The Inbox - May 17, 2013

May flowers are blooming, and so is the Suits by Suits news:

• CEO dismissals hit a 10-year high in 2012, according to The Corporate Board’s study of CEO succession practices.  Matteo Tonello of the Corporate Board published this summary of the study on the Harvard Law School Forum on Corporate Governance and Financial Regulation.
• The Anderson County Council is talking settlement in its long-running dispute with former county administrator Joey Preston, reports Bill Poovey of GSA Business.   The South Carolina legislators have spent $3 million in legal fees in their unsuccessful effort to recover Preston’s $1 million severance package.  That money would have bought a lot of Skins’ hot dogs.
• We previously brought you the story of David Nosal, a former Korn/Ferry executive who was facing trial on charges of gaining unauthorized access to Korn/Ferry’s system and stealing trade secrets.  Joanne Lublin of the Wall Street Journal reports that the trial did not turn out well for Nosal: he was convicted on all counts.  Nosal told Lublin that he is confident that the verdict will be reversed.
• New Mexico legislators criticized the large buyout offered to the new head coach at the state university, reported Alex Goldsmith at kqre.com.  Craig Neal will get $1 million plus up to $300,000 if the school decides to fire him in the next four years.  In his defense, Neal could have pointed to Mike Krzyzewski, who received $9.7 million from Duke in 2011 (when, incidentally, the Blue Devils lost to 15-seed Lehigh in the NCAA tournament).
• More sports news: Sean Newell of Deadspin reports that warm and fuzzy coach Bill Belichick and the New England Patriots may have cut a player, Kyle Love, because he was diagnosed with diabetes.  Newell’s post discusses the Americans with Disabilities Act, which could have protected Love from termination based on his condition, and the at-will employment doctrine.

Farmers Insurance Wins Summary Judgment on Ex-Employee’s Breach of Contract

As we’ve covered before on Suits by Suits, summary judgment can be a powerful weapon for a party to a civil lawsuit.  By granting summary judgment, a court can resolve a claim before trial, meaning that it’s never heard by a jury.  The standard for granting summary judgment, found in Rule 56 of the Federal Rules of Civil Procedure, is well-known to civil litigators: it is appropriate when there are no genuine issues of material fact and the case can be decided as a matter of law. 

In a recent case from the District of Minnesota, Farmers Ins. Exchange v. West, the Farmers Insurance Group used summary judgment effectively on both offense and defense.  First, it won a ruling that its former district manager, Theodore West, breached his appointment agreement and that Farmers suffered damages as a result.  Then, on defense, it knocked out West’s counterclaims for breach of contract and discrimination.

So what happened in West’s case, and why did Farmers prevail? Read More ›

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 ›

“You’ve got…a non-compete!”

Almost faster than a pop-up ad, AOL Inc. sued one of its former executives one day after he left the company for another pioneering Internet business – Yahoo, Inc. AOL, which also named Yahoo as a defendant, alleges that Edward Brody’s employment agreements with it prevent Yahoo from hiring him as the head of its Americas sales division. 

AOL’s pleading, filed Friday in New York State court, is not yet a full complaint laying out all of its allegations, but only a summons with notice – which under the rules governing New York’s courts can be used to begin a suit instead of a complaint, but only if it includes “a notice stating the nature of the action and the relief sought.”  The brief “notice” AOL included tells us a lot: Brody, AOL alleges, is bound by two employment agreements – one dated June 2012 and one dated November 2009.  The company – which you may recall started as an online game service for Commodore 64’s and similar early home computers – argues those agreements are enforceable against Brody (who until Thursday was the head of AOL Networks), and “prohibit Defendant Yahoo Inc. from employing and/or using his services during the notice and post-employment restricted periods” in them.   Read More ›

California Continues To Go After Non-Competes

We’ve written at length about the rapidly-changing landscape regarding covenants not to compete, including the first-in-the-nation law in California that essentially prohibits all such agreements, and we’ve kept you abreast of how various states have responded to the California statute, including New York and Massachusetts.  (“The State-by-State Smackdown”)

Now, covenants not to compete typically arise in the context of an employment agreement, with the employee agreeing that if she leaves the company (or is fired), she will not flee to the company’s closest competitors.  Typically, the question as to whether such agreements are enforceable turns on how narrowly-tailored the covenant is to serve its purpose, which means the determination is generally made on a case-by-case basis.  This reflects a balancing of two goals:  ensuring free and fair competition in the marketplace, and also protecting a company against rivals seeking to “poach” its employees and potentially steal secrets, practices, and other confidential information.  It’s a tough balance to strike, and the parties typically only figure out exactly where the line should be drawn once one party sues the other. Read More ›

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

Time for our second tip of the week about employment agreements.  We’re looking at things many of us think we should do about employment agreements but that, oddly enough, aren’t being done – at least in the two cases we profile this week, each of which made it to a state high court.    

Our first tip was straightforward: if you have an employment agreement, or think you have one but aren’t sure – get it in writing.  

Our second tip follows the first.  Once you’ve reduced your employment agreement to writing, make sure it’s clear – or at least, as clear as possible.  Clarity will reduce the time and money you’ll spend if you get into a dispute over the agreement.  Read More ›

Employment Agreement Tip of The Week No. 1: Get It In Writing

Whether you’re an executive or a hiring manager, here’s a tip: if you think you have an employment agreement, or if you want to have an employment agreement, get the agreement in writing. 

Sounds basic, right?  Most of us know that.  But a recent decision from New York’s highest court in Gelman v. Buehler suggests that not everyone does, and illustrates the consequences of not having a written agreement.  Read More ›

The Inbox - March Madness Edition

Since you’re already giving up all productivity during the big dance, why not check out the latest in Suits by Suits?

• Bloomberg says that Hercules Offshore has defeated a “say on pay” lawsuit brought by a shareholder who claimed that the Hercules board should not have ignored an investor vote that the company’s executive compensation was too high.  Was defeating this lawsuit one of the fabled “Twelve Labours”?

More on Covenants Not To Compete: A Proposed Massachusetts Law Gets A Big ‎Endorsement

If you’re a regular Suits by Suits reader – and if you aren’t, why not? – you know that we think California’s first-in-the-nation law prohibiting essentially all covenants not to compete in employment contracts is going to be a major factor in future executive employment agreements and disputes across the country.  Indeed, we’ve been keeping track as other states respond in various ways to the California law.  (For details on the California law and its implications, see our prior piece, the “State by State Smackdown.”)

In our March 1 Inbox, we flagged a bill under consideration by the Massachusetts state legislature, House Bill No. 1715, which would establish that noncompete clauses of six months or less are presumptively reasonable, and clauses exceeding six months can be enforced if the court finds that the employee has (a) breached a fiduciary duty, (b) taken company property, or (c) earned at least $250,000 per year in annualized compensation.

The status quo in Massachusetts (and the majority of states) permits covenants not to compete, subject to a case-by-case judicial balancing test that considers the interests of the former employer against the hardships to the employee and the public.

It is tempting, then, to view House Bill No. 1715 as a “halfway point” between the existing law in Massachusetts and California’s outright ban.  Under this view, the new proposed legislation would be seen, politically, as moving Massachusetts in the direction of California and away from upholding noncompete agreements.  And indeed, thanks to some excellent reporting by Don Seiffert, an Associate Editor at the Boston Business Journal, we’ve discovered that’s precisely the view of Massachusetts Governor Deval Patrick (D).

Read on.... Read More ›