ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, August 4, 2014

Eighth Circuit Shuts Down the Real Napster CEO

Christopher Gorog was the CEO of Roxio, Inc., which acquired Napster in 2002.  He thereby become the CEO of Napster, which was acquired by Best Buy in 2009.  Gorog entered into an Employment Agreement with Best Buy, which provided that he would stay on as a Napster employee, with Napster now a wholly-owned Best Buy subsidiary.  The Employment Agreement included a $3 milllion performance award to which Gorog would be entitled based on his and the company's performance on four target dates if he were still employed by Napster.  

At the end of 2009, Gorog resigned.  In 2011, Best Buy sold Napster to Rhapsody, an Internet Music Service.  Gorog signed a Separation Agreement which provided that Gorog’s employment would be terminated without cause and that Gorog would not release any claims to a performance award.  Gorog sued claiming that he was entitled to performance awards despite his resignation.  The District Court found that Gorog's best arguments rose under Section 2.4(b) of the relevant Award Agreement:

(b) If, prior to the end of the Performance Period, your
employment is terminated by Napster without Cause or you
terminate your employment with Napster for Good Reason,
the Performance Period will continue and you will be
entitled to receive a Performance Award equal to a pro-rata
portion, based on the number of Whole Months you served
during the Performance Period, of the Performance Award
that otherwise would have been earned in accordance with
the Performance Criteria Schedule . . . . 

The Distirct Court dismissed Gorog's claims finding that he did not meet the performance criteria under the section. 

In appealing to the Eighth Circuit in Gorog v. Best Buy, Inc.Gorog relied on Section 2.4(c) of the Award Agreement which he claimed was not mutually exclusive with Section 2.4(b).  Section 2.4(c) provides that 

If, prior to the Performance Target Date, majority
ownership of Napster (or any successor entity) is sold by
Best Buy or spun-off to its shareholders, or if the venture
ceases operations (the “Event”), you shall be entitled to
receive a Performance Award equal to 100% of the
Performance Award Target Value, regardless of whether
the Performance Criteria have been met. . . .

Gorog claimed that the fact that he was no longer employed at Napster was irrelevant to the question of his entitlement to a performance award, as that award was triggered by the sale of Napster.  

The Eighth Circuit sided with Best Buy, which argued that the two provisions are indeed mutually exclusive.  Read in context, the Court noted, each section of Section 2.4 relates to conditions of Gorog's termination that would entitle him to a performance award.  The Court also found no way to reconcile Gorog's claim that the provisions of Section 2.4 were not mutually exclusive with other terms in his agreement with Best Buy.

Once again, life fails to imitate art (if the amusing heist movie The Italian Job is art):

Film Clips, Recent Cases | Permalink

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