Time Waits for No One...and No Lawsuit
Timing is everything, they say. That’s especially true when it comes to filing a lawsuit: if your timing is off and you file after the statute of limitations – the amount of time the law allows you to bring your suit – has expired, you can be out of luck. It becomes more complicated because each state has its own set of these time limits. Some states give you plenty of time to sue. Others, not so much.
In the employment context, the former general counsel of Martha Stewart Living Omnimedia learned that lesson this week the hard way. Gregory Barton sued his former employer, alleging he was denied the right amount of severance pay after he was asked to leave the company. Barton thought New York’s window of six years to bring his suit applied. Wrong, held the New York judge as she dismissed his case: Delaware’s one year limit applied.
When Barton signed on with Omnimedia in October 2007, he bargained for an employment agreement that would pay him a $400,000 salary and a target bonus of 70% of that amount. The contract incorporated a 2005 severance plan, which said that in the event Barton was fired without cause, he would receive his salary for a year, a one-time payment of the target bonus, and another annual bonus pro-rated by the number of days he worked in his final year.
Not a bad deal. But you’ve already guessed what comes next: Barton was fired without cause in August 2008. In 2009, Omnimedia refused to pay Barton what he thought he was supposed to get under his contract and the plan, instead offering to pay him a year of his base salary and 15% of the total of two bonuses. Barton filed suit in 2011 – significantly more than one year after he learned Omnimedia was not going to follow the severance plan and would give him less than he thought he should get.
Barton’s suit, filed in federal court in New York, alleged that Omnimedia had breached the severance plan in violation of ERISA (the “Employee Retirement Income Security Act”) and New York law.
Here’s where the statute of limitations comes into play. Omnimedia moved to dismiss Barton’s complaint, making two arguments. First, it argued that Barton’s claim that it violated New York State law was entirely preempted by Congress’s passage of ERISA. Second, Omnimedia argued that since Barton’s real gripe is that the company breached its own plan, the court needed to apply Delaware law to interpret that plan, because the plan had a choice-of-law clause that said it would be governed by Delaware law.
On the first argument, the court agreed with Omnimedia that Barton’s state law claims were preempted by ERISA. Preemption is a story for another day.
For our purposes, it’s more important to look at what happened to Omnimedia’s second argument: the court agreed with the company that Delaware law, and not New York law, would apply. What this meant was that Delaware’s statute of limitations would also apply. No need to look to the top of this post, I’ll repeat it here: Delaware law says you need to bring actions for “benefits arising from work, labor or personal services performed” within one year, while New York law allows six years. Barton had waited more than a year after he knew of Omnimedia’s alleged breach – the date it told him he wouldn’t receive what he thought the plan provided he would get – to bring his claim.
The court reached this conclusion after looking closely at the plan and Barton’s argument that New York law (and its six-year window for bringing these types of claims) should apply. Barton argued that he negotiated and signed his employment contract in New York and worked for Omnimedia in New York – so his only connection to the company was in the Empire State.
Not so fast, held the court – taking pains to note that Barton was a “sophisticated lawyer who exercised significant bargaining power in negotiating” his agreement, and he had made certain changes to the severance plan that was read into the final contract. Barton understood, the court found, that the party he was contracting with was incorporated in Delaware. By including the plan in his contract, Barton was also bringing in the choice-of-law clause in that plan. As the court interpreted them, the laws of each state fit together like pieces of a jigsaw puzzle on this issue: Delaware law says being incorporated in that state is enough of a basis for Delaware’s statutes of limitation to apply when both parties agree to follow them in a contract; at the same time, New York law allows parties to shorten those statutes in a written agreement, like Barton’s contract. Both states’ law, then, pointed to Delaware.
We don’t take sides on these posts, and we’re not taking sides here as to whether Barton or Omnimedia is right on the ultimate issue of what Barton may be due. What we can draw from this, however, is this: whether you’re a company or an executive, if you’re considering litigation, consider carefully the law of the state that could apply to your case and the often-overlooked statutes of limitation that can follow from that law. They could make all the difference in the world to whether you’ve got a viable case at all.
Again, timing is everything.