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Showing 82 posts in Breach of Contract.
An earlier generation of Baltimore lawyers used to say that the outcome of a case should not depend on which side of Calvert Street it was filed. This made sense when the federal court was on the east side of Calvert and the state court on the west. The statement was a colloquial expression of the Erie doctrine, which requires federal courts to apply state law when federal jurisdiction depends on diversity of the parties’ citizenship.
The Erie doctrine requires federal judges to figure out how state judges would rule in certain matters. You might imagine a federal judge strolling across Calvert Street to ask for some advice. But that’s not how state and federal judges speak to one another (and not just because the federal court long ago moved to a dismal building on Lombard Street).
Instead, federal judges read the published judicial decisions from the state whose law applies. Under Erie, federal judges are required to follow the holding of decisions from the state’s highest court. They are not required to follow “dicta” – statements in a judicial opinion that are not necessary to the outcome. In many cases, the state’s highest court has not ruled on the particular legal question at issue. In that event, the federal court must predict how the state court would rule based on other sources of state law. One of those sources is “considered dicta” (or well-reasoned dicta) from the decisions of the state’s highest court. Read More ›
Who doesn’t love the year-end countdown? We’re here to offer you one of our own – our most-read posts in 2014 about executive disputes. The posts run the gamut from A (Alex Rodriguez) to Z, or at least to W (Walgreen). They cover subjects from sanctified (Buddhists and the Bible) to sultry (pornographic materials found in an executive’s email). Later this week, we’ll bring you a look at what to expect in 2015.
Without further ado, let the countdown begin!
8. The Basics: Dodd-Frank v. Sarbanes-Oxley
This post is an oldie but a goodie. It includes a handy PDF chart that breaks down the differences in the Dodd-Frank and Sarbanes-Oxley whistleblower laws. Each of these laws continues to be a hot-button issue for plaintiffs and employers.
7. When Employment Relationships Break Bad
America may have bidden adieu to Walter White and his pals on Breaking Bad, but employment relationships continue to spin off in some very unpleasant ways. Such was the case with Stephen Marty Ward, who ended up in federal prison after he threatened his employer with disclosure of its trade secrets, as we covered in this post. Read More ›
Helen of Troy isn’t just a famous mythological beauty. It’s also a publicly-traded maker of personal care products. And now, it and its directors are defendants in a suit by Helen of Troy’s founder, Gerald “Jerry” Rubin.
Executives who bring suit against their former employers frequently want to show that they were terminated for reasons other than performance, and Rubin is no different. In his complaint, as reported by El Paso Inc., Rubin describes the history of Helen of Troy and its staggering growth. From humble origins – a “wig shop in El Paso, Texas” – Helen of Troy grew into a “global consumer products behemoth, generating revenues in excess of approximately 1.3 billion dollars.” And then the roof caved in. Rather than “celebrating [Rubin’s] extraordinary success,” Rubin alleges, Helen of Troy’s directors turned on him in order to save their own skins, and eventually forced him out of the company.
Why did the directors need to sacrifice Rubin to save their positions? According to Rubin, the answer lies with an entity called Institutional Shareholder Services (“ISS”). ISS is a proxy advisory firm that conducts analysis of corporate governance issues and advises shareholders on how to vote. Because shareholders often follow ISS’s recommendations, it can have substantial influence over the affairs of publicly-traded companies. Indeed, some participants in a recent SEC roundtable suggested that ISS could have “outsized influence on shareholder voting,” or even that it has the power of a “$4 trillion voter” because institutional investors rely on it to decide how to vote.
Rubin alleges that if ISS decides a CEO is making too much money, it will demand that the compensation be cut or that the CEO be fired. If its demand isn’t followed, it will “engineer the removal of the board members through [a] negative vote recommendation.” Board members then will cave to ISS’s wishes to preserve their own positions.
Rubin claims that this is what happened in his case. Read More ›
The Supreme Court of Washington’s recent decision in Failla v. FixtureOne Corporation is noteworthy on two levels.
First, it involved the surprising claim by a salesperson, Kristine Failla, that the CEO of her employer (FixtureOne) was personally liable for failing to pay her sales commissions. Typically, if an employee had a claim for unpaid commissions, you’d expect the employee to assert that claim against her company, not the chief. But under the wage laws of the state of Washington, an employee has a cause of action against “[a]ny employer or officer, vice principal or agent of any employer ... who ... [w]ilfully and with intent to deprive the employee of any part of his or her wages, [pays] any employee a lower wage than the wage such employer is obligated to pay such employee by any statute, ordinance, or contract.” Read More ›
Most law students spend several weeks in a first-year contracts class studying the concept of consideration. Consideration, in essence, is what a contracting party receives in exchange for promising to do something. A promise without consideration is not an enforceable contract. If A promises to wash B’s car next Tuesday and fails to do so, B cannot sue A on Wednesday, because A’s promise lacked consideration. But if A promises to wash B’s car and B promises to give A $20, or $1, or a glass of water, the promise is enforceable and B can sue if A fails to perform. Courts generally do not examine the adequacy of consideration, only its existence.
Because consideration can be minimal, many lawyers forget about it after that first year of law school. But it remains a necessary element of most contracts, and it recently arose in a peculiar way in a Connecticut case involving a dispute over an employment contract. See Thoma v. Oxford Performance Materials, Inc., 153 Conn. App. 50 (2014).
The plaintiff in the case, Lynne Thoma, was an employee of a manufacturing company. During her employment the company obtained new financing, and the investor insisted that Ms. Thoma enter into an employment agreement. This “first agreement” gave Ms. Thoma a fixed salary plus benefits for a 24-month period with automatic 12-month renewals. The company could fire her without cause on 60 days’ notice, but it would then be obligated to pay her salary for the remainder of the term plus six months. The first agreement also included a noncompete provision for the period of Ms. Thoma’s employment plus six months thereafter.
The company almost immediately decided it did not like certain terms of the first agreement and it required Ms. Thoma to enter a second agreement, which by its terms stated that it superseded any prior agreements. The second agreement did not discuss salary or severance, but it expressly stated that Ms. Thoma was an at-will employee. It also included a noncompete provision with apparently inconsistent terms: one section stated that she would not compete “during the period of her employment” and the other said that if she was terminated she would “continue to comply” with the noncompete provision.
The company fired Ms. Thoma about 16 months after the parties executed these agreements. Ms. Thoma sued, claiming that the company breached the first agreement by firing her without notice before her term ended and by failing to pay severance. The company claimed that the second agreement allowed it to fire her without notice at any time and did not require severance payments. But the trial court found, and the appellate court agreed, that the second agreement was not enforceable because it lacked consideration. Read More ›
Over 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.
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.
“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 ›
Non-Compete That’s Here Today But Gone Tomorrow – Beware The Unintended Consequences Of An “Integration Clause”
A recent decision from an appeals court in Pennsylvania is a warning to companies that the non-compete agreement they think they have with their top executive could be unintentionally wiped out with a few words in a later agreement. In law-speak, the words are called an “integration clause” or a “merger clause.” Through them, the parties agree that their agreement is their “entire” agreement and that it wipes out any earlier agreements.
In the Pennsylvania case, Randy Baker was the President and CEO of Diskriter when Diskriter was acquired by Joansville Holdings, Inc. The terms of the acquisition were memorialized in a stock purchase agreement (“SPA”), which had non-compete and non-solicitation clauses that apparently bound Baker. Read More ›
Last 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 ›