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Tuesday, June 24, 2008

Change in Reporting Relationship Entitles Ex-President/CEO to Severance Payments

A trial judge in New York recently granted plaintiff C. Richard Stafford summary judgment, holding that his former employer breached his employment contract by failing to make severance payments.

Scientia Health Group, Inc., is a venture capital firm that invested in the medical and biotech fields. In the spring of 2002, Dr. Samuel Waksal (yes, of IMClone/Martha Stewart fame), then Scientia's executive chairman, recruited Stafford to become president of Scientia. In June 2002, Stafford and Scientia entered into an Executive Employment Agreement, which provided the terms of Stafford's employment as president and chief operating officer of Scientia. Under the Agreement, Stafford was to "report to the Chairman of the Company," and he had "primary authority for the day-to-day financial administration and operations of the Company."

Under the Agreement, Stafford was entitled to a healthy severance payment in the event that he terminated "his employment for Good Reason or the Company terminates [his] employment without Cause." This provision also entitled Stafford "to continue to participate in all health, life and disability insurance plans in which he participated immediately prior to the Date of Termination," during the period that he was entitled to receive severance. The Agreement defined "Good Reason" as any of the following, without Stafford's "express written consent":

(i) [Stafford] shall not have the title or reporting relationship as set forth in Section 1.2 hereof;

(ii) the assignment to [Stafford] of any duties that are materially inconsistent with, or a substantial alteration in the nature or status of, [Stafford's] position, authority or responsibilities or the conditions of his employment;

(iii) the failure of the Company to pay [Stafford] any compensation or provide other benefits as specified in Section 2 or 5 of this Agreement . . . .

In July 2002, Waksal resigned as chairman of Scientia. Scientia did not appoint a replacement for Waksal. In February 2003, Stafford tendered his resignation, purportedly for "Good Reason" under the Agreement. The trial granted Stafford summary judgment, holding that the change in reporting relationship constituted "good reason" for Stafford's resignation and entitled him to severance payments under the Agreement.

This is only a brief recap of a larger picture: here's a summary from the NYLJ.

Stafford v. Scienta Health Group, 600666/03 (Supreme Court, New York County, June 9, 2008).

[Meredith R. Miller]

http://lawprofessors.typepad.com/contractsprof_blog/2008/06/change-in-repor.html

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