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BIGDA v. FISCHBACH CORP.

June 8, 1995

JOHN P. BIGDA, Plaintiff, against FISCHBACH CORPORATION, Defendant.


The opinion of the court was delivered by: ROBERT L. CARTER

 CARTER, District Judge

 Plaintiff, John Bigda, alleges the breach of his employment agreement and the termination of the stipulation of settlement entered into between defendant Fischbach Corporation ("Fischbach") and Victor Posner which, while allowing Posner to gain control of Fischbach, sought to bar his interference with the company's management and operations. In his first cause of action, Bigda seeks liquidated damages consisting of $ 601,377, an amount equal to three times plaintiff's annual salary; $ 112,661, the present value of three additional years of credited service; $ 7,644, the cost of the continuation for three years of plaintiff's health insurance benefits; and the legal fees and expenses incurred as a result of the termination of the employment agreement. In his eighth cause of action, he seeks a declaratory judgment that the forfeiture clause of the Senior Executive Benefit Plan is unenforceable. *fn1"

 Defendant contends that Bigda's claims should be dismissed because the employment agreement has not been breached; that in any event Bigda continued to perform under the contract up to and after he terminated the employment agreement on October 3, 1990; that the liquidated damages provision in the employment agreement constitutes a penalty and is therefore unenforceable; and that plaintiff is guilty of breaches of good faith. Moreover, defendant contends that plaintiff is liable for breach of fiduciary duty extending from May 1989, to December 31, 1991 inclusive, entitling defendant to damages on its counterclaim in the amount of $ 519,701.76, the equivalent of the salary paid to him by Fischbach during the period in question.

 I. Background

 The background facts in this controversy preceding those at issue at this stage of the proceedings have been detailed in the court's April 19, 1994 opinion, reported at 849 F. Supp. 895, with which familiarity is assumed, and will be repeated here only as is necessary for clarity and understanding of the current disposition.

 In 1980, Victor Posner, who had already gained considerable notoriety as a corporate rapist, began to purchase Fischbach's outstanding stock through Pennsylvania Engineering Corporation ("PEC"), one of the companies Posner controlled. To ward off a takeover, Fischbach and PEC entered into an agreement limiting the percentage of outstanding stock PEC and its allies could acquire. In 1984, Posner and his allies brought suit in Florida to set aside the limiting agreement. In January, 1985, the dispute was resolved in a stipulation of settlement that gave ultimate control of the company to Posner but sought to rein in that control by keeping full operational responsibility and authority in the hands of those who had managed the company before Posner's intrusion. In particular, it was stipulated that Alfred R. Manville would remain as President and CEO of Fischbach, that he would provide for management continuity, and that he would designate a successor. Certain employees were given five-year employment contracts providing them with job security and generous prerogatives and entitlements if their employment agreements were breached or terminated. Plaintiff was the recipient of one of those employment contracts, and his agreement, dated October 25, 1985, is the focus of this litigation.

 Once in control, Posner repudiated the stipulation. He dismissed the Manville people from the Board, refused to honor the commitment to appoint Manville's designated successor, Edwin Wilinski, as CEO, and took over Fischbach's bank accounts. Under Posner's five-year stewardship, the defendant accumulated enormous debt and came close to collapse.

 In November, 1989, American Insurance Group ("AIG") entered into an option agreement with Posner to buy out his shares in Fischbach. On July 17, 1990, AIG acquired 94.9% of Fischbach's stock. On August 15, 1990, Fischbach became a subsidiary of AIG. Plaintiff remained an employee of Fischbach until December, 1991.

 By letter dated October 3, 1990, however, plaintiff terminated the October 25, 1985 employment agreement, and he brings this action to secure various entitlements specified in the agreement. Initially, Bigda sought to recover for breaches occurring during the Posner regime as well as those which took place after the AIG takeover. In its April 1, 1994 opinion, the court held that plaintiff had no cause of action for breaches during the Posner era on the grounds that Bigda had elected to continue performing under the agreement and could not now sue for its breach. Bigda, 849 F. Supp. at 901 (citing Filmline (Cross-Country) Prods., Inc. v. United Artists Corp., 662 F. Supp. 798, 805 (S.D.N.Y. 1987) (Sprizzo, J.), aff'd, 865 F.2d 513 (2d Cir. 1989)). Summary judgment was granted to defendant on all matters relating to the Posner era, but the court allowed Bigda to present evidence at trial regarding breaches that may have occurred during the AIG era, reserving judgment regarding whether he had elected to continue his contract during that era as well. Id.. These issues, along with defendant's counterclaim, were tried to the court and are now the focus of inquiry.

 II. Breaches of the Employment Agreement

 After its takeover, AIG installed Donald Brenner as President and Chief Executive Officer ("CEO") of the company. On assuming office, Brenner met with the staff and invited each of them to meet with him privately to discuss their personal situations. Bigda sought to meet with Brenner for this discussion, but according to Bigda's testimony, the meeting never took place.

 Brenner distributed a questionnaire to the employees requesting them to list their duties, functions, reporting responsibilities and critical matters needing his immediate attention. Plaintiff responded, describing his duties as Secretary and General Counsel as being

 
responsible for all Secretarial and legal matters, including litigation, involving the Corporation and its subsidiaries. I direct the activities of scores of law firms throughout the country in the handling of our litigation and other legal matters. I am an officer and director of all subsidiaries; Security Clearance Officer for the Fischbach facility here at 485 Lexington Avenue; and Anti-Trust Compliance Counsel for F&M [a subsidiary of Fischbach] under its agreement with the Dept. of the Army.

 (Pl. Ex. 25.)

 Plaintiff identified the following as critical matters needing Brenner's immediate attention: implementation of the merger and formation of Fischbach/Natkin Associates (see discussion infra at 6); delisting of the company's common stock on the N.Y.S.E.; deregistration by the S.E.C.; claims by DWG (a Posner company), Posner and the Manville estate; settlements of lawsuits by Aetna and Travelers Insurance Company ("Travelers"); the Florida lawsuit; anti-trust litigation; and legal matters arising in the normal course of business. (P. Ex. 25.) In addition, he listed as important the designation of outside counsel and his continued employment. (Id.; Tr. at 101-02.) Brenner never replied to this communication or met with plaintiff on any of these matters. Some of these matters were handled without consultation with plaintiff by third parties or employees in whose selection or designation plaintiff played no part.

 When AIG acquired Fischbach, negotiations were taking place between AIG and Peter Kiewitt & Sons ("Kiewitt") to form a joint venture to which some of Fischbach's assets would be sold. In anticipation of the joint venture, a new company, Fischbach/Natkin Associates ("NEWCO"), was incorporated. In early September, 1990, a meeting was held in Denver, Colorado to usher in the new enterprise. The plaintiff was invited to attend this meeting but declined to do so. At that meeting, an organizational chart of NEWCO was distributed showing another lawyer, Tom Shea, as reporting to NEWCO's chief operating officer, making Shea general or chief counsel of this new company. On September 13, 1990, after seeing the chart, Bigda faxed the chart to Richard D'Alessandri, an AIG attorney, along with an inquiry as to whether he had been replaced as Fischbach's General Counsel. D'Alessandri responded by phone, explaining that the chart referred to NEWCO and that Bigda would continue as Fischbach's General Counsel. (The joint venture never came to fruition and NEWCO was abandoned shortly after the Denver meeting.)

 On September 14, 1990, Bigda again wrote to D'Alessandri, inquiring whether AIG would be interested in extending his employment agreement. (Tr. at 438-39.) As a result of this letter, Bigda met with D'Alessandri, Brenner and Mark Reagan, a senior AIG executive dealing with Fischbach issues, on September 26, 1990. Reagan presented a proposal for Bigda's continued employment. Bigda stated that he believed that he had a cause of action for breaches of his employment agreement by Posner which would enable him to secure termination benefits. The other parties did not wish to talk about that. Bigda said that other employees, for example Robert Niehaus, former Acting President of Fischbach, were receiving or had received better deals than the one that was being proposed for him. Reagan told him to think about what was being proposed for him, and the meeting ended. (Tr. at 722-23.) On October 2, 1990, Bigda wrote to D'Alessandri regarding severance pay. On October 3, 1990, he sent a letter, addressed to the chairman of Fischbach, terminating his contract. At the time, Fischbach had no chairman, and the termination letter was received by the company's receptionist. Bigda continued to report to work until late December, 1991. Current Fischbach management did not become aware of the termination letter until Patricia Moore, Chief Administrative Officer to John Kiley, the new CEO of Fischbach, met with Bigda in December, 1991, to discuss a severance package. (Tr. at 765-66.)

 Under the terms of Bigda's employment agreement, which extended for five years from October 25, 1985, Bigda was to perform the same services that he performed immediately prior to the agreement; his base salary was set at $ 133,000 annually, with a yearly percentage increase; he was entitled to participate in a bonus program for senior executives; vacations were to be afforded of at least the same duration as had been afforded immediately prior to the agreement; and he was to be included in the benefit programs that were provided for most senior executives, including the pension plan, hospitalization, health and life insurance, group dental insurance, and the disability plan.

 In the event that Bigda was removed from any of his positions or that his responsibilities or authority were curtailed or diminished and the breach continued for ten days after written notice from him of the breach, Bigda had the option of either terminating his services or terminating the agreement. If he elected to terminate his services, he was then entitled to all compensation and other payments and benefits provided under the agreement.

 If Bigda elected to terminate the agreement, he was then entitled to receive all compensation to the date of termination, plus the equivalent of three years salary and bonuses; legal fees and expenses incurred in seeking to enforce the rights specified in the agreement; continued benefit programs for three years after termination; and three additional years of credited service under the pension plan. Moreover, there was no requirement to mitigate damages.

 When AIG took over in August, 1990, Fischbach was a shell of its former self, emptied of its cash reserves, heavily in debt to its creditors, and involved in many lawsuits which exposed the company to a potential liability of many millions of dollars. AIG sought to reduce Fischbach's exposure through negotiation with Fischbach's creditors and litigants. In handling the merger with Fischbach and in seeking to reduce the company's financial liabilities, AIG engaged people (lawyers and employees) to accomplish this task, without consulting plaintiff, although he was advised of what was going on. While these matters were theoretically Fischbach's business, it was AIG's funds and assets that were to be used to satisfy Fischbach's obligations and the claims against it in the effort to restore the corporation to good health. AIG chose the firm of Kaye, Scholer, which had represented it in the acquisition of Fischbach, to reach agreements with Westinghouse, BAII, Posner and DWG, settling roughly some $ 80 million of Fischbach's indebtedness. Settlement of the Aetna and Travelers lawsuits was reached for about $ 39 million. D'Alessandri worked out a settlement of the lawsuit Wilinski had brought for breach of his employment agreement and negotiated an agreement with Coudert Brothers to keep them from withdrawing as counsel for Fischbach in ongoing anti-trust litigation because of nonpayment of the firm's fees, which had grown to $ 3 million.

 Fischbach's survival was at risk, and without the steps AIG took to handle these outstanding matters, the company could not have survived. I am not convinced that these acts, accomplished without Bigda's involvement, constituted breaches of his employment agreement. Indeed, there is only Bigda's word as to the extent and scope of his responsibility and authority as General Counsel prior to the Posner takeover. Nor am I at all certain that Bigda's version of the scope of his authority during that period is reliable or credible. There is some evidence that his authority to appoint outside counsel was subject to Board approval and that his decisions on legal matters were seconded by Wilinski. Moreover, with over a hundred million dollars involved, I seriously doubt that before the Posner takeover Bigda would have had the unfettered authority he claims he had to decide on the selection of people to do what had to be done. However, there has been no effort to seriously challenge him regarding the scope of his duties. Accordingly, the court will assume in deciding the breach of contract issue that Bigda's authority and responsibility were as far-reaching in scope and independence as he asserts.

 Bigda points to the following as instances of diminution of his authority in violation of the employment agreement: Brenner's handling of the termination of Robert Niehaus, acting president of Fischbach, without consulting plaintiff, (Tr. 107-11); Bigda's not being consulted about the Aetna, Travelers, BAII, Westinghouse, Posner, and DWG settlements and not being involved in selecting outside counsel to deal with these matters; his not being allowed to handle the delisting on the N.Y.S.E. or the deregistration with the S.E.C.; D'Alessandri's negotiating with Coudert Brothers without consulting or involving Bigda; and D'Alessandri's settling of the Wilinski law suit and the Manville estate claim without consulting or involving plaintiff. (Tr. at 117, 130-140.) Brenner never discussed any of these matters with plaintiff and did not respond when Bigda wrote to him about current legal issues facing the company. (Tr. at 132, 133.) These incidents occurred in August, on the heels of ...


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