Attorneys in the breach of contract and defamation suit brought against Barnes & Noble by recently fired CEO Demos Parneros are scheduled for a hearing this week after attorneys for Parneros informed the district court on November 19 that they plan to file a motion to dismiss a counterclaim filed by the bookstore chain.
The move to dismiss B&N’s counterclaim is not unexpected. At their first conference before judge John G. Koeltl in New York on November 13, attorneys for Parneros told the judge it would be making such a motion. At the hearing, however, Koeltl seemed to discourage the move as not an efficient use of the court's time, suggesting that the presence of the counterclaim would not affect Parneros’s case.
In its October 30 counterclaim, B&N accused Parneros of sabotaging the sale of the company over the summer, and is seeking damages from Parneros for his “disloyal” conduct and alleged breach of his fiduciary duties. The retailer is also seeking a judgment that would allow the company to potentially claw back more than $1 million paid to Parneros “during the period of his disloyal conduct.”
But in a letter to the court last week, lawyers for Parneros contend that “as a matter of law” B&N lacks the foundation to recover anything from their former CEO, arguing that precedent limits such recovery to cases where “the employee, acting as the agent of the employer, unfairly competes with his employer, diverts business opportunities to himself or others to the financial detriment of the employer, or accepts improper kickbacks.” The allegations made in the counterclaim fail to meet that standard, lawyers argue, as there is no suggestion that Parneros was “stealing a corporate opportunity for himself” or in any way competing with his former employer.
Further, attorneys suggest, B&N's theory—that Parneros purposefully derailed the sale to preserve his role as CEO—is not plausible. “Parneros's contract, as amended, guaranteed him that if he lost his job or was demoted after a change in control, he would be entitled to three years of salary ($1.2 million per year), three years of bonus (at comparable numbers), and three years of the cash value of his benefits. Parneros's equity would also fully vest,” attorneys state. “It is less than plausible that Parneros would oppose a sale from which he might profit so substantially.”
Meanwhile, attorneys for Parneros have also alerted the court to another potential twist in the case: they claim the ex-CEO’s employment contract contains “a very broad indemnification provision, not limited to third-party claims,” which includes a provision for the “advancement of expenses,” including legal bills and costs. Attorneys for Parneros say they have invoked that clause and “made a demand upon B&N for indemnification and advancement for the attorneys' fees and costs of defending the counterclaims.” Attorneys for Parneros say they are awaiting B&N’s response, and add that if the company refuses to comply, Parneros “will ask the Court for an order for advancement.”
The plain language in his contract indemnifies Parneros against "all actions, suits, claims, legal proceedings and the like to the fullest extent permitted by law." If that indemnity clause was found to cover direct, first party litigation, B&N would essentially be suing itself, and paying the legal bills to do so.
It's not likely that Parneros will prevail on that claim, however. The Second Circuit (which covers New York courts) has held that indemnification clauses must be “unmistakably clear” that direct or first party litigation is covered.