• March 30, 2016
Image by Tama Leaver

Image by Tama Leaver, https://goo.gl/ys0nti

ABC Company buys XYZ Company and hires XYZ’s CEO to continue running “NewCo” (the former XYZ). The newly hired NewCo CEO can only be fired “for cause.” If NewCo fired the former XYZ CEO without cause, ABC would have had to pay the CEO a termination fee of $1.4 million.

The relevant agreement defined “for cause” as:

Commission by the Employee of a material act of dishonesty or fraud upon, or willful misconduct toward, [ABC] or any of its Affiliates or misappropriation of material [ABC] property or corporate opportunities; as reasonably determined by the Board of Directors of [ABC].

If NewCo’s CEO secretly maneuvered behind ABC Company’s back to try to find another buyer of NewCo and NewCo’s CEO got caught by the ABC board, could NewCo CEO be terminated “for cause” due to this conduct?

Let’s make it easier: what if NewCo CEO secretly provided third parties with NewCo confidential financial information (such as historical revenue and projected revenue) as part of his efforts to attract investors to buy NewCo out from under ABC, his employer?

Not a very hard call for Hennepin County District Court Judge Ivy S. Bernardson (current Assistant Chief Judge) or the Minnesota Court of Appeals. The district court granted ABC Co.’s motion for summary judgment on all of NewCo CEO’s claims that his termination “for cause” was pretextual and dismissed the fired CEO’s lawsuit with prejudice. The Court of Appeals unanimously affirmed that summary judgment decision.

To me, interesting questions are: (1) Did Plaintiff James L. Mandel (“NewCo CEO”) get a lawyer’s advice before undertaking his Trojan horse play and, if a lawyer advised him that the scheme was kosher, did that lawyer commit professional malpractice? (2) How much did Plaintiff Mandel have to pay for his unsuccessful challenge to his termination, which, at least in hindsight, appears to have been doomed all along? (And does a lawyer commit professional malpractice if he urges a plaintiff to take on a case that is doomed from the start? This does not fit in the normal pattern of “but for the lawyer’s malpractice, the client would have won the case.” Is a malpractice action established if, “but for the lawyer’s malpractice, the client would never have brought the case”?)

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