West Virginia Business Litigation : West Virginia Business Litigation Lawyer & Attorney : Law Office of Jeffrey V. Mehalic : Charleston, Huntington, Parkersburg

A couple months ago, I wrote about the furor over the bonuses paid to some AIG employees, which resulted in the House of Representatives passing a bill that would tax the bonuses at 90%. Although that crisis passed, it looks like another financial services company got the hint. 

According to several news reports today, Citigroup has told approximately five former executives that they are not going to receive severance payments that Citigroup is contractually obligated to make.

As reported by David Enrich in The Wall Street Journal, Citigroup has cancelled the payments because it doesn’t want to risk a public uproar, and is “wagering that the former executives will conclude that it would be publicly embarrassing for them to file lawsuits against the struggling, taxpayer-backed company seeking the money.” 

I’m not sure that Citigroup is going to win that wager. First of all, Citigroup is deciding on its own, without any pressure or demand from the government, not to make the severance payments. Thus, Citigroup is breaching the agreements of its own volition and can’t claim that the government is coercing or requiring it not to make the payments.

Second, the amounts involved are more than enough incentive for the executives to pursue litigation regardless of whether the attendant publicity embarrasses them. The severance payments total approximately $100 million, of which Citigroup has paid more than half. But that leaves a lot of money to fight over. For example, one executive, Michael Klein, was owed $21.3 million in cash on March 31 and another $7.5 million on October 5, although it isn’t clear whether Citigroup made the March payment to Klein. So, Klein is losing at least $7.5 million due to Citigroup’s decision.

I think at least some of the executives will file suit against Citigroup, assuming that Citigroup does not reconsider its decision and pay them their severance payments.

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In what I regard as a surprising development, at least this soon, Marriott International and coal operator Jim Justice have reached a tentative settlement regarding his purchase of The Greenbrier from CSX, despite Marriott's contract with CSX to purchase the resort.  I wrote about Justice's purchase last week. 

According toa story on page A1 in Saturday's Washington Post, reprinted in yesterday's (Charleston, West Virginia) Daily Mail, a Friday meeting between Justice and Marriott representatives resulted in an agreement whereby they have 30 days to negotiate a marketing deal that compensates Marriott for any business that it generates.  If they can't reach a deal, Justice will pay a $7.5 million break-up fee to Marriott. 

Business Editor George Hohmann's story in today's Daily Mail elaborates on the details of the parties' agreement, such as that the resort will be marketed by both Marriott and Justice not as a Marriott but under its own name, and that Justice will have access to Marriott's national and international reservations systems.

And the Associated Press reports that today, the bankruptcy court in Richmond, Virginia granted The Greenbrier's motion to dismiss its bankruptcy, following Justice's testimony that he has sufficient resources to fund the operation. 

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As an update to my earlier post on the AIG bonuses, Catherine Rampell posted on TNYT's Economix blog a short time ago that the AIG employees' bonuses may still be taxed even if the employees return them, according to the concept of "constructive receipt."  She points out that whether the IRS actually taxes the bonuses depends on if they want to be "sticklers," but that its authority to do so exists.

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The furor over the AIG retention payments (a/k/a bonuses) has died down somewhat, perhaps because most of the executives involved have agreed to refund the bonuses, and perhaps because President Obama was less than enthusiastic in his support for the legislation passed by the House of Representatives that would impose a 90% tax on the bonuses.

But for your information, here are AIG’s 2008 Employee Retention Plan, a confirmation and acknowledgement, and a schedule to the master agreement, which are also located in this press release on the House Committee on Financial Services' website.   My thanks to Bob Ambrogi on Twitter (@bobambrogi) for the link.  Incidentally, Bob discusses the AIG contracts this week on his Lawyer2Lawyer podcast, "AIG Mess: Executive Contracts."

And from earlier this week, here is "Dear AIG, I Quit!", an op-ed in The New York Times by Jake DeSantis, which is the text of his resignation letter to Edward Liddy, AIG’s CEO.  DeSantis, now the former executive vice-president of AIG Financial Products, criticizes Liddy for his testimony last week regarding the bonuses:

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

DeSantis continues with this, which makes one think that the bonuses haven't been or won't be returned as willingly as media reports have indicated:

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised.  None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored.  They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

 It looks like Mr. Liddy has his work cut out for him.

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There is some irony in the story being reported by the Associated Press’ Lawrence Messina about a lawsuit brought by Progressive Minerals LLC against several officers of Global Empire Investments and Holdings LLC.  Progressive Minerals LLC v. Rashid, Civil Action No. 5:07-CV-108 (N. D. W. Va. August 24, 2007).  But first, a description of what's involved in the case.

Here is the complaint, in which Progressive asserts that it paid a $750,000 “commitment fee” to Global for its assistance in providing $200 million in financing for Progressive’s purchase of a coal mine in southern West Virginia from Justice Energy Company, Inc.

But after Global accepted the fee, it never provided the loan.  And while Progressive was waiting to hear from Global, Progressive learned that Global had filed for Chapter 11 bankruptcy in Texas and listed assets consisting of three bank accounts totaling $3,369.24 and two office buildings assessed at $5.4 million but with secured debt of $12.8 million against them.  In other words, not quite a “global empire.”

Judge Frederick P. Stamp, Jr. recently dismissed two defendants for lack of personal jurisdiction, but denied the motion as to a third.  He also entered a scheduling order that sets a bench trial to begin on October 14, 2009.

The irony in the lawsuit stems from the fact that Progressive’s president is former West Virginia Governor Arch A. Moore, Jr., whose own past suggests that he would recognize a swindle when he sees one.  In 1990, he pled guilty to five felonies resulting from corruption while in office and served three years in prison and on home confinement.

In 1993, the Fourth Circuit affirmed the District Court’s denial of his petition for a writ of habeas corpus based on ineffective assistance of counsel provided by his lawyer, William Hundley.  U.S. v. Moore, 993 F.2d 1541 (4th Cir. 1993).

I always thought that Moore’s ineffective assistance claim was ridiculous, considering that Hundley had been the former chief of the Organized Crime Division of the Department of Justice under Robert F. Kennedy and was a noted criminal defense lawyer in Washington, D.C.   Plus, he had represented Moore on two earlier occasions.

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The Supreme Court of California dealt a significant blow to noncompete agreements with its recent decision in Edwards v. Arthur Andersen LLP, 189 P.3d 285 (Cal. 2008).

Raymond Edwards went to work for Andersen as a tax manager in 1997.  When he was hired, he had to sign a noncompete agreement.  In May 2002, when Andersen imploded as a result of its work for Enron, Andersen decided to sell its tax practice, including Edwards’ group, to HSBC USA, Inc.

In July, HSBC offered to hire Edwards, but first required that he sign a termination of noncompete agreement (TONC), which, among other things, required Edwards to resign from Andersen and release Andersen from any and all claims.

HSBC would not hire Edwards without a signed TONC and Andersen required a signed TONC before it would release him from the noncompete agreement.  Edwards signed HSBC’s offer letter, but not the TONC.  Andersen terminated him and withheld any severance, and HSBC withdrew its employment offer.

Edwards sued Andersen, HSBC, and the HSBC subsidiary created to purchase the tax practice group, and alleged intentional interference with prospective economic advantages and anticompetitive business practices under the Cartwright Act (California's general antitrust law).

He settled with everyone except Andersen, and the trial court ultimately ruled in Andersen’s favor as to all of Edwards’ claims.   The Court of Appeal determined that Andersen's noncompete agreement was invalid under California law and that requiring him to sign the TONC as consideration for being released from the noncompete agreement was an independently wrongful act for purposes of Edwards' claim for intentional interference with prospective economic advantage.  The court also held that the TONC purported to waive Edwards' right to indemnification under California labor law and therefore violated public policy.

Continue Reading...

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    Max Kennerly at Litigation & Trial wrote earlier this week about a recent decision from the Third Circuit Court of Appeals that held that an arbitration provision in an employment agreement can be enforced even though the agreement was written in English, which the employee did not speak.  Law.com also had this article about the decision.

    In Morales v. Sun Constructors, Inc., 2008 WL 3974059 (3^rd Cir. August 28, 2008), the court was asked to determine “whether an arbitration clause in an employment agreement is enforceable where one party is ignorant of the language in which the agreement is written.”  

    The court concluded that, in the absence of fraud, “the fact that an offeree cannot read, write, speak, or understand the English language is immaterial to whether an English-language agreement the offeree executes is enforceable.”  The 2-1 decision reversed the district court, which had found that mutual assent to the agreement did not exist as a result of the language barrier.

    But the majority opinion written by Judge Michael A. Chagares failed to address that when Sun required Morales and other hourly employees to attend an orientation session conducted in English and to sign the employment agreement, Sun asked another employee, Hodge, who was bilingual and whom Morales knew, to explain what was happening in the orientation and to help Morales understand the agreement.   And Hodge testified that he generally understands about eighty-five percent of what is said and written in English, and that he did not specifically explain the arbitration provision to Morales.

    Basically, once Morales signed the agreement, regardless of what he did or didn’t understand or knew or didn’t know about its provisions, he was bound by the agreement, including its mandatory arbitration clause.

    The dissent written by Judge Julio M. Fuentes identifies the real issue in the case: “The gravamen of this case is that Sun – the other party the Agreement – took upon itself the task of translating the Agreement for Morales and, in doing so, failed to convey the entire contents of the Agreement.  What we must determine is whether this failure resulted in a lack of mutual assent; I believe that it did.”

    I think this paragraph in the dissent summarizes the case:

If the facts of this case were different, I might adopt the majority’s position.  For example, if Sun had simply handed the Agreement to Morales and indicated that it was Morales’ responsibility to find a translator, and Morales had employed an incompetent translator who failed to translate the arbitration clause, I would agree that Morales was bound by the Agreement.  However, when Sun made the decision to insert itself between Morales and the contract, it created a situation where lack of mutual assent could, and did, occur.  Because I do not believe it was negligent or otherwise improper for Morales to rely upon the translation provided by Sun, and because Morales was not informed in the course of that translation that the Agreement contained an arbitration clause, I agree with the District Court that Morales “did not manifest an intention” to be bound by the arbitration clause.

 

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    Various media reports today indicate that West Virginia University has settled its lawsuit against its former head football coach, Rich Rodriguez, for $4 million, the cost of the buyout in his contract. The settlement occurred yesterday at a court-ordered mediation.  Here is Associated Press reporter Vicki Smith’s story about the settlement.

    Also, according to this story in the Detroit Free Press, Rodriguez’s new employer, the University of Michigan, will pay $2.5 million of the amount immediately.  Rodriguez will pay the balance in three payments of $500,000 each, with the first to be paid in 2010.  UM also will pay Rodriguez’s attorney’s fees.

    Yesterday was the deadline set by the Circuit Court of Monongalia County for Rodriguez to disclose whether UM or any other entity had agreed to pay the buyout on his behalf.  Adding to the pressure on Rodriguez was a hearing scheduled today in Michigan on subpoenas that WVU’s lawyers had issued for the depositions of UM President Mary Sue Coleman and UM Athletic Director Bill Martin. 

    In the interest of completeness and for what they’re worth, here are the deposition transcripts of WVU President Mike Garrison, West Virginia Board of Governors members Steve Farmer and Parry Petroplus, WVU Chief of Staff Craig Walker, and WVU Assistant Athletic Director Mike Parsons. 

    Finally, this is unrelated to the parties' settlement, but I have to comment on the Transcript License Agreement present on page 2 of some of the transcripts.  The agreement provides that:

By signing the Transcript Order Form to receive and pay for a copy of this transcript, (and/or video) I agree that [sic] I nor any person, attorney, paralegal or expert witness may make, copy and/or distribute to others or upload to any internet websites or deposition repositories for future sales, monetary gain or any other purpose any copies of this transcript (and/or video) without paying Streski Reporting & Video Service, a division of MDStreski, LLC, the ordinary and customary charges for any and all additional copies viewed on line or downloaded by any third party. 

    I have some questions. First, is this agreement even enforceable?  Who owns a deposition transcript – the reporter who transcribes the deposition and prepares the transcript or the parties who hire the reporter?  And how much are the ordinary and customary charges “for any and all additional copies viewed on line or downloaded by any third party”? 

    I don't see how a court reporter has any ownership interest in a transcript or video that could be enforced by such an agreement.  A transcript isn't a software program that a developer like Microsoft owns and licenses to a user.  But maybe those video depositions posted on YouTube
are making court reporters rethink their traditional role. 

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    Last week, I wrote about the peculiar wording of Mike Garrison’s announcement that he was stepping down as West Virginia University's president, in which he avoided using the word “resign” to describe his departure.  It seemed that there was a reason that he did not affirmatively state that he was resigning, which was reinforced by the statement issued by the WVU Board of Governors (it follows Garrison's statement), which acknowledged his departure from the position without using the word “resign” to describe his action.  (I sent an e-mail to Garrison last Saturday, asking if there was any reason he didn't use the word "resign" in his announcement, but he has not responded.)

    West Virginia Public Radio posted this article on its website on Wednesday, which suggests that Garrison is not resigning from his position as WVU president, even though he may not be in the position after September 1.

    I wrote earlier that because Garrison’s employment agreement is silent regarding any compensation owed to him if he resigns, he is entitled to only his annual compensation and associated benefits though September 1.

    That was accurate, but incomplete, because the period of time that is now relevant is between September 1, 2008 and June 30, 2010, when Garrison's contract with the BOG expires.  And his compensation for that period of time appears to be set by paragraph 16:

Notwithstanding the provisions of paragraph 7 [which makes Garrison responsible to the BOG through its chairman], the Board commits to employ you as its President, or in some other capacity, in a position to be determined by it, at the Presidential salary provided for herein and as increased from time to time by the Board, for a term ending on June 30, 2010, unless (i) you voluntarily resign or retire, or (ii) you are terminated, all as provided for herein.

    So it looks like the careful avoidance of the word “resign” was no accident, and was intended to enable Garrison to continue to receive his salary of at least $255,000 per year, working in some other capacity, until June 30, 2010.

    Corporations and businesses negotiate severance packages and golden parachutes with departing executives as a matter of course.  On Thursday, two executives at Lehman Brothers were removed from their positions, and reassigned elsewhere in the company.

    But the difference between a corporation such as Lehman Brothers and WVU, among many others, is that a corporation is answerable in such matters only to its shareholders, while a public educational institution does not have such a limited constituency.  If the speculation about Garrison's future is correct, and we may not know for sure until much closer to September 1, there will be significant opposition to his continued employment by the BOG.

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    Mike Garrison's "resignation" today as president of West Virginia University
presents a timely opportunity to review his employment agreement, including its provisions for severance pay.  I put resignation in quotation marks not to be sarcastic, but because Garrison's announcement about his departure was vague.  Here is Garrison's  statement, in which he says that he will stay in office until September (presumably September 1), but for whatever reason, does not affirmatively state he is resigning.

    There was some question whether September was chosen in order to entitle Garrison to additional or supplemental compensation if he stayed in office at least one year (he took office on September 1, 2007, which was moved up from his original start date of September 21).  Here is the May 10, 2007 letter from the West Virginia University Board of Governors to Garrison, which serves as his employment agreement. 

    The agreement, which describes Garrison's service as "at the will and pleasure of the Board," requires him, in the event of his resignation, to give "at least sixty days notice before [his] last day in the office."  Garrison's term as president under the agreement was scheduled to end on June 30, 2010.

    This recent article in the Daily Mail reported that Garrison would receive his yearly salary of $255,000 if he was discharged without cause by the Board of Governors prior to June 30, 2008.  If he was discharged without cause after June 30, 2008 but before June 30, 2010, he would be entitled to six months' salary.  A termination for cause, as defined in the employment agreement, would not entitle Garrison to any further compensation. 

    Because the employment agreement is silent regarding any compensation owed to Garrison if he resigns, he is entitled to only his annual compensation and associated benefits through the remainder of his time as president.

    I think Garrison's decision not to state that he is resigning  has some significance, but I cannot see how he is entitled to continued compensation as WVU's president after he voluntarily leaves the position, regardless of how he describes his departure. 

   

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