Suits by Suits

When an executive becomes embroiled in a dispute with an employer, the executive tends to take it personally. And when the executive’s conflict is with the government, the executive’s sense of outrage ratchets up even more.

Case in point: the new book from former Vascular Solutions, Inc., CEO Howard Root, titled Cardiac Arrest: Five Heart-Stopping Years as a CEO On the Feds' Hit-List. As the subtitle suggests, Root spent five years under investigation by the Department of Justice in connection with allegations that his company, VSI, engaged in off-label marketing of a medical device for the treatment of varicose veins known as the “Short Kit.”

In 2011, a group of executives left Horizon Health Corporation for a competitor, Acadia, but they didn’t leave everything behind. Horizon’s president took a “massive, massive amount” of Horizon documents with him on an external hard drive. And despite provisions in their contracts prohibiting them from soliciting Horizon’s employees, the executives recruited a key member of Horizon’s sales team, John Piechocki, who copied lists of sales leads and added them to his new company’s “master contact list.”

Federal employment law protects against a number of different types of discrimination, including treating employees differently because of age, gender, or race. 

More and more often, employees bring discrimination claims based on harassment, rather than (or in addition to) claims based on employer decisions that appear to be discriminatory. 

However, an employee can only bring a harassment claim under federal law if the employer has engaged in "discriminatory intimidation, ridicule, and insult" that was "sufficiently severe or pervasive to alter the conditions of the victim's employment and create an abusive working environment." See Harris v. Forklift Systems, Inc., 510 U.S. 17 (1993).

An employee without an employment contract is typically deemed to be an at-will employee. In an at-will employment relationship, the employer has the right to terminate the employee for any reason permitted by law, with or without cause.

Moreover, when employers write their employee handbooks, they frequently adopt strong language describing this at-will employment structure and warning employees of this termination right. But sometimes even this handbook language isn’t enough to protect an employer from a claim that an employee is exempt from termination without good cause.

That’s exactly what happened to Barnes & Noble in Oakes v. Barnes & Noble College Booksellers, LLC, a recent decision from the California Court of Appeal.

Federal law—specifically, Title VII of the Civil Rights Act of 1964—prohibits employers from discriminating against employees based on a number of protected characteristics, including sex, race, national origin, and religion.

One major open question, however, is whether Title VII prohibits employers from discriminating based on sexual orientation. For example, if a job candidate is openly gay, can the employee refuse to hire that person because of his sexual orientation without violating federal law?

The Supreme Court has never spoken on the issue.

In our last post, we detailed how Sanford Wadler, the former general counsel of Bio-Rad Laboratories, won a $14.5 million verdict against Bio-Rad.

Before Wadler could get to a jury, however, he had to surmount a significant hurdle: Bio-Rad asked the judge to exclude any testimony based on information Wadler learned in his role as in-house counsel. Bio-Rad relied on an attorney’s ethical duty to protect client confidences unless the client is threatening criminal activity that could lead to death or serious bodily harm.

Companies entrust their in-house attorneys with sensitive and confidential information in order to obtain legal advice on important matters. Thus, when an in-house attorney turns on his or her employer, the repercussions can be significant.

In a recent case involving just this situation, a jury awarded Sanford Wadler, the former general counsel for Bio-Rad Laboratories, an $8 million verdict for wrongful termination. The jury found that Wadler raised concerns about violations of the Foreign Corrupt Practices Act (FCPA) at Bio-Rad, and that the company violated the Sarbanes-Oxley Act and California public policy when it terminated him after he raised those concerns.

The board of directors controls a corporation, but individual directors don’t always agree on the future direction of the company. Sometimes, boards can split into factions. A company’s CEO may align himself with one side and oppose the other.

In rarer circumstances, these disagreements can develop into corporate gridlock. This happens when the warring factions on a board are equally divided.

What can a court do to fix this situation?

As a new administration arrives in the nation’s capital amid heightened scrutiny over conflicts between government service and personal business interests, a little-used law—the Stop Trading on Congressional Knowledge Act (the “STOCK Act”)—is deservedly getting renewed attention.

Although enacted in 2012 primarily to eliminate the then-existing doubt that insider trading prohibitions applied to congressional members and their staff, the STOCK Act also explicitly confirmed the ban on insider trading by members of the executive (and judicial) branch as well. 

Sergey Aleynikov, a former computer programmer at Goldman, Sachs & Co., has been on a legal roller coaster for the past few years. In the span of few days, that roller coaster plummeted steeply—twice.

First, on January 20, 2017, the Delaware Supreme Court affirmed a trial court decision that Aleynikov could not recover advancement and indemnification for the legal expenses he is incurring in defending himself against counterclaims brought by two Goldman Sachs entities in New Jersey federal court.

Then, on January 24, a New York appellate court reinstated a jury verdict finding Aleynikov guilty of misappropriating computer code from Goldman. 

If you're an employee and you work more than 40 hours a week, you typically have the right to receive time-and-a-half overtime pay for those extra hours.

But there's a significant exception to this rule: it does not apply to white-collar workers, such as executives. As summarized on the Department of Labor's website, to be considered a white-collar worker and thus exempt from the overtime requirement, you have to be paid a salary and not by the hour; you have to make more than $455 per week; and you have to work in a certain kind of job, such as a managerial or professional role.

It’s been a tough few months for Baylor football and its former coach Art Briles. Baylor fired Briles in May of this year, after an outside law firm investigated the school’s response to alleged sexual assaults by football players and other students.
 
In early December, Briles fought back, filing a lawsuit against four of the University’s regents.
 
The first question that may occur to you is why this lawsuit isn’t against Baylor for wrongful termination. But as Briles’s complaint explains, he already filed that lawsuit; Baylor settled the case quickly on confidential terms.

Numerous decisions from the Delaware courts establish that a company cannot abandon its promise to advance legal fees and expenses when the covered director, officer, or employee properly invokes it.

The Delaware Supreme Court recently issued yet another decision upholding this principle, ruling in Trascent Management Consulting, LLC v. Bouri that an employer could not escape its promise to provide advancement by claiming that it was induced to provide the promise by the employee’s fraud.

Well, we made it!

In the 10th annual Blawg 100, ABA Journal named Suits by Suits among “the 100 most compelling” blogs in the legal market. We’re thrilled to be recognized and listed alongside some great writers, blogs, and firms.

From ABA Journal:

Every year since 2007, we ABA Journal staffers have assembled a list of our 100 favorite legal blogs for the December issue. Here, you can scroll down to peruse our selections from every past year as well as this one. Some blogs listed over the years are still thriving after a decade or more, while others went dark long ago. And of course, many excellent blogs are absent from later lists only because they’ve been retired to our Blawg 100 Hall of Fame….

Suits by Suits

NEW: Lawyer-bloggers from Zuckerman Spaeder cover disputes between companies and their executives—often in the context of criminal investigations into possible corporate wrongdoing. Can a “suit” be fired for taking the Fifth or otherwise not cooperating with an investigation? If your client is accused of misappropriating trade secrets and his or her computer is seized, what recourse is there? If former company directors or officers face legal claims, can they demand the company advance legal fees?

Thanks to our readers for your support. We hope you find Suits by Suits informative and insightful, and we’re looking forward to another year of writing and posting in 2017.

Check out the complete Blawg 100 list.

When an employee brings a lawsuit involving a plan adopted by their employer, one question is whether ERISA—the Employee Retirement Income Security Act of 1974—applies.

ERISA is a federal law that requires a number of disclosures and safeguards for employee benefit plans. ERISA governs both employee welfare benefit plans (such as insurance or sickness plans) and pension benefit plans (such as retirement plans).

But it doesn’t apply to every plan adopted by an employer, as the recent decision in Hall v. Lsref4 Lighthouse Corporate Acquisitions, LLC, 6:16-CV-06461 EAW (W.D.N.Y. Nov. 10, 2016), shows.

In lawsuits over contracts, parties sometimes assert defenses that contracts are voidable or void. A voidable contract is one as to which the party should have a choice as to whether it is enforceable or not; for example, when a 17-year-old (a legal minor) buys a car, he may have the option to choose whether to abide by the deal. By contrast, a void contract is one that is illegal because it violates the law or public policy. No one—neither hit man nor jilted spouse—can enforce a contract to commit murder.

The doctrine of void contracts arose recently in an employment case in Florida, Griffin v. ARX Holding Corporation. The plaintiff in the case was Nicholas Griffin. Griffin had a blemish on his resume: in 1998, he had pleaded guilty to extortion.

Many of us in the white collar defense bar have written and spoken about the changes wrought by the Yates Memo, but one issue not receiving much attention is the “extraordinary circumstances” exception to the Yates Memo’s application. What is this “extraordinary circumstances” exception?

According to the Memo, “absent extraordinary circumstances, the United States should not release claims related to the liability of individuals based on corporate settlement releases.” This is the much discussed elimination of all-encompassing corporate settlement releases. But the Memo states that there may be “extraordinary circumstances” which justify a corporate settlement that includes releases for the relevant individuals. “Any such release of ... civil liability due to extraordinary circumstances must be personally approved in writing by the relevant Assistant Attorney General or United States Attorney.”

When an employee brings a lawsuit alleging that his employer retaliated or discriminated against him, courts typically assess the claim by using a burden-shifting approach. Under this approach, after the employer offers a “legitimate, nondiscriminatory reason” for its actions, the employee has to come forward with evidence showing that the reason was pretextual.

The recent decision in Stephenson v. Potterfield Group LLC serves as an example of how an employee can meet this burden.

When Congress passed the Sarbanes-Oxley and Dodd-Frank Acts, it included protections for employees who blow the whistle on wrongdoing by their employers. However, those whistleblower protections don’t apply to every report of wrongdoing. Rather, they come into play only when an employee reports particular types of misconduct.

For example, in a recent decision (Erhart v. BofI Holding, Inc.), a federal court in California dismissed claims by an internal auditor (Erhart) against his employer (BofI Holding), ruling that Erhart didn’t plausibly allege that he had been engaged in the "protected activity" necessary to qualify for the whistleblower protections of those statutes.

Thanksgiving is typically a time for gratitude, gathering with family, and acts of kindness among fellow men and women. But in one recent case, a bank used Thanksgiving to force-feed a separation agreement to its outgoing president.

The bank later claimed that the ex-officer had released his rights to benefits under a “top-hat” benefits plan, even though it was not mentioned in the separation agreement. In Buster v. Compensation Committee of the Board of Directors of Mechanics Bank, the plaintiff alleged, and the court agreed, that the bank’s interpretation of the separation agreement did not fly.

Steven Buster worked as president of Mechanics Bank between 2004 and 2012. During his tenure, Mechanics Bank had two retirement plans. The first was the Supplemental Executive Retirement Plan (SERP), a so-called “top-hat plan” because it was available only to a few, select senior employees. The accrual of benefits for the SERP was frozen in 2008. In that year, the bank adopted a separate Executive Retirement Plan (ERP).