Just One Little Change to the Contract…

Massachusetts Lawyers Weekly ran an interesting but cryptic story–unfortunately I couldn’t find any more info online, so I’m working from my hard copy writeup.

Joseph Cloonan was in-house counsel. He was leaving the company’s employ for unclear reasons. The HR department drafts a severance agreement that promised to pay him $21,200. He then modifies the agreement (unclear if this was done by handwriting or if he modified an electronic copy) to include the following language:

“You will be paid eight hundred and fifty thousand for wages earned, if not paid in full within seven days you will be paid three times this amount along with all of your expenses and legal fees, all the officers and directors will be personally liable as well.”

This was done in a manner that made it hard to identify that the contract had been changed. The HR director signs this amended contract without reviewing it. The company pays the $21,200, then Cloonan demands the $850,000 (surprisingly, he doesn’t seem to demand the $2.5M that the contract language contemplates for late payments).

On the surface, based on the news report, there are so many things wrong with this scenario:

* an attorney trying to “slip” language into the contract. This doesn’t really work as a legal proposition; courts can and will simply reform the contract to reflect the parties’ true intent. It just gives lawyers a bad name.

* an attorney trying to claim that damages for late payment of seven days equal $1.7M. C’mon, this doesn’t pass any reasonableness test.

* an in-house counsel negotiating an increase of severance pay from $21K to $850K with a non-lawyer (the HR director). This type of negotiation, if legitimate at all, needs to be handled with extreme procedural care for precisely the reasons illustrated in this case. I won’t tick off all of the potentially applicable model rules that would govern such interactions, but Rules 1.7(b) and 1.8 spring immediately to mind.

Practice pointer to in-house counsel: if you’re going to try to pull an extra $850,000 out of your employer as you walk out the door, have someone else draft the documents.

Finally, if all of the facts are true here, we had a number of violations of the Model Rules, and I would think that discipline by the State Bar would be warranted.

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