Technology Company Hit With Billion Dollar Award
There isn’t anything particularly interesting or novel about Paul Chester’s case as far as the law goes. It looks like a straightforward breach of contract case.
What made me gasp when I read about the case was the size of the award: $4.1 billion !!!!! It’s both amazing and unheard of. It’s just SO big.
The Case
Here’s what happened in the case according to the press release from Chester’s lawyers.
Paul Thomas Chester was hired by iFreedom Communications, a provider of VoIP and WiFi technology, as its Chief Marketing officer in June of 2004.
The company promised Chester commissions and overrides on gross revenues, as well as the right to receive company stock and other compensation commensurate with Chester’s experience in building marketing organizations.
When the time came to pay, iFreedom refused so Chester filed suit. The defendants moved to compel arbitration based on a provision in the employment contract which provided for arbitration in the event of a dispute.
Chester worked for iFreedom until the end of September, 2005 for a total of 15 and a 1/2 months of employment.
The Award
The arbitrator, a retired judge, heard the case and found:
- the defendants obtained Chester’s services by means of false pretenses and fraud
- Chester was entitled to unpaid salary, commissions, travel expenses, compensation for unissued company stock and unreturned intellectual property
- the defendants were liable for statutory penalties, interest, attorney’s fees, and punitive damages equal to three times the compensatory award
The total was 4.1 billion dollars.
The Los Angeles County Superior Court confirmed the award about ten days ago against iFreedom Communications International Holdings Limited, and it’s founder, Timothy Ringgenberg and entered judgment against them.
Here’s the breakdown from the court if you you want to look at it and copies of the opinions and awards. Thanks to the Dennis Westlind at World of Work for bringing it to us and for answering this question — how did this guy get all of this money?
The employment agreement guaranteed him a salary of $12,000 a month plus commissions of 5 percent of gross sales; if he was fired without cause, he would continue to receive commissions. iFreedom also was supposed to provide Chester with 1.1 million shares of common stock upon hiring and another 600,000 shares if he met certain sales targets . Apparently, iFreedom did really, really well. Sales, stock and interest added up, and in a big way.
That’s how it happened. The company was earning tons of money, much of it due to Chester — and it refused to pay him what he was clearly entitled to receive. They also lied to him and stole from him. It’s pretty simple stuff with very large numbers.
(For more about the case, you may also want took at Phillip Loree‘s article. He makes the point that the Arbitration Fairness Act of 2009, if passed, would render pre-dispute agreements which require arbitration of employment disputes –such as Mr. Chester’s dispute with iFreedom — unenforceable. It’s a good point, but I have no reason to believe that the outcome in this case would have been any different.)
Lessons To Be Learned
So what can we say about this case? What lessons can we learn? How about this:
- Chester was smart to have a really good employment contract
- iFreedom failed to fulfill its promises when it terminated Chester without cause which entitled Chester to the compensation promised in the contract
- iFreedom engaged in “a pattern of despicable conduct” regarding Chester, including fraud and conversion, according to the arbitrator
- Despicable conduct can result in punitive damages — whether it’s awarded by a judge, jury or arbitrator
- Successful companies can do really stupid things
It’s not rocket science. It’s just the way it is. email.