Jan 29, 2015
On January 26, 2015, Weil secured a major victory for Marsh & McLennan Companies, Inc. in a dispute with two former executives whose employment Marsh terminated in connection with the New York Attorney General’s 2004 investigation into the insurance industry and Marsh’s parallel internal investigation into the NYAG’s allegations. Ruling on the parties’ cross-motions for summary judgment, the U.S. District Court for the Southern District of New York denied the plaintiffs’ summary judgment motion and granted our client’s motion in its entirety, dismissing the plaintiffs’ claims for severance and stock benefits that they forfeited when Marsh terminated their employment. The Court’s decision provides important guidance for companies with regard to how they may conduct internal investigations against a backdrop of government regulatory and criminal investigations.
Marsh terminated the plaintiffs’ employment in 2004 when they refused to be interviewed in Marsh’s internal investigation into the NYAG’s allegations regarding the use of “contingent commissions” and alleged bid-rigging. The plaintiffs were later indicted and convicted on one count of Restraint of Trade & Competition, although their convictions subsequently were vacated based on the prosecutor’s failure to disclose certain evidence to defense counsel.
In their complaint, the plaintiffs asserted claims against Marsh for malicious prosecution and abuse of process, on the theory that Marsh conspired with the NYAG to offer them up as targets for prosecution in lieu of the corporation. The plaintiffs also asserted claims under ERISA and state law, seeking severance benefits that Marsh did not pay to them after it terminated their employment and the value of stock options and other equity awards that they forfeited upon the termination of their employment.
In June 2012, the Court dismissed the plaintiffs’ claims for malicious prosecution and abuse of process on the pleadings.
In its January 2015 decision granting Marsh’s motion for summary judgment, the Court addressed Plaintiffs’ remaining claims for severance benefits under ERISA Section 502(a)(1)(B) and for the value of their forfeited equity awards under state law.
As to Plaintiffs’ claim for severance benefits under ERISA, the Court held that the plain language of Marsh’s severance plan did not entitle the plaintiffs to severance pay because they did not satisfy the plan’s threshold eligibility requirements; namely, Marsh did not terminate their employment because they lacked required job skills, as part of a restructuring, or because their positions were eliminated.
Plaintiffs’ claim for the value of their forfeited equity awards turned on whether their refusal to be interviewed gave Marsh grounds to terminate their employment for “cause,” as defined in the stock award plans under which they were granted the equity awards at issue. This question in turn depended on whether Marsh’s requirement that the plaintiffs submit to interviews was “reasonable,” given that the plaintiffs were facing prosecution and refused to be interviewed to avoid making self-incriminating statements that they feared that Marsh, which was cooperating in the NYAG’s investigation, might share with the government.
The Court held that Marsh was reasonable as a matter of law to require its employees to cooperate in its internal investigation because companies under investigation need to be able to ask their employees to divulge what they know about the alleged wrongdoing to the company. The Court also held that even if Marsh had required the plaintiffs to be interviewed by the NYAG, as one of the plaintiffs maintained, that too would be reasonable because a company under investigation cannot fully cooperate with the government unless it seeks full cooperation from its employees.
The Weil team was led by Litigation Department Co-Chair Jonathan D. Polkes and Employment Litigation partner Nicholas J. Pappas, and included associates Adam Banks and Courtney Fain, all in the Firm’s New York office.