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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 116 posts by Jason M. Knott.

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 ›

The Inbox – World Cup Edition

On Thursday, even though the United States lost to Germany, they moved on from the Group of Death to take on Belgium in the World Cup round of 16. In honor of US Soccer’s achievement, we are glad to present this footy-themed edition of the Inbox.

  • The New York Post continues to report on the controversy surrounding last week’s decision to terminate American Apparel CEO Dov Charney. In this piece, one of our editors achieved his goal of being quoted in that paper, although neither he nor Charney got a clever rhyming front-page headline.
  • A New Jersey judge issued a red card to a shareholder lawsuit against Johnson & Johnson, tossing the case out on summary judgment. MassDevice.com reported that the judge decided that J&J acted in good faith when it decided not to claw back $40 million that had been paid to its former CEO, William Weldon.
Read More ›

SEC’s First Anti-Retaliation Action Under Dodd-Frank Act Carries Warning for Employers

The Securities & Exchange Commission gained significant new enforcement powers in the Dodd-Frank Act of 2010.  Under the Act, the SEC can award bounties to whistleblowers who provide information leading to successful enforcement actions.  It has already exercised this power, making eight whistleblower awards since starting its whistleblower program in late 2011.  The Dodd-Frank Act also allows the SEC to sue an employer who retaliates against a whistleblower, but the SEC hasn’t previously taken that step. 

Ten days ago, that changed.  The SEC announced that it had charged Paradigm Capital Management and owner Candace King Weir with engaging in prohibited trades and retaliating against a head trader who reported the trades to the SEC, and that Paradigm and Weir had settled the charges for $2.2 million.  Without its new enforcement authority under Dodd-Frank, the SEC wouldn’t have been able to bring the retaliation charge. 

According to the SEC’s press release, Paradigm “removed [the whistleblower] from his head trader position, tasked him with investigating the very conduct he reported to the SEC, changed his job function from head trader to a full-time compliance assistant, stripped him of his supervisory responsibilities, and otherwise marginalized him.” 

The formal order issued by the SEC further describes what happened to the whistleblower.  The day after the trader told Paradigm that he had reported these particular trades to the SEC, Paradigm removed him from his position.  The trader and Paradigm tried to negotiate a severance package, but when that fell through, Paradigm brought him back to investigate trades and work on compliance policies – but not to resume his head trading responsibilities.  Read More ›

…And All He Got Was a Fashionable T-Shirt: American Apparel Terminates Its CEO

Green t-shirtLast week, American Apparel announced that its board had decided to terminate Dov Charney, the company’s founder, CEO, and Chairman, “for cause.”  (We’ve discussed the meaning of terminations “for cause” in prior posts here and here.)  The board also immediately suspended Charney from his positions with the company.  Although the board didn’t initially disclose the reasons for its action, Charney is not new to controversy; in recent years, he has faced allegations of sexual harassment and assault.

The reasons for Charney’s termination have now become public, and they aren’t pretty.  In its termination letter, available here, the board accuses Charney of putting the company at significant litigation risk.  It complains that he sexually harassed employees and allowed another employee to post false information online about a former employee, which led to a substantial lawsuit.  The board also says that Charney misused corporate assets for “personal, non-business reasons,” including making severance payments to protect himself from personal liability.  According to the board, Charney’s behavior has harmed the company’s “business reputation,” scaring away potential financing sources. Read More ›

The Inbox: Sunny Summer Skies Edition

Picture of sunny skySummer humidity has arrived here in the mid-Atlantic, but the skies are blue and the thermometer isn’t creeping above 90 as of yet.  Here are some tidbits of executive-employer news to print and read in the shade when it’s time to cool off: 

  • Not that the White House needed more controversy right now, but the Office of Special Counsel is investigating 37 whistleblower claims arising from 19 different Veterans Administration facilities, reports Jack Moore of Federal News Radio.  The range of misconduct that the whistleblowers allegedly disclosed includes “improper scheduling practices, the misuse of agency funds and inappropriately restraining patients.”
  • Chris Cassidy of the Boston Herald writes that the Massachusetts House Speaker, Robert DeLeo, and the state’s governor, Deval Patrick, are clashing over noncompete agreements.  Patrick has been pushing to ban the prohibitions, while DeLeo and his allies argue that they should remain because employees have shown a willingness to live with them.
  • “I’m Number One!”  In the CEO world, the top-ranked executive in terms of compensation is Charif Souki of Cheniere Energy Inc., who raked in $142 million last year.  Now, Souki’s compensation has sparked a disgruntled shareholder lawsuit, according to Zain Shauk, Caleb Melby and Laura Marcinek of Bloomberg.  The lawsuit has led Cheniere to push off its annual meeting by three months.  Shareholder advisory firms are telling the company’s stockholders that they should not vote to approve further expansion of its executive compensation.
  • Darren Heitner, writing for Forbes, brought us the story of a football agent’s lawsuit against Octagon, his former employer.   Doug Hendrickson, who now works for Relativity Sports, alleges that the noncompete provision in his employment agreement with Octagon is an illegal restraint of trade under California law.  Hendrickson has represented Marshawn Lynch in the past; no word as to whether his lawyers are familiar with Beast Mode.

Does Dodd-Frank Protect Whistleblowers Who Don’t Report to SEC? Another Court Chooses Sides in the Debate

A book opened with a magnifying glassIn 2010, Congress passed the Dodd-Frank Act, strengthening legal protections for employees who report violations of the securities laws.  However, as we’ve covered here, here, and here, the courts have diverged widely as to whether an employee must report directly to the SEC in order to be shielded from retaliation.

In Asadi v. GE Energy (USA), LLC, which we addressed in this post, the Fifth Circuit decided that to meet Dodd-Frank’s definition of a “whistleblower” – and to be protected by its anti-retaliation provision – an employee must in fact provide information to the SEC.    However, most of the district courts that have addressed the issue have decided that an employee need not report to the SEC in order to be protected from adverse actions by his or her employer. Read More ›

Former President of Bankrupt Aircraft Manufacturer Can Keep Some of His Severance Cash

Bird's nest with money flying into it and falling out of itAn executive’s right to severance payments isn’t always written in stone, even if his employer agrees to provide them.  In this post, we described how one exec lost his severance pay after the Federal Reserve decided that his employer, a bank, was in a “troubled condition” at the time.

A recent decision from the U.S. Bankruptcy Appellate Panel of the Tenth Circuit, In re Adam Aircraft Industries, Inc., illustrates another scenario in which an executive’s golden parachute can collapse around him.  Joseph Walker was the president of Adam Aircraft, an airplane designer and manufacturer.  He was terminated in February 2007, and was allowed to resign, after which he negotiated a healthy severance package.  Over the next year, Adam Aircraft paid him $250,000 in severance, $100,002 to repurchase his stock, and $105,704 as a refund on a deposit he had made on a plane.  Read More ›

The Inbox – May Showers Edition

RainI thought April showers brought May flowers, but the month of May has brought both showers and flowers to the DC-Baltimore area.  Luckily, our colleague Andrew Torrez was not parked on the Baltimore street that was swept away by the recent deluge.  As for this week’s news in employer-executive disputes, we’ve managed to pluck a few tidbits that have bloomed despite the storms:

  • In the continuing saga of a proposed ban on non-compete agreements in Massachusetts (which we have covered here and here), 37 technology CEOs recently wrote to the state legislature to advance the cause of the ban, reported Kyle Alspach of BetaBoston;
  • Two trade associations have resolved an expensive dispute over poaching of employees.  Dietrick Knauth of Law360 wrote that TechAmerica sued the Information Technology Industry Council for hiring away the leaders of its government procurement team, but has now agreed to a settlement.  TechAmerica argued that the Council wanted to put it out of business by stealing its member companies. 
  • Patron Tequila settled during trial with an executive who claimed that he was entitled to $70 million in bonuses – and just in time for Cinco de Mayo.  City News Service said that Ajendra Singh sued Patron and its founder, John Paul DeJoria, alleging that he was promised equity bonuses based on the value of the company in exchange for operating its new factory in Mexico.
  • A California Senate committee is recommending a bill that would raise corporate taxes for companies who have CEOs that make more than 100 times that of its median worker, and would provide tax benefits to companies whose CEOs make less than that ratio.   Harold Meyerson of the Washington Post wrote that the bill was “one of the few remaining avenues that could enable workers to regain some of their lost income,” “in the absence of both unions and full employment.”
  • Melissa Lipman of Law360 reports that eBay settled an antitrust suit alleging that it entered into an anti-competitive agreement with Intuit not to recruit each other’s employees.  The deal includes an injunction and a $3.75 million payout.  The $3.75 million is more than the price for the third most expensive item ever bought on eBay – lunch with Warren Buffett.

Release of Claims Means Exactly What It Says – Even When It Doesn’t

Image of General Release FormIf you’re confused by this headline, you’re not alone.  But you can’t be as confused as Debourah Mattatall must be after losing her lawsuit against her former employer, Transdermal Corporation.

The origin of Mattatall’s lawsuit, appropriately enough, was another lawsuit.  Mattatall used to own a company called DPM Therapeutics Corporation.  DPM’s minority shareholders sued her to prevent her from selling the company to Transdermal.  She went ahead with the sale anyway, and signed a Stock Purchase Agreement and Employment Agreement with Transdermal.  According to Mattatall, Transdermal didn’t fulfill its obligations under those deals, citing a lack of funds.

After Mattatall’s sale to Transdermal was final, Transdermal brought its own suit against the DPM minority shareholders.  All parties, including Mattatall, eventually settled the two shareholder cases.  Before agreeing to the settlement, Mattatall complained about the money that she was owed under the Stock Purchase Agreement and Employment Agreement.  Transdermal’s counsel assured her that her claims were “wholly extraneous” and she would be “free to pursue” her claims against Transdermal. 

In the written settlement, however, everyone released the claims that they “had, has or hereafter may have” against any other party.  Thus, even though Transdermal hadn’t sued Mattatall, according to the language of the release, she was giving up her claims against it.  The settlement also included a “merger clause,” under which all prior understandings were “merged” and “supersede[d].” Read More ›