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- Judge Approves $20 Million in Executive Bonuses From Bankrupt Company, Finding That Incentives Weren't "Lay-ups"
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The Inbox - April 19, 2013
Today's super-sized Inbox covers all the recent news in suits by suits:
- "Show me the money!" Tom Cruise may have said it most memorably, but we all live it every day. And this week, we've got CNN's profile of the 20 highest-paid CEOs, along with the Wall Street Journal's coverage of a report issued by the AFL-CIO showing that in 2012, U.S. CEOs received, on average, 354 times the compensation of the average worker.
- In the same vein, news outlets remarked on several high-dollar executive severance packages ("golden parachutes"), including a $212.6 million payout for outgoing Heinz CEO Bill Johnson (that the Pittsburgh Post-Gazette called "ridiculous"), a $2.25 million payout to outgoing Genworth Financial, Inc. CEO Michael Frazier, who resigned after Genworth's stock lost 80% of its value, and a comparatively modest $100,000 severance package to former Holly Hill, Florida city manager Oel Wingo, who was fired in 2010 amidst allegations of falsifying documents and destroying records. Similarly, Office Depot Inc. announced that it had "amended" its employment agreement with CEO Neil Austrian after Office Depot's recent merger with OfficeMax; the new agreement would provide Austrian with up to 650,000 shares of Office Depot's stock (currently trading at just over $4 per share).
- Oh, and while we're still showing you the money: a federal bankruptcy judge has thrown out a controversial proposed $20 million severance payment to outgoing American Airlines CEO Tom Horton (that we previously covered here, here, and here) on the grounds that the payout exceeds Congressional maximums for companies in bankruptcy. Not to toot our own horn, but the judge's rationale for throwing out the severance package -- that Horton's value added accrued to American Airlines and not to the new company, and therefore that the bankruptcy rules applied -- is pretty much what we said back in February.
- Still, there's one company in the news that's bucking the "golden parachute" trend: retailer J.C. Penney, which tied former CEO Ron Johnson's compensation to the company's performance. As a result Johnson was essentially not paid at all for his tenure as Penney's CEO, given that he invested $50 million of his own money in the company and exchanged $107 million in Apple Computer stock for stock in J.C. Penney currently worth approximately $12 million (along with millions of "underwater" options to purchase shares at a price two to three times the going market rate).
- We've written a lot about Facebook and the emerging role that social media play in today's workplace. But some wonder if Facebook's management and hiring practices are as cutting-edge as its technology. In particular, Beth A. Stewart, CEO of Trewstar, an executive search firm that specializes in placing female executives, helped organize a protest at Facebook's New York headquarters over the lack of diversity on Facebook's board of directors. In June of 2012, Facebook named its first-ever female director, COO Sheryl Sandberg; since then, it has added another female to its nine-member board of directors.
- A brief foray into international law: After Rina Bovrisse sued her former employer Prada Japan (alleging, among other things, that the Prada Japan CEO had demoted or transferred fifteen female employees for being "old, fat, ugly, disgusting, or [who] did not have the Prada look"), the shoe giant responded by countersuing Bovrisse for $780,000, alleging that her public accusations "damaged the Prada brand." A Japanese court has finally ruled on Bovrisse's lawsuit, finding that although harassment occurred, "the company's behavior was acceptable and employees of a certain rank should be able to handle it." Prada Japan's countersuit remains active -- although an online petition is circulating urging the company to drop it -- and Ms. Bovrisse will appear at the United Nations in Geneva later this month to appeal for equal rights in the workplace.
- SEIU Healthcare Pennsylvania, a subchapter of the Service Employees International Union, announced that it will return to the National Labor Relations Board with new allegations against the University of Pittsburgh Medical Center ("UPMC"), alleging that UPMC has "unlawfully disciplined or threaten to discipline over 17 employees" for supporting the SEIU. UPMC had previously reached a settlement with the NLRB in which it agreed to rescind policies that retaliated against employees who supported unionizing.
- Whistleblower Paul Blakeslee was awarded $3.4 million from an Alaska federal court jury in his retaliation and age discrimination claims against Shaw Environment & Infrastructure, Inc. Blakeslee informed Shaw managment in 2008 that a project manager had allegedly defrauded both Shaw and the government in connection with various equipment leases; 17 days later, Blakeslee was fired.
- As always, we'll continue to bring you all the recent developments in legal disputes over covenants not to compete (and surely you're reading our "State by State Smackdown series, right?). First up: companies that allegedly have tried to circumvent uncertainty over noncompetes -- particularly in California -- by agreeing amongst themselves not to recruit each others' employees. Recently, we discussed the antitrust implications over eBay's alleged "handshake" deal with software manufacturer Intuit not to recruit each other's employees; last week, a federal district court judge in California ruled that thousands of employees could not proceed as a class action with similar allegations against goliaths Apple and Google for precisely the same reasons -- that the plaintiffs could not show a class-wide injury as a result of any alleged agreement between Apple and Google not to poach each other's employees.
- Second: four Renown Health executives, including CEO Jim Miller, have resigned from the Nevada-based nonprofit after the hospital system attempted to force them to sign non-compete agreements. Miller and other executives successfully sued Renown over the practice, and in December, the FTC ruled that Renown could not enforce the contractual provisions under antitrust law (because Renown controlled up to 97% of the market).
- Next: Medical company Kinetic Concepts, Inc. (KCI) of San Antonio has reached a settlement with former executive Israel Vierma, who left KCI for rival Smith & Nephew; the confidential deal resolves the parties' dispute over Vierma's noncompete agreement.
- And in a new one for us: Houston-based food group Landry's, Inc. has sued to block the opening of a new Houston restaurant, "Mr. Peeples Seafood + Steaks," on the grounds that the restaurant's GM, Tim Kohler, is violating a noncompete agreement he signed with his former employer, Vic & Anthony's Steakhouse (which, in turn, is owned by Landry's). Turnover is common in the restaurant industry, so this will be an interesting case to watch.
- Finally: Mondaq has a very nice summary of the Fifth Circuit's recent opinion in Avalon Legal Information Svcs. v. Keating, which discusses the evidence a court may consider when enforcing a noncompete clause in Florida.
- Remember Kirby Martensen, the former Oxbow Group executive who alleged that he was kidnapped and falsely imprisoned by billionaire William Koch? We sure do. Koch has now moved to dismiss Martensen's California lawsuit for lack of personal jurisdiction; Martensen claims that Koch has sufficient contacts with the jurisdiction and, in the alternative, seeks leave of court to conduct jurisdictional discovery, a rare practice in federal court.
- Former Fox Sports music director Jerry Davis has sued Fox Sports, alleging that the company "has never employed a black person as vice president or higher" -- which covers 34 executive positions -- in its nineteen-year history.
- We've covered the emergence of "say-on-pay" lawsuits pursuant to Section 951 of the Dodd-Frank Act in light of the "business judgment rule"; this week, our friends at the Harvard Law School Forum on Corporate Governance and Financial Regulation also weigh in this week with a summary piece highlighting the lack of success "say-on-pay" plaintiffs have had in both state and federal court. (We also recommend this article from the Social Science Research Network entitled "Should Shareholders Have a Say on Executive Compensation?")
- Music and television producer Lisa Sanderson sued Garth Brooks and his production company, Red Strokes Entertainment, alleging that the country music star used his "infectious charisma" to fraudulently induce Sanderson to abandon her lucrative TV career in favor of pitching crazy promotional ideas (such as attempting to get Brooks to star in Stephen Spielberg's Saving Private Ryan). We have two words for Ms. Sanderson: Chris Gaines.