Jason M. Knott

The hacking of Sony’s private data has been one of the biggest stories in the country over the past couple of months.  It won’t surprise anyone to learn that lawsuits have been filed over the breach.  Indeed, the plaintiffs in several class action lawsuits are seeking to consolidate their cases  into one massive Sony Data Breach Litigation case.

So far, the plaintiffs in those cases haven’t alleged claims against individual Sony officers or directors.  This begs a couple of questions: is that something that plaintiffs do?  And what kinds of allegations can they bring?

The answer is that a number of plaintiffs have brought claims against officers and directors who worked at companies that suffered data breaches.  Typically, they allege that the defendants did not properly manage the company’s cyber risks.

For example, in February 2014, Kevin LaCroix of D&O Diary brought to our attention lawsuits that Target shareholders filed against the company’s officers and directors, arising from the massive theft of Target’s private customer information.  The shareholders alleged that the company’s executives and board knew how important the security of private customer information was, and failed to take reasonable steps to put controls in order to detect and prevent a breach.  Further, they alleged, the defendants exacerbated the damage by publicly minimizing the breach.

• Civil Litigation
• D&O
• Data Security

In our last post, we counted down our most popular posts of 2014, from A-Rod to Walgreen.  Now it’s time to take a look at the issues in executive disputes that are likely to draw plenty of attention in 2015.

1.            Dodd-Frank Bounties and Whistleblower Litigation on the Rise

In November 2014, the SEC released its annual report on its Dodd-Frank whistleblower award program.  The theme of the report is that Dodd-Frank is paying off – both for the SEC and for whistleblowing employees.  The SEC reported that it issued whistleblower awards to more people in its 2014 fiscal year than in all previous years combined, including a $30 million bounty to one whistleblower in a foreign country.  The number of whistleblower tips received continues to increase, and we expect news of more substantial awards in 2015.  Meanwhile, litigation over various Dodd-Frank issues, such as whether a whistleblower claim is subject to arbitration, whether the shield against whistleblower retaliation applies overseas, and whether a whistleblower must report to the SEC in order to bring a retaliation claim, will continue to percolate in the federal courts.

2.            The Supreme Court Weighs in on Employment Issues

A couple of key Supreme Court cases will address employee rights that apply across the board, from the C-suite to the assembly line.  In Young v. United Parcel Service, the Court will decide whether, and in what circumstances, the Pregnancy Discrimination Act requires an employer that accommodates non-pregnant employees with work limitations to accommodate pregnant employees who have similar limitations.  And in EEOC v. Abercrombie & Fitch Stores, Inc., the Court will address whether an employer can be liable under the Civil Rights Act for refusing to hire an employee based on religion only if the employer actually knew that a religious accommodation was required based on knowledge received directly from the job applicant.

• Defamation
• Dodd-Frank Act
• Noncompete Agreements ‎
• Religious Discrimination‎
• Social Media
• Whistleblowers

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.

• Breach of Contract
• Defamation
• Dodd-Frank Act
• Noncompete Agreements ‎
• Religious Discrimination‎
• Sarbanes-Oxley Act
• Severance Agreements
• Social Media
• The Inbox
• Trade Secrets
• Whistleblowers
• White Collar Crime

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.

• Breach of Contract
• Executive Compensation
• Indemnification and Advancement
• Severance Agreements
• Termination With or Without Cause

It's no secret on this blog that when   employment relationships go sour,   criminal charges can be one potential     result.  Now we have another example, by way of the recent indictment of Arturas Samoilovas.  

According to the indictment, filed in Ohio federal district court, Samoilovas worked as a contract employee for Eaton Corporation as a financial analyst.  In April 2014, he applied for several full-time positions, but was told that he didn’t get the jobs.  Unhappy about the rejections, Samoilovas “accessed the Eaton Corporation’s computer system,” inserting “certain malicious computer codes … into six … financial spreadsheets.”  If executed, these codes would have resulted in deleted files.  In other words, they were malware. 

• White Collar Crime

On Monday, AutoZone found itself on the wrong end of a $185 million verdict in favor of a former store manager, Rosario Juarez.  Yes, you read that right.  $185 million.  This stunning verdict appears to have been the result of Juarez’s allegations of discrimination and retaliatory discharge, combined with an insider turned witness who provided extremely damaging testimony against the auto parts retailer.

In her complaint, Juarez alleged that AutoZone had a “glass ceiling” for women employees, which it kept in place through a hidden promotion process where open positions were not posted.  According to Juarez, she succeeded in cracking the glass ceiling, securing a store manager position, but when she became pregnant, she was treated differently by her district manager.  After giving birth, she complained about the unfair treatment and was soon demoted by the manager, who told her that she could not be a mother and handle her job.  Later, she was terminated as the result of a loss prevention inquiry, in which she refused to participate in a “Q&A” statement about a theft at the store.  Juarez alleged that the loss prevention department’s request for a statement was a pretext to fire her. 

We’ve spent a lot of time on this blog discussing allegations of pregnancy discrimination like these.  The short of it is that a company can’t treat pregnant women, or women who have  given birth, differently than it treats other employees.  But we’ve never covered a verdict for pregnancy discrimination that looked more like a Powerball win than a litigation result.

• Civil Litigation
• Discrimination
• Pregnancy Discrimination
• Wrongful Termination

A whistleblower generally shouldn’t break the law in order to prove his claims.  Indeed, the Whistleblowers Protection Blog says that this is a “basic rule,” and cautions that an employee who breaks the law while whistleblowing in order to get evidence will suffer from attacks on his credibility and may even be referred for criminal prosecution.  However, the parameters of this rule aren’t always so easy to follow, as the Supreme Court heard last week in the case of Department of Homeland Security v. MacLean. 

The MacLean case arose from a warning and text message.  In July 2003, the Transportation Security Administration (TSA) warned MacLean, a former air marshal, and his colleagues about a potential plot to hijack U.S. airliners.  Soon after, however, the TSA sent the marshals an unencrypted text message, canceling all missions on overnight flights from Las Vegas.  MacLean was concerned about this reduction in security, and eventually told MSNBC about it.  The TSA then issued an order stating that the text message was sensitive security information (SSI).  When it found out that MacLean was the one who disclosed the message to MSNBC, it fired him. 

MacLean didn’t take this while reclining; he challenged his dismissal before the Merit Systems Protection Board.  But he lost.  The Board decided that TSA didn’t violate the federal Whistleblower Protection Act by firing MacLean for his disclosure, because MacLean’s disclosure violated a TSA regulation that prohibited employees from publicly disclosing SSI.       

• Civil Litigation
• Confidentiality
• Government Employers and Employees
• Whistleblowers

When we first examined Wade Miquelon’s suit against his former employer, Walgreen, we didn’t have access to his complaint.  Now we do.  The complaint sheds more light on Miquelon’s allegations, helping to explain why they are causing a spiral of problems for the drug company.

As you may recall from our last article on the case, Miquelon alleges that Walgreen defamed him (in layman’s terms, lied) when it told the Wall Street Journal and investors that he had botched the earnings forecast for the 2014 fiscal year, and that his finance unit was “weak” with “lax controls.”  According to Miquelon’s complaint, Walgreen executives made these negative statements for an entirely different reason: they had an “unchecked desire” to push Walgreen’s merger with Alliance Boots to completion.  Miquelon alleges that an activist investor had threatened him for being “too conservative,” and that rather than standing up for him, the company’s CEO and its largest shareholder decided to disparage him in order to “deflect investor disappointment” and push through the merger.

Miquelon’s complaint is also somewhat of a public relations document, because it praises his work and goes into his interactions with the CEO and shareholder in great detail.  It even says that Miquelon was next in line to be CEO (although the complaint also says he turned down that chance, instead deciding to move on).  As to the allegedly botched earnings forecast, the complaint says that Miquelon recognized the problem well in advance of the call in which the company announced it was withdrawing its earnings goal.  It also says that he was pressured at the same time by the company’s CEO to raise his estimate of earnings per share that would result from the Alliance Boots merger.  The most explosive allegation on this front is that the CEO told him that he had “no choice” but to approve a $6.00 earnings per share estimate, rather than a lower one that would hurt the merger.

• Civil Litigation
• Defamation

In honor of Halloween, we are looking over our shoulder at some of the most frightening news that we have brought to you this year on Suits by Suits:

• Earlier this week, we told you the tale of a CEO who was hauled into court thousands of miles away and slapped with an employee’s wage bill.  That’s the kind of stuff executive nightmares are made of.

• Bonfires are part of what makes Halloween special.  Unless they involve torching a laptop, destroying evidence, and getting hit with an adverse inference for spoliation at trial, which is what happened to one unhappy executive.
• The SEC announced its presence as a boogeyman for employers who punish whistleblowers, filing its first Dodd-Frank anti-retaliation action against one company and ordering a $30 million bounty for another employee.
•  Terror babies are scary, as anyone who’s seen Rosemary, Chucky, and Damien on screen knows.  Now, we have more terror babies to add to the mix, thanks to the bizarre saga of Rep. Louis Gohmert and fired Texas art director Christian Cutler.
• Ever been lost in a hall of mirrors?  Just think how confused this executive was, after her employer told her that she wasn’t releasing her claims for a shareholder payment and then defeated those same claims based on … her release.
• And perhaps the scariest story of all: the company that lost a non-compete dispute and then had to pay $200,000 of its opponent’s legal fees.  That’s like finding a razor blade in your Mounds bar.

• Civil Litigation
• Discovery
• Releases
• Severance Agreements
• Wage and Hour‎
• Wrongful Termination

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.” 

• Breach of Contract
• Civil Litigation
• D&O
• Summary Judgment
• Wage and Hour‎