Jason M. Knott

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.)

• Breach of Contract
• Civil Litigation
• Executive Compensation
• The Inbox

Ashwin Dandekar and Emily Hua live in California.  They worked for Campbell Alliance, a biopharma consulting group, in California.  Yet when Campbell Alliance sued Dandekar and Hua for violating their noncompete and confidentiality agreements, it sued them in federal court in North Carolina.  And the judge in New Bern has now denied the employees’ bid to send the case back to California, meaning they will have to litigate 3,000 miles away from home.  Campbell Alliance Group, Inc. v. Dandekar, No. 5:13-CV-00415-FL (Jan. 3, 2014).  What gives?

A forum selection clause, that’s what.  Typically, in federal court, a court has the discretion to transfer a case to any other district where it “might [otherwise] have been brought,” in order to serve “the convenience of the parties [and] the interest of justice.”  28 U.S.C. § 1404(a).  In making the transfer decision, courts consider the plaintiff’s choice of forum, the residence of the parties, the convenience of parties and witnesses, and other factors that involve whether it’s easier and makes more sense to litigate a case in one location over another.  But when there’s a forum selection clause – i.e., a provision in a contract that says a lawsuit over it shall be brought in a particular state – that clause can be a significant factor in the transfer analysis.  Indeed, in a decision one month ago, the Supreme Court confirmed that forum-selection clauses should typically decide the issue of which federal court should hear a case.  Atlantic Marine Construction Co. v. U.S. Dist. Ct. for the Dist. of Texas, No. 12-929 (Dec. 3, 2013).

• Breach of Contract
• Noncompete Agreements ‎

Picture an employee who finds himself in legal trouble or has a dispute with his employer, and hires a personal attorney to work through the issue.  The employee might think that his communications with his attorneys are privileged and immune from discovery in litigation.  But what if the employee uses his work computer to store those communications, and then hands over his computer to his employer upon resignation?  How does that affect the privilege?

A recent ruling from Judge Gardephe of the U.S. Southern District of New York answers this question in a way that employees in this situation won’t like.  The ruling involves the ongoing trial of Mathew Martoma of SAC Capital Advisors for alleged insider trading.  (For press coverage of the trial, see CNN and the New York Times.)  A key witness against Martoma will be Sidney Gilman, a former professor at the University of Michigan who says that he provided tips to Martoma about a failing drug trial.  In advance of trial, Martoma’s lawyers asked the court to order Gilman to produce his attorneys’ work product.  They argued that Gilman had knowingly waived any privilege over that work product because it was stored on hard drives that Gilman returned to the University when he resigned.

The court sided with Martoma and against Gilman and the U.S. government, which joined Gilman in arguing against disclosure.  Judge Gardephe ruled that at the time Gilman returned his hard drives, he was in an “adversarial posture” with the University because it had announced that it was investigating his activities.  By “returning electronic devices” to his adversary that “contained alleged work product material, Dr. Gilman waived whatever work product protection might otherwise exist with respect to the materials stored on these devices.”  Gilman argued that his disclosure was involuntary because he was pressured to return the devices or lose his pension benefits.  But Judge Gardephe disagreed, writing that “pressure is not sufficient to demonstrate that production is involuntary.”  Rather, production through “compulsory legal process” is required in order to show that a disclosure was involuntary and not a waiver.

• Discovery

This past holiday week, many moviegoers took in The Wolf of Wall Street, which is the latest glamorization of Wall Street misdeeds to hit the big screen.  Of course, the most famous moment from a financial flick is still Gordon Gekko’s “Greed is good” speech in 1987’s Wall Street.

Greed isn’t always good, as Joseph F. “Skip” Skowron III, a former portfolio manager for Morgan Stanley, could probably tell you.   Skowron’s admitted misconduct has cost him not only his freedom, but also $31,067,356.76 that he must pay back to his employer.  Morgan Stanley v. Skowron, No. 12 Civ. 8016(SAS), 2013 WL 6704884 (S.D.N.Y. Dec. 19, 2013).

The big judgment arises from Skowron’s August 2011 plea agreement with the government, in which he admitted that he participated in a three-year insider trading conspiracy.  As news reports described, Skowron used insider tips from a French doctor to avoid losses in hedge funds he managed, and then lied to the SEC about the tips.  The judge in Skowron’s criminal case sentenced him to five years in jail, and ordered him to pay restitution to Morgan Stanley of 20% of his compensation over the time of the conspiracy. 

Morgan Stanley then sued him to recoup the rest.  In that lawsuit, it moved for summary judgment based on New York’s “faithless servant” doctrine.  Under that doctrine, if an employer can show that an employee was disloyal – either because he engaged in “conduct and unfaithfulness” that “permeate[d] [his] service in its most material and substantial part, or because he breached “a duty of loyalty or good faith” – it can recover all of the compensation that the employee was paid during the period of disloyalty.  Phansalkar v. Andersen Weinroth & Co., 344 F. 3d 184 (2d Cir. 2003).

• Breach of Contract
• Summary Judgment

From all of us here at Suits by Suits, we wish you and yours a very happy holiday season.  To keep you entertained over the next few weeks, we'll be featuring a number of our holiday and all-time favorite posts.

Kicking things off today, we revisit a popular series from this time last year, where we told you about the origins of Christmas as a holiday.  If you've ever been curious as to why celebrants drink spiced eggnog, decorate evergreen trees, or hang mistletoe, be sure to check out Part 1 and Part 2 of "The Origins of Christmas."  And if you want to know how that day and other social traditions turned into legal holidays, check out our post "Exactly How Many Holidays Do We Have, Anyway?"

If you feel we've missed anything, please drop us a line.  Happy holidays!

The federal courts are drawing a clear battle line over the disclosures that an employee must make before bringing a whistleblower retaliation claim under the Dodd-Frank Act of 2010.  Leading the charge on the one side is the Fifth Circuit, which held in Asadi v. GE Energy (LLC) that a fired employee can’t bring a Dodd-Frank retaliation claim unless he reported corporate misconduct to the SEC prior to his firing.  On the other side, the SEC and judges in New York, Connecticut, and Tennessee are massing in support of allowing a plaintiff to bring a retaliation claim even if he only disclosed the misconduct internally prior to firing. 

Two months ago, Judge Richard Stearns of the U.S. District Court for the District of Massachusetts joined the SEC’s side of the battle.  He ruled that Richard Ellington could pursue a Dodd-Frank retaliation claim against his former employer, New England Investment & Retirement Group, Inc. (NEINV), and his boss, Giacoumakis, even though Ellington only reported concerns about wrongdoing to NEINV’s compliance officer prior to his termination, and did not go to the SEC until after he was fired. Ellington v. Giacoumakis, No. 13-11791-RGS (D. Mass. Oct. 16, 2013). 

• Dodd-Frank Act
• Whistleblowers

Companies prize their formulas for best-selling products like nothing else.  Visitors to the World of Coca-Cola can visit the vault holding the soda syrup recipe.  And KFC’s fried chicken seasoning method has been described as one of its most valuable assets.

NuScience Corporation makes the skin product CELLFOOD, which it describes as an “oxygen and nutrient supplement” using “proprietary water-splitting technology.”  And as recounted by the California Court of Appeal in a recent opinion, NuScience  has fought hard to keep the CELLFOOD formula secret.  The California court’s decision addressed an unusual spinoff of NuScience’s trade secret battle: a malicious prosecution complaint filed by a former employee, David McKinney, who alleged that NuScience wrongfully brought a prior racketeering and misappropriation case against him.  See McKinney v. NuScience Corp., No. B240831 c/w B244074 (Cal. Ct. App. 2013).

According to the court, most of NuScience’s trade secret troubles involved the Henkel family – father John and sons Michael and Robert – who found a copy of the CELLFOOD formula after it had been purchased by NuScience.  After discovering the formula, the Henkels then repeatedly sought to sell it to other buyers, get money from NuScience to hand it over, or sell a competing product.  NuScience won federal court injunctions against the Henkels, but Michael and Robert didn’t stop their efforts.  And after NuScience fired McKinney, its vice president of sales and marketing, the Henkels got him involved in their efforts to discredit NuScience and use the formula.  NuScience then filed its racketeering lawsuit against McKinney and Robert Henkel, alleging that the two engaged in a conspiracy to disparage CELLFOOD and violate the federal judgment against Robert.  NuScience eventually dismissed that case without prejudice, asserting that it did so because Robert was threatening to disclose the CELLFOOD formula.

McKinney then filed a malicious prosecution lawsuit based on NuScience’s decision to voluntarily give up the case.  However, NuScience quickly moved to strike his lawsuit based on California’s anti-SLAPP statute (Cal. Code Civ. Proc., § 425.16). 

• Civil Litigation
• Trade Secrets

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.   

• Breach of Contract
• Civil Litigation
• Executive Compensation
• Noncompete Agreements ‎
• Summary Judgment

On December 10, 2013, Suits by Suits contributing editors Ellen D. Marcus and Jason M. Knott will present a live webinar titled “Whistleblower Watch: Big Issues in the Latest Whistleblower Cases Under Dodd-Frank, Sarbanes-Oxley, and the Internal Revenue Code.”  (For more details, click the link.)

Now, you have the chance to win a free registration for this upcoming webinar (retail price $149 for BNA subscribers and $249 for non-subscribers).  All you have to do is either tweet a link to this post, making sure to reference our Twitter handle (@suitsbysuits), or retweet the link to this post that we’ll put up on Twitter.  You can also qualify by commenting in this post with a question for Ellen and Jason to address during the webinar. The deadline to tweet, retweet, or comment is Monday, December 9. On the morning of Monday , December 9, we’ll randomly pick the winner and let him or her know by e-mail or Twitter message.

You may also enter the raffle by following these instructions.

If you’d like to go ahead and register for the webinar, click here.

LASIK eye surgery requires a precise surgeon.  If the surgery is unsuccessful, it can result in under- or over-correction, dry eyes, or infection. 

LasikPlus of Texas, a Houston eye clinic, recently found out that it should have exercised similar precision when drafting its noncompete agreements.  Instead, the Fourteenth Court of Appeals ruled last week that because LasikPlus failed to include required language in its noncompete agreement, one of its doctors can open a competing clinic two miles from its front door.  See LasikPlus of Texas, P.C. v. Mattioli, No. 14-12-01155-CV (Tex. Ct. App. Nov. 21, 2013).  We suspect there was not a dry eye in the house after that decision.

The covenant at issue in the case was part of LasikPlus’s employment agreement with Dr. Frederico Mattioli.  Under the covenant, Dr. Mattioli, for the eighteen months following termination of his employment, could not open a competing clinic within 20 miles or solicit LasikPlus’s clients.  Dr. Mattioli could only terminate the agreement with 120 days’ notice, or 30 days’ notice if LasikPlus was already in breach.

In October 2012, Dr. Mattioli told LasikPlus that he would be leaving within the month to start his own practice less than two miles away.  LasikPlus sued Dr. Mattioli, seeking an injunction to bar him from opening the practice.  The employment agreement expressly entitled LasikPlus to an injunction in these circumstances.  Further, if the covenant was deemed unreasonable in scope of time or location, other language allowed the court to reform the covenant and enforce it to the degree it would be reasonable.

Yet Dr. Mattioli still succeeded in defeating LasikPlus’s request for an injunction, because the clinic left out a critical piece of the covenant. 

• Breach of Contract
• Civil Litigation
• Noncompete Agreements ‎
• Preliminary Injunction