Tyco International, Ltd. v. Kozlowski
756 F. Supp. 2d 553
| S.D.N.Y. | 2010Background
- Tyco sues Kozlowski seeking enforcement/forfeiture under multiple deferred compensation agreements and indemnification for civil suits.
- Kozlowski was Tyco's former CEO/Chairman; he was discharged in 2002 amid a major theft investigation.
- Kozlowski was convicted in a New York criminal case on most counts related to misappropriation and falsification of records, with the fraud scheme centered in New York.
- Tyco asserts the compensation agreements are voidable for fraud or, alternatively, forfeitable under New York's faithless servant doctrine.
- The court must decide governing law (New York vs Bermuda) and whether collateral estoppel applies to facts litigated in the criminal case.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicable law governing contract/forfeiture claims | New York law should apply for conduct occurring in New York and fraud/forfeiture claims. | Bermuda law should apply due to internal affairs and Tyco's Bermuda incorporation. | New York law applies for constructive fraud and forfeiture. |
| Collateral estoppel effect of criminal convictions | Convictions establish liability for fiduciary breaches and related torts in civil action. | Convictions do not resolve damages or all elements of civil claims. | Partial estoppel: certain fiduciary-duty and related claims established; damages to be determined in civil action. |
| Faithless servant doctrine applicability to forfeiture | Tyco seeks to forfeit compensation due to disloyalty; doctrine supports entire forfeit period. | Limitations or scope of forfeiture may depend on contract and applicable law. | New York law applies; complete forfeiture of compensation earned during disloyalty is warranted. |
| ERISA/top-hat plan treatment of DCP and SERP | DCP and SERP benefits may be subject to forfeiture under New York federal common law if disloyalty occurred. | ERISA may govern, potentially preempting state-law forfeiture. | DCP and SERP benefits forfeitable; ERISA applicability determined for these plans with respect to forfeiture. |
| Validity/independence of certain counterclaims | Counterclaims arise from post-1995 agreements and may be voidable due to fraudulent inducement or faithless service. | Some contracts pre-date 1995 misconduct and may be enforceable absent fraud. | Summary judgment granted dismissing several counterclaims; remaining counterclaims analyzed under governing law. |
Key Cases Cited
- Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941) (conflict-of-laws choice-of-law governs application of state law)
- Burnett v. Columbus McKinnon Corp., 69 A.D.3d 58 (4th Dep't 2009) (conflicts in choice-of-law analyzed under New York rules)
- Tronlone v. Lac d'Amiante Du Quebec, Ltee, 297 A.D.2d 528 (1st Dep't 2002) (conflicts between jurisdictions resolved under New York law)
- Locke v. Aston, 31 A.D.3d 33 (1st Dep't 2006) (conflict-of-laws methodology for choice of law)
- Cooney v. Osgood Mach., 81 N.Y.2d 66 (1993) (conduct-regulating vs. loss-allocating analysis for tort choice-of-law)
- Dash v. Triborough Bridge & Tunnel Auth., 827 N.Y.S.2d 116 (2006) (interest analysis framework for choosing applicable law)
- Richbell Info. Servs., Inc. v. Jupiter Partners, L.P., 309 A.D.2d 288 (1st Dep't 2003) (internal affairs doctrine as a factor, not automatic reference)
- Aramony v. United Way Replacement Benefit Plan, 191 F.3d 140 (2d Cir. 1999) (top-hat plan forfeiture recognized in common law context)
- Lamdin v. Broadway Surface Advertising Corporation, 272 N.Y. 133 (1936) (faithless servant doctrine origins)
- Feiger v. Iral Jewelry, Ltd., 46 A.D.3d 524 (2d Dep't 2007) (faithless servant doctrine applied to forfeiture of compensation)
- Kennedy v. Mendoza-Martinez, 372 U.S. 144 (1963) (collateral estoppel principles in civil actions)