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Comtex News Networks, Inc. v. Ellis

Other Lower Courts

December 19, 2007

In the Matter of the Arbitration of Certain Controversies between Comtex News Networks, Inc., Petitioner,
v.
Steve Ellis, Respondent.

Editorial Note:

This case is not published in a printed volume and its disposition appears in a table in the reporter.

COUNSEL

Appearing for plaintiff: David Wander, Wander & Associates, P.C.

Appearing for defendant: Matthew Lodge, Carroll, McNully & Kull,

OPINION

Eileen A. Rakower, J.

Steve Ellis (Ellis) became the Chairman and Chief Executive Officer (CEO) of Comtex News Networks, Inc. (Comtex), a publically traded corporation, on July 1, 2003. One of Ellis's long time colleagues, Larry Schwartz, (Schwartz) was hired as Comtex's Chief Financial Officer and President the same day. The parties entered into written Employment Agreements (the Agreement(s)), negotiated by Ellis with Comtex on behalf of Schwartz and himself, that governed their obligations toward one another.

Over the next few months, Ellis became increasingly dissatisfied with the power structure at Comtex. The minutes of the February 5, 2004, Board of Directors' meeting reflect a disagreement between Ellis and others regarding the expanded responsibilities of a particular committee and whether that expansion of its duties usurped his authority as CEO. Those present offered to give Ellis an official vote of confidence as reassurance of their support for him but Ellis declined stating that the Board's action signaled that something was wrong. The minutes state that Ellis read from prepared notes enumerating the various consequences for a public company if the CEO resigns. Discussion continued until Ellis stated that he was very unhappy with recent developments and therefore, he resigned. Ellis produced a typed letter, placed it on the table and walked out of the room. Ellis's letter stated, "I hereby tender my resignation as Chairman of the Board and CEO and as a Director of Comtex News Network." Immediately thereafter, Schwartz stood up, told those present that he too resigned, produced his own letter of resignation and walked out of the room. Schwartz's letter stated, "I hereby resign as President of Comtex, effective immediately."

The minutes reflect that the Board then entered into a "lengthy and detailed discussion of whether or not to immediately accept the resignations and the consequences for the company." The minutes note that Ellis had repeatedly threatened the Board with resignation over the previous months. The Board determined that it would accept Ellis's resignation but one of its members would discuss with Schwartz whether or not he wished to continue with Comtex. To that end, a phone call was placed to Schwartz's cell phone and he put the call on "speaker" so Ellis could hear it. Schwartz was asked to stay with Comtex in some capacity. Schwartz asked about Ellis's future with Comtex but was told that Ellis "had to be gone." Schwartz declined Comtex's offer. Ellis avers that during this conversation Schwartz mentioned his and Ellis's obligation to stay with Comtex for at least one month, a reference to the thirty day notice of termination requirement in the Agreements.

Comtex appointed an interim CEO and Ellis approved a press release announcing his own resignation. Ellis wrote an e-mail on February 9, 2004, congratulating the new CEO and "reminding" the company of the obligations outlined in the Employment Agreement. His e-mail ended stating "in order to avoid any misunderstanding please be good enough to promptly communicate with me the intended actions of the Company relative to its termination obligations." On February 16, 2004, Ellis wrote a letter to the new CEO reiterating his desire for Comtex to clarify its intentions and meet its obligations under his Employment Agreement "to avoid a misunderstanding that will lead to enforcement of my rights under the subject contract . . .." Ellis's February 16, 2004 letter was answered on March 2, 2004 by an attorney for Comtex who informed Ellis that his resignation was accepted by the Board of Directors at the February 5th meeting and it was considered to be "without good reason," as that term is defined in the Agreement. As such, Comtex had different obligations than it would have had if Ellis resigned for a "good reason." The letter spelled out with great detail what Comtex believed to be the obligations of the parties. The letter included a "Separation Agreement and Release" for both sides to sign.

In May, 2004, Ellis filed a demand for arbitration with the American Arbitration Association (AAA), Comtex responded, motion practice and discovery ensued and, after five days of hearings and the submission of briefs, the record was closed on August 27, 2007. Ellis's demand stated that, pursuant to his Employment Agreement, he was owed salary, vacation days, severance benefits, a cash bonus and stock options. Comtex's position was that it did not owe Ellis anything because he had materially breached his Employment Agreement by failing to give thirty days notice of his resignation and he breached his duties as a director and officer of Comtex by failing to diligently perform the duties of his office. By decision dated September 25, 2007, the arbitrator ruled that Ellis did materially breach the Agreement by failing to give thirty days notice of his resignation, that he was owed nothing by Comtex as a result of his breach and Ellis owed Comtex $21,225.00 as his part of the fees and expenses incurred by Comtex. The arbitrator did not address whether or not Ellis breached his duties to diligently perform as director.

Comtex now moves, pursuant to CPLR 7510, to confirm the arbitrator's award and seeks the court to enter judgment in the amount of $21,225.00, together with interest from September 25, 2007 to entry of judgment, and the costs and disbursements of this proceeding. Ellis cross- moves pursuant to CPLR 7511 to vacate the award of the arbitrator, arguing that the decision is "wholly irrational" because he did not breach the notice requirement for resignation in his Employment Agreement, if he did breach of the notice requirement it was not a material breach and, lastly, Comtex should have been collaterally estopped from raising certain of its arguments regarding Ellis at the arbitration hearing because of the determination of another Arbitrator in Schwartz's arbitration matter with Comtex.

CPLR 7510 states, "The court shall confirm an award upon application of a party made within one year after its delivery to him, unless the award is vacated or modified upon a ground specified in section 7511."

CPLR 7511(b) states, in relevant part,

(b) Grounds for vacating.

1. The award shall be vacated on the application of a party who . . . participated in the arbitration . . . if the court finds that the rights of that party were prejudiced by

(i) corruption, fraud or misconduct in procuring the award;

or

(ii) partiality of an arbitrator appointed as a neutral, except where the award was by a confession; or

(iii) an arbitrator, or agency or person making the award exceeded his ...


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