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Former Colt GC and VP Fire Off Wrongful-Discharge Suit
The Connecticut Law Tribune
Two top lawyer-executives at the Colt firearms manufacturing companies have filed wrongful discharge lawsuits against the legendary West Hartford gunmaker, and are seeking millions of dollars in lost pay.
Former GC Carlton S. Chen, of Wilton, and Vice President of Business Development Merrick Alpert, of Mystic, claim they were unceremoniously fired last October on trumped-up fraud charges and cheated out of lucrative severance packages. Their detailed accusations provide a rare glimpse of legal scheming in the corporate inner sanctum.
Chen and Alpert have each filed eight-count employment lawsuits against Colt CEO emeritus William Keys, Colt's Manufacturing Co. and Colt Defense LLC. They are being represented by James Nealon, a partner in the Stamford office of Kelley Drye & Warren.
John Droney, of the Hartford office of Hinkley Allen & Snyder, is representing Colt's Manufacturing Co. "We're defending it vigorously, but we feel that it has no merit," he said of the wrongful firing claims. "They have a colorful complaint but that doesn't make it true."
Albert Zakarian, of Day Pitney, is representing Colt Defense.
Chen was often the public face of Colt, testifying regularly before the state legislature on gun bills. Alpert also has a high profile. A lawyer, businessman and veteran of the Bosnian conflict, in 2010 he challenged Richard Blumenthal for the Democratic nomination for a U.S. Senate seat. By some accounts, Alpert beat Blumenthal in their first political debate. Blumenthal declined further debates and won the party endorsement.
But the central figure in the saga that led to these lawsuits is another larger-than-life figure, former Marine Lieutenant General William Keyes.
As one of Connecticut's most storied companies, Colt traces its heritage to 1847, when Samuel Colt moved his struggling revolver start-up to Hartford then a technological hotbed. The company prospered during the Civil War and the two world wars, but by the early 1990s was in bankruptcy, needing million in cash infusions from Connecticut's state coffers.
Private equity investors John P. Rigas and Donald E. Zilkha bought the company out of bankruptcy, and in 1999 made a board member Keys its CEO.
As Connecticut CEO's go, Keys is truly battle-hardened. In Vietnam, he was a courageous combat commander, personally responsible for killing at least 10 Viet Cong, some in hand-to-hand combat. He was decorated for his valor with Bronze and Silver stars and the Navy Cross. He also served in Operation Desert Storm in Iraq, along with General Norman Schwarzkopf. With that background, it's not surprising that Keys was constantly on strategic alert for danger and tactical advantage.
It was his idea to spin off Colt's military and police weapons production into a separate company in 2002, at a time when the U.S. handgun industry was defending against a string of expensive, though unsuccessful, civil lawsuits. The consumer handgun business and intellectual property matters were consolidated in Colt's Manufacturing LLC.
Keys became CEO of Colt Defense. In the ensuing decade, the Sept. 11 attacks increased demand for security weapons, and Colt Defense supplied up to 800 new military assault rifles per day to the Iraq and Afghanistan war efforts. In 2010, the aging Keys stepped down as CEO of Colt Defense, but he remained CEO emeritus of Colt's Manufacturing.
The next year, Keys sought to hire Alpert, who previously had success in medical software and other businesses. In a June 2011 letter, Keys not only offered Alpert the $225,000-a-year vice-president's post, but said he would be in line to become CEO.
But the employment outlook was not all rosy. Keys warned Alpert that he suspected that Colt's Manufacturing might face a potential hostile takeover by Colt Defense or some other adversary.
Hostile takeovers can take a year or more to complete, Alpert noted in his court pleadings, and this drawn-out process could cause top management talent to flee. "Keyes told me that he was concerned that [Colt's Manufacturing's] senior management team, including myself might decide to leave to pursue other employment" during a takeover battle "unless they had some reasonable assurances of job security," Alpert said in an affidavit.
Specifically, Keys reportedly told Alpert that the company would be in "big trouble" if then Senior Vice President Veilleux, now Colt's CEO, were to leave.
And so, Alpert alleged, Keys instructed him to draft lucrative "change-in-control" contracts that would make it financially worthwhile for top level Colt executives to stay in their jobs even if a hostile takeover were launched. Among those who would receive such contracts were Alpert, Veilleux and the executive vice presidents in control of marketing, human resources and manufacturing.
The plan was so secretive, even Colt's Manufacturing's General Counsel Carlton Chen and his deputy, Joseph Dieso, were kept out of the loop. (Dieso is now Colt's Manufacturing's GC.)
Instead of using Colt's inside or outside lawyers, Alpert states that he told Keys he was retaining his friend and neighbor Sarah Moriarty, a Mystic solo, to draft the change-in-control agreements in January 2012.
Moriarty's task was to draft prototypes for compensation that were even better than "golden parachutes." As one Colt insider put it, "these were platinum." The goal was to preserve a loyal core of top managers who would battle hard in a hostile takeover and fight to preserve value for the shareholders, Alpert's affidavit states.
To this day, there is no evidence that Colt Defense has ever threatened to take over Colt's Manufacturing.
During Alpert's short time at Colt, he claims he was told by Keys that the private equity group, Sciens Capital Management, which controls Colt Defense, had a dangerous side a "track record and pattern of trying to build false, pretextual cases against employees in an effort to terminate them 'for cause' solely to avoid paying severance..."
For that reason, Alpert said in his affidavit, Keys warned him that the change-in-control agreements had to be "rock solid" because after a takeover, Colt Defense, Sciens Capital and Rigas "would stop at nothing" to invalidate them.
In February 2012, Alpert traveled to Keys' farm in Virginia to have him sign the contracts for the five executives. By March 8, GC Chen was also given a change-in-control agreement, too.
Later that year, Alpert says, he suggested that the agreements be bolstered. He claims that Keys agreed. So Alpert retained Victoria Zerjav, a corporate compensation lawyer at Kelly Drye & Warren in Stamford. On Aug. 15, 2012, according to court records, Zerjav modified the agreements so that compensation was sweetened by 300 percent and salaries guaranteed through Jan. 1, 2016.
In late August 2012, Alpert alleges, the Colt companies' two top private investors, John Rigas and Donald Zilkha, got wind of the agreements "and immediately began to threaten Keys." As late as Sept. 1, 2012, Keys assured the six senior managers that he stood in support of the six agreements, according to Alpert.
Alpert said he believed that the CEO was planning a counter-attack against the investors. According to the affidavit: "Keys had told me of his plan to get green card holder Rigas whom Keys called `an economic terrorist' deported back to Greece for money laundering [and] emailed me two links to a U.S. agency tracking money laundering."
But that counter-attack was never launched. Instead, Alpert claims, Zilkha and Rigas threatened to fire Keys and hold him personally liable for the costly change-in-control agreements. By Oct. 1, 2012, Alpert states, Keys stopped talking to Alpert, Chen and the other top managers. "The silence was ominous," Alpert says in court documents.
At about 4 p.m. on Monday, Oct. 8, 2012, investor Zilkha commandeered the company boardroom. Alpert was summoned.
Zilkha, reading from a statement, reportedly told Alpert his job was being terminated for cause following an internal investigation. The change-in-control agreements were deemed invalid and Alpert was accused of a fraud on the company for creating them.
Alpert says in his affidavit he was "greatly offended and shocked at the absurdity and outrageousness of Zilkha's accusations of fraud." Alpert said he was given a five-page agreement to sign which forfeited his lucrative employment agreements. He claims he was told he could avoid public disgrace by resigning rather than being terminated "for cause." Instead he walked out of the boardroom, he states, and then escorted from the building by a waiting armed guard. He called the allegations of fraud "a transparently false pretext to try to avoid paying me" under his employment agreements.
Chen, as well, states that he was also summoned to the boardroom the same afternoon, accused of fraud and fired. In his lawsuit, Chen states that he, too, was escorted away by an armed guard "in a manner calculated to damage Chen's reputation with his colleagues."
Chen and Alpert are each seeking pre-judgment remedy liens of $2.7 million against their former employer.
Colt's Manufacturing Co. is currently seeking to disqualify Kelley Drye on grounds that it was first retained by the company and cannot represent Chen or Alpert without a conflict of interest. Chen and Alpert say no conflict exists.
Specifically, Alpert contends that Keys would never have hired Kelley Drye's Victoria Zerjav to represent a Colt company. In his affidavit, Alpert calls the idea "utterly lacking in credibility given the rabid sexist and misogynist views and proclivities that Keys displayed at work."
Alpert asserts that he was reimbursed for Kelly Drye's legal services under the expense reimbursement clause of his Colt's employment contract, and that the payments were made "for legal services rendered to me," not the Colt companies.
Droney, who represents Keys (now the CEO emeritus) and Colt's Manufacturing, said his clients are awaiting a ruling on a 123-page request to revise the complaints of the two lawyers, on the grounds that they are rife with assumptions and should only plead facts.
Droney had nothing to say about allegations of Keys' sexism. But Droney added: "He's a man of unquestioned courage and integrity, and it's a privilege to represent him. We look forward to our day in court."
This article originally appeared in the Connecticut Law Tribune.