Plaintiffs Tyco International, Ltd. and Tyco International (U.S.), Inc. (collectively "Tyco") bring this action against their former chief executive, Dennis Kozlowski, making numerous claims of wrongdoing. Defendant Kozlowski asserts counterclaims against Tyco seeking payment under various deferred compensation agreements as well as indemnification relating to suits filed by third parties against Kozlowski.
Tyco moves for partial summary judgment on all their causes of action. Tyco further seeks summary judgment dismissing all of Kozlowski's counterclaims. Kozlowski moves for partial summary judgment as to one of the deferred compensation agreements and as to his claim for indemnification.
Tyco's motion is granted in part and denied in part. Kozlowski's motion is denied in its entirety.
There are two issues that mainly determine the outcome of all the motions. The first is choice of law. The second is collateral estoppel.
Tyco is a large multinational company primarily engaged in the manufacture of a wide variety of products and the provision of security and related services. The company was founded in 1962 and was originally incorporated as Tyco, Inc. in Massachusetts. In 1993 the company changed its name to Tyco International, Ltd. In 1995, while still incorporated in Massachusetts, the company opened an office in New York City. In 1997, the company reorganized and incorporated under the laws of Bermuda under the name Tyco International, Ltd. and the original company became a United States subsidiary, Tyco International (U.S.), Inc., incorporated, at least for a time, in the state of Nevada. Tyco has had operating offices in New Hampshire, New Jersey, Pennsylvania, Florida, and Bermuda, among other places.
In 1975, Tyco, Inc. hired Kozlowski to be its Director of Internal Audit. Over the next decade and a half, Kozlowski rose through the ranks, eventually becoming Chief Executive Officer and Chairman of the Board by 1993. After the 1997 reorganization, Kozlowski became Chief Executive Officer and Chairman of the Board of the new Tyco International, Ltd. Kozlowski remained in these positions until 2002. Kozlowski was undoubtedly also the chief executive of the U.S. subsidiary, Tyco International (U.S.), Inc., after the 1997 reorganization.
Kozlowski was compensated in various ways. Part of this compensation included various deferred compensation agreements including a Retention Agreement, signed on January 2, 2001; an Executive Retirement Agreement ("ERA"), signed March 1, 1999; a Deferred Compensation Plan ("DCP"), in which Kozlowski enrolled on March 29, 1994; a Supplemental Executive Retirement Plan ("SERP"), in which Kozlowski enrolled on January 1, 1995; and a Life Insurance and Shared Ownership Insurance Agreement, entered into on March 26, 2001. The total amount of compensation outstanding, under the terms of the agreements, is well over $100 million. Kozlowski, as a senior corporate officer, also had the benefit of indemnification by Tyco for any suits filed against him for actions taken in his official capacity, as provided in Tyco's by-laws.
In June 2002, Kozlowski was discharged from Tyco because he faced imminent indictment in the state of New York for sales tax evasion. An ensuing investigation revealed that Kozlowski had conspired with other corporate officers to pilfer Tyco's treasury of tens of millions of dollars.
This led to a major New York state criminal case involving various charges other than sales tax evasion. Kozlowski was prosecuted along with co-defendant Mark Swartz. That trial took place in 2005, and Kozlowski was convicted on 22 of the 23 counts of the indictment. Kozlowski was sentenced to prison and is currently serving that sentence. The convictions were upheld on appeal. People v. Kozlowski, 846 N.Y.S.2d 44 (N.Y. App. Div. 2007), aff'd 11 N.Y.3d 223 (2008), cert. denied 129 S. Ct. 2775 (2009). Aside from the felony convictions, Kozlowski faces numerous civil suits.
For reasons that will appear, it is important for the collateral estoppel issue to describe, with some specificity, what wrongdoing Kozlowski was convicted of. Furthermore, for the purposes of the choice of law issue, it is appropriate to determine where this alleged wrongdoing took place.
Kozlowski was charged with 12 counts of grand larceny, one count of conspiracy to commit larceny, nine counts of falsifying business records, and one count under New York's Martin Act charging fraud in connection with the marketing of securities. Kozlowski was convicted on all counts except one of the business record counts.
Excerpts from the record in the criminal case of particular relevance for present purposes are the indictment, the judge's charge to the jury, and the verdict sheet. In the jury charge, the judge made an excellent summary of the charges, and also, of course, instructed the jury on what they must find in order to convict on each count.
The grand larceny counts charged grand larceny in the first degree, which means that the value of the taken property must exceed $1 million.
It should be noted that in connection with both the grand larceny counts and the false record counts, there were references to two corporate loan programs called the Key Employee Loan Program ("KELP") and the New York Corporate Headquarters Relocation Loan Program.
The following is a summary of the substantive grand larceny counts against Kozlowski:
1. Kozlowski's wrongful reduction of his KELP debt by $25 million, September 1999.
2. Kozlowski's assistance in wrongfully reducing co-defendant Swartz's KELP debt by $12.5 million, August 1999.
3. Kozlowski's wrongful taking from the so-called "TyCom IPO bonus" plan, $32 million, August 2000 to October 2000.
4. Kozlowski's assistance of Swartz to wrongfully obtain $16 million from the same program.
5. Kozlowski's wrongful taking in connection with the sale of the "ADT automotive business unit," $16 million, October and November 2000.
6. Kozlowski's assistance of Swartz in wrongfully taking $8 million in connection with the same transaction.
8. Kozlowski's wrongful taking in connection with the "FLAG Transaction," $8 million, June to November 2001.
9. Kozlowski's assistance of Swartz in wrongfully taking $4 million in connection with the same transaction.
10. Kozlowski's wrongful taking of funds to purchase artwork, $1.975 million, August and September 2001.
11. Kozlowski's wrongful taking of funds to purchase artwork, $8.8 million, December 2001.
12. Kozlowski's wrongful taking of funds to purchase art work, $3.95 million, January 2002.
13. Kozlowski wrongfully causing disbursements to a director by the name of Frank E. Walsh, $20 million, July 2001.
Count 14 charged Kozlowski and Swartz with conspiracy to commit grand larceny in the first degree, to commit grand larceny in the second degree, and to commit criminal possession of stolen property in the first degree, or the second degree. In connection with the present civil action, the conspiracy count is not useful, because it alleges a broad range of wrongdoing, and the jury was not required to find Kozlowski guilty of all of such wrongdoing, nor was the jury asked for specification as to what it actually found.
Count 15 was brought under the New York Martin Act, General Business Law § 352. This charged fraud in connection with the marketing of securities. Count 15 will not be discussed further.
Counts 16-24 charged false entries in business records. Kozlowski was acquitted on Count 17, and convicted on all the other false entry counts.
Count 16 alleged that in September 1995 Kozlowski falsified records in connection with the New York City Headquarters Relocation Loan Program. The specific charge was apparently that Kozlowski implemented a different relocation plan from the one approved by the Board of Directors. ...