Facts

Michael Ladish filed suit against his former employer Modern Props. Modern Props is in the business of creating and leasing modern props and furniture to the movie and television businesses. Respondent John Zabrucky founded Modern Props 30 years ago and is the president and creative force. Michael Ladish was a longtime employee and officer of Modern Props, and is a director and owner of 27 percent of the stock of Modern Props. Modern Props employed Michael Ladish under a written employment agreement which provided that Modern Props and Zabrucky had the obligation to purchase Michael Ladish's shares of Modern Props upon Michael Ladish's termination at the election of Michael Ladish. The shares were to be purchased at full value, which was 27 percent times the valuation of Modern Props, without discount for lack of liquidity or lack of control, even if Modern Props terminated Michael Ladish for cause.

In February 2012, Modern Props terminated Michael Ladish. Michael Ladish's employment agreement stated that Michael Ladish was required to "devote his full productive time, energy, and ability to the proper and efficient management of the operations of Modern Props."

Steven Ladish, the brother of Michael Ladish and a former employee of Modern Props, owns 8 percent of the stock of Modern Props. Steven Ladish sought to enforce a written agreement, signed at the same time as Michael Ladish's employment agreement, which obligated Modern Props and Zabrucky to buy Steven Ladish's shares in Modern Props at full value upon the termination of Michael Ladish's employment.

Michael Ladish also asserted various breaches of his employment against Zabrucky.

CLAIMANTS' CONTENTIONS:
Michael Ladish contended that Modern Props and Zabrucky were obligated to purchase his shares in Modern Props for $560,000, and that Modern Props and Zabrucky were obligated to pay Michael Ladish pre-termination compensation and benefits of $233,000 in accordance with the terms of his employment agreement. Plaintiffs also contended that there was no cause for the termination of Michael Ladish's employment, and therefore Michael Ladish was entitled to the not-for-cause termination benefits of $183,500 as provided in his employment agreement. Michael Ladish claimed he worked at a formerly related company for 32 months, while being paid by Modern Props, because Zabrucky directed him to do so to protect a contingent financial interest that Modern Props had in the competitor, which it had previously owned.

Steven Ladish contended that Modern Props and Zabrucky were obligated to buy his shares in Modern Props for $182,000.

RESPONDENTS' CONTENTIONS:
Modern Props contended it terminated Michael Ladish's employment for cause, based on Michael Ladish's submission of a materially false financial statement to Modern Props' bank in connection with Michael Ladish's guaranty of Modern Props' bank debt. Respondents contended Ladish also reneged on a promise to Zabrucky to reimburse Modern Props for salary and benefits paid by Modern Props to Michael Ladish for a period, originally thought to be 18 months but in actuality determined to be 32 months, when Michael Ladish worked at a formerly related company of Modern Props while being paid by Modern Props.

Respondents contended that Michael Ladish committed a federal crime under 11 U.S.C. 1014 by knowingly submitting a materially false financial statement to Modern Props' bank, and that Michael Ladish worked at a competitor for 32 months, while being paid by Modern Props, because Michael Ladish was engaged in a long-running sexual affair with the owner of the competitor. Respondents claimed that Michael Ladish never devoted his full productive time, energy, and ability to Modern Props. For 32 months, he devoted his full productive time, energy, and ability to the competitor and even after Michael Ladish returned to Modern Props, he did a poor job. Respondents claimed he failed to open 11,000 emails on his business computer, and failed to send out emails from his business computer for years, which was a total material breach of his contract.

Respondents claimed that Michael Ladish was not entitled to enforce the buy-out provision of his employment agreement because he had unclean hands based on his commission of a federal crime and his breach of fiduciary duty in working for a competitor while being an officer and director of Modern Props. Respondents also claimed that Michael Ladish was not entitled to enforce the buy-out provision of his employment agreement because he committed a prior material breach of that agreement. Respondents argued that Modern Props did not in any case owe Michael Ladish pre-termination salary or benefits, or any not-for-cause benefits because Modern Props terminated Michael Ladish for cause. Respondents alleged that Michael Ladish orally agreed to reimburse Modern Props for the compensation and benefits paid to him by Modern Props while he was working for a competitor, about $570,000.

Respondents maintained that Modern Props was entitled to rescind its agreement with Steven Ladish based on failure of consideration. The agreements with Michael Ladish and Steven Ladish were signed at the same time, and the only consideration to Modern Props for the Steven Ladish agreement was Michael Ladish's full performance under the Michael Ladish agreement. Respondents further claimed that Michael Ladish owned Modern Props principal and interest on a promissory note he executed and delivered to Modern Props.

Damages

In total, Michael Ladish sought nearly $1 million from Modern Props and Zabrucky, plus attorney fees and costs.

Result

The arbitrator found for the respondents and against the claimants. Respondent Modern Props recovered $63,595 from Michael Ladish on the promissory note, which obligation was not contested. Respondents recovered attorney fees of $54,075 for legal work in the superior court to confirm the arbitration award to oppose the petition to vacate the award. The arbitrator ruled that Michael Ladish had unclean hands, because he committed a federal crime and worked for a competitor for 32 months, that he was not owed any pre-termination salary or benefits, and that he was terminated for cause. The arbitrator ruled that Modern Props was not entitled to recover the compensation and benefits it paid to Michael Ladish for the 32 months he worked at the competitor. The arbitrator also ruled that Modern Props was entitled to rescission of the Steven Ladish agreement based on failure of consideration.

Other Information

The arbitrator ruled that both parties should bear their own attorney fees and costs incurred in the arbitration. FILING DATE: Dec. 27, 2012.