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Tyco International Ltd. v. Walsh

September 1, 2010

TYCO INTERNATIONAL LTD., PLAINTIFF,
v.
FRANK E. WALSH, JR., DEFENDANT.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

This action concerns defendant Frank Walsh's ("Walsh") alleged breach of fiduciary duty based on certain conduct while he was a director of plaintiff Tyco International Ltd. ("Tyco"). Walsh moves to enjoin Tyco from pursuing a counterclaim against him in a separate state court action for breach of fiduciary duty based on the same conduct at issue here. For the following reasons, the motion is denied.

BACKGROUND

Tyco filed the complaint in this action on June 17, 2002. The complaint asserts various claims against Walsh, a former director of Tyco, including a claim for breach of fiduciary duty. Tyco's breach of fiduciary duty claim is predicated on Walsh's acceptance of, and subsequent refusal to return, a $20 million "finder's fee" in connection with Tyco's acquisition of C.I.T. Group, Inc (the "Walsh Payment"). The complaint alleges that Walsh "is therefore liable to Tyco for all the loss suffered by the Company as a result of Walsh's conduct, including his refusal in January 2002 to return the funds in question." (Emphasis added.)

On April 1, 2010, this action was remanded by the Judicial Panel on Multidistrict Litigation from the District of New Hampshire. A bench trial is scheduled to begin on October 5.

At a pretrial conference on June 17, Walsh argued that Tyco should be precluded pursuant to Rule 37(c), Fed. R. Civ. P., from presenting evidence of its damages at the trial due to Tyco's failure to disclose information during the discovery period concerning the basis and amount of its purported damages. A hearing on Walsh's application was held on July 6.

At the July 6 hearing, Tyco's counsel indicated that Tyco was seeking the following three categories of damages:

(1) interest; (2) consequential damages; and (3) punitive damages. With respect to consequential damages, Tyco represented that it was seeking only certain attorneys' fees and costs incurred in connection with (1) the instant litigation; (2) an investigation of the Walsh Payment conducted by the law firm of Boies Schiller & Flexner LLP (the "Boies Schiller investigation"); and (3) Tyco's defense of claims arising out of the Walsh Payment in a certain securities lawsuit (the "Franklin case"). As to interest, attorneys' fees incurred in connection with this litigation, and punitive damages, it was determined at the July 6 hearing that Tyco had not lost the right to pursue those damages based on the conduct of discovery. Judgment was reserved as to attorneys' fees arising out of the Boies Schiller investigation and the Franklin case pending Tyco's production of documentation of its damages.

By letter dated July 13, Tyco's counsel sought "to correct certain statements [counsel] made on Tyco's behalf regarding proof of damages for attorneys' fees and expenses incurred by Tyco that relate to Walsh's conduct." Specifically, Tyco sought to expand its damages claim to include damages beyond those identified on the record at the July 6 hearing, including, among other things, "a portion of over $300 million in attorneys' fees and expenses in the eight years of litigation that followed the Walsh Payment disclosure."

At a July 15 hearing, Tyco's request to expand its damages claim beyond those categories of damages identified at the July 6 hearing was denied. This ruling was based, in part, on a finding that "there would be severe prejudice to so dramatically expand the damages theory" on the eve of trial. In addition, it was determined that

Tyco was motivated in preparing for the July 6 conference and in presenting its theory of damages on July 6 by a consciousness that its damages claims had been vague and undefined during the course of this litigation and it was trying at this point to become more concrete in a reasonable way where it could identify damages that did not depend upon expert discovery or an expert report.*fn1

It was determined, however, that Tyco would be permitted to seek damages based on the attorneys' fees and costs incurred in connection with the Boies Schiller investigation and the Franklin case.

On August 6, Tyco moved in a separate action pending in New York Supreme Court for leave to amend its responsive pleading, Fed. Ins. Co. v. Tyco Int'l Ltd., No. 600507/03 (N.Y. Sup. Ct.) (the "State Court Action"), to add an additional counterclaim against Walsh for breach of fiduciary duty. Prior to its motion to amend, Tyco had pending a single counterclaim against Walsh in the State Court Action to recover from Walsh the defense costs that had been paid to Walsh by Federal Insurance Company under a Directors and Officers ("D&O") insurance policy. Tyco's proposed second counterclaim in the State Court Action is, like its claim for breach of fiduciary duty in this action, predicated on the Walsh Payment. In its proposed counterclaim, Tyco alleges that it "has suffered damages as a result of Walsh's breach of fiduciary duties and bad acts, including but not limited to the additional premium payments associated with the workout of such directors and officers liability insurance policies in the amount of $92 million." Tyco alleges that "Walsh is therefore liable to Tyco for all the loss suffered by Tyco as a result of Walsh's conduct, including costs associated with the workout of Tyco's directors and officers liability insurance policies." (Emphasis added.)

On August 19, Walsh moved to enjoin Tyco from seeking damages from Walsh for breach of fiduciary duty based on the Walsh Payment in any proceeding other than the instant action, including the State Court Action. Tyco filed its opposition to Walsh's ...


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