The Inbox - May 10, 2013

This week in Suits by Suits:

• Credit Suisse Group AG sued its former Vice President of Emerging Markets, Agostina Pechi, seeking a temporary restraining order barring Ms. Pechi from soliciting Credit Suisse clients.  According to the complaint, Ms. Pechi -- now employed by Credit Suisse's competitor, Goldman Sachs -- engaged in "an after-hours document raid" of confidential information from Credit Suisse which she allegedly emailed to her personal account before leaving the firm.  One interesting wrinkle here is that Ms. Pechi had an arbitration clause in her employment agreement requiring arbitration of all employment-related grievances, but Credit Suisse filed suit, claiming that "a court order was needed to prevent [it] from being harmed in the interim."  We've previously suggested that mandatory arbitration clauses may not always be a benefit to employers; and, if you're curious as to whether Credit Suisse's filing could be construed as a waiver of its right to arbitrate, you might want to check out our two-part series on waiver here (Part 1) and here (Part 2).
• We've previously analyzed the "say-on-pay" provisions of Dodd-Frank (and see also our this Inbox item); now we have a new wrinkle.  A few days ago, Heinz's shareholders passed a nonbinding vote to deny outgoing CEO Bill Johnson a $56 million golden parachute that includes accelerated stock options.  Advisors say that the vote "doesn't hold up the deal [to take Heinz private]" which we interpret to mean that Johnson will get his money.
• Residential Capital, LLC -- a bankrupt mortgage company owned by Ally Financial, Inc., which is in turn majority-owned by the U.S. Government -- has requested approval from a New York Bankruptcy judge to pay $7.8 million in severance pay to outgoing executives, with payments capped at $136,000 for two senior execs.  The motion notes that the employees would have been "entitled to sums well in excess of the $136,000 cap" had they remained with the company.
• A case study in why clawbacks are hard:  Anderson County, South Carolina is deciding whether to continue to pursue litigation to force its former county administrator, Joey Preston, to repay a $1.1 million severance package he received in 2008 in light of allegations of ethical violations, fraud, and breach of fiduciary duties.  However, a state court found in Preston's favor on Thursday and required the county to pay Preston $700,000 in attorneys' fees.  Anderson County now estimates that it has spent $3 million trying to recover the $1.1 million from Preston.
• Finally, Bloomberg BNA has posted a nice summary article analyzing the Supreme Court's April 24, 2013 decision in University of Texas Southwestern Medical Center v. Nassar, which addresses various evidentiary issues in the context of an employee's Title VII retaliation claim. 

The Inbox, May Day Edition

As a blog focused on employment issues, we’d be remiss if we didn’t at least note that the week that’s ending included May Day, which has long been known as International Workers’ Day.  Although this day’s somewhat curious history includes support from Marxists, Socialists, and the Catholic Church, it really got its start after a bloody bombing and riot in Chicago’s Haymarket Square.  

Fortunately for us at Suits-by-Suits, the employment disputes we deal with most – mainly executives and the companies that employ them – don’t lead to bloody confrontation, only (sometimes) litigation.  Though even litigation sometimes has its moments. 

Anyway, here’s what has come over that transom that has piqued our interest:  Read More ›

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.

The Inbox, Cherry Blossom Edition

Here at SuitsbySuits Headquarters in Washington, the Nationals are blossoming and the fabled cherry trees are about to.  Here’s what’s caught our eye between Bryce Harper’s home runs and the crowds on the National Mall: 

Eric Murdock, who compiled the video showing former Rutgers’ basketball coach Mike Rice’s abusive behavior toward players, plans to sue Rutgers for wrongful termination.  According to Murdock’s lawyer, Rutgers did not renew Murdock’s contract as director of player personnel after he reported Rice’s behavior to the school last summer.

Not the best negotiating strategy: Workers at a greeting card company in France have kidnapped their boss in a dispute over pay.

Non-compete agreements aren’t just for office workers: a St. Petersburg, Florida chef has been enjoined from working in any restaurant in Pinellas County because she signed one.

And in another food-type note, the U.S. Second Circuit Court of Appeals has ruled in favor of biscuit maker Stella D’Oro and against the National Labor Relations Board, overturning the NLRB’s finding that the company’s failure to provide a copy of its financial statement to an employee union was an unfair labor practice.

The Inbox - March 29, 2013

Grab your matzoh or Scotch cream eggs or whatever your favorite snack is this time of year and settle in for this week’s Inbox on Suits by Suits:

• The Polaroid bankruptcy trustee has sued the company’s former CEO Lorence Harmer to claw back $5.1 million in alleged kickback payments.
• The bankruptcy judge overseeing American’s Chapter 11 proceedings delayed ruling on the severance package for American’s CEO Tom Horton when he approved the airline’s merger agreement with US Airways on Wednesday.  The U.S. Trustee had objected to the package.  We especially like Kyle Arnold’s reporting in Tulsa World on these developments, and not just because he quoted one of us.
• A pregnancy discrimination lawsuit filed in 2009 by Julie Gilman Veronese against Lucasfilm Ltd. is headed back to the trial court after an appellate court found fault with the jury instructions and reversed the $1.3 million verdict for Veronese ($1.2 million of which was attorneys’ fees) and the California Supreme Court declined to review the ruling on Wednesday.  George Lucas testified in the first trial.
• After a deal was struck last night, New York City appears to be headed the way of Seattle and San Francisco in requiring employers of a certain size to provide paid sick leave to its employees.  Under the proposed legislation, companies with 15 or more employees would be required to compensate their employees for up to five sick days per year.  As we’ve noted here before, federal law does not require paid sick leave and few state laws do.

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”?

The Inbox - March 15, 2013

Send up the white smoke!  After a week spent locked inside our offices -- or, for some of us, inside courtrooms -- your (usually) infallible Suits by Suits lawyers have finally voted on this week's Inbox:

• Wednesday, three top multinational banks -- Citigroup, Capital One, and Wells Fargo -- all agreed to broaden their clawback policies after requests by the New York City Comptroller's Office.  Clawback policies enable an employer to recover compensation, stock options, bonuses, and other monies from former high-ranking executives who are later determined to have engaged in financial misconduct.  We are going to review the specific policies when released and will keep you updated.  The City Comptroller's press release can be read here.
• We've said it before and we'll say it again:  your corporate emails are not private!  In one of a series of rulings in U.S. v. Finazzo, the U.S. District Court for the Eastern District of New York ruled that an executive "has no reasonable expectation of privacy or confidentiality in any communications" made through a work email account where the employer disclosed that it reserved the right to monitor an employee's usage of the system.
• On Wednesday, Steve Jacobs, the former CEO of the Las Vegas Sands outpost in China, sued casino magnate Sheldon Adelson, alleging (among other things) that Adelson ordered him to threaten the head of Macau's government, Chief Executive Edmund Ho, for "not playing ball" in connection with condominiums that the Sands was trying to sell in Macau.  Jacobs was fired from Sands China in July of 2010 and subsequently filed a wrongful termination suit in October of that year.  On a totally unrelated note, Casino is one of our favorite movies.
• Coincidentally, a former housekeeper sued Casino actress Sharon Stone -- co-star of the aforementioned film, as well as -- and do you really need to be told this? -- Total Recall, Basic Instinct, and many others, accusing Ms. Stone of retaliatory termination after the maid requested paid medical leave for injuries allegedly sustained while carrying Ms. Stone's groceries.  A spokesperson for Ms. Stone claims that the charges are "utterly baseless."
• This one isn't a movie starring Arnold Schwarzenegger -- but perhaps it should be.  A 62-year-old man wrestled a shark out to sea in order to save children on a beach in Australia.  That's the good part.  The bad part?  Someone videotaped the heroic shark-wrestling; it went viral (because of course it did), and was viewed by the hero's employer -- a children's charity, no less -- who had been told the man and his wife were on sick leave.  The shark-wrestler (and his wife, who had been employed by the same charity) were subsequently fired.  As Rick Perry might say:  "oops."  (Side note for the eventual movie adaptation:  According to Wikipedia, the Governator is 65.)
• Reporter Bryant Ruiz Switzky of the Washington Business Journal brought our attention to a very interesting report issued by Ernst & Young, and now we pass that along to you:  the Big Four firm warns corporate directors that they are "being watched" carefully by shareholders and should tweak executive compensation and other issues accordingly.  If you're involved in pay issues, you need to read this report.
• On Monday, Dr. David Naarian of Philadelphia, PA sued his former partners in 3B Orthopaedics PC over the sale of their medical practice to Aria Health, claiming that he had been defrauded out of more than $800,000 in the $4 million sale.
• Our friends at the Harvard Law School Forum on Corporate Governance and Financial Regulation have published yet another relevant article, this one by Noam Noked, "Dealing with the SEC's Focus on Protecting Whistleblowers."
• Relatedly:  just this week, a federal judge drastically reduced a jury's award to a whistleblower.  In 2009, Weihua Huang was terminated by the University of Virginia in retaliation for reporting U.Va's alleged mismanagement of grant money and a jury awarded him $160,000 in back pay and $500,000 in compensatory damages.  Earlier this week, the trial judge granted U.Va's motion to reduce the compensatory damages awarded by the jury by 80% -- from $500,000 to $100,000 -- on the grounds that the award was "not proportional" to the injury suffered.  As is typical in these cases, the court compared the award to other jury awards within the district.
• Troubles continue for the venture capital industry; we've discussed the case of Ellen Pao in considerable depth (here and here, for starters), but this week, we learned that another venture capital firm, CMEA Capital, is facing allegations of sexual and racial misconduct in the workplace, including sexually explicit behavior towards three former female employees.
• Career development coach Stacey Hawley, writing for Forbes, has penned an article entitled "Negotiating An Employment Agreement," that offers some practical tips to the executive on the move.
• And finally:  who says CEOs aren't human?  When VeriFone ousted CEO Doug Bergeron on Monday, he penned a weepy goodbye letter, telling staff "I will always love you and I will always love VeriFone."  No word if he read the letter aloud while playing Celine Dion music softly in the background, but apparently he read our advice to departing CEOs (unlike outgoing Groupon CEO Andrew Mason).

The Inbox, Snowquester Edition

Here at the SuitsbySuits Tower in Washington, D.C., we’re closing the week of the Snowquester that Wasn’t, a snowstorm that could have given us a large thumping of snow but turned out to be…well, more disappointing than a playoff loss by you-know-who.  The chatter about the storm has, though, led to a rare mea culpa by a prominent weather blog and pretty much kicked off the Virginia governor’s race in a dispute over one candidate’s tweet about safety in the snow. 

In any event, things other than a poem-inducing non-blizzard happened this week, and here are the highlights: Read More ›

The Inbox - March 1, 2013

Capping off a big week in Suits by Suits, where even the Pope has to give two weeks’ notice before resigning:

• We lead off with suits by suits… in space, as former Astrotech CFO John Porter sued Astrotech CEO Thomas B. Pickens III – son of legendary corporate raider T. Boone Pickens – and five other directors for breach of fiduciary duties, alleging that the team diverted tens of millions of dollars in fraudulent unsecured loans to subsidiaries that drove down Astrotech’s stock price by 89% from a high of $146 per share such that Astrotech has been warned three times by the NASDAQ for trading at less than $1/share.
• Let the second-guessing begin!  After working through her own maternity leave,(see also our follow-up story here), Yahoo! CEO Marissa Meyer shocked many – and invited considerable second-guessing of her own life – by banning telecommuting at Yahoo and requiring all employees to work in the office.
• Former Morgan Stanley broker Mark Mensack filed suit against his former employer and FINRA, the private self-regulatory organization that performs financial regulation and oversight over member brokerage firms and exchange markets, after a FINRA arbitration panel ruled that Mensack had to repay his $1.2 million sign-on bonus when he resigned and filed a whistleblower suit against Morgan Stanley.
• California continues to be on the cutting edge of arbitration law; we recently discussed the California Supreme Court’s decision to let stand an appellate court decision refusing to compel arbitration against an employee who had not signed an arbitration agreement (even though she had lied to her employer and said she had).  Recently, a federal court applying California law went the other way, granting an employer’s motion to compel arbitration against not only its former employee, but that employee’s company, which was not a signatory to the original arbitration agreement.  Torbit, Inc. v. Dayanyze, Inc.  (N.D. Cal. Feb. 13, 2013).
• Speaking of arbitration, yesterday the U.S. Court of Appeals for the Fifth Circuit upheld Nabors Drilling USA’s use of an “acknowledgement form” to compel arbitration of a former employee’s claim of age discrimination, overruling the trial court’s ruling that the form was ambiguous.
• Last month, we told you to watch the “State By State Smackdown,” as various jurisdictions react in different ways to California’s unique law prohibiting the enforcement of noncompete clauses in employment contracts.  The Smackdown continues in Massachusetts, where the state legislature is considering a new law (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 final term is the most interesting; presumably, it reflects a legislative finding that highly-compensated employees are more free to negotiate for terms in their employment agreements than those making less than 250K.  We’ll keep you posted if the bill becomes a law.
• A federal district court held that former Goldman Sachs director Rajat Gupta must reimburse the company $6.22 million for 90% of the expenses it incurred in connection with Gupta’s criminal insider trading case.
• Under the terms of the 2009 federal auto bailout, General Motors has to get approval from the U.S. Treasury Department for its executive salaries.  So when the Detroit Free Press reported that GM was seeking an $11.1 million compensation package for its CEO, Dan Akerson – which the Detroit Free Press characterizes as a $2.1 million raise – it prompted a strongly-worded rebuttal from GM.  All of this occurred as the Oversight and Government Reform Committee of the U.S. House of Representatives continues to conduct hearings on “Bailout Rewards:  The Treasury Department’s Continued Approval of Excessive Pay for Executives at Taxpayer-Funded Companies.” 
• And in more government news, The Wall Street Journal has the details on Treasury Secretary nominee Jack Lew’s golden parachute from Citigroup, which pays him a bonus for returning to service in the federal government.
• We’re also keeping our eye on recent complaints by Weight Watchers employees – the overwhelming majority of whom are women – who allege that the weight loss giant has kept salaries low and pressured its employees to work unpaid hours while earning lavishing huge sums on high-profile celebrity endorsers such as Jennifer Hudson and Jessica Simpson.
• Meanwhile, after the Minneapolis-St. Paul Business Journal declared CEO Bill Cooper "the most overpaid CEO in Minnesota," TCF Bank reworked Cooper's severance agreement... to increase his base guarantee to $4.5 million if Cooper leaves or is fired for cause other than gross misconduct.

The Inbox – February 22, 2013

We’re not sequestering this week’s Suits by Suits news:

• Novartis announced that it would rescind its agreement to pay its former chairman, Daniel Vasella, $78 million to keep him from working for competitors and sharing his experience with them.  According to the New York Times, the proposed payment sparked outrage in Novartis’s home country, Switzerland.  Vasella released a statement that was significantly more even-keeled than anything I would have written after losing $78 million.
• In other departure news, American Airlines CEO Tom Horton will get a $20 million severance payment when his company’s merger with US Airways is finalized, reported the Dallas Morning News.  Plus he gets lifetime flight benefits, although the agreement doesn’t appear to prohibit the company from putting him in a middle seat in the back of the plane.