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Power v. Tyco International

May 30, 2007

RICHARD D. POWER, PLAINTIFF,
v.
TYCO INTERNATIONAL (US), INC., DEFENDANT.



The opinion of the court was delivered by: Gerard E. Lynch, District Judge

OPINION AND ORDER FINDINGS OF FACT AND CONCLUSIONS OF LAW

Plaintiff Richard D. Power brought this action for breach of contract against his former employer, Tyco International (US), Inc., alleging that Tyco had failed to pay severance benefits promised to him under an oral contract agreed to by Tyco's former Chairman and Chief Executive Officer ("CEO"), L. Dennis Kozlowski. The case was tried before the Court without a jury on April 25, 2007. This Opinion sets forth the Court's Findings of Fact and Conclusions of Law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure. To the extent any Finding of Fact reflects a legal conclusion, it shall be to that extent deemed a Conclusion of Law, and vice versa. As detailed below, the Court concludes that Tyco breached an agreement to pay plaintiff severance, and that plaintiff is due damages in the amount of $900,000 plus interest.

FINDINGS OF FACT

I. Background to the Dispute

1. Power was employed by or affiliated in various capacities with Tyco, or its predecessors or affiliates, from 1979 through early 1992 (Stipulated Facts, Joint Pretrial Order § V ("Stip'd Facts"), at ¶¶ 3-5), and again from June 1995 through December 1998. (Id. ¶¶ 7-11.)

2. The first period of Power's employment at Tyco ended in January 1992 when Kozlowski, then Tyco's Chief Operating Officer, terminated Power's employment as Chief Financial Officer. (Stip'd Facts ¶ 5; Tr. 15-16, 18.) In connection with this termination, Power received a severance package from Tyco pursuant to a written agreement. The severance package consisted of 24 additional months of continued salary and certain benefits, but not any bonus. According to the agreement, Power's package represented a "substantial number of additional months of remuneration outside of company policy." (D. Ex. 2; see Stip'd Facts ¶ 6, Power Dep. 2/9/06 ("Power Dep. I") 26-27.)

3. The second period of Power's affiliation with Tyco began in 1995, when Power began providing consulting services to Tyco. In 1997 he again became a Tyco employee, and until 1998 he was employed by Tyco in various capacities, ultimately being assigned to a restructuring project for U.S. Surgical Corporation, a Tyco subsidiary, where he reported to RichardGilleland, President of U.S. Surgical. (Stip'd Facts ¶ 8-11; Power Dep. I 30, 37-38, 61-62, 65-66, 68.)

4. Kozlowski told Power that the assignment to U.S. Surgical "would be financially worth [Power's] while" and that Power could be assured of receiving another position once the assignment was completed. (D. Ex. 10; see Stip'd Facts ¶ 12, Power Dep. I 282-84.)

5. In December 1998, Power was informed by Gilleland that his services were no longer required, and that he should contact Kozlowski, by then Tyco's CEO, to discuss his future employment. Kozlowski advised Power that Power would be reassigned to a new position as soon as one could be identified. (Stip'd Facts ¶¶ 11-12; Power Dep. I 72-73.)

6. In January 1999, however, in conversations with Mark Swartz, Tyco's Chief Financial Officer, and later with Kozlowski, Power was notified that he would be terminated. Power began to negotiate a severance arrangement. (Stip'd Facts ¶ 13; Power Dep. I 72-74.)

7. Between January and May 1999, Power attempted to negotiate a severance agreement with Swartz and Irving Gutin, a Tyco in-house attorney, exchanging written draft agreements. The negotiations were unsuccessful. (Stip'd Facts ¶ 14-15; Power Dep. I 16, 75-76, 82; D. Exs. 8, 12.) During this period, Power continued to receive a salary and benefits from Tyco. (Power Decl. ¶ 14.)

8. While these negotiations went on, Power contacted several attorneys, seeking advice regarding whether he had a claim based on breach of certain oral promises Kozlowski had allegedly made to him regarding employment benefits. In one such letter, dated April 12, 1999, Power wrote that "Kozlowski has a history of making promises and not keeping the promise."

(D. Ex. 11, at 2; see Power Dep. 5/24/06 ("Power Dep. II") at 38-39; D. Exs. 6, 10.)

9. Also during this period, Power explored other business opportunities. In May 1999, he was offered a full-time position with another company. (Power Decl. ¶¶ 15-16.)

II. Negotiations Regarding Power's Return to Tyco

10. In May 1999, in a telephone conversation initiated by Kozlowski and Swartz, Kozlowski proposed to Power that rather than continuing to negotiate a severance package, he should return to work at Tyco. (Stip'd Facts ¶ 16; Power Dep. I 84-85.) Power's notes of this or a related conversation with Kozlowski indicate that Kozlowski stated that in connection with such continued employment, "I will write a severance contract up front." (Power Dep. I 263, D. Ex 75.)

11. Power then undertook various negotiations with Swartz and Kozlowski regarding the terms of his projected renewed employment with Tyco. As of June 13, 1999, Power and Swartz had reached an impasse in negotiations. On June 13, 1999, Power faxed to Kozlowski a document, referred to by the parties to this litigation as the "landscape document," detailing the state of negotiations, listing the various issues under discussion and, in parallel columns, the respective positions on each issue of Swartz and Power, as Power understood them. (See Tr. 44 (Power).)

12. No unaltered copy of the original of this typewritten faxed document has been located by either party. At least two copies containing later handwritten annotations are part of the record. (D. Exs. 13, 21.) Although no witness can confirm with certainty that these documents contain an unaltered text of the original fax, it is a reasonable inference under all the circumstances that the typewritten text of these exhibits is identical to what Power faxed to Kozlowski, and the Court so finds.

13. With respect to severance, the landscape document reflects that Swartz's position was "[t]wo years salary - in a written agreement." Power's proposal, according to the document, was "$1.5 million payable over two years with benefits continued. . . . In a change of control or similar restructuring - the severance mentioned above would be a minimum amount." (D. Ex. 13.) Significantly, in light of future developments, the amount demanded was a fixed sum, not a formula based on Power's salary and bonus.

14. At the time the fax was sent, Power had not reached agreement with Tyco that he would return or continue to work for the company. Although Tyco argues that certain statements on the first page of the fax demonstrate that Power had already agreed to return (specifically, "I will speak to Paul Montrone on Monday afternoon and plan for an immediate transition. . . . I am pleased to have the opportunity to work for you again."), the overall text of the fax makes clear that these were either conditional statements or pleasantries, that negotiations were still under way, and that no definitive agreement had been reached between the parties on the terms or conditions of any future employment of Power at Tyco, or on whether he would indeed accept any offer. (D. Exs. 13, 21; see Tr. 57-58.)

III. The Conversation Between Kozlowski and Power

15. At some time within the next few days, probably on June 14, 1999, during a telephone conversation of uncertain length, Kozlowski and Power reached agreement on the terms of Power's renewed employment with Tyco. (Power Decl. ¶ 22.) What if anything Power and Kozlowski definitively agreed upon regarding severance is the principal issue in dispute between the parties.

16. It is undisputed that Kozlowski and Power were the only parties to the relevant conversation, and that no written agreement was ever executed detailing the terms of their agreement. Although there is contention over the scope of the agreement that prompted Power's return to Tyco, there is no doubt that an agreement was reached. Power went back to work and was paid substantial amounts of money; he also received a variety of benefits and perquisites, many of which correspond to subjects that were, according to the landscape document, under negotiation.

17. With respect to the severance issue, both Kozlowski and Power claim that they agreed that Power's severance payment would be the greater of $1.5 million or two times his salary and bonus in the year prior to termination. (Power Decl. ¶ 22; Kozlowski Dep. 39, 40-41.) If either Power or Kozlowski or both were reliable and credible witnesses, this would largely settle the matter in Power's favor.

18. However, the Court does not find either to be an entirely credible witness.

IV. Credibility Findings

A. Kozlowski

19. There are numerous reasons to doubt Kozlowski's credibility. First, on June 17, 2005, Kozlowski was convicted in New York State Supreme Court, New York County, of 12 counts of grand larceny in the first degree, one count of conspiracy in the fourth degree, one count of violating New York General Business Law § 352c(5), and eight counts of falsifying business records in the first degree. The fact that Kozlowski is a convicted felon whose crimes involved dishonesty and fraud bears heavily on his believability. See Fed. R. Evid. 609(a)(2).

20. Second, Kozlowski is not an unbiased witness. There is substantial evidence that he has reason to be hostile to Tyco, and undisputed evidence that he is favorably disposed to Power. As to the former, Kozlowski is the defendant in an action brought by Tyco in which Tyco seeks the recovery of tens of millions of dollars that Tyco alleges he stole or misappropriated, Tyco Int'l v. Kozlowski, No. 02 Civ. 7317 (S.D.N.Y., transferred to MDL Docket No. 1335 (D.N.H.)), and another action by Tyco seeking the disgorgement of millions of dollars due to alleged securities violations, Tyco Intl'l v. Kozlowski, No. 02 Civ. 9705 (S.D.N.Y., transferred to MDL Docket No. 1335), as well in a civil action by the Securities and Exchange Commission ("SEC"), SEC v. Kozlowski, No. 02 Civ. 7312 (S.D.N.Y.), and a securities class action, In re Tyco Int'l Secs. Litig., No. 02 Civ. MD 1335 (D.N.H.), in which Tyco has refused to indemnify him. As to the latter, Kozlowski and Power have been close personal friends for years (Tr. 116), and Kozlowski is godparent to one of Power's children. (Power Dep. II 26.) Power attended approximately 50 days of testimony in Kozlowski's two criminal trials to support his friend, sent a letter to the Court on Kozlowski's behalf in connection to Kozlowski's sentencing, visited him in prison, and continues to exchange letters with him. (Power Dep. I. 117-21, D. Ex. 103.)

21. Third, while Kozlowski testified that he reached a definitive oral agreement with Power regarding severance, the record contains evidence that Kozlowski's practice with other employees was to create written agreements memorializing such severance agreements. (D. Exs. 39-45.) Power testified that he had never encountered an example of an unwritten employment agreement during his extensive experience reviewing the employment agreements of senior executives of Tyco in connection with due diligence work on various acquisitions and restructurings. (Power Dep. I 233-34.)

22. Fourth, in 2002, before leaving Tyco, Kozlowski reviewed a list of employees to be terminated in connection with downsizing, which had been prepared by Swartz, Prue, and Mark Foley, another Tyco executive. Although Power was on the list, Kozlowski did not inform Swartz or Prue that the termination of Power would trigger a substantial severance payment. (Prue Dep. 96-99, 116-17.) It would be natural to expect that this liability would be addressed in deciding whether Power should be fired. Kozlowski's failure to mention the agreement suggests either that it had not been made, or at least that Kozlowski did not remember it at the time, which calls into question his claim that he recalls it now.

23. Fifth, the Court was deprived of the opportunity to hear Kozlowski's own account of his general practices in negotiating such severance agreements, because Kozlowski repeatedly asserted his Fifth Amendment privilege in response to questions propounded by Tyco on cross-examination regarding those practices. (See, e.g., Kozlowski Dep. 70-73.) No doubt the direct confrontation of Kozlowski with written severance agreements with other senior employees would be illuminating: perhaps Kozlowski could have persuasively explained his practices, to Power's advantage, or perhaps the confrontation would have yielded embarrassment and retreat, to Tyco's advantage. It is unnecessary to draw any particular inference from Kozlowski's invocation of his privilege. It is sufficient to note that the Court is reluctant to rely on testimony that could not be fully confronted by the adverse party.

24. Finally, Kozlowski's memory of the relevant conversation was extremely limited. While he purported to be firm in his recollection of the term of his agreement with Power that is at issue in this case, he could not remember important details about other aspects of the negotiation, such as salary, stock options, bonuses, and the forgiveness of a "bridge loan" for Power's house. (Kozlowski Dep. 22-23, 31.) Kozlowski's memory of the severance term was also shaky at best; at first, he recalled that the agreement had been for "[t]wo times his severance and bonus," but could not recall whether there was "another denominator." (Id. at 39.) Only after being shown his earlier written declaration did Kozlowski recall that the agreement had been for two times severance and bonus or $1.5 million. (Id. at 40.) Nor could Kozlowski remember how, or even whether, the parties had resolved issues regarding under what circumstances severance would be due. (Id. at 41.)

25. Moreover, Kozlowski's memory of at least one important aspect of the severance negotiation was demonstrably faulty. Kozlowski recalled that his objective in the negotiation had been to get Power to agree to receiving a smaller severance payment than he had received on his prior termination from Tyco, which Kozlowski recalled as being three times his salary and bonus. (Id. at 50-52.) In fact, Power had received a smaller severance of twice his salary, without bonus, on his previous firing (Stip'd Facts ΒΆ 6) and was negotiating to receive a much richer deal on this occasion. (Kozlowski Dep. 50.) Thus, Kozlowski's recollection is mistaken as to more than the mere details of the negotiation; ...


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