You might think that a company in bankruptcy wouldn’t be able to give its CEO a multi-million-dollar severance payment.
But just because a company is in bankruptcy doesn’t necessarily mean it doesn’t have any money – it just means it doesn’t have enough to pay all of its debts, or to function as a continuing concern. The company may, in fact, have the means to make a rather generous severance payment – like the $20 million American Airlines is proposing to pay its CEO, Tom Horton, as the airline comes out of Chapter 11 and into a merger with US Airways.
This proposed payment, though, has aroused more objection than a lost bag or a missed connection. Indeed, we’ve written about this dispute before at Suits-by-Suits, but like a three-mile-long runway it just keeps going on and on in bankruptcy court. In advance of a hearing on the payment scheduled for tomorrow, it’s time to take a look at where this case has been and what it can teach executives and companies about the turbulence that can happen when bankruptcy law meets severance agreements. In short, executives should know that unlike their seat cushions, their severance agreements may or may not keep them afloat in the event their employer has a crash landing.
A busy month that swung us from cold to sweltering, May – the first anniversary of Suits by Suits, by the way - saw no letup in news about Sarbanes-Oxley whistleblowers, and the First Amendment rights of public employees. If that’s not exciting enough for you, we also wrote about the Koch brothers, kidnapping, venue, and the history of Memorial Day (although not in the same post). Give some of these a read:
Our Suits by Suits Inbox this week:
As we here at Suits by Suits get ready for a rare (but welcome!) three-day weekend, you might want to kick back, relax, and enjoy the week in disputes between executives and their employers. We'd say crack open a cold one for us as well, but given that it's before noon on a Friday and you're probably at work, that might not be the best advice we've ever given. On a related note: this blog does not provide legal advice or constitute an attorney-client relationship.
Yesterday, the Supreme Court announced that it will hear the case of Jackie Hosang Lawson and Jonathan Zang, two former Fidelity employees who seek to reverse the dismissal of their Sarbanes-Oxley whistleblower claims. In this post last week on Suits by Suits, we outlined Lawson and Zang’s petition to the Court and described the long odds that petitioners face when they ask the Supreme Court to review their cases. The U.S. government also didn’t do Lawson and Zang any favors when it told the Court that it shouldn’t take their case. Now that Lawson and Zang have bucked the odds, they might be feeling like they bought that lucky PowerBall ticket.
The Court has outlined the question presented by Lawson and Zang’s case as follows:
Section 806 of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, forbids a publicly traded company, a mutual fund, or “any ... contractor [or] subcontractor ... of such company [to] ... discriminate against an employee in the terms and conditions of employment because of” certain protected activity. (Emphasis added). The First Circuit held that under section 1514A such contractors and subcontractors, if privately-held, may retaliate against their own employees, and are prohibited only from retaliating against employees of the public companies with which they work.
. . .
Is an employee of a privately-held contractor or subcontractor of a public company protected from retaliation by section 1514A?
To prevail, Lawson and Zang must convince the Court that the answer is yes.
May flowers are blooming, and so is the Suits by Suits news:
Only a handful of employment cases make it all the way to the Supreme Court’s august chambers at One First Street. That’s largely because the Court has discretion whether or not to review cases decided by lower courts of appeals. Thousands of unhappy litigants file petitions for writ of certiorari every year, asking for review from the highest court in the land. Almost all are turned away.
Tomorrow, the Court will consider whether to accept an appeal by Jonathan Zang and Jackie Lawson in a case that has significant implications for the Sarbanes-Oxley whistleblower protection provision, 18 U.S.C. § 1514A. Section 1514A, which was passed as a response to the Enron and other financial scandals of the early 2000s, prohibits public companies, as well as “any other officer, employee, contractor, subcontractor, or agent of such company,” from retaliating against “an employee” for protected activity. The issue in Zang and Lawson’s case is whether Section 1514A protects employees of privately-held companies, if those companies are working as contractors for public companies.
As we’ve covered before on Suits by Suits, summary judgment can be a powerful weapon for a party to a civil lawsuit. By granting summary judgment, a court can resolve a claim before trial, meaning that it’s never heard by a jury. The standard for granting summary judgment, found in Rule 56 of the Federal Rules of Civil Procedure, is well-known to civil litigators: it is appropriate when there are no genuine issues of material fact and the case can be decided as a matter of law.
In a recent case from the District of Minnesota, Farmers Ins. Exchange v. West, the Farmers Insurance Group used summary judgment effectively on both offense and defense. First, it won a ruling that its former district manager, Theodore West, breached his appointment agreement and that Farmers suffered damages as a result. Then, on defense, it knocked out West’s counterclaims for breach of contract and discrimination.
So what happened in West’s case, and why did Farmers prevail?
This week in Suits by Suits:
Yesterday we looked at a California federal court decision in Martensen v. Koch, in which ex-Oxbow executive Kirby Martensen has sued billionaire William Koch, alleging kidnapping, false imprisonment, conspiracy, and other claims related to his alleged treatment at the hands of Oxbow employees at the Bear Ranch in Colorado. Specifically, we looked at what the decision means in terms of whether a court can maintain personal jurisdiction over an out-of-state defendant; in the Martensen case, the clear take-away is that committing any portion of an alleged wrong within a state counts as having committed the wrong within that jurisdiction. So even though most of Kirby Martensen’s kidnapping and false imprisonment allegations relate to conduct that took place in Colorado, because he was allegedly placed on a private plane owned by Oxbow and flown to Oakland, California before being released, the court found that (for purposes of personal jurisdiction) Martensen’s alleged false imprisonment “that began on [Koch]’s private ranch by [Koch]’s agents [in Colorado] continued unbroken until [Martensen]’s release in Oakland, California,” and thus gave rise to personal jurisdiction over Koch in California.
Personal jurisdiction, however, is only the first step in the process of figuring out where you can and should be sued. Personal jurisdiction determines whether a court has any power over you at all, and is based on the principle – expressed in depth in yesterday’s post – that if you have never set foot in the state of Wyoming, you cannot be compelled to appear in Court in Wyoming.(*) But just because a state has personal jurisdiction over you doesn’t mean that state is the best place to handle a dispute. This is the question of venue. Read on.
As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.
Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.
John J. Connolly
Partner
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Andrew N. Goldfarb
Partner
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Sara Alpert Lawson
Partner
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Nicholas M. DiCarlo
Associate
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