7-year legal fee fight ends
Off the Record
What, if any, legal fees should a company pay for its senior executives if they are accused of breaching their fiduciary duties?
That was one of questions Justice Barbara Conway of Ontario’s Superior Court of Justice addressed in a recent 20-page judgment regarding the former chief executive of Look Communications.
The main focus of Conway’s judgment concerned the actions of Gerald McGoey, Look’s former CEO, after the company received a net $ 64 million from the sale of its spectrum assets in 2009.
A good chunk of those payments made their way to Look’s senior executives, with the amounts, in part, determined by using a $0.40 share price — a level that was above the then- trading price.
“I find that the board’s decision to use a $0.40 a share price for the equity cancellation payments was not in the best interests of the company, preferred the interests of the directors and officers over those of the corporation, and was not within range of reasonable alternatives,” she wrote.
Judge Conway ordered McGoey to repay $ 5.57 million. The amount consists of $ 3.17 million for an “equity cancellation payment” and $2.4 million in a “compensation payment.”
And McGoey was also ordered to repay $ 200,000 to the company. Originally the company paid that money to McGoey’s legal adviser.
In her ruling, Judge Conway presented some of the background to Look’s decision to set up an indemnity trust “that would be funded by Look to cover the legal fees of Look’s directors and officers, as well as any damages that might be payable by them to the company.”
Jeffrey Kramer, Look’s litigation counsel was asked for his view and was invited to a board meeting on June 16 2010. Judge Conway wrote that as the meeting date approached Kramer “became increasingly uncomfortable with the indemnity trust agreement,” adding that McGoey “was very aggressive on the issue.”
As things materialized the board meeting was held — without Kramer being present. (At the time Kramer was with Kramer Simaan Dhillon LLP but has since retired.) At that meeting, the board advanced “indemnification payments of $ 1.55 million.” In her ruling, Judge Conway wrote “it was not in the company’s best interests to use more of its limited resources to defend Mr. McGoey and the other directors and officers against their impugned actions.”
That ruling capped an almost seven- year journey for the legal advances.
In February 2014, ONEnergy Inc. ( the successor company to Look Communications) told the world that the Supreme Court of Canada dismissed the applications for leave to appeal with costs made by two former directors, Michael Cytrynbaum and Gerald McGoey.
Those two had applied to the Supreme Court for leave to appeal a July 2013 decision delivered by the Ontario Court of Appeal. The appeal court had denied their applications “for orders requiring the Corporation to advance their costs of defending the claims made by the Corporation against them.”
In so doing the appeal upheld a lower court decision made by Justice Laurence A. Pattillo in September 2012. That decision affected five insiders: Cytrynbaum, McGoey, Jason Redman, Scott Colbran and Stuart Smith.
In Feb. 2014, ONEnergy said the refusal of the Supreme Court of Canada to grant leave to appeal to the defendants “in this case further solidifies ONEnergy’s position that the payments made to the former officers and directors of ONEnergy’s predecessor Look were inappropriate and unjust.”
One lawyer familiar with the matter said after the Supreme Court decision, Look achieved a “significant recovery” from four of the five insiders.
This spring, a claim made against McGoey was heard at trial.