It Was The Added "0" That Did It -- Among Other Things

| William A. Schreiner, Jr.

Here's a tip that applies when you're negotiating any contract, although in this case we learn it from a negotiation over a severance contract: it's a rather bad idea to make a material change - like, perhaps, increasing the severance payment from 14 weeks of pay to 104 weeks - and then have the other side sign it, without telling them you inserted that change in their draft.

That tip comes from the Sixth Circuit's decision last week in St. Louis Produce Market v. Hughes. Two other helpful tips come from this case.  One, for executives seeking to claim under a severance agreement, is to return any of the company's property if it's a condition precedent to obtaining your severance benefit.  The other, for those people and their lawyers, is to not willfully disobey the court's discovery orders if you're litigating over the severance agreement. 

All of these are straightforward, but let's look closely at the painful lessons Clarence Hughes learned during this case.  As background, when he was relieved from his job as the Market's property manager after nineteen years, either Hughes or his attorney allegedly altered a draft severance agreement that would have given Hughes 14 weeks of severance to make the agreement give him 104 weeks.  Hughes allegedly then got the Market's president to sign the agreement without telling him of the change. 

The Market, of course, sued Hughes, seeking to have the whole agreement declared void because of this alleged chicanery.  Hughes balked at the discovery that followed - so much so that he was sanctioned for failing to comply with the court's discovery orders.  Indeed, Hughes apparently deleted e-mails from his email account rather than turn them over to the other side.  Ultimately, this so infuriated the court that it took the rather rare step of striking all of his pleadings under Federal Rule of Civil Procedure 37(b) - essentially throwing Hughes out of the court for failing to follow the discovery rules.  At the same time, in a rather odd step, the court granted the Market's summary judgment motion, holding that Hughes' failure to return the company's laptop breached a "condition precedent" in the unaltered part of the severance deal - and since Hughes breached this condition precedent, he was not entitled to any severance. 

Hughes appealed to the Sixth Circuit Court of Appeals.  That court agreed with the trial court, affirming the striking of Hughes's pleadings and the grant of summary judgment to the market.  Beginning with the grant of summary judgment for breaching a condition precedent, the appellate court noted that one side's breach of a condition precedent "entirely excuses any remaining obligations of the other party."  Because the agreement clearly made Hughes responsible for returning company property a condition precedent, and because he didn't do that, the Market had no duty to do anything under the bargain.

Then, while explaining that striking a party's pleadings "is a severe sanction," the court held the district court was correct to do so here based on Hughes's many discovery violations. Hughes had willfully violated several discovery orders, he had refused to produce privilege logs listing documents he thought he didn't have to produce, and he didn't produce documents that were relevant and non-privileged - and he deleted those e-mails that might have helped the Market's case.

Hence our "helpful" tips - which may seem obvious, but the Hughes case illustrates how routine contract negotiations and litigation conduct can quickly veer off into bad behavior, with serious consequences.