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).
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:
Last week, American Apparel announced that its board had decided to terminate Dov Charney, the company’s founder, CEO, and Chairman, “for cause.” (We’ve discussed the meaning of terminations “for cause” in prior posts here and here.) The board also immediately suspended Charney from his positions with the company. Although the board didn’t initially disclose the reasons for its action, Charney is not new to controversy; in recent years, he has faced allegations of sexual harassment and assault.
The reasons for Charney’s termination have now become public, and they aren’t pretty. In its termination letter, available here, the board accuses Charney of putting the company at significant litigation risk. It complains that he sexually harassed employees and allowed another employee to post false information online about a former employee, which led to a substantial lawsuit. The board also says that Charney misused corporate assets for “personal, non-business reasons,” including making severance payments to protect himself from personal liability. According to the board, Charney’s behavior has harmed the company’s “business reputation,” scaring away potential financing sources.
If you’re confused by this headline, you’re not alone. But you can’t be as confused as Debourah Mattatall must be after losing her lawsuit against her former employer, Transdermal Corporation.
The origin of Mattatall’s lawsuit, appropriately enough, was another lawsuit. Mattatall used to own a company called DPM Therapeutics Corporation. DPM’s minority shareholders sued her to prevent her from selling the company to Transdermal. She went ahead with the sale anyway, and signed a Stock Purchase Agreement and Employment Agreement with Transdermal. According to Mattatall, Transdermal didn’t fulfill its obligations under those deals, citing a lack of funds.
After Mattatall’s sale to Transdermal was final, Transdermal brought its own suit against the DPM minority shareholders. All parties, including Mattatall, eventually settled the two shareholder cases. Before agreeing to the settlement, Mattatall complained about the money that she was owed under the Stock Purchase Agreement and Employment Agreement. Transdermal’s counsel assured her that her claims were “wholly extraneous” and she would be “free to pursue” her claims against Transdermal.
In the written settlement, however, everyone released the claims that they “had, has or hereafter may have” against any other party. Thus, even though Transdermal hadn’t sued Mattatall, according to the language of the release, she was giving up her claims against it. The settlement also included a “merger clause,” under which all prior understandings were “merged” and “supersede[d].”
You may have been left with the impression from our post on Tuesday that Family Dollar Stores is getting a raw deal because the company has to pay former COO Mike Bloom $4.8 million after letting him go for what it saw as poor performance. As we explained, this may be counterintuitive, but it’s consistent with the severance provisions of Bloom’s employment agreement. Besides complying with its contractual obligations, however, the company is getting something in return for the severance: a release from Bloom.
Bloom’s employment agreement, which is typical of executive employment agreements, provides that, upon his termination, the Company’s obligation to pay him severance is conditioned on Bloom "deliver[ing] to the Company a fully executed release agreement . . . which shall fully and irrevocably release and discharge the Company . . . from any and all claims . . . ."
This provision of Bloom’s employment agreement illustrates a best practice for companies when they are contemplating severance provisions in employment agreements at the time of hiring, or even standalone severance agreements that are negotiated at the end of employment: don’t agree to pay severance without getting a release from the executive in return. That way, while it may be painful to write that severance check, at least the company can know that it should not have any future trouble from the executive, the break is clean and the company and executive can move on to whatever’s next. For executives’ part, to the extent that they have the bargaining leverage, they should also insist that any release be mutual – that is, that, just as the executive releases the company from any claims, the company releases the executive from any claims. That way, the executive will also be able to move on without having to look back.
We’ve written frequently about the long-standing practice in the corporate world of including mandatory arbitration clauses in employment contracts. Specifically, we’ve pointed out that although the practice may make sense for the employer when it comes to deterring potentially costly lawsuits brought by employees, those equities can shift when it concerns upper-level executives who generally have more means and wherewithal to fight a prolonged legal battle, be it in court or in front of an arbitrator.
In those cases – what we here at Suits by Suits consider our bread-and-butter cases – the employer may want to think twice about binding arbitration due principally to the risks of being stuck with an almost entirely unappealable adverse ruling; we’ve previously discussed how this has turned out poorly for employers such as Merrill Lynch and BDO.
Today, we continue to beat the drums of caution for both sides in our examination of a recent Texas appellate decision that makes it clear that many courts are looking for any way to kick a case out of the legal system in favor of arbitration.
There’s a famous aphorism in journalism: “When a dog bites a man, that is not news, because it happens so often. But if a man bites a dog, that is news.”
The same is true of arbitration awards. When a federal court confirms an arbitration award, it isn’t newsworthy, because that’s what everyone expects will happen. But when a court tosses an arbitrator’s decision, it creates headlines.
On October 28, the Fourth Circuit made news by vacating an arbitration award issued to a former employee of an accounting firm. Kiran M. Dewan, C.P.A., P.A. v. Walia, No. 12-2175 (4th Cir. 2013). The former employee (Walia) was a native of Canada on a work visa who joined the Dewan firm as an accountant. When he was terminated, he signed a release in which he gave up any tort or contract claims he had against the company in exchange for a payment of $7,000. Three months later, the firm filed an arbitration against Walia, alleging that he had violated noncompete and nonsolicitation provisions in his employment agreement. Walia filed counterclaims alleging that the firm underpaid him in violation of visa regulations, breached his employment agreement, and fraudulently sought to withdraw its sponsorship of his visa. The arbitrator found that Walia’s release was legally enforceable, but also found that Dewan (the president of the firm) brought baseless claims and purposely sought to injure Walia’s immigration interests. As a result, the arbitrator awarded Walia over $450,000.
In the build-up to its decision, the Fourth Circuit recognized the dog-bites-man principles of confirming arbitration awards. It wrote that under the Federal Arbitration Act, “the scope of judicial review for an arbitrator’s decision is among the narrowest known at law because to allow full scrutiny of such awards would frustrate the purpose of having arbitration at all—the quick resolution of disputes and the avoidance of the expense and delay associated with litigation.” The Federal Arbitration Act and the common law only allow an arbitration award to be vacated when
In other words, to vacate an arbitration award, a party must show that the winning party bought the award; the arbitrators were crooked or obviously biased; the arbitrators botched the arbitration to such a degree that a final and definite award wasn’t even made; or the arbitrators didn’t follow the contract at issue and/or disregarded binding law.
Since Lance Armstrong confessed to Oprah last week that he used performance enhancing drugs, speculation about the legal consequences came faster than Dave Stoller drafting the 18-wheeler in Breaking Away. Some of the speculation is about SCA Promotions’ demand that Armstrong return the $7.5 million that it paid him to settle a lawsuit. Armstrong brought the lawsuit after SCA (an insurer of a sponsor) refused to pay him bonuses for his Tour de France victories, citing doping allegations. Armstrong’s lawyer has said that SCA is out of luck: “When SCA decided to settle the case, it settled the entire matter forever. No backs. No re-dos. No do-overs. SCA knowingly and independently waived any right to make further claims to any of the money it paid.”
Stop us if you’ve heard this before, but we’re still not a political blog.
Nevertheless, when the former Chairman of the Republican Party of Florida, Jim Greer, sues the Republican Party, Florida State Senate President Mike Haridopolous and Florida State Sen. John Thrasher for unpaid severance pay and $5 million in damages following his 2010 resignation – and the Republican Party replies with allegations that Greer engaged in fraud and money laundering, funneling $300,000 from the Republican Party to his own pockets, well, we can’t resist.
Twice, in fact. Back in September we advised you that Greer was filing suit, and that his lawyer was confident of victory. (“They’re [the Republican Party] dead. … Jim Greer will win the criminal case and Jim Greer will win the civil case.”)
Two days ago, the Republican Party struck back, moving to dismiss the portion of the lawsuit that includes the individual defendants, Sens. Haridopolous and Thrasher. But the Court rejected that argument, permitting Greer's lawsuit to go forward against both the Republican Party and the state senators, apparently on the theory that the individual legislators were acting as individuals and not on behalf of the Republican Party when they allegedly offered Greer $124,000 to resign back in 2010.
(Greer calls the offer a “severance payment”; media sources have not been so generous in their characterization.)
Although most of us don’t face the same sort of political issues that Jim Greer and the Republican Party of Florida do, many employers do face similar risks when they contemplate firing a prominent, high-level employee. For those employers, the “nightmare scenario” is that the employee will run down his or her former employer in the press, or possibly air dirty laundry that the employer would rather not have out in the open.
If you’re thinking that Jim Greer used that exact same strategy, you would be right. In his deposition – leaked to the press, of course – Greer called Republican Party officials “whack-a-do, right-wing crazies” not-so-secretly plotting to suppress minority votes in Florida. (The full transcript of Greer’s deposition can be found here.)
Often times, employers chafe at the idea of paying a high-level employee to go away; after all, they’ve already decided this person isn’t worth keeping. How can they possibly be worth paying? The practical reality is that sometimes the benefits of an amicable settlement – including a general release of all claims and non-disparagement and non-disclosure agreements – can leave the employer better off than simply rolling the dice.
We’re betting that the Republican Party of Florida wishes it had just paid Greer back in 2010.
Postscript: A grand jury indicted Greer on multiple fraud counts in 2010 and his criminal trial is scheduled for February, 2013.
The pre-Labor Day highlights of Suits by Suits:
For a high-level executive leaving a company under less-than-ideal conditions, it’s as common as handing in keys to security and shutting down the computer for the last time. In exchange for a severance payment, the executive is asked to sign the typical general release: “I hereby release my employer from any claims, liabilities, demands, or causes of action . . .”
Unsurprisingly, once an employee signs a general release, if he later sues, he is likely to face a quick motion to dismiss.
We cover a broad range of issues that arise in employment disputes. Occasionally, we also spotlight other topics of relevant legal interest, ranging from health care to white-collar defense to sports, just to keep things interesting.
Led by Andrew Goldfarb, and featuring attorneys with deep knowledge and expertise in their fields, Suits by Suits seeks to engage its readers on these relevant and often complicated topics. Comments and special requests are welcome and invited. Before reading, please view the disclaimer.