It’s very likely that your grandmother, an aunt or uncle, or some other wise and guiding figure in your life taught you the maxim we started in our headline: If you can’t say something nice, don’t say anything at all.
That’s a saying that captures a theme that comes out of many of our posts here on Suits-by-Suits. It’s not just a decent piece of advice for life, but in business relationships as well.
Of course, there are times when you can’t follow it, and have to say something. This is especially true when key employees leave a company, and the company is compelled to explain the departures. But as genetic-analysis company Sequenom learned last Thursday in a ruling from a California appellate court, if you’re going to say something that’s not nice about a former employee, then follow another rule that we lawyers are especially fond of: get your agreement with the former employee in writing before you say anything about him. Or, you can face long and protracted litigation over who did and said what.
The dispute between Sequenom and its former CFO, Paul Hawran, that shines light on these basic rules started in the spring of 2009. Sequenom announced that research results for a test for Down’s Syndrome that it was developing had been “mishandled” by some of its employees. The usual sequence of events followed: its stock price went down, shareholders filed lawsuits, the company’s board formed a litigation committee to conduct an internal investigation, and by early summer, the Securities and Exchange Commission announced its own investigation.
By September, Sequenom was ready to go public with the results of its internal investigation. The company approached CFO Hawran and asked him to resign as part of the announcement (it’s not clear that Hawran was involved in the research being mishandled – and as discussed below, he contends this was retaliation for something unrelated). According to Havran, the company told him that in its announcement, his resignation would be mentioned separately from the two other executives who were, in fact, involved with the research. With that understanding, Havran agreed to resign.
You can guess what happened next. Having decided to say something about Havran’s resignation, Sequenom didn’t have a written agreement with Havran summarizing exactly what it would say about his departure. And so a few days after Havran agreed to resign, Sequenom put out a press release and filed a report with the SEC that linked Havran to the other executives that were leaving the company because of the mishandled research.
Of course, litigation followed. Havran sued Sequenom and three of its key directors, alleging – significantly for our purposes – that the press release and SEC report breached an oral contract that he had made with the company when it asked for his resignation. He also alleged, among other things, that the press release and SEC report were defamatory, cast him in a false light, and violated California’s Unfair Competition Law. Havran explained in his complaint that he had nothing to do with the research, but was being asked to resign because he disagreed with the board about tax issues, and so he argued he shouldn’t have been linked to the executives resigning over the research.
In an interesting procedural twist, Sequenom and the directors responded by filing a motion to dismiss Havran’s complaint under California’s “anti-SLAPP” statute. SLAPPs (“Strategic Lawsuits Against Public Participation “) were once used by companies to silence public criticism of their actions. Anti-SLAPP laws like California’s are designed to protect citizens from these suits and encourage open debate and discussion. California allows defendants in civil suits who think the suit against them is directed at their free speech rights to make an early motion to dismiss the suit, which forces the plaintiff (here, Havran) to demonstrate that the suit is not merely directed at public speech or conduct.
The trial court granted Sequenom’s motion, but only in part. It dismissed several of Havran’s causes of action as barred by the anti-SLAPP suit or otherwise unsupportable. The court held, however, that Havran’s claims for breach of contract, defamation, and invasion of privacy could go forward.
As is often the case with “split decisions” like this one, neither side is happy, so both decide to appeal. In a unanimous decision, a three-judge panel of the California Court of Appeal affirmed the trial court’s ruling in a lengthy and thorough opinion.
The court reviewed Havran’s breach of contract allegation specifically, and weighed the evidence submitted before deciding that Havran’s claim should move forward. Recall that Havran said he had resigned because Sequenom had promised that it wouldn’t tar him in its press release – and that therefore, in his view, a contract was created. Sequenom raised three main points in defense. First, it said if Havran was right, then the resulting contract would be a “contract to misrepresent facts,” and therefore would be unenforceable because it would be against public policy. Second, it argued it didn’t actually lump the discussion of his resignation in with the other officers who were resigning – his resignation was, after all, in a separate line of the press release – and that it had, therefore, performed the contract. Finally, it said any contract with Havran was “an oral contract contrary to the parties’ agreement to be bound in writing.”
The appellate court held that Havran had submitted evidence to counter all of these defenses. Havran’s witnesses and Sequenom’s witnesses – none of whom had testified in open court, given the stage of the case, but who had submitted sworn statements on one side or the other (in a rare departure from the usual practice on motions to dismiss) – had conflicting accounts of what Havran was told when he was asked to resign, and on whether the parties agreed to ultimately put their agreement in a later writing. From all of this, the appellate panel agreed with the trial court that Havran’s breach of contract claim can move forward through discovery and toward trial.
Which is not where Sequenom wants to be: it thought it could cut the case short, but now it faces a much longer (and more expensive) path through litigation and ultimately, perhaps, trial or settlement. Whether or not Havran is correct in his allegations, Sequenom’s failure to document in writing Havran’s agreement to resign will cost the company in time and money.
That leads us back to the core morals of this story: if you can’t say something nice – about either an employee or an employer – don’t say anything at all. If you have to say something, though, try to get an agreement in writing on what exactly it is that you’re going to say.