Misleading title: How the Smartphone Killed the Three-Day Weekend
Most of it didn’t interest me, but the case dealt with whether the plaintiffs’ state-law claim for tortious interference of contract was preempted under ERISA. The contract is a pension plan. I was more interested in the interference claim than the ERISA or preemption issues.
Investment firm Heartland Industrial Partners, L.P. held an ownership interest in Metaldyne Corporation and affiliates on Metaldyne’s directors and executive officers.
Heartland agreed to sell its interest to Ripplewood Holdings, another investment firm. Metaldyne was a public company at the time and filed proxy and information statements related to the deal. The filings failed to disclose that Metaldyne would be obligated to pay certain Metaldyne executives, the plaintiffs, $13 million as a result of the deal due to a change of control provision in Metaldyne’s SERP.*
Ripplewood threatened to back out when it found out about the payment obligation, so Heartland decided to declare the SERP invalid. Problem solved.
The Problem Arises
The central question of this particular case is whether the plaintiff’s complaint can be removed to federal court. After a lot of discussion of the type of civil procedure stuff I learned in law school and have since tried to forget, the more interesting question is whether there is a tortious interference claim**, which would involve Michigan law.
The Relevant Stuff To Me
Under Michigan law, one party’s complete repudiation of a contract is enough to establish breach. Declaration of refusal to perform will amount to breach of contract. The court here found the pleading of repudiation sufficient.
“ . . . without stating a reason, or giving plaintiffs any opportunity to be heard, [the Metaldyne Board] declared the Amended SERP invalid.”
*Supplemental Executive Retirement Plan
**In Michigan, a claim for tortious interference involved (1) a contract, (2), a breach of the contract, and (3) an unjustified instigation of the breach by the defendant.
Then explains the standards, which really aren’t standards.
Bankosky was a senior official of a pharmaceutical company. He had inside information on potential deals, and he traded on them.
Aside: As a music student in college, I told my primary professor that I was quitting my music degree and changing my major to pursue a law degree. He replied, “It doesn’t surprise me that people sell out, but how cheaply they do.”
How is this relevant? Bankosky’s illicit trades yielded $63,000.
Among other sanctions, the SEC moved to bar Bankosky permanently from serving as an officer or director of a public company. The court said, “Yep. Sounds good to me.”*
On appeal, the court noted the non-exclusive factors from U.S. v. Patel useful in making an assessment of the offender’s fitness to serve as an officer or director of a public company based on Exchange Act Section 21(d)(2). However, this was before Sarbanes-Oxley, which lowered the standard from “substantial unfitness” to “unfitness.” Results: Fireworks.
Does this mean that Patel no longer applies, as the SEC asked as it was looking for what it considers a more stringent standard? Nope. The court said:
“Moreover, the Patel factors are neither mandatory nor exclusive; a district court may determine that some of those factors are inapplicable in a particular case and it may take other relevant factors into account as it exercises its “substantial discretion” in deciding whether to impose the bar and, if so, the duration, so long as any bar imposed is accompanied with some indication of the factual support for each factor that is relied upon.”
In other words, the court may or may not look at a standard that may or may not apply based on something or other that may have six or seven elements that are probably substantially similar in substance. The court has a lot of discretion when determining what factors to consider in barring someone from acting as a public company director or officer.
*Not a direct quote.
Dodd-Frank getting the results! Not many results as ink was spilled and money was spent soliciting a non-binding vote ignored by management, but those are still results.
At its 2011 Annual Meeting of Shareholders, the shareholders of Cogent Communications Group, Inc. did not approve the executive compensation. Did Cogent learn its lesson?
At its 2013 Annual Meeting of Shareholders, the shareholders of Cogent Communications Group, Inc. did not approve the executive compensation. Will Cogent learn its lesson?
In each of 2011 and 2012:
- Base salary for the CEO, CFO, Chief Revenue Officer, Chief Legal Officer and highest paid VP increased;
- Total compensation decreased from 2010 to 2011 but skyrocketed in 2012 over and above 2011 levels. In the case of the CEO, total comp went from about $4.0 million in 2010 to $8.8 million in 2012.
I guess we’ll see next year if this is what the shareholders had in mind.
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