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Predatory Raiding and High-End Executive Defections

Predatory Raiding and High-End Executive Defections. Joel P. Hoxie Snell & Wilmer LLP Phoenix, Arizona. W INDY C ITY L ITIGATION M ANAGEMENT TRIAL.COM CHICAGO SUPERCOURSE 2011.

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Predatory Raiding and High-End Executive Defections

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  1. Predatory Raiding and High-End Executive Defections Joel P. HoxieSnell & Wilmer LLP Phoenix, Arizona WINDY CITY LITIGATION MANAGEMENT TRIAL.COM CHICAGO SUPERCOURSE 2011

  2. “With Blackstone having paid a super-premium price for Hilton, [Hilton CEO Christopher] Nassetta will be under intense pressure to deliver immediate results.” ehotelier.com November 9, 2007

  3. Departing Executives Owe A Duty of Loyalty ... even in absence of any restrictions contained in an employment agreement

  4. Duty of Loyalty Subordinates and other employees Customers/Clients Company’s confidential and proprietary information

  5. Solicitation of Subordinates and Other Employees

  6. Solicitation of Subordinates and Other Employees

  7. Solicitation of Customers/Clients

  8. Solicitation of Customers/Clients

  9. Transfer/Use of Company’s Confidential and Proprietary Information

  10. Transfer/Use of Company’s Confidential and Proprietary Information

  11. Making Plans/Preparing to Compete Solicitation Preparation

  12. Permissible Preparation/Planning • Interview with competitors or form new company • Work on logistical arrangements • (new office space, computer/ telephone systems, business cards, press release, etc.) • Notify current customers and subordinates of departure (?)

  13. Predatory Raiding Disloyal Executive + Competitor’s Overzealous Recruiters __________________ = Liability

  14. Predatory Raiding – Primary Claims (In Addition to Employment Agreement Rights) Breach of fiduciary duty Aiding and abetting breach of fiduciary duty Tortious interference Uniform Trade Secrets Act

  15. Security Title v. Pope Security Title Agency, Inc. v. Pope, 219 Ariz. 480, 200 P.3d 977 (Ariz. Ct. App. 2008)

  16. A Textbook Predatory Raid on Security Title extensive clandestine meetings strategy to make defection “look proper” Pope involved key subordinates in the plan First American agreed to indemnify Pope “against anything” in her new employment agreement Pope paid a signing bonus and provided funds to pay bonuses to her key people Pope solicited all of branch’s key customers Pope had subordinates copy all pending escrow files and maintain at home successfully stole 80% of branch staff and 70% of branch business

  17. Linda Pope + First American Title (Talon Group) ___________________ = $6.3 Million (Compensatory) + $35.2 Million (Punitive) [$41.5 Million]

  18. Among the incriminating emails at Talon Group obtained during discovery: “[Pope is] a very significant recruit [who] controls $8,000,000 in revenue … She is with Security Title and would be a major coup for us (or blow to [Security Title])” “The attached [employee] list contains all the users that will soon join the Talon team. This could happen at any time within the next week or two. NOTE!!! We need to hide all of these recipients in the [First American Title global address book] (potential political repercussions).”

  19. “Ross Klein Leaving W Hotels for . . . Hilton?!!” June 2, 2008 www.hotelchatter.com

  20. Starwood Sues Hilton and Two Former Starwood Executives for Corporate Espionage, Theft of Trade Secrets, and Unfair Competition

  21. October 8, 2009 “Hotel Feud Prompts Grand Jury Into Probe“ by Peter Lattman “A federal grand jury is investigating whether Hilton Worldwide and several of its former executives should face criminal charges for allegedly stealing tens of thousands of pages of confidential documents from rival Starwood Hotels & Resorts, according to people familiar with the situation…” Wall Street Journal

  22. “Starwood Amends Suit to Implicate Top Hilton Executives” www.successfulmeetings.com January 19, 2010 “Starwood Lobs New Allegations Against Hilton” The Wall Street Journal January 15, 2010

  23. PRESS RELEASE:HILTON WORLDWIDE ANNOUNCES SETTLEMENT AGREEMENT WITH STARWOOD HOTELS & RESORTS WORLDWIDE “ … Hilton Worldwide regrets the circumstances surrounding the dispute with Starwood Hotels & Resorts Worldwide and is pleased to bring an end to this pro longed litigation,” said Christopher J. Nasseta, president and chief executive officer, Hilton Worldwide. (cont’)

  24. “Hilton Worldwide is committed to fair, ethical, and robust competition in the marketplace, and we will continue to focus on what we do best – providing exceptional services for all of our guests around the world …” December 23, 1010

  25. Ross Klein & Amar Lalvani + Hilton Worldwide ________________ =

  26. Hilton Settlement (12.22.10) Consent to Permanent Injunction Against Hilton, Klein, Lalvani Moratorium on Hilton working on development/planning/creation of any lifestyle brand until January 2013 Cash Payment to Starwood (Confidential) Ongoing supervision of Hilton by two federally appointed monitors – Injunction Monitor and Branding/Marketing Monitor – to ensure Hilton abiding by terms of injunction. U.S. Grand Jury investigation ongoing

  27. Preventative Measures Involve corporate counsel early and advise lateral recruiters Determine up front if executive bound by contractual limitations Remind executive of duty of loyalty Obtain written certification re confidential materials/solicitation Condition indemnification upon compliance with certification

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