Predatory Raiding and High-End Executive Defections Joel P. Hoxie Snell & Wilmer LLP Phoenix, Arizona W INDY C ITY L ITIGATION M ANAGEMENT TRIAL.COM CHICAGO SUPERCOURSE 2011
Feb 12, 2016
Predatory Raiding and High-End Executive
Defections
Joel P. HoxieSnell & Wilmer LLP
Phoenix, Arizona
WINDY CITY LITIGATION MANAGEMENT TRIAL.COM CHICAGO SUPERCOURSE 2011
“With Blackstone having paid a super-premium price for Hilton, [Hilton CEO Christopher] Nassetta will be under intense pressure to deliver immediate results.”
ehotelier.comNovember 9, 2007
Departing Executives Owe A Duty of Loyalty
... even in absence of any restrictions contained in an
employment agreement
Duty of Loyalty
• Subordinates and other employees
• Customers/Clients
• Company’s confidential and proprietary information
Solicitation of Subordinates and Other Employees
Solicitation of Subordinates and Other Employees
Solicitation ofCustomers/Clients
Solicitation ofCustomers/Clients
Transfer/Use of Company’s Confidential and Proprietary
Information
Transfer/Use of Company’s Confidential and Proprietary
Information
Making Plans/Preparing to Compete
Solicitation Preparation
Permissible Preparation/Planning
• Interview with competitors or form new company
• Work on logistical arrangements– (new office space, computer/
telephone systems, business cards, press release, etc.)
• Notify current customers and subordinates of departure (?)
Predatory Raiding
Disloyal Executive +
Competitor’s Overzealous Recruiters
__________________
= Liability
Predatory Raiding – Primary
Claims (In Addition to Employment Agreement Rights)
• Breach of fiduciary duty• Aiding and abetting breach of
fiduciary duty• Tortious interference• Uniform Trade Secrets Act
Security Title v. PopeSecurity Title Agency, Inc. v. Pope,219 Ariz. 480, 200 P.3d 977 (Ariz. Ct.
App. 2008)
A Textbook Predatory Raidon Security Title
– extensive clandestine meetings– strategy to make defection “look proper”– Pope involved key subordinates in the plan– First American agreed to indemnify Pope “against
anything” in her new employment agreement– Pope paid a signing bonus and provided funds to
pay bonuses to her key people– Pope solicited all of branch’s key customers– Pope had subordinates copy all pending escrow
files and maintain at home– successfully stole 80% of branch staff and 70% of
branch business
Linda Pope
+First American Title (Talon Group)
___________________= $6.3 Million (Compensatory)
+ $35.2 Million (Punitive)[$41.5 Million]
Among the incriminating emails at Talon Group obtained during discovery:
“[Pope is] a very significant recruit [who] controls $8,000,000 in revenue … She is with Security Title and would be a major coup for us (or blow to [Security Title])”
“The attached [employee] list contains all the users that will soon join the Talon team. This could happen at any time within the next week or two. NOTE!!! We need to hide all of these recipients in the [First American Title global address book] (potential political repercussions).”
“Ross Klein Leaving W Hotels
for . . . Hilton?!!”
June 2, 2008www.hotelchatter.com
Starwood Sues Hilton and Two Former Starwood Executives for Corporate Espionage, Theft of Trade Secrets, and Unfair Competition
October 8, 2009
“Hotel Feud Prompts Grand Jury Into Probe“
by Peter Lattman
“A federal grand jury is investigating whether Hilton Worldwide and several of its former executives should face criminal charges for allegedly stealing tens of thousands of pages of confidential documents from rival Starwood Hotels & Resorts, according to people familiar with the situation…”
Wall Street Journal
“Starwood Amends Suit to Implicate Top Hilton
Executives” www.successfulmeetings.comJanuary 19, 2010
“Starwood Lobs New Allegations Against Hilton”
The Wall Street JournalJanuary 15, 2010
PRESS RELEASE:
HILTON WORLDWIDE ANNOUNCES SETTLEMENT AGREEMENT WITH STARWOOD HOTELS & RESORTS
WORLDWIDE
“ … Hilton Worldwide regrets the circumstances surrounding the dispute with Starwood Hotels & Resorts Worldwide and is pleased to bring an end to this pro longed litigation,” said Christopher J. Nasseta, president and chief executive officer, Hilton Worldwide.
(cont’)
“Hilton Worldwide is committed to fair, ethical, and robust competition in the marketplace, and we will continue to focus on what we do best – providing exceptional services for all of our guests around the world …”
December 23, 1010
Ross Klein & Amar Lalvani
+Hilton Worldwide
________________=
Hilton Settlement (12.22.10)
• Consent to Permanent Injunction Against Hilton, Klein, Lalvani
• Moratorium on Hilton working on development/planning/creation of any lifestyle brand until January 2013
• Cash Payment to Starwood (Confidential)• Ongoing supervision of Hilton by two
federally appointed monitors – Injunction Monitor and Branding/Marketing Monitor – to ensure Hilton abiding by terms of injunction.
• U.S. Grand Jury investigation ongoing
Preventative Measures• Involve corporate counsel early and
advise lateral recruiters• Determine up front if executive
bound by contractual limitations• Remind executive of duty of loyalty• Obtain written certification re
confidential materials/solicitation• Condition indemnification upon
compliance with certification