Good Personnel Records Save the Day for A & F
September 20, 2003
Abercrombie & Fitch fired one of its New York City security supervisors for poor performance. She filed a lawsuit, claiming among other things that she had been fired because she was African-American.
A&F won the case without even having to go through a trial, primarily because the fired employee’s manager had kept good personnel records to document her poor performance over several years.
Why Shareholders Should Come Third - Great Post
September 19, 2003
There’s a great post today on Mike O’Sullivan’s Corporate Law Blog. It summarizes former Medtronic CEO Bill George’s recent Fortune magazine article about why CEOs should concentrate on pleasing customers, then employees, then shareholders. Not to be missed.
Yet Another “You Fired Me Because I Blew the Whistle” Case Settled for Almost $1M
September 17, 2003
The press is reporting the settlement of yet another wrongful-termination case grounded on a former employee’s claim that she was fired for whistleblowing. The employer paid nearly $1 million — almost half of which goes to the fomer employee’s attorney, according to the employer’s Web site — after having spent more than $300K defending the case. See this story at the law.com Web site. This story illustrates the hazards of letting an employee go if the employee had any connection at all with uncovering alleged corporate improprieties.
The story is also a nice opportunity to recall the wisdom of keeping fair and accurate written records to document employee performance. If you’re a manager who wants to get rid of a worthless employee, don’t believe that your cheery smile and golden voice alone will convince a jury that the employee really did deserve firing. Juries often discount witness testimony, especially by defendants seen as trying to make excuses for their actions. Juries also tend to believe written business records and other contemporaneous documentary evidence. So if you keep decent records about your employees, you’ll be better armed if you ever find yourself in a lawsuit — and good records might even help you be a better boss.
Side Letter in Sales Deal Leads to SEC Fraud Suit
September 16, 2003
Last week the SEC announced that it had filed a civil lawsuit against a former Logicon executive who allegedly placed a $7 million order with Legato Systems that included a secret side letter giving Logicon the right to cancel its purchase. According to the SEC, the Logicon executive not only knew that Legato planned to fraudulently misstate its financial results, he even advised Legato’s sales people how to conceal the cancellation right from the Legato finance department.
LESSON: The SEC’s news release quoted Helane L. Morrison, District Administrator for the Commission’s San Francisco District Office, as saying, “Sales executives who book phony deals often rely on assistance from people who work for their customers. Today’s action highlights the Commission’s resolve to hold such persons responsible when they knowingly assist in fraudulent revenue recognition practices.”
Taco Bell Learns $42MM Lesson That Idea Sources Can Haunt You
September 15, 2003
The New York Lawyer reports that Taco Bell was hit with a $41.9 million jury verdict for allegedly stealing the idea for the talking-Chihuahua advertising campaign. Thanks to Martin Schwimmer’s Trademark Blog for the pointer to this story.
The Taco Bell case illustrates a harsh fact of life for established companies: If you enter into discussions to use a smaller company’s ideas or concepts, you’d better be really, really careful if you subsequently decide to go it alone — you may find it very difficult to convince a jury that you (re-)developed the ideas or concepts on your own.
For another example of how juries can react in situations like this, see Celeritas Technologies vs. Rockwell International. In that case, Rockwell had engaged in preliminary discussions with Celeritas about some ideas for improving wireless modems that Celeritas’s technology guy had developed. Rockwell decided to go it alone, and Celeritas sued. At trial, the jury simply did not believe that Rockwell had independently created the technology after its discussions with Celeritas. Nor did the jury believe that Celeritas’s technology could not be a trade secret because it was already in the public domain (although the appeals court later held that Celeritas’s patent was invalid because of a prior published article that described similar technology). In all, Rockwell was hit with a damages verdict totalling over $58 million. (Disclosure: I was one of the members of Rockwell’s trial team.)
Big Fine for Helping Customer Cover Up Business Losses
September 12, 2003
Insurance giant American International Group was hit with a $10 million fine for doing a deal with one of its customers that was supposed to look like insurance for the customer but in fact was designed to reduce the financial loss reported by the customer. Compounding AIG’s problem was that the SEC was reportedly infuriated by AIG’s withholding of documents. See the New York Times article (free subscription required).