Articles Posted in Business Disputes

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The U.S. Court of Appeals for the District of Columbia Circuit recently put the kibosh on the proposed mega merger between health insurance giants Anthem, Inc. and Cigna Corporation, two of the nation’s four largest insurers. The court concluded that Anthem failed to show how proposed cost efficiencies would offset the harm to competition in affected markets. (United States, et al., v. Anthem, Inc. and Cigna Corp., No. 17-5024 (D.C. Cir. 2017)).

In 2015, Anthem, the second-largest health carrier, which operates the Blue Cross Blue Shield brand in 14 states, agreed to merge with third-largest Cigna, in what would be the biggest-ever merger of health insurers. It would leave Anthem as the surviving company with a controlling share of the merged company’s stock. Within Anthem states, existing Cigna customers could remain with Cigna, but the two insurers would otherwise no longer compete in those states.

The U.S. Department of Justice and several states successfully sued in district court to block the merger on the ground it would substantially lessen competition in affected markets, in violation of the Clayton Act. On appeal, Anthem argued the merger’s efficiencies would outweigh its antiicompetitive effects by reducing the costs of medical claims through lower provider rates, thus lowering Cigna’s rates. The government plaintiffs had argued these projected savings were unverified, not specific to the merger, and would not result in true efficiencies. Continue reading ›

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Getting taken to the cleaners by a dishonest employee or contractor is headache enough for any business, but having  no fraud coverage insurance coverage is a world of hurt.  Businesses are well advised to analyze their policies carefully to make sure they have proper coverage.

In the case of an Indiana telecom company called Telamon, its two different insurance policies provided no relief, according to the Seventh Circuit Court of Appeals (Telamon Corp. v. Charter Oak, No. 16-1205, 7th Cir. (2017)). Telamon engaged independent consultant Juanita B. to provide services, and her role eventually expanded well beyond the original agreement. She was named vice president of major accounts and became senior manager for the company’s business in New York and New Jersey. In that capacity, she oversaw the removal of old telecommunications equipment from AT&T sites to sell to salvagers. Juanita pocketed the profits, for a total of $5.2 million in losses for the company by the time it discovered her scheme.   Continue reading ›

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Stock options exercised by railroad employees are a form of monetary compensation taxable to the employer and employee under the Railroad Retirement Tax Act, according to the Seventh Circuit Court of Appeals (Wisconsin Central Ltd., et al. v. United States, No. 16‐3300 (7th Cir. 2017)).

In 1996, three Midwestern railroad subsidiaries of the Canadian National Railway Company began including stock options in their employees’ compensation plans. In its appeal from a district court ruling, the railway argued that income from the exercise of stock options that a railroad gives its employees is not a form of “money remuneration” to them and is therefore not taxable to the railway under the Act, which defines “compensation” as “any form of money remuneration paid to an individual for services rendered as an employee… .”

The Railroad Retirement Tax Act of 1937 is the railroad industry’s version of the Social Security Act; it imposes a payroll tax on both employer and employee to pay for pensions and other benefits.

The question before the Seventh Circuit was whether the tax should be levied on the value of stock options exercised by employees when the market price reaches a certain level. The Internal Revenue Service argued that it should, and in a 2-1 decision, the court agreed.

Writing for the majority, Judge Richard Posner stated: “Stock has so well‐defined a monetary value in our society that there is no significant economic difference between receiving a $1,000 salary bonus and a share or shares of stock having a market value of $1,000.” Continue reading ›

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A recent shareholder suit challenging the sale of a Chicago-based company to IBM was dismissed by a Delaware chancery court because the merger was supported by an informed and uncoerced vote of 80% of stockholders. When IBM acquired healthcare software developer Merge Healthcare, Inc., in 2015 for $1 billion, a group of Merge stockholders brought a class action complaint against Merge for what they charged was an improper sale process. The plaintiffs alleged the directors breached their fiduciary duties of loyalty and care due to self-interest in the transaction. (In Re Merge Healthcare Inc. Stockholder Litigation, Consol. C.A. No. 11388-VCG, Del. Chancery Court, 2017.)

The class action sought damages resulting from IBM’s acquisition of Merge’s publicly owned shares, which was supported by nearly 80% of Merge stockholders. On August 6, 2015, Merge’s board entered into an agreement granting the company’s common stockholders $7.13 in cash for each of their shares, a 31.8% premium to the market price. Preferred stockholders received $1,500 cash per share. The merger was completed on October 13, 2015, at an approximate value of $1 billion.

As part of the merger, certain Merge managers, including one of the defendant board members, entered into employment or transition arrangements with IBM. Continue reading ›

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Peter Doig isn’t exactly a common name, but the world-famous painter of that name had the bad fortune of bearing a similar name to that of Peter Edward Doige, who is apparently the true creator of a landscape painting at the center of a highly unusual lawsuit that was recently filed in the U.S. District Court of Northern Illinois.

Doige, not the painter Doig, served a short sentence in an Ontario correctional facility for LSD possession in the mid-1970s, which is where he met Robert Fletcher, who was allegedly serving as his parole officer. Fletcher said he watched Doige create a landscape painting that bears some strong resemblances to the paintings Doig is famous for and that regularly sell for $10 million or more. Fletcher said he bought the painting for $100 as a way to help Doige stay on the straight and narrow and helped him get a job.

The painting in question hung on a wall in Fletcher’s office for 40 years before a friend noticed it and told him it was by a famous painter: Peter Doig. Fletcher said he watched a talk Doig had given at a university and recognized his mannerisms as belonging to the man he helped all those years ago. Fletcher then got into contact with an art dealer in Chicago and they began making arrangements to sell the painting. Continue reading ›

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When billions of dollars are on the line, the end of a personal friendship can jeopardize business investments, as well as personal relationships, especially when one party’s mental competence is called into question. That’s exactly what happened when Sumner M. Redstone, the head of a media empire that includes Viacom and CBS, among others, disinherited his former lover and long-time friend, Manuela Herzer, and banished her from his multi-million-dollar mansion, which she was set to inherit before he kicked her out and changed his will.

Herzer filed a lawsuit claiming that, at 93 years old, Redstone’s mental capacity had deteriorated to the point where he was no longer fully aware of what he was doing and that he was improperly influenced by his daughter, Shari Redstone, with whom he had been estranged and just recently reconciled. Herzer’s complaint alleged Shari is influenced solely by her father’s wealth, while both Sumner and Shari accuse Herzer of being the gold digger.

After hearing testimony from Herzer and Shari, among others, including video testimony from Sumner, the California judge in charge of the case dismissed it. Herzer plans to appeal that decision, but even if she doesn’t succeed, her complaint has had consequences that have reached all over the country. The question of Redstone’s mental capacity has lead high-level executives in his companies to question whether he’s mentally capable of effectively running all the companies under his vast media empire. Continue reading ›

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The U.S. Court of Appeals for the Seventh Circuit recently held that client victims of a lawyer’s fraud take precedence over a commercial lender in being paid out of funds owed to the lawyer’s firm. Attorney William C. of Indiana-based Conour Law Firm, LLC is serving a 10-year prison term for stealing $4.5 million from clients’ trust funds. His victims obtained a judgment against him in 2014. Timothy D., an attorney at Conour, had previously left to join the Ladendorf Firm, bringing 21 Conour clients with him who eventually generated over $2 million in fees. William’s victims, as well as the Conour Firm’s lender, ACF 2000 Corp., claimed the right to a portion of those funds. Writing for the Seventh Circuit in ACF 2006 Corp v. Devereux, No. 15-3037 (7th Cir. 2016), Judge Easterbrook summed up the ensuing battle: “This appeal presents a three-corner fight about who gets how much of that money.”

At issue was how much of the $2 million belonged to the Conour Firm for the services it performed before Timothy D. left, and how those funds should be divided between the victims and ACF 2000. At trial, the federal district court concluded that the Conour Firm was entitled to some $775,000 under principles of quantum meruit, and that ACF had priority of payment over the victims. Continue reading ›

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A corporate defendant waives the right to enforce an arbitration clause in an employment agreement if it asserts an affirmative defense to a complaint that is unrelated to arbitration. So ruled the First District Appellate Court of Illinois in a recent breach of employment contract case called Koehler v. Packer Group Inc., 2016 IL App (1st) 142767.

Michael K. was CEO of Packer Engineering, a subsidiary of The Packer Group. When he reported evidence of alleged financial improprieties on the part of Packer’s chairman to the company’s board, he claims he was dismissed in retaliation. He filed suit against the company for breach of his employment contract, and also against various Packer officers individually for tortious interference with contract, claiming they induced the company to breach the contract. The defendants argued that, pursuant to the contract’s terms, Michael’s claims should have been resolved in arbitration.

Michael’s four-year employment agreement contained an arbitration clause waiving the right to resolve disputes in court. The contract was signed by Michael, Packer’s chairman, and several Packer executives. Michael claimed that after he refused to go along with the alleged financial improprieties, he was offered the option of demotion or termination and chose termination. In his complaint, he sought future salary and bonus compensation plus punitive damages. In its answer, Packer asserted the affirmative defense of Michael’s own breach of the employment agreement, then later moved to dismiss the complaint on the grounds that the arbitration provision deprived the court of jurisdiction. The individual defendants argued that the arbitration clause also applied to Michael’s suit against them for tortious interference, claiming they had signed the agreement in their corporate and not individual capacities. The circuit court ruled that Packer waived its contractual right to arbitrate when it answered Michael’s complaint without asserting the right.   Continue reading ›

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A Cook County judge on June 3 in the case of Robert Buono v. Intelligentsia Coffee, Inc., Emily Mange, and Doug Zell gave the green light for this lawsuit to proceed against the founders of Chicago-based Intelligentsia Coffee, Inc. for allegedly withholding more than $15 million in profits from the company’s former CEO. Last November, plaintiff Robert Buono sued Intelligentsia and two company co-founders, Emily Mange and Doug Zell, for breach of contract and violation of Illinois’ Wage Payment and Collection Act (IWPCA). Buono, former counsel for the coffee retailer and supplier, was hired in 2011 as co-chief executive and president under an employment contract that set out compensation of salary, annual bonus, and a share of future profits that was to gradually rise to 15 percent.

In his complaint, Buono claimed his management decisions helped grow the company into a successful chain by the time Peet’s Coffee & Tea purchased a majority stake in Intelligentsia for a reported $100 million in late 2015. During his tenure, Intelligentsia’s profits rose 61 percent. Mange and Zell dismissed Buono in 2014. In count I of his complaint for violation of IWPCA, he claims he is owed profits from 2012 until the date of his termination, which should have been paid at the time of his departure. In count II for breach of contract, he claims he is owed $15 million, which should have been his share of the Peet’s sale. Buono argued in his suit that he accepted a below-market salary in exchange for the cut of future profits, without which he would not have agreed to take the position. Continue reading ›

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An employment agreement that sets out a specific term of employment may not protect an employee from being terminated at any time. The Fifth District Appellate Court in Wessel v. Greer Management Services, Inc., 2016 IL App (5th) 150259-U recently ruled against a plaintiff who brought a breach of contract action against her former employer, holding that the language in the agreement she signed provided for at-will employment despite the inclusion of fixed employment dates.

Christina W. was hired as a compliance manager by Greer Management Services. She and a Greer representative signed an untitled document labeled an “employment summary,” which stated that Christina would serve in the position “for the period of January 1, 2012 to December 31, 2014,” and described the compensation package. However, the final paragraph read: “Greer Management Services reserves the right to change the above provisions at any time. The provisions of the policy manual govern the rights and obligations of the employee. The employee acknowledges that she is an employee at will.” After Greer terminated Christina’s employment in September 2013, midway through the term specified in the signed document, Christina filed a complaint against the company claiming that the document was a contract for employment which was breached by Greer.

The trial court dismissed the complaint, finding that Greer reserved the right to change the provisions of the agreement at any time, including by terminating Christina’s employment before the expiration of the term, and that the “employment summary” was not sufficient to overcome the presumption of employment at-will. Christina then filed an amended complaint again alleging breach of contract and also breach of the implied covenant of good faith and fair dealing, for “terminating her employment without notice, warning, or explanation, contrary to her expectations.” The court against dismissed her complaint, on the grounds there was no valid and enforceable contract for employment and therefore could be no breach. Continue reading ›

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