How to Lose a $4.1 Billion Wrongful Termination Arbitration Award
By Ben Hallman
June 12, 2009
We're New Yorkers, and thus not easily shocked. We once watched a ball of rats (you read that correctly) tumble down a subway track while we were waiting for the downtown train, and we barely blinked. But when we heard last week that a Los Angeles superior court judge had affirmed a $4.1 billion (you read that correctly, too) arbitration award in a wrongful termination case, we just about choked on our Crunch 'n Munch.The award went to Paul Thomas Chester, a former executive at iFreedom Communications, who brought a wrongful termination suit against his former employer and its founder, Timothy Ringgenberg. Given the tremendous size of the award, we assumed that Ringgenberg, after firing Chester, must have then pushed him out a window. But a fascinating National Law Journal Q&A with Michael Young, a labor and employment partner in the Los Angeles office of Alston & Bird, suggests that the opposite was true. Ringgenberg, after firing Chester, defenestrated himself. (Metaphorically, of course. No actual windows were harmed in the making of this astonishing award.)
According to the arbitrator, Ringgenberg fired Chester, a high-level employee, without cause. When Chester sued in California state court, Ringgenberg successfully moved to compel arbitration. The case ended up before William F. McDonald, a retired supervising judge of the Orange County superior court's complex civil litigation panel. At that point, Ringgenberg declined to participate in discovery and withheld financial information that the arbitrator ordered him to produce.
Soon after, Ringgenberg fired his lawyers and substituted himself in to represent all the parties--something you can't do in court because corporations have to be represented by counsel. Ringgenberg represented himself and his companies for the remainder of the arbitration.
It gets worse. After Judge McDonald set a hearing date, Ringgenberg wrote a letter saying, in essence, "I'm not going to show up." With no information forthcoming from Ringgenberg, Judge McDonald had to rely on scarce data on the financial situation of iFreedom, an Internet communications company. "[McDonald] applied adverse inferences against the defendant, essentially filling in the gaps in the story presuming it would come out in favor of the plaintiff," Young said in the Q&A. "That was really where the numbers started to scale," he told the NLJ.
Chester had signed an executive compensation agreement that said he was due a commission of 5 percent of gross sales. The agreement provided that if he was terminated without cause, he was entitled to receive his commissions on "an ongoing and permanent basis." And because Riggenberg refused to provide any financial information about his company, the arbitrator had to estimate iFreedom's revenue. A letter the defendant sent to shareholders said revenue in one month was $535,000 and predicted growth rates of 10 and 20 percent.
"It's not a realistic rate [that] the company really would grow 10 percent per month in perpetuity, but because the defendant didn't come forward with any evidence, because they didn't provide anything in discovery, these adverse inferences were then applied and the arbitrator essentially assumed that those figures were going to be correct," Young said in the Q&A. "If you have a commission structure based on those kinds of growth numbers, you get up to $1 billion pretty quickly."
Then came the punitive damages award, which essentially tripled the commission award. "It's unusual you would triple a $1 billion award, but clearly the arbitrator was going to make a point," Young said.
Point made. Young told the NLJ that he's never seen a $4.1 billion award for a single plaintiff in a wrongful termination case, not even from a jury. We're going to guess that when Ringgenberg saw the size of the award, he just about choked on his Crunch 'n Munch, too.
Solo practitioners Scot Bernstein and Steve Buchwalter represented Chester. And if they ever collect his award from iFreedom, they'll have enough money for a lifetime of Crunch 'n Munch.
