Torrez | April 8, 2013
• Employment Agreement Tip of the Week No. 2: Once You Get It in Writing, Put Out Future Fires by Making Sure the Writing Is Clear
  William A. Schreiner, Jr. | April 5, 2013
• Employment Agreement Tip of the Week No. 1: Get It in Writing
  William A. Schreiner, Jr. | April 3, 2013

Recent Breach of Contract Lawsuit Against Michael Keaton Illustrates Measuring Expectation Damages

Batman has been sued.  Okay, not Batman, but the guy who played him, Mr. Mom and Beetlejuice in the movies – Michael Keaton.  In this lawsuit filed earlier this month in federal court in Illinois, the company that produced the movie The Merry Gentleman (if you’ve never heard of it, that’s the company’s point) alleges that Keaton breached agreements to direct and act in the movie by failing to deliver a satisfactory first cut of the movie on schedule, by working at cross purposes to the company by promoting his own cut of the film to officials of the Sundance Film Festival, and by failing to perform other post-production directorial duties or to assist in promoting the movie.  According to the company, if Keaton had performed his contractual duties, then the Christmas movie would have been released in time for the 2008 Christmas season, rather than May 2009, and, presumably, would have grossed more than the $350,000 than it did at the box office. 

Assuming that the company’s allegations that Keaton breached the contracts are true and assuming that Keaton’s breach (rather than market forces or some failure by the company) caused the movie to flop, what are the company’s damages?  This question is relevant not only to Keaton and The Merry Gentleman production company, but to all parties to a broken contract in which one party had promised to provide employment services to another party in exchange for compensation.  In other words, the question is relevant to all contractually-based employment disputes – a frequent topic on Suits by Suits.  The answer may not be what you think, especially if you think that, as damages, Keaton should just give back the compensation that the company paid him. Read More ›

Why Didn't Rutgers Fire Basketball Coach Mike Rice for Cause?

Late last week, Rutgers announced that it reached a $475,000 settlement with former men’s basketball coach Mike Rice and that no cause for Rice’s termination would be provided.  Recently-publicized videotapes show Rice at practices hitting, kicking and throwing basketballs at his players and taunting them with obscenities and anti-gay slurs (not to be confused with this shocking video of Middle Delaware State women’s basketball coach Sheila Kelly throwing toasters at her players).  The announcement came more than two weeks after Rutgers President Robert Barchi told reporters that Rice was fired, but not for cause.  And that announcement came several months after Rice was suspended from work for three days, following an internal investigation by outside counsel, resulting in this report.  Read More ›

March 2013 Monthly Roundup

For us here in the greater Baltimore/Washington metropolitan area, March was true to form – or at least, the Farmer’s Almanac – and came in like a lion (with city-closing snow and everything!) but has gone out like a lamb, as today is beautifully sunny with highs in the mid-60s.

As the Farmer’s Almanac tells us, that saying was rooted in the ancient belief that weather would seek a balance, and that good events would cancel out bad ones.  That sense of balance held true for your Suits by Suits editors this month as well, as Ellen Marcus documented the unique ability of shareholders to protest “golden parachutes” for companies emerging from Chapter 11 bankruptcy – as contrasted with their general inability to do much else.  Bill Schreiner explained how the average executive can protect herself from incurring certain legal expenses through directors & officers’ (“D&O”) insurance policies, while noting the limits of those D&O policies especially in high-profile cases like former Penn State coach Jerry Sandusky.  Andrew Torrez continued to document the push-and-pull in the legislative arena over whether and to what extent courts should uphold covenants not to compete contained in employment contracts, and warned Gov. Deval Patrick that the proposed new law in Massachusetts may not do what he expects it to do.  And Jason Knott warned us that only 2% of Sarbanes-Oxley whistleblowers succeed on their claims, while walking us through a comprehensive recent decision by the Second Circuit that maps out how future whistleblowers can prove the elements necessary to assert their cases.

A full list of all of our articles from March follows.  And remember, Suits by Suits is now on Twitter – and that’s no April Fools!

• Shareholders Can Have Their Say on Executive Pay, But Not Much Else
  Ellen D. Marcus | March 28, 2013
• 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
  Ellen D. Marcus | March 26, 2013
• How Does that Burden of Proof Work Again? The Second Circuit’s Recent Sarbanes-Oxley Decision Explains
  Jason M. Knott | March 20, 2013
• You’ve Got (Unprivileged) Mail: Court Rules that Prosecutors Can Use E-mail Sent by Personal Attorney to Employee’s Work Account
  Jason M. Knott | March 18, 2013
• More on Covenants Not to Compete: A Proposed Massachusetts Law Gets a Big Endorsement
  P. Andrew Torrez | March 13, 2013
• The Basics: "Hacking," the Computer Fraud and Abuse Act, and You 
  P. Andrew Torrez | March 11, 2013
• Federal Court of Appeals Rejects Sarbanes-Oxley Whistleblower’s Challenge to Department of Labor Ruling
  Jason M. Knott | March 7, 2013
• Everything Has a Limit, Jerry Sandusky Edition – Part 2
  William A. Schreiner, Jr. | March 7, 2013
• Everything Has a Limit, Jerry Sandusky Edition – Part 1
  William A. Schreiner, Jr. | March 7, 2013
• Wow! A $56 Million Golden Parachute for the Heinz CEO. Well, that Depends on What You Mean by "Golden Parachute."
  Ellen D. Marcus | March 6, 2013
• Groupon CEO's Departure Memo: Watch What You Say, Even if You Say it Nicely
  William A. Schreiner, Jr. | March 4, 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:

• The Polaroid bankruptcy trustee has sued the company’s former CEO Lorence Harmer to claw back $5.1 million in alleged kickback payments.
• The bankruptcy judge overseeing American’s Chapter 11 proceedings delayed ruling on the severance package for American’s CEO Tom Horton when he approved the airline’s merger agreement with US Airways on Wednesday.  The U.S. Trustee had objected to the package.  We especially like Kyle Arnold’s reporting in Tulsa World on these developments, and not just because he quoted one of us.
• A pregnancy discrimination lawsuit filed in 2009 by Julie Gilman Veronese against Lucasfilm Ltd. is headed back to the trial court after an appellate court found fault with the jury instructions and reversed the $1.3 million verdict for Veronese ($1.2 million of which was attorneys’ fees) and the California Supreme Court declined to review the ruling on Wednesday.  George Lucas testified in the first trial.
• After a deal was struck last night, New York City appears to be headed the way of Seattle and San Francisco in requiring employers of a certain size to provide paid sick leave to its employees.  Under the proposed legislation, companies with 15 or more employees would be required to compensate their employees for up to five sick days per year.  As we’ve noted here before, federal law does not require paid sick leave and few state laws do.

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

Earlier 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

The U.S. Trustee in American’s Chapter 11 bankruptcy proceedings is challenging American’s $19.8 million golden parachute for its CEO Tom Horton.  The 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 ›

Wow! A $56 Million Golden Parachute for the Heinz CEO. Well, that depends on what you mean by "golden parachute."

This week, Heinz sounded a lot like American did last week (as we noted) in justifying the size of a golden parachute for its CEO upon the completion of a merger. Heinz’s spokesperson claimed that payments to its CEO William Johnson totaling $56 million "reflect Mr. Johnson’s success in creating billions of dollars in shareholder value," including "the 19% premium" that Heinz shareholders are to receive for their shares when Heinz is acquired by Berkshire Hathaway and 3G Capital. For those of us who consider $56 million to be a whole lot of money – no matter what they guy did for ketchup sales – the spokesperson might also have said that only about $17 million of that amount (okay, still a whole lot of money) is really a golden parachute. Read More ›

February 2013 Monthly Roundup

Now that Suits by Suits is on Twitter, you and your friends can follow us here to get up-to-the-minute Suits by Suits updates.   If you missed us last month, ‎check out Suits by Suits’ posts, inspired by current events, on legal issues ‎affecting companies and high-level employees:

• Executives: Beware of Dodd-Frank Compensation Clawbacks 
  Steven Salky | February 28, 2013
• Why the Color of Your Parachute May Be Gold - Change-in-Control Severance Agreements for C-Suite Employees 
  Ellen D. Marcus | February 25, 2013
• SEC Inspector General Grades Dodd-Frank Whistleblower Program
  Jason M. Knott | February 20, 2013
• Grey’s Anatomy Takes On The Law, And The Law Wins
  Jason M. Knott | February 18, 2013
• Is A Bad Job Interview Evidence Of Discrimination? (Part 2)‎
  William A. Schreiner, Jr. | February 15, 2013
• Is A Bad Job Interview Evidence Of Discrimination? (Part 1)‎ 
  William A. Schreiner, Jr. | February 14, 2013
• Court Order: You Shall Not Start Your New Job at that Oil Company Because We're Worried About Irreparable Harm to the Oil Company You Just Quit 
  Ellen D. Marcus | February 13, 2013
• EPLI: If You Hire Or Manage People And You Don’t Know What That Stands For, You ‎Should Probably Read This, Part 2‎ 
  William A. Schreiner, Jr. | February 6, 2013
• EPLI: If You Hire Or Manage People And You Don’t Know What That Stands For, You ‎Should Probably Read This: Part 1‎
  William A. Schreiner, Jr. | February 6, 2013 
• Take A Close Look At That Employee Handbook...At Least In D.C. 
  William A. Schreiner, Jr. | February 5, 2013

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Why the Color of Your Parachute May Be Gold - Change-in-Control Severance Agreements for C-Suite Employees

On Friday, we reported on American Airline CEO Tom Horton’s golden parachute in the merger agreement between American and US Airways.  American is asking the court overseeing its bankruptcy to approve the merger agreement, which includes a letter agreement between American and Horton.  The letter agreement provides that Horton’s employment with American will be terminated at the time of the merger, and – so long as he agrees to release American and US Airways from any claims – he will be paid severance totaling nearly $20 million in cash and stock. 

Why would any company agree to such a thing?  According to American, its agreement with Horton is “in recognition of [his] efforts in leading [American’s] restructuring and his role in enhancing the value of [American] and overseeing the evaluation and assessment of potential strategic alternatives that culminated in the Merger.”  In other words, to compensate him for helping to make possible a good merger and then getting out of the way.  The new company created by the merger can only have one CEO, and it is best for the new company not to be distracted by disputes with former executives of the old company. Read More ›