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KAMFAR v. NEW WORLD RESTAURANT GROUP

December 9, 2004.

RAMIN KAMFAR, Plaintiff,
v.
NEW WORLD RESTAURANT GROUP, INC. f/k/a NEW WORLD COFFEE-MANHATTAN BAGEL, INC., et ano., Defendants.



The opinion of the court was delivered by: LEWIS KAPLAN, District Judge

MEMORANDUM OPINION

Ramin Kamfar was the founder, chief executive officer, and chairman of New World Restaurant Group, Inc. ("New World" or the "Company"). He left the Company in April 2002 amid questions about the propriety of bonus payments he and other officers had received. The agreement governing the terms of Kamfar's departure included a confidentiality provision, a non-disparagement provision, and a covenant not to sue. After Kamfar's departure, the defendants described the disputed payments in various public statements as "unauthorized." Kamfar challenges those statements in this diversity action for breach of contract and defamation. The defendants allege in a counterclaim that Kamfar has breached the covenant not to sue by bringing this action. The matter now is before the Court on defendants' motion for summary judgment dismissing the complaint and plaintiff's motion for summary judgment dismissing the counterclaim.

  Facts

  A. Background

  New World, a Delaware corporation with its principal place of business in Colorado, is a public company that operates a chain of coffee stores.*fn1 Kamfar, a resident of New York, founded the Company in 1993, was chief executive officer from 1996 to 2001, and chairman from December 1998 until his departure on April 1, 2002.*fn2 Defendant Anthony Wedo was hired as chief executive officer in August 2001, became chairman upon Kamfar's departure, and remained in that position throughout the events at issue in this action.*fn3

  In 2000, New World was immersed in a protracted effort to acquire the Einstein/Noah Bagel Corporation ("Einstein"), which had filed for bankruptcy.*fn4 That year Kamfar, prompted by Michael Konig, New World's general counsel, proposed to New World's board of directors a bonus plan to compensate certain employees who had been working intensively on the Einstein acquisition, including Kamfar himself, Konig, and chief financial officer Jerold Novack. The plan eventually included a bonus to be paid if the acquisition was completed and a bonus to be paid if the relevant employees were dismissed following a change of control in connection with the acquisition.*fn5

  The plan was discussed by the Compensation Committee in December 2000*fn6 and eventually, in an attachment to an email message, forwarded with no explanation in April 2001 to the board,*fn7 which never actually discussed it.*fn8 The beneficiaries of the plan eventually received bonus payments totaling $3.5 million; Kamfar's share was $1,620,000.*fn9 The board of directors was not aware of these payments, some of which were in the form of advances in cash and stock before the bonuses had actually vested under the plan.*fn10 The bonus plan was not disclosed in any of New World's public filings or private financing contracts.*fn11

  The parties dispute vigorously, as they apparently have been doing since February 2002, whether the bonus plan was duly authorized. They dispute, among other things, whether the Compensation Committee had the authority to approve the bonus plan on its own, and whether, if it did not, the board of directors ever approved it. The Court finds it unnecessary to review the complicated factual history relevant to these issues.

  The plan did not become a subject of controversy until February 15, 2002, when the Proskauer Rose law firm discovered it while advising New World on several unrelated matters.*fn12 Proskauer, after discussion with the board, launched an investigation.*fn13 The investigation, which was conducted over several weeks, involved more than twenty attorneys who together spent more than 2,200 hours reviewing approximately fifty boxes of documents, interviewing seventeen witnesses, and collecting and reviewing computer files.*fn14 Proskauer retained also forensic accountants, an information technology firm, and Delaware counsel.*fn15

  On March 7 and 15, 2002, Proskauer gave the board oral presentations on its findings. It advised the board, among other things, that the bonus payments had not been authorized and that the Company's financial statements would have to be restated in order to give the payments the appropriate accounting treatment.*fn16 On April 1, 2002, Kamfar and New World entered into a settlement agreement (the "Agreement") pursuant to which Kamfar agreed to repay the $1,620,000 he had received in bonus payments, New World agreed to pay Kamfar $1,445,000, and Kamfar waived his right to severance payments under pre-existing contracts.*fn17 The parties agreed to release each other from any claims that they might have had against each other up to the date of the Agreement.*fn18

  The Agreement included also mutual covenants not to make disparaging statements, covenants not to sue, and an agreement to keep the terms and conditions of the Agreement confidential. The non-disparagement and confidentiality provisions included exceptions for disclosures that New World believes in good faith are "necessary or desirable to protect the Company's interests." The covenants not to sue included an exception for the parties' rights to enforce the Agreement.*fn19

  B. The Defendants' Public Statements

  On April 3, 2002, New World issued a press release announcing Kamfar's departure and his severance payment.*fn20 On May 31, New World filed its Form 10-K and issued a press release. Both disclosed that the Company had revised its financial statements in order to give the proper treatment to "unauthorized bonus payments" of $3.5 million.*fn21

  Proskauer attorneys advised on the drafting and issuance of these documents.*fn22 Proskauer believed that the Company was obligated, pursuant to the securities laws, to disclose "the circumstances underlying the Restatements" and "the $1,445,000 in compensation that Mr. Kamfar received as part of the Settlement Agreement."*fn23

  On June 4 the Asbury Park Press ("APP"), a New Jersey newspaper, published an article about New World which attributed to Anthony Wedo, Kamfar's successor as chairman, a statement identifying Kamfar as one of the recipients of unauthorized bonuses.*fn24 New World's public relations consultant, William Parness, testified that he, on behalf of Wedo, communicated with the reporter in connection with the article*fn25 and that Wedo provided the reporter with the information that Kamfar was a recipient of the bonuses.*fn26

  On June 24, 2002, Wedo held a conference call with analysts and shareholders in which he made statements about the bonuses that conveyed substantially the same information as the statements in the May 31 press release and the 10-K filing.*fn27 Proskauer attorneys helped Wedo prepare for the call.*fn28 On the following day, the APP published another article on New World. This article, which reported on the conference call, ...


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