On June 22nd, Morgan, Brown & Joy prevailed on behalf of its client in a six-day jury trial in the United States District Court for the District of Massachusetts (Boston) in a case involving a former employee who alleged an unlawful failure to pay a large performance bonus. In Crawford v. Wolverine, Proctor & Schwartz, Inc., et al., the plaintiff, Peter Crawford, alleged that he should have been paid a bonus of nearly $600,000 based on the overall performance of the company in 2001.
Mr. Crawford served as the Chief Operating Officer of Wolverine, Proctor & Schwartz, Inc. (“Wolverine”) from 2000-2001. Under his employment agreement with the company, he was to be paid a bonus that was based on the company’s “EBITDA” (earnings before interest, tax, depreciation and amortization — a term which measures a company’s cash flow from its regular operations, or what the company makes from what it does). In 2001, Wolverine suffered an operating loss of approximately $500,000. At the end of that year, a transaction occurred which resulted in Wolverine’s lender agreeing to walk away from 50% of the company’s $21 Million debt. This created a forgiveness of indebtedness income entry on the company’s books of more than $10 Million for 2001. Mr. Crawford’s suit sought to include the $10 Million “paper gain” from the debt forgiveness into his bonus calculation. Another issue at the trial was the question of whether Mr. Crawford and Wolverine’s CEO had orally agreed to increase his bonus percentage during 2001. After a six-day jury trial, the jury returned with a unanimous verdict in favor of Wolverine on both the failure to pay the bonus and the oral bonus increase questions in just one hour!
Notably, the case also involved the legal question of whether Mr. Crawford’s executive EBITDA-based bonus is “wages” under the Massachusetts Wage Act. The implications of this claim were significant, as the Wage Act imposes personal liability on certain high-ranking executives of the company as well as potential triple damages. Morgan, Brown & Joy successfully dismissed the plaintiff’s Wage Act claim in a pretrial motion, in which the Court held that such executive bonus claims based on EBITDA are not encompassed within the definition of “wages” in the Wage Act.
Mark Whitney represented Wolverine throughout the litigation and at trial. Morgan, Brown & Joy tried the case with another law firm (who represented another party in the action).