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- The Basics: An Introduction to Indemnification and Advancement
- The Inbox: March 7, 2014
- A Look at the Concurring and Dissenting Opinions in the Supreme Court's Sarbanes-Oxley Whistleblower Decision
- Supreme Court Allows Employees of Private Contractors to Bring Sarbanes-Oxley Whistleblower Retaliation Claims
- The Inbox, Why Does The Shortest Month Feel So Long Edition
- E-mailing Work Documents to Your Personal Account Looks Fishy, Says NY Appeals Court in New Non-Compete Opinion
- Whistleblower or wrongfully terminated employee? California Supreme Court says: whistleblower
- The Inbox, How Many More Decades Until Spring Edition
- Vanterpool v. Cuccinelli: Threading the Needle to Preserve a Free Speech Claim Against a Government Employer without Admitting to Lying Earlier About Who Spoke
- Vanterpool v. Cuccinelli (yes that Cuccinelli) Sheds Light on Political Patronage Dismissals
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The AmLaw Daily
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Screw You Guys, I’m Going Home: What You Need To Know Before You Scream “I Quit,” Get Fired, Or Decide to Sue the Bastards
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Showing 25 posts in Executive Compensation.
Imagine sitting on the board of directors of a Fortune 500 company. You might think it’s a life of corporate jets, cushy board meetings, and prestige. (Although, the press will tell us, it’s not really that way anymore, thanks to Enron.) But even if corporate service would truly be the good life, what would happen to you if an aggrieved shareholder sued you for allegedly breaching your fiduciary duties to the company? Would you have to deplete your bank account to pay expensive lawyers for years of costly litigation?
The answer is found in the rights of indemnification and advancement (which we have previously discussed here, here, and here in connection with a trade secret case against a Goldman Sachs employee). Indemnification and advancement are two overlapping, yet different, rights that corporate directors, officers, and employees may have when it comes to the payment of their legal fees in lawsuits brought against them because of their corporate service.
Indemnification is the reimbursement of fees after those fees have been incurred. This right, as the Delaware Supreme Court has written, “allows corporate officials to defend themselves in legal proceedings secure in the knowledge that, if vindicated, the corporation will bear the expense of litigation.” The words “if vindicated” cannot be emphasized enough – they show that in order to establish a right to indemnification, the officer may have to prevail in the proceeding.
Advancement, meanwhile, is exactly what it sounds like: payment of fees by the company in advance of the final resolution of the proceeding. Advancement is an important companion to the right of indemnification, because it provides officials with immediate relief from the financial burden of investigations and legal proceedings. No vindication required – although the official may have to pay back what she receives if the final decision doesn’t go her way.
To determine an individual’s right to indemnification or advancement, courts will first look to the statutes governing the business, which may either require or permit those rights. Because many companies are incorporated in Delaware, we’ll take a look at what Delaware law has to say on this subject. Read More ›
Love is in the air as couples celebrate Valentine’s Day with chocolates, flowers and romantic dinners. But there’s no love lost between some employers and their executives, as this week’s Inbox shows:
- BLR.com reports on a fascinating case involving Bruce Kirby, former CEO of Frontier Medex. In a lawsuit in Maryland federal district court, Kirby alleged that he was the beneficiary of a change-in-control severance plan and that Frontier kept him on for over a year solely for the purpose of defeating his severance benefits, even though it told him it was going to terminate him before that. The court ruled that he was not contractually entitled to severance, but could pursue a claim that Frontier interfered with his benefits, violating ERISA.
- Retired Ohio Bureau of Workers’ Compensation attorney Joe Sommer is asking the Ohio Supreme Court to review a decision that limited the application of whistleblower protections in that state. He believes that the Franklin County Court of Appeals overly limited whistleblower claims when it ruled that an employee had to report criminal conduct in order to be protected from retaliation.
- According to Benefits Pro, the EEOC “slammed” CVS over its severance deals in a lawsuit against the company in Illinois federal court. The lawsuit alleges that CVS required employees to sign severance agreements with five pages of small print, some of which bargained away the employees’ rights to communicate to agencies about practices that violated the law. CVS says that nothing in those agreements barred employees from going to the EEOC with complaints.
- Hook ‘em, Mack! Former Texas football coach Mack Brown, who resigned after this season, did get some love from his employer, as the San Francisco Chronicle reports that he will receive $2.75 million that he was owed under his contract in event of termination. He will also get a cushy $500k job this year as special assistant to the president for athletics.
- John O’Brien of Legal News Line reports that a California appellate court will allow a whistleblower’s claim of retaliation under the False Claims Act to be heard in state court. Dr. Scott Driscoll, a radiologist, claims that he was fired for complaining that his employer was committing Medicare fraud. When the employer sued him in state court, Driscoll counterclaimed for FCA violations. The California court decided that it had jurisdiction to hear the claim, rejecting the employer’s argument that federal courts have exclusive jurisdiction over FCA retaliation claims.
Conditioning Severance Payments on Releasing the Company - Another Lesson from Family Dollar Stores' Recent Firing of Its COO
You may have been left with the impression from our post on Tuesday that Family Dollar Stores is getting a raw deal because the company has to pay former COO Mike Bloom $4.8 million after letting him go for what it saw as poor performance. As we explained, this may be counterintuitive, but it’s consistent with the severance provisions of Bloom’s employment agreement. Besides complying with its contractual obligations, however, the company is getting something in return for the severance: a release from Bloom.
Bloom’s employment agreement, which is typical of executive employment agreements, provides that, upon his termination, the Company’s obligation to pay him severance is conditioned on Bloom "deliver[ing] to the Company a fully executed release agreement . . . which shall fully and irrevocably release and discharge the Company . . . from any and all claims . . . ."
This provision of Bloom’s employment agreement illustrates a best practice for companies when they are contemplating severance provisions in employment agreements at the time of hiring, or even standalone severance agreements that are negotiated at the end of employment: don’t agree to pay severance without getting a release from the executive in return. That way, while it may be painful to write that severance check, at least the company can know that it should not have any future trouble from the executive, the break is clean and the company and executive can move on to whatever’s next. For executives’ part, to the extent that they have the bargaining leverage, they should also insist that any release be mutual – that is, that, just as the executive releases the company from any claims, the company releases the executive from any claims. That way, the executive will also be able to move on without having to look back.
Why the COOs of Yahoo and Family Dollar Stores Have Been Fired for Poor Performance But Will Get Millions in Severance - Further Adventures in "With" and "Without Cause" Terminations under Executive Employment Agreements
Last week, Yahoo’s Marissa Mayer fired COO Henrique de Castro, reportedly because she was not satisfied with his job performance. By some estimates, de Castro will receive severance exceeding $60 million after only 15 months on the job. Also last week, Family Dollar Stores let go COO Mike Bloom because the company was not happy with his performance, and apparently was not moved by Bloom’s Undercover Boss gambit. Bloom is set to receive $4.8 million in severance after slightly more than two years on the job.
What gives? How is it that these former executives are receiving large severance payments after they were asked to leave for poor performance on the job? The definition of "cause" in their severance agreements is what gives – a topic we explored recently here at Suits by Suits in connection with the dispute over former iGate CEO Phaneesh Murthy’s termination. In the iGate case, the company contends that it terminated Murthy for cause and thus owes him no severance. Murthy’s employment agreement provides that he does not get severance in the event of a "with cause" termination, and that "cause" includes violating company policy. The company contends that Murthy’s failure to report his romantic relationship with an employee to the Board was "cause" for his termination because it violated company policy.
In the Yahoo and Family Dollar Store cases, assuming that de Castro and Bloom were let got for poor performance, unless poor performance is "cause" under their employment agreements, they will reap the severance benefits provided for in their agreements for "without cause" terminations. Read More ›
No, this headline is not a pun about the closed on-ramps to the George Washington Bridge. Rather, it’s meant to acknowledge that as the New Year gets into full swing, folks are starting to ramp up their analysis of ongoing issues in disputes that involve executives and their employers. We’ve seen a number of interesting stories and summaries cross our desk:
- Ben James of Law360 published a thorough recap of the lingering questions about Dodd-Frank’s whistleblower protections. We’ve got one more question: will the Supreme Court’s upcoming decision in Lawson v. FMR LLC (we covered the oral argument here) affect a whistleblower’s choice between initially pursuing a Dodd-Frank claim in federal court, or filing a Sarbanes-Oxley claim with the Department of Labor? Right now, some courts are putting a narrow construction on who can sue under Dodd-Frank, so if the Lawson Court takes an expansive view of Sarbanes-Oxley, it may give new life to that statute as an appealing option for whistleblowers.
- What’s not ramping up: romance in the home of the new president of Alabama State University. Debra Cassins Weiss of ABA Journal reports that Gwendolyn Boyd, who is single, will not be allowed to “cohabit with a romantic partner in the university residence so long as she is single,” according to her employment contract. Boyd says she has “no issue” with the provision. Sorry, suitors. (Which, by the way, would be a good name for our group of loyal readers.)
The CEO of iGate Had an Affair with An Employee, Was Fired and Is Now Suing the Company for Severance - Putting at Issue the Classic Question of "Cause" and Reminding Us of a Few Best Practices
In May, iGate sacked its CEO Phaneesh Murthy, claiming that the Board decided to do so after its outside legal counsel found that Mr. Murthy’s failure to report his relationship with a subordinate employee violated iGate’s policy. Outside counsel made that finding as part of their investigation of the relationship and the employee’s claim of sexual harassment. (For spicier accounts of the office affair check out the news stories from the time – like this one.) Last week, Mr. Murthy sued iGate in California state court claiming that his termination was not with cause and that he is therefore entitled under his employment agreement and company stock plans to compensation and benefits that the company has refused to pay. Read More ›
Weather gurus are predicting snow, sleet, and rain for our area over the weekend. Although my kids are hoping for the white fluffy stuff, this amateur prognosticator is predicting a downpour. In keeping with this theme, the week’s biggest employment news is Robinson Cano’s $240 million deal with the Seattle Mariners (who are well accustomed to rainy skies). But our sights here at Suits by Suits are on matters a little less lucrative:
- You still have a chance to win free admission to our Dec. 10 webinar, “Whistleblower Watch: Big Issues in the Latest Whistleblower Cases Under Dodd-Frank, Sarbanes-Oxley, and the Internal Revenue Code.” For more details on this prize, click here.
- The First Circuit affirmed a summary judgment ruling in favor of Strine Printing Company against a former sales representative who claimed that his firing resulted in an “oleaginous mass of perceived wrongs.” The decision addresses a number of employment-related claims, including unjust enrichment, breach of an implied or express employment contract, and misrepresentation.
- We’ve previously covered the exploits of Larry Conners. Despite his year-long non-compete agreement, the St. Louis newsman is headed back to TV – as a pitchman. He’ll be a spokesman for John Beal Roofing.
- Jeff Green of Bloomberg Businessweek brought us the latest trend in executive hiring – the “golden hello.” These are multi-million dollar signing bonuses designed to entice new candidates to join the team. Among them: the $45 million that Zynga paid to entice an industry vet, Don Mattrick. Some are skeptical of the arrangements, noting that they don’t correlate with successful performance.
- A Louisiana appellate court has affirmed the dismissal of a lawsuit by former professors at Louisiana College, writes Charles Huckabee of the Chronicle of Higher Education. The professors claimed that they should have been able to use certain books in teaching classes on religion and values, which were prohibited by the college’s administration. The court refused to intervene on the ground that it was a religious dispute not proper for court involvement.
- Dominic Patton of Deadline Hollywood covered Jeff Kwatinetz’s suit against Prospect Park. The producer and talent manager wants a Los Angeles Superior Court judge to decide whether a noncompete provision in his agreement with Prospect Park can permissibly bar him from competing for five years.
Twitter’s founders are cashing in on Wall Street, and journalists are piggybacking on the news with articles like this one, which recaps 10 “surprising superstars” of the social network. No, Suits by Suits didn’t make the cut, but you can still follow us at @suitsbysuits, where we’ll bring you 140-word tweets about news related to executive-employer disputes. These are the kinds of stories we track:
- The Texas Supreme Court heard argument this week in Exxon Mobil’s dispute with former executive William Drennen. Jeremy Heallen of Law360 (subscription required), wrote that after Drennen retired from Exxon (@exxonmobil) and went to work for competitor Hess, Exxon claimed that he had forfeited his restricted stock under a “detrimental-activity provision” in his incentive plan. Exxon is seeking reversal of the lower court’s holding that the forfeiture violated Texas law, which disfavors “unreasonable” noncompetition agreements.
- AIG has settled a $274 million dispute with former real estate executive Kevin Fitzpatrick, reported (@nateraymond) Nate Raymond of Reuters. The terms are confidential, but Fitzpatrick’s lawyer says that he is “very happy.” Given the potential dollar amounts between $0 and $274 million, it’s easy to guess why.
- Rachel Louise Ensign of the Wall Street Journal (@RachelEnsignWSJ) (subscription required) covered a developing trend this week: more whistleblowers are coming from corporate compliance departments. As one example, Ensign described Meng-Lin Liu’s case against Siemens AG, which we covered here. The possibility of lucrative awards under the Dodd-Frank Act’s whistleblower program may be sparking the trend, although as Ensign points out, compliance officers are subject to additional restrictions under that program.
- In other whistleblower news, the Senate approved a bill to prohibit companies from retaliating against whistleblowers who report violations of the antitrust laws. Jennifer Koons of Main Justice (@jenkoons) said that the bill passed with bipartisan support. “Bipartisan” – does anyone still remember that concept?
- Newscaster Larry Conners is still trying to get back on television, despite a prior ruling that his noncompete agreement prohibited him from working for other TV stations in the St. Louis market for a year. Conners’s attorney asked the judge to modify that ruling, which restricted Conners to radio work, wrote (@STLSherpa) Joe Holloman of the St. Louis Times-Dispatch. We’ve previously examined Conners’s case here and here.
The federal government is closed, but the Suits by Suits news continues to roll in:
- Johnson & Johnson shareholders are amending their derivative suit against the company and its directors, alleging that the company didn’t act properly when it decided that the lawsuit was not in J&J’s best interest. According to Joshua Alston of Law360 (subscription required), the shareholders argue that an investigation conducted by K&L Gates was a whitewash and that former CEO Bill Weldon shouldn’t have been paid $175 million over a six-year period. On the bright side, Weldon may have had a better tenure than the similarly well-compensated Alex Rodriguez.
- In more J&J news, subsidiary DePuy Synthes sued three of its former sales reps and their new company, Globus Medical, Inc., for allegedly violating noncompete agreements. Brad Perriello of Mass Device described the allegations, which accuse Globus of recruiting the reps “in an effort to rapidly build its own business . . . by appropriating and capitalizing on the goodwill, customer relationships, and confidential information that DePuy Synthes necessarily entrusts to its sales employees.”
- It’s not hard to translate how Rosetta Stone wants this forum dispute to come out. Carolina Bolado of Law360 (again, subscription required) reports that competitor Open English sued the company, along with several new hires, in Florida for allegedly breaching noncompete agreements. Rosetta filed a lawsuit in the employees’ home state of California seeking a declaration that the agreements weren’t violated, and has now asked the Florida judge to dismiss in favor of that lawsuit. Open English, meanwhile, argues that it won the race to the courthouse and is entitled to take its legal talents to South Beach.
- Big whistleblower news last week, as the SEC announced an award of $14 million to a whistleblower under its Dodd-Frank bounty program. Further details were not forthcoming, as the law protects recipients of bounties from having their identities revealed. Given all the press about miserable lottery winners, this could be a very good thing for them.
- A Virginia sheriff’s deputy is suing his former boss, claiming that he was fired after he reported that another officer slapped an inmate at the county jail. Rhonda Simmons of the Culpeper Star-Exponent writes that the deputy, who is pursuing a wrongful termination claim, was rehired after the sheriff who fired him was voted out of office.
“Hell or High Water” or Fraud: Court Rules That Supermarket Scion Was Entitled To Post-Termination Benefits Despite Misconduct
The ongoing court drama between Marsh Supermarkets and Don Marsh, its former CEO, has taken another twist. As we previously covered here, in February of this year, a jury in the U.S. District Court for the Southern District of Indiana found that Marsh, the son of the company's founder, defrauded the supermarket chain and breached his employment agreement by misusing company assets to pay for personal expenses. It awarded Marsh Supermarkets $2,200,000 in damages.
Now, however, that damages award has effectively been zeroed out by the district court judge, who has found that Don Marsh is entitled to $2.1 million plus attorneys’ fees from the company based on a separate provision in his employment contract. Order, Marsh Supermarkets, Inc. v. Marsh, No. 09-cv-00458 (S.D. Ind. Jul. 29, 2013). The court accepted Marsh’s argument that the provision entitled him to payment come “hell or high water” – or fraud. Read More ›