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© 2014 Zuckerman Spaeder LLP
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Jason M. Knott
Email | 202.778.1813

Jason Knott, a partner in Zuckerman Spaeder’s Washington office, represents individuals and companies in civil litigation, white-collar criminal matters, and government investigations. Some of his favorite cases have been “Suits by Suits.”

Showing 124 posts by Jason M. Knott.

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 ›

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 ›

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.

An Officer or a Vice President: Goldman Sachs Programmer Must Prove Advancement Case to Jury After Appellate Ruling

Computer programmer with code in backgroundThe case of Sergey Aleynikov, a former vice president at Goldman Sachs, has drawn a lot of media attention, including these prior posts here at Suits by Suits. Aleynikov was arrested and jailed for allegedly taking programming code from Goldman Sachs that he had helped create at the firm. His story even inspired parts of Michael Lewis’s book Flash Boys. A federal jury convicted him of economic espionage and theft, but the Second Circuit reversed his conviction, holding that his conduct did not violate federal law. Now, Aleynikov is under indictment by a state grand jury in New York.

Unsurprisingly, Aleynikov wants someone else to pay his legal bills – Goldman Sachs. And it is no surprise that Goldman, which accused him of stealing and had him arrested, doesn’t want to bear the cost of his defense. In 2012, Aleynikov sued Goldman in New Jersey federal court for indemnification and advancement of his legal fees, along with his “fees on fees” for the lawsuit to enforce his claimed right to fees. As we discussed in this post, indemnification means reimbursing fees after they are incurred, and advancement means paying the fees in advance. Advancement is particularly important for those employees who cannot float an expensive legal defense on their own dime. Read More ›

Five Takeaways from the Second Circuit’s Dodd-Frank Decision in Liu v. Siemens

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Taiwan and Manhattan’s Foley Square are separated by 7,874 miles, and Taiwanese citizen Meng-Lin Liu couldn’t bridge the distance in federal court.  Liu sought to recover in Manhattan under the Dodd-Frank Act’s anti-retaliation provision (15 U.S.C. § 78u‐6(h)(1)).  However, on August 14, the Second Circuit, which sits in Foley Square, affirmed the dismissal of his whistleblower retaliation claim.  Liu v. Siemens AG, No. 13-4385-cv (2d Cir. Aug. 14, 2014).

As we previously described here, Liu’s case was relatively simple.  He alleged that he repeatedly told his superiors at Siemens in Asia, and the public, that Siemens was violating the Foreign Corrupt Practices Act (FCPA).  As a result, he claimed, Siemens demoted him, stripped him of his responsibilities, and eventually fired him with three months left on his contract. Read More ›

Part 3 - Anatomy of a Big-Time Non-Compete Dispute

Figure of muscles of the left handOver the past few days, we’ve been covering the non-compete dispute between American Realty Capital Properties, Inc. (ARCP) and the Carlyle Group LP and Jeffrey Holland.  (Here are Part 1 and Part 2 of our series in case you need to catch up).  It’s time to end the suspense and tell you how the judge, the Honorable David Campbell of the U.S. District Court for the District of Arizona, resolved the dispute. 

Judge Campbell issued his ruling on the same day as the oral argument, denying ARCP’s request for a temporary restraining order against Carlyle and Holland.  He decided that ARCP had not made the necessary showing of a “likelihood of success on the merits” of its claim that Holland would violate his employment agreements by marketing Carlyle’s investment products.  It said that Holland’s “non-solicitation provisions appear[ed] to be unreasonably broad,” because “read literally, they would prevent Defendant Holland from soliciting any form of business from any client of Plaintiff, anywhere in the world.”  Further, the applicable Maryland and Arizona law did not allow the court to “blue pencil” these provisions – i.e., to rewrite them to be legally enforceable.  Similarly, the confidentiality provisions in Holland’s agreements were also too broad to enforce, because they would have forever prohibited Holland from using any information related to ARCP’s customers.

The ARCP-Carlyle-Holland saga involves a couple of additional twists.  Soon after the ruling, ARCP dismissed its Arizona case without prejudice.  It then filed an identical case in New York for breach of contract.  Carlyle and Holland moved for attorneys’ fees in Arizona, relying on an Arizona statute that allows a successful party to recover “reasonable attorneys’ fees in any contested action arising out of contract.”  The court awarded Carlyle and Holland $46,140 for five days of attorney work (of the $134,182 they sought). 

Thus, Carlyle and Holland won the battle, with some additional compensation for their troubles thanks to Arizona law.  However, the war over Holland’s work for Carlyle is now raging in a different forum.

Part 2 - Anatomy of a Big-Time Non-Compete Dispute

Last week, we introduced you to a non-compete dispute between American Realty Capital Properties, Inc. (ARCP), on one side, and the Carlyle Group LP and Jeffrey Holland, on the other side.  Now, it’s time to find out more about the parties’ arguments.

In its application for a preliminary injunction, filed on April 1 of this year, ARCP made two main arguments.  First, it argued that it could legitimately enforce the provisions in Holland’s agreements that precluded him from using its confidential information and from soliciting its investors.  Second, it argued that by marketing Carlyle’s investments, Holland was breaching these provisions.

In the hearing on the motion, held a week later on April 8, the court summarized the dispute as follows:

It seems to me that the key question is this: [ARCP] is concerned that Mr. Holland’s work for Carlyle … will be in direct competition with the plaintiff’s business of marketing REITs … to financial advisors because that was the business Mr. Holland oversaw while he was with Cole, the predecessor to ARCP, and that that business is highly dependent upon relationships with independent financial advisors or financial advisors with firms.

Holland, ARCP said, would be exploiting these relationships in violation of his agreements if he was allowed to market Carlyle’s products to Cole’s investors.  It counsel argued that ARCP would be “irreparably harmed by that because he will be preying upon . . . my client's confidential information and on its good will.”

Holland, meanwhile, argued that Carlyle did not market REITs, that he would be marketing Carlyle’s products mostly to a different class of purchasers, and that if his agreements covered these activities, they would be too broad to be enforceable.  As his counsel summarized: “It cannot be the case that because you learn how to build a retail relationship in one financial product, that you can’t do it in another if you’re not competing.”

Tomorrow, we’ll talk about the court’s resolution of the dispute, as well as an interesting side-effect of its ruling.

Anatomy of a Big-Time Noncompete Dispute

“Nasty, brutish, and short” isn’t just Hobbes’s famous explanation of human life in the state of nature.  It also hits close to the mark in describing how litigation over non-compete provisions often proceeds, as a recent case illustrates.

The plaintiff in the case was American Realty Capital Properties, Inc. (ARCP), a publicly-traded REIT (a real estate investment trust).  Allied on the other side were the Carlyle Group LP and Jeffrey Holland.  Holland used to work for Cole Real Estate Investments, a company that ARCP bought in February of 2014.  According to ARCP’s court filings, it paid Holland handsomely when it acquired Cole, giving him $7.1 million in connection with the change.  Holland then told ARCP that he wanted to take some time off.  ARCP was comfortable with that, given that Holland had previously signed both an employment agreement and a consulting agreement in which he agreed not to solicit Cole’s or ARCP’s investors for 12 months.

Within a couple of months, Holland joined Carlyle, one of the world’s largest investment firms, to raise funds for its products.  To put it mildly, ARCP was not pleased with this development.  At the beginning of April, it sued both Holland and Carlyle and filed an application for a preliminary injunction and temporary restraining order (TRO).  Read More ›

Virginia Tech Professor Argues That University Officials Violated His Constitutional Rights When They "Demoted" Him

Virginia Tech SignHarold “Skip” Garner is a tenured professor at Virginia Tech who makes $342,000 a year, according to this article in the Roanoke Times.  Yet he is still suing university officials, including former president Charles Steger, for $11 million.  Why?

He says that the officials violated his constitutional rights when they removed him from his position as Executive Director of the Virginia Bioinformatics Institute (VBI).  In his complaint, available here, he claims that he was demoted without “advance notice of his removal or demotion” and without any “opportunity whatsoever to contest the merits of the action.”  He alleges that this lack of procedural protections “deprived [him] of property and liberty without due process of law.”  This kind of claim is known as a “Section 1983” claim: i.e., a claim brought under 42 U.S.C. § 1983, which provides a federal cause of action to individuals who are deprived of constitutional rights by the actions of state officials.  In the employment context, Section 1983 claims can arise when state officials discipline employees without affording them notice and an opportunity to be heard.  See, e.g., Ridpath v. Board of Governors Marshall University, 447 F.3d 292 (4th Cir. 2006).  That’s the kind of claim Garner is alleging here. Read More ›

By Terminating Its CEO, American Apparel Unexpectedly Unravels Lending Agreement

Firing a key executive can have repercussions beyond a severance dispute or a wrongful termination or discrimination claim by the executive.  American Apparel’s recent termination of its CEO, Dov Charney, provides the latest example of the wide-ranging consequences that can arise when a C-level employee is let go.  In American Apparel’s case, the consequences have included the threat of default on a $15 million loan and a resulting shareholder lawsuit.

How did this happen?  According to the New York Post, when Lion Capital LLC lent American Apparel the $15 million, the two entered into a lending agreement that said American Apparel would be in default if it fired Charney.  After American Apparel’s board told Charney it was going to fire him in 30 days, Lion Capital accelerated its demand for payment on the loan, threatening the company with bankruptcy.  American Apparel argued in an SEC filing that it wasn’t in default because Charney was still technically CEO.  However, it continued to work behind the scenes to remedy the situation.  Now, the company now appears to have struck a deal with a hedge fund to save it from Chapter 11. Read More ›