Subsidiary CEO Firing Valid: Minnesota Court

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By Michael Greene

July 14 — Goodman Networks Inc.'s board of directors were comporting with their fiduciary obligations by authorizing the immediate termination of its subsidiary's CEO with cause, after discovering that the former senior officer was trying to find buyers of the subsidiary behind Goodman's back, according to a July 9 Minnesota trial court ruling.

In dismissing claims for breach of employment agreement, among others, Ivy S. Bernhardson, Assistant Chief Judge of Minnesota's Fourth Judicial District, opined that it would have been unreasonable for the telecommunications company's board not to conclude that Multiband Corp. CEO James Mandel engaged in a pattern of dishonest behavior and disloyalty to his corporate superiors.

Specifically, she found that Mandel had engaged in a “Hail Mary” effort to sell the subsidiary only nine months after it was acquired, and that he did so without consultation from his boss, the chairman of Multiband's board, or anyone at Goodman.

“No reasonable board of directors, fully understanding its fiduciary role, could countenance such behavior by a senior corporate officer,” Bernhardson wrote.

Bernhardson also rejected an argument that the termination decision was made too hastily and that an independent investigation was needed to provide Mandel an opportunity to explain his actions. The judge found that the employment agreement did not set out such requirements to show “for cause” termination and that Mandel failed to show that an independent investigation would reveal exonerating evidence. Accordingly, she concluded that the internal investigation by Goodman's legal department and the uncontroverted evidence disclosed during discovery supported the company's decision.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The opinion is available at http://op.bna.com/car.nsf/r?Open=rtuk-9yetfr.