Trick or Treat? Jury Finds that Navient Terminated Executive Without Cause Three Months After Acquisition
After deliberating for less than two hours, a California federal jury found yesterday (October 31, 2022) that Navient Corp. lacked “cause” – as defined in his employment agreement – to terminate co-founder and CEO of a fintech startup it acquired in 2017. The judge will determine the severance and other damages due to the executive in a second phase of the trial.
The breach of contract suit was brought by Louis Beryl, the former CEO of Earnest, a financial technology and education finance company. He alleges that Navient terminated him without cause in January 2018 – just three months after Navient acquired Earnest and entered into an employment agreement with him. Beryl is seeking over $4.4 million in damages from Navient, including unpaid severance and the value of stock and performance awards.
During the four-day trial, Beryl’s counsel presented evidence that showed that Beryl was given unachievable goals after the acquisition. The company’s counsel claimed that it had cause to terminate Beryl because he was too focused during his first weeks on the job attempting to renegotiate financial targets and compensation increases, which placed his financial interests over those of the company. Beryl also allegedly missed a deadline for submitting a business plan to the company.
In closing arguments, counsel for Beryl painted Navient as a large, corporate bully, who tossed him aside under the guise of a termination for “cause” in an attempt to deprive him of severance and equity to which he was entitled. In addition to finding he was not terminated for cause, the jury determined that Beryl is entitled to $1 million in restricted stock and $1.4 million in performance awards. The jury also found that Navient had agreed to increase Beryl’s annual base salary and bonus, paving the way for a substantial monetary award by the judge.
This case demonstrates a well-worn saga: a PE firm or large corporation takes over a smaller niche player with an existing complement of executives. Unfortunately, both sides of the deal rely on standard contracting language which may not provide the protections desired by either party. For the acquiring company, it is important to spell out carefully the expectations of the acquired executives, who may resist interference by it. The executives, on the other hand, need to ensure they have clear and adequate protections if they are terminated without cause, particularly if a portion of the acquisition payout is tied to continued employment.
Bertram LLP represents employers, boards and executives in executive transitions and disputes, like the one presented in this case.