Saturday, July 28, 2007
An earlier post (here) discussed the opinion issued by the U.S. District Court for the District of Kansas ordering utility company Westar Energy to pay a portion of the claimed attorney's fees of one of its former officers, Douglas Lake, who is facing a third trial on charges related to allegedly false reports filed with the SEC concerning benefits received by former CEO David Wittig. The Court determined that the indemnification provision in Westar's by-laws required it to advance Lake's fees, which the company had withheld while he underwent two trials, an appeal that resulted in a reversal of the convictions rendered in the second proceeding, and the prospect of a third trial on the remaining charges. In directing Westar to pay $3.2 million, the district court found that the indemnification provision did not permit the company to withhold the funds.
Rather than pay the money, however, Westar has taken a novel tactic of filing a motion (available below) asking the court to require Lake to post a bond of $4.2 million "as appropriate security for the payment of such costs and damages as may be incurred or suffered by Westar if it is determined that the preliminary injunctive relief awarded against Westar in the Court’s Order of June 28, 2007 was wrongfully granted and that the Court make additional findings to support requiring security in connection with the Order." The company reaches that conclusion by claiming that the district court's order is a "preliminary injunction" and therefore under Federal Rule of Civil Procedure 65(c) a bond must be posted. Unfortunately for Westar, the court's order is not styled as a preliminary injunction but only a resolution of what is, in effect, a contract claim. Westar has refused to pay the $3.2 million, and Lake has filed a motion to hold the company in contempt (available below). The company's refusal to pay any of the fees has put Lake in a rather precarious position because his attorneys had filed a motion to withdraw prior to the decision ordering the payment, and could well renew the motion if they don't receive any money in advance of the next trial. (ph)