Lawson v. Spirit Aerosystems, Inc.

Filing 597

MEMORANDUM AND ORDER. The court finds in favor of Plaintiff and against Defendant. See Order for details. Signed by District Judge Eric F. Melgren on 10/19/2021. (mam)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
LARRY A. LAWSON,
Plaintiff,
vs.

Case No. 18-1100-EFM

SPIRIT AEROSYSTEMS, INC.,
Defendant.

MEMORANDUM AND ORDER

Larry Lawson, the former CEO of Spirit Aerosystems, filed suit alleging Spirit
breached its obligation to pay him the sums due him under the Retirement Agreement
they had entered into in 2016. The case proceeded to a bench trial commencing on June
15, 2021. For the reasons discussed below, the Court enters judgment in favor of
Plaintiff Lawson.

Findings of Fact
“In an action tried on the facts without a jury or with an advisory jury, the court
must find the facts specially and state its conclusions of law separately.”1 The Court

1

Fed. R. Civ. Pr. 52(a)(1).

makes the following findings of fact, each being supported by at least a preponderance
of the evidence.

Background
1.

Lawson has a bachelor's and a master's degree in electrical engineering.

He did some postgraduate work in engineering, and attended the Harvard Advanced
Management Program, and is an MIT fellow. Before he became the CEO of Spirit, he
had worked for McDonnell Douglas, Recon Optical, Martin Marietta, and Lockheed.
2.

In early 2013, an executive search firm contacted Lawson to ask about his

interest in becoming Spirit’s CEO. During his career, Lawson had been acquainted with
the Conquistadors, a group of the top 200 executives in the aerospace industry. Through
that group, which met twice a year, Lawson had meet Spirit board members Bob
Johnson, Paul Fulchino, and Chuck Chadwell. Lawson knew that Spirit was a
commercial aerostructures company, which he found interesting because it was
different from his prior, defense-oriented work. Lawson met with the Spirit board,
which stated that the company had performance issues, incurring a $600 million loss the
previous quarter.

Employment Agreement
3.

Ultimately, Spirit extended an offer to Lawson, which resulted in an

Employment Agreement signed on March 18, 2013.2 In reaching this agreement,

2

Exh. 3.

2

Lawson was represented by counsel. Lawson read the agreement before signing it, and
he understood its terms.
4.

Lawson understood that to be a CEO was to run a company, to be

responsible for the operations, the financials, the talent, and customer relationships, of
Spirit. In exchange, he would receive a salary, along with short-term incentives (stock
shares based on the year of performance) and longer-term incentives (based on the
performance of the company). Paragraph 4(e) of the agreement prohibited Lawson from
divulging any confidential or proprietary Spirit information.
5.

Under the Employment Agreement, Lawson was paid a base salary, an

additional 10% discretionary bonus, participation in a non-qualified Deferred
Compensation Plan, a one-time bonus of restricted stock, and participation in both a
Short-Term Incentive Plan (STIP) and Long-Term Incentive Plan (LTIP).
6.

On May 8, 2013, the Spirit board approved the first of several Long-Term

Incentive Plan (LTIP) awards to Lawson as part of his compensation. The LTIP was
typical of CEO compensation, by providing additional compensation in the form of
stock, based upon Spirit’s relative performance, which Lawson could not monetize until
some time later, and which would increase in value with the value of Spirit. Once an
award vested, Spirit was obliged to deliver the stock.
7.

For 2013, Lawson received 192,031 shares as a part of the LTIP, with one

third of the shares vesting between two and three years later, another third between
three and four years, and the final third after four years. The LTIP award was based on

3

400% of Lawson’s base salary, based on the then-current price of $20.83 per share.
Lawson also received a further 96,016 shares as a part of his sign-on bonus.
8.

Lawson received similar awards in 2014, 2015, and 2016. Thus, Lawson

received the following LTIP share awards, with the current stock price as indicated:
Year

price

2013
2014
2015
2016
9.

shares
192,031
103,260
94,115
117,855

$20.88
$33.175
$48.81
$43.375

In addition, Lawson also earned and received performance-based awards

of Sprit common stock (Performance Shares). These awards amounted to 25,353 shares
in 2014, 23,744 shares in 2015, and 31,370 shares in 2016.
10.

Paragraph 4(c) of the Employment Agreement, the crux of the present

dispute, is entitled “Non-Compete.” The paragraph states in relevant part:
[N}either you nor any individual, corporation, partnership, limited
liability company, trust, estate, joint venture, or other organization or
association (‘Person’) with your assistance nor any Person in which
you directly or indirectly have any interest of any kind (without
limitation) will, anywhere in the world, directly or indirectly own,
manage, operate, control, be employed by, serve as an officer or
director of, solicit sales for, invest in, participate in, advise, consult
with, or be connected with the ownership, management, operation, or
control of any business that is engaged, in whole or in part, in the
Business, or any business that is competitive with the Business or any
portion thereof, except for our exclusive benefit. You will not be
deemed to have breached the provisions of this Section 4(c) solely by
holding, directly or indirectly, not greater than 2% of the outstanding
securities of a company listed on a national securities exchange.
11.

Recital A of the Employment Agreement provides:
We are engaged in the manufacture, fabrication, maintenance, repair,
overhaul, and modification of aerostructures and aircraft components,
4

and market and sell our products and services to customers
throughout the world (together with any other businesses in which
Spirit may in the future engage, by acquisition or otherwise, the
“Business”).
12.

Section 10(e) of the Agreement limits the construction of the agreement

based on section headings, and any construction of the agreement for or against either
Spirit or Lawson:
Headings The headings in this Agreement are for reference purposes
only and will not in any way affect the meaning or interpretation of any
provision of this Agreement. No provision of this Agreement will be
interpreted for or against either party on the basis that such party was the
draftsman of such provision, and no presumption or burden of proof will
arise disfavoring or favoring either party by virtue of the authorship of
any provision of this Agreement.
13.

Aerostructures are the large aircraft structures which Spirit provides,

markets, and sells to its customers, such as fuselages, nacelles, pylons, and flight control
surfaces such as flaps and slats. Aircraft components are individual structural parts that
make up the aerostructures.

Lawson at Spirit
14.

After taking the job at Spirit, Lawson undertook a comprehensive review

of its position, which revealed significant financial challenges. Lawson identified three
programs which were losing money (the 787 project, the A350 project, and the
Gulfstream G650 and G280 project). Lawson undertook a number of initiatives,
requiring a comprehensive transformation of the company. Part of this transformation
involved the replacement of many top Spirit executives. During Lawson’s tenure, the

5

company instituted a comprehensive overhaul which identified problems and increased
product quality.
15.

During this time, Spirit substantially increased the amount of cash

generated by its sales. The company’s stock increased markedly during Lawson’s first
two years, with his top to bottom transformation of the company benefiting both Spirit
and the value of Lawson’s compensation package.
16.

At the end of 2015, Spirit’s board indicated it wished to offer Lawson a

three-year extension to his contract. Lawson told the board that he wanted to retire
before the end of 2016.
17.

Board members tried to convince Lawson to stay, but when he adhered to

his decision, the board brought on Tom Gentile as Chief Operating Officer, with the
intention of have Gentile replace Lawson as CEO some time in 2016.
18.

Gentile joined Spirit in March or April of 2016. Lawson believed that

October or later would be a good time for the transition, but Gentile wanted to take
over sooner.
19.

At the May meeting, the board told Lawson that he should go home and

let Gentile run the business. Other than meeting with shareholders to reassure them
about the transition, the board wanted Lawson to stay home until his official retirement
date.
20.

Lawson discussed possible post-retirement work with board members

Bob Johnson and Paul Fulchino, and mentioned that he might be interested in the job

6

held by Ray Conner, the president of Boeing. Johnson told Lawson that would be
wonderful, and that Lawson’s skills would be perfect for the issues Boeing had.
21.

Lawson also remarked to Johnson and to Samantha Marnick, Spirit’s Chief

Administration Officer, that he would like to secure board positions.

The Retirement Agreement
22.

Lawson and Spirit entered into a Retirement Agreement on June 7, 2016,

which provided that Lawson would resign on July 31, 2016. Lawson also agreed to
provide consulting services to Spirit for a further two years. Lawson testified that under
this provision he would give whatever support, managerial or technical, which was
requested by Spirit.
23.

The compensation in the agreement was the result of negotiation between

the parties. For the most part, the agreement rolled forward benefits in (as of yet
unvested) shares which had been previously designated for Lawson.
24.

Lawson knew that the Retirement Agreement extended his opportunity to

recover incentive awards provided by the Employment Agreement which were then
unvested, and which would otherwise terminate upon his departure from Spirit.
25.

In exchange, Spirit agreed to pay Lawson (1) $150,000 in annual

consulting fees, (2) a Separation Payment of $1,274,000, (3) a $1,115,000 STIP award, and
(4) credit his account a further $ 2,000,000 under a nonqualified deferred compensation
plan. In addition, Lawson would “continue to vest (as if he were an active employee) in

7

the awards previously granted to him” under the LTIP and the 2013 Omnibus Incentive
Plain (OIP), as set out in an Exhibit A, which provided:

UNVESTED LTIP/OIP LTIP AWARDS
Year of Award

Unvested Shares as of July 31, 2016

2013
2014
2015
2016
TOTAL
26.

64,010
85,126
110,235
149,225
408,596

At the time of his resignation, Lawson held 359,499 unvested LTIP Shares

reflecting a mix of Time-Based Shares and Performance Shares. The Time-Based Shares
were scheduled to vest in installments over a period of three to four years from the date
they were granted; the Performance Shares were scheduled to vest on the three-year
anniversary of the grant dates, and the number of vesting shares depended on the then
current market value of the shares at the time the grant was given.3
27.

Paragraph 2(g) of the Retirement Agreement provides:
The Executive acknowledges that his continuing entitlement to
payments and/or vesting under this Paragraph 2 shall be conditioned
upon his reaffirmation of this [Retirement] Agreement through the
Retirement Date, his cooperation in providing the Transition Services,
and his continuing compliance with Paragraphs 4, 6, 7, 10(a) and 15 of
the Agreement. The Executive’s failure to execute a reaffirmation of
this Agreement through the Retirement Date or failure to cooperate in
providing the Transitions Services, or any violation of Paragraphs 4, 6,

At the time of his resignation, Lawson held 279,032 Time-Based Shares and a Target amount of
80,467 Performance Shares. The 408,596 LTIP Shares shown in Retirement Agreement Exhibit A
assumes that the 2014 and 2015 Performance Shares vested at 200% of the Target amount, and
2016 Shares at 100%.

3

8

7, 10(a) or 15 by the Executive, shall terminate the Company’s
obligation to continue to make payments and to continue vesting of
awards in accordance with Paragraph 2.
28.

Paragraph 17 provides that both Lawson and Spirit had “participated

jointly in the negotiation and preparation of this Agreement,” that both parties had
access to counsel, and that “[a]ccordingly … no rule of construction shall apply,” and
“any uncertainty or ambiguity shall not be interpreted,” for or against either party.
29.

The Retirement Agreement (Paragraph 2) also obliged Lawson to provide

or be prepared to provide consulting services in exchange for consulting fees. Lawson
satisfied this requirement by his responses to Spirit’s requests after his retirement.
30.

Under Section 7, “the noncompetition … period[] as set forth under

Paragraph[] 4(c) … of the Employment Agreement shall be extended” for two years
after the retirement date, that is until July 31, 2018.

Elliott and the Arconic Proxy Contest
31.

On September 11, 2016, Lawson wrote to Marnick that he had been asked

to do some consulting work for L3, a primarily defense-oriented, Tier 1 maker of
electronics. Lawson wrote: “Spirit does not compete with them but I needed to check in
with you and also the status of my clearance.” Marnick responded: “That's great Larry,
Spirit is fine with you doing that for as long as we don't have a competitive situation. If
that becomes the case, we will let you know.”
32.

A few days later, Lawson again contacted Marnick, asking for contacts

who might help him in being appointed to corporate boards. After Marnick suggested
9

some larger executive search firms, Lawson asked about smaller firms. Marnick
responded, "I think you are best with the larger firms A & D [aerospace and defense]
contacts." She also suggested that Lawson speak to some Spirit board members for
referrals to other companies.
33.

As the result of one of these contacts, Lawson spoke on December 1, 2016

with Adam Katz, an analyst of Elliott Management, an investment firm managing
approximately $25 billion in total assets. Elliott had come to believe that Arconic was
underperforming, and that new leadership was needed. Arconic is the successor of
Alcoa, Inc. (the Aluminum Company of America), after that company had spun off its
mining and smelting arm, Alcoa Corporation, in 2016.
34.

Acting on this belief, Elliott had begun to acquire a substantial share of

Arconic stock. In December, 2016, Elliott owned approximately 11.1% of the common
stock of Arconic, a company then valued at more than $10 billion.
35.

Although Elliott became the largest single shareholder in Arconic, it never

owned a majority of that company’s stock. During the 2017 proxy contest, it increased
its holdings, ultimately holding 13.2% of the stock by March 9.
36.

Katz told Lawson that Elliott wanted to place some additional directors on

Arconic’s board, with a view to replacing the company’s CEO, Klaus Kleinfeld. Katz
said the nominations would be hostile, and Lawson indicated his interest in the serving
as a nominee to the Arconic board. Lawson scheduled a January 10, 2017 meeting with
Elliott in New York City, and mentioned the possible nomination to Spirit Chief
Operating Officer Samantha Marnick.
10

37.

Early on the morning of the 10th, before his meeting with Katz, Marnick

emailed Lawson that Tom Gentile and the Spirit board were “concerned about Arconic
for various reasons,” and asked for him to call her.
38.

Lawson met with Katz and other Elliott managers later that day. Katz

explained Elliott’s thinking on Arconic, and Lawson would later write that he agreed
“[o]n the broader path forward” for Arconic. Based on Marnick’s email from the
morning, Lawson warned Katz that Spirit might have a problem with his serving as a
nominee for the Arconic board. Katz later emailed to others at Elliott that he had spoken
with Lawson, who “is interested, but has to make sure no Spirit conflicts,” and emailed
Lawson that “we’re (via counsel) happy to assist in any conversation with Spirit.”
39.

On January 11, 2017, Lawson wrote to Katz that he had contacted Spirit,

and “[t]hey are doing a review but their initial reaction was that they believed there was
a potential overlap,” based upon Arconic’s “stated strategy to compete in the parts
fabrication market.” He thought this came out of competing with the Precision Cast
Parts (PCP).4 In view of the upcoming Sprit board meeting, Lawson wrote that Elliott
should expedite its efforts to reach out to Spirit, and “I might suggest an engagement
with lawyers at some point soon.”
40.

On January 19, Elliott’s counsel contacted the counsel for Spirit, asking if

Spirit would agree either that the type of “subcomponent” products made by Arconic

PCP, then a subsidiary of Berkshire Hathaway, is a large Tier 3 producer of parts cast, forged
or machined from aluminum and titanium. PCP enjoys large advantages of scale, and provides
products to the entire aircraft industry, including Spirit. The tier structure of the aerostructure
market is explained infra, Finding ¶¶ 63-67.

4

11

would not be deemed a “component” under the Employment Agreement, or that Spirit
would waive the restrictive covenant. Katz also commissioned Bain & Company to do a
competitive analysis. In an email sent the evening of Friday, January 20, Katz asked,
“Can you put together no more than 3 slides demonstrating that Arconic does not
compete with Spirit AeroSystems?” He added that “This is incredibly important. We
need to get these done this weekend.”
41.

Matthew Waterbury of Bain responded the next day with a general

statement that “Spirit is far more customer than competitor for Arconic.” He explained
that the two companies were not “directly competitors for much, if any of their
respective businesses,” but added that “the story is slightly nuanced.” “Spirit assembles
structures from components, and Arconic provides raw materials and components.” He
wrote that Spirit’s main competitors were commercial aircraft Original Equipment
Manufacturers (OEMs), and that with respect to fuselages and wings, there was “[n]o
competition in these areas.” Waterbury noted that “it is possible that pylons and
nacelles are slightly different, in that Arconic can and does provide most (all?) of the
sheet, structural and fasteners needed for a pylon assembly.”
42.

On January 22, a Bain “Spirit vs. Arconic” comparison was sent to Tom

Gentile, the CEO of Spirit. This report, based on a review of all available public
information, including Spirit’s publicly filed SEC 10-K forms, concluded that that
“Spirit is an Arconic customer, and does not consider Arconic a significant competitor.”
43.

On January 26, 2017, Spirit’s general counsel told Elliott that Spirit had

examined Arconic’s lines of business and its operations, and concluded that if Lawson
12

served on the Arconic board, “or otherwise provide services directly or indirectly to
Arconic,” he would violate the terms of the Retirement Agreement. Spirit also refused
to issue any waiver.
44.

Lawson told Elliott that he would not agree to serve as an Elliott nominee

"unless Spirit changes its current position."
45.

On January 30, Elliott flew Lawson by charter to New York to discuss

another role in the proxy fight—as a potential CEO of Arconic, serving as the public
face of Elliott’s proxy fight. Elliott prepared a Consulting Agreement and an
Indemnification Agreement, under which Lawson was paid $1 million, and provided
$100,000 per month for consulting services. Elliott also agreed to pay Lawson $3 million
if he did not become the CEO of Arconic.
46.

Under the Indemnification Agreement, Elliott would compensate Lawson

for any losses due to his participation in the proxy contest, including any action by
Spirit for breach of the Retirement Agreement.
47.

In exchange for such compensation, Elliott is subrogated to Lawson’s

rights. Paragraph 9(a) of the Indemnification Agreement, entitled “Subrogation,”
provides that “[i]n the event of payment under this Agreement, Elliott shall be
subrogated to the extent of such payment to all of the rights of recovery of [Lawson].”
Lawson is obligated to “execute all papers reasonably required” to give effect to the
subrogation. Lawson credibly testified that he is “pursuing this case … pursuant to [his]
obligations to subrogate,” that he has assigned his claim to Elliott, and that he will
“have to turn the money over to the extent [he] [has been] indemnified” by Elliot.
13

48.

On January 31, the same day that Lawson signed the Consulting and

Indemnification Agreements, Elliott publicly announced that it “has engaged Mr.
Lawson as a consultant on its investment in Arconic,” and expressed support for
Lawson as “a leading candidate to become the Company’s CEO.” Elliott repeated this
message to Arconic’s shareholders, stating that Lawson “has the ideal set of skills
needed to turnaround Arconic’s woefully and continually underperforming business.”
49.

Two days later, Spirit gave notice to Lawson’s counsel that he was in

breach of Section 7 of the Retirement Agreement, stating that future payments would be
cancelled and that Lawson was obliged to pay back amounts previously paid under the
Agreement. Spirit made no explanation beyond stating that the January 31
announcement was an “egregious violation” of the non-compete clause. Spirit made no
further payments of amounts due under the Retirement Agreement.
50.

After receiving some media training from Elliott, Lawson spoke with five

of the larger institutional investors in Arconic. In his talks, Lawson did not present any
specific strategy for Arconic. He explained his history and management style, but
declined to offer direct criticism of Arconic’s CEO Klaus Kleinfeld, and stressed that he
wanted 100 days to assess the problems and correction.
51.

Shortly after the announcement of the proxy contest, the value of Arconic

increased roughly 35%. On April 11, Elliott released a presentation entitled “A New
Arconic,” which cited “the largest immediate appreciation in stock for any company
subject to a proxy contest in at least a decade” as graphic evidence in support for its
proxy contest.
14

52.

Lawson’s relation with the management and leadership of Arconic were

adversarial. The campaign was brutal and vitriolic; Lawson was personally attacked.
53.

Lawson did not actually direct, manage, control or influence Arconic; he

provided no services or assistance to Arconic. Indeed, Lawson and Elliott were adverse
to Arconic. While Lawson would have had influence and control over Arconic if he
became its CEO, this possibility was subject to multiple layers of contingency: (1) Elliott
would have had to win the brutal proxy fight and place a number new directors on the
board, (2) the new board would have to vote to remove Kleinfeld, and (3) the new
board would then have to pick Lawson as new CEO—out of all the available candidates
and notwithstanding Lawson’s serving as the face of one side in the bitterly personal
proxy battle.
54.

The chances of all of these events occurring were remote, and in fact none

of these occurred. After Kleinfeld sent a threatening communication to a principal
officer of Elliot, the existing Arconic board realized Kleinfeld had gone too far and
forced his resignation. On May 22, 2017, the proxy contest was settled with Elliott
placing three directors on the fifteen-member board (and Arconic management two). In
the end, Lawson was not even included in the final group of three candidates for the
CEO position.
55.

Elliott invested in Arconic, but it did not manage, direct, or control

Arconic, and did not provide any services or assistance to Arconic during the relevant
time period. The proxy contest occurred precisely because the existing Arconic board
stood behind Kleinfeld, and believed his performance as CEO was satisfactory.
15

56.

Not only were the three nominees from Elliott’s slate added to the board a

minority, they were also genuinely independent, and in no way bound or obligated to
support either Elliott or Lawson. Indeed, one of the “Elliott” nominees who was added
to the both the Arconic board and the CEO search committee ultimately supported
another CEO candidate. Once Lawson was dropped from the running, the new Arconic
board ignored Elliott’s fallback choice, and selected as CEO another candidate whom
Elliott had actively recommended against. The chance of Lawson becoming CEO were
always remote, and, in the words of Katz, the odds of Elliott succeeding in its contest
“was low and got lower” over the course of the bitter proxy campaign.
57.

Lawson role was simply to be “the alternative to Kleinfeld.” He did not

own, manage, operate or control Elliott, or have any direct or indirect interest in Elliott
during the relevant time period.
58.

Notwithstanding the January 31 Consulting Agreement, Lawson did not

actually offer any advice to Elliott on how to invest in Arconic. He had no say or input
into Elliott’s investment decisions, and offered no material assistance to Elliott in how it
conducted the proxy fight.
59.

Nor did he commit, either to Elliott or potential investors, to any definite

policy if he were to become Arconic’s CEO. In his consultations with Elliott, Lawson
merely confirmed elements of his biographic history taken from publicly available
sources. Occasionally, Katz ran information by Elliott for his response, but this was
largely a courtesy and there is no evidence that Lawson ever offered any substantial
help for Elliott’s proxy fight. To both Elliott and potential investors, Lawson simply
16

stressed his general managerial philosophy, asking for a hundred days after being made
CEO, to determine what was wrong at Arconic, and how to fix it.
60.

Lawson testified credibly that he did not of take directions or instructions

from Elliott. He made the same point during meetings with investors and during his
interviews with the Arconic CEO search committee—that he had been employed by
Elliott to serve as a possible CEO, but was otherwise committed to no definite policy.
61.

With no disrespect to the plaintiff, his position as the face of the proxy

fight amounted to nothing more than that he was not Klaus Kleinfeld.

The Aerostructures Market
62.

At the top of the commercial aerostructure market are Boeing and Airbus,

the two Original Equipment Manufacturers (OEMs), which compete with each other to
sell airplanes to airlines. The supply chain below the OEMs is conventionally divided
into four tiers. Spirit focuses on building very large aerostructures and emphasizing its
manufacturing efficiencies derived from large facilities and skilled workforce.
63.

Spirit is considered a Tier 1 aerostructure supplier, which provides major

structures (fuselage systems, wing systems, and structural elements like pylons and
nacelles) directly to the OEMs. The hallmark of a Tier 1 supplier is design capability,
sometimes done in conjunction with the OEMs. Spirit separated from Boeing in 2005
and took over long-term contracts for the large aerostructural work for the Boeing 737,
747, 767, and 777 aircraft. The separation agreement provided Spirit this work for the

17

life of these models, absent a default on their part. These aircraft models have a long life
expectancy, typically 20 to 25 years. Almost all of Spirit’s revenues comes from its
supply of large aerostructures to the two OEMs, for which it faces no competition under
its long-term contracts. 5
64.

At the bottom of the aerostructure market are Tier 4 producers. Tier 4

producers supply raw materials or partially fabricated raw materials, such as forging,
castings, extrusions and other hardware. In the case of Arconic, much of its product is
large roll aluminum products, which it sells (as a Tier 4 supplier) to aerospace
companies, but also to the automotive and construction industries. Tier 4 producers do
not design products.
65.

Tier 3 companies produce make-to-print parts and components used for

producing aerostructures. Tier 3 producers do not design products.
66.

Tier 2 companies supply aircraft parts and subassemblies, such as an

aircraft doors, pumps, or hydraulic systems. Tier 2 producers do not design products.
67.

Any given company may participate in more than one tier at a given time.

68.

In producing large aerostructures, Spirit has an inherent advantage in

competing against the internal divisions of the OEMs, because its costs are lower, and it
is better at speed-to-market production. At the same time, Spirit has advantages over

Plaintiff’s Expert Dr. William Rogerson persuasively described the tiered nature of the
aerostructures market. See Tr. VI. 149-52; 154-55, 175-77 (Rogerson). This terminology is also
commonly used in the industry, and is frequently used within the internal documents of Spirit
and Alcoa/Arconic. See Exh. 203 (Spirit 2017 Paris Air Show Supplier 360 Profiles), at 22937;
Exh. 546 (Alcoa 2016 Spirit Overview), at 27271; Exh. 654A (Spirit Boeing Contol Surfaces Focus
Factories RFI), at 38909.
5

18

lower-tier potential competitors because of the advantages of incumbency – its
possession of long-term supply contracts with the OEMs, as well as its large facilities,
large production capacity, and skilled workforce.
69.

The aircraft manufacturing industry does not use broadly accepted,

standardized vocabulary.6

The Business of Spirit
70.

Spirit designs, engineers and manufactures large commercial aircraft

structures such as fuselages, nacelles (including thrust reversers), struts or pylons, wing
structures and flight control surfaces. It also makes additional products which go into
these larger structures.
71.

Spirit really has only two customers, Boeing and Airbus. Over 95% of

Spirit’s revenue comes from these two OEMs.
72.

Spirit has stated in its official public disclosures that:
We have entered into long-term supply agreements with Boeing and
Airbus, our two largest customers, making us the exclusive supplier
for most of the products covered by those contracts. Our supply
agreements with Boeing provide that we will continue to supply
essentially all of the products we currently supply to Boeing for the life
of the current aircraft programs, including commercial derivative
models. The principal supply agreements we have entered into with
Boeing make us Boeing's exclusive source for substantially all of the
products covered by the agreements.

6

Summary Judgment Order, Dkt. 511, at 21.

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73.

Spirit had a similar arrangement with Airbus as to central fuselage section

of the programs with the A350.
74.

In its public disclosures, Spirit was required to identify its principal

competitors. In its 2014 SEC 10-K, Spirit stated:
Although we are one of the largest independent non-OEM
aerostructures suppliers, based on annual revenues, with an estimated
19% share of the global non-OEM aerostructures market, this market
remains highly competitive and fragmented. Our primary competition
currently comes from either work performed by internal divisions of
OEMs or other first tier-suppliers and direct competition continues to
grow.
Our principal competitors among OEMs include Boeing, Airbus
(including their wholly-owned subsidiaries Stelia Aerospace and
Premium Aerotec GmbH), Embraer Brazilian Aviation Co, Alenia
Aemlacchi, and United Technologies Corporation. Our principal
competitors among non-OEM aerostructures suppliers are Aernnova,
Aircelle S.A., Fuji Heavy Industries, Ltd., GKN Aerospace, Kawasaki
Heavy Industries, Inc., Mitsubishi Heavy Industries, Nordam, Sonaca,
Triumph Group Inc., Latecoere S.A. and Nexcelle.
75.

As noted earlier, while Spirit does face competition from the internal

divisions of OEMs, it has a strong advantages. The Disclosure notes that Spirit has a
“strong incumbent position on the products we currently supply to Boeing and Airbus,
forged by long-standing relationships and long-term supply agreements.” Because of
the long-term contracts, Spirit’s competitive advantages such as its 17 million square
feet of manufacturing space and its established machining and tooling, and the
disruptive effects of switching suppliers, it simply is not economical for larger OEMs to
attempt to change their existing contracts with Spirit.

20

76.

Spirit enjoys strong competitive advantages against competition from

other Tier 1 suppliers. In its 2014 Form 10-K, Spirit wrote:
We also believe it would be cost prohibitive for other suppliers to
duplicate our facilities and the over 20,000 pieces of equipment that we
own or operate. The combined insurable replacement value of all the
buildings and equipment we own or operate is $6.7 billion, including
$2.6 billion for buildings, $2.4 billion for equipment that we own, and
$1.7 billion for other equipment used in the operation of our business.
77.

Spirit had no strategy to become a supplier of either global rolled

aluminum sheets, or fasteners, the two products it purchased from Arconic.
78.

According to its 2014 Annual Report to the SEC, Spirit is:
one of the largest independent non-OEM aircraft parts designers and
manufacturers of commercial aerostructures in the world, based on
annual revenues, as well as the largest independent supplier of
aerostructures to Boeing. In addition we are one of the largest
independent suppliers of aerostructures to Airbus. Boeing and Airbus
are the two largest aircraft OEMs in the world. Aerostructures are
structural components such as fuselages, propulsion systems and wing
systems for commercial and military aircraft….
We derive our revenues primarily through long-term supply
agreements with Boeing and Airbus. For the twelve months ended
December 31, 2014, approximately 83% and 10% of our net revenues
were generated from sales to Boeing and Airbus, respectively. We are
currently the sole-source supplier of 97% of the products we sell to
Boeing and Airbus, as measured by the dollar value of the products
sold.

79.

In the same document, Spirit identified “Our Products” —
We are organized into three principal reporting segments: (1) Fuselage
Systems, which includes forward, mid and rear fuselage sections; (2)
Propulsion Systems, which includes nacelles, struts/pylons and engine
structure components; and (3) Wing Systems, which includes wing
components, flight control surfaces and other miscellaneous structural
parts…. All other activities fall within the All Other segment,
representing less than 1% of our net revenues for the twelve months
21

ended December 31, 2014, principally made up of sundry sales of
miscellaneous services, tooling contracts, and sales of natural gas
through a tenancy-in-common with other companies that have
operations in Wichita, Kansas.

The Business of Arconic
80.

Arconic is primarily engaged in the production of rolled aluminum

product and fasteners. The company is one of Spirit’s largest suppliers of rolled
aluminum (which Spirit modifies to make aircraft skins) and fasteners. These rolled
aluminum parts were designed by engineers at Boeing and Spirit, not Arconic. The
fasteners are sophisticated nuts and bolts that hold together larger aerostructures.
81.

Spirit earned about $6 billion in revenue in 2016. During that time it spent

about $4 billion on supplies, out of which $165 million was paid to Arconic. Arconic’s
$165 million in sales to Spirit represent a small fraction percent of Arconic Aerospace's
$10 billion of total revenue. As a supplier to Spirit, Arconic’s sales were much smaller
than that of PCC, at $400 million.
82.

Contemporary Spirit documents do not show that the company

considered Arconic to be an active competitor of Spirit. The defendant conducts a
“Spirit 360” analysis of other aerospace companies, and the 360 Report for Arconic in
2016 represented that the “Current State of [the] Relationship … between Arconic and
Spirit is good and they are strategic partners in fasteners and skins.” As a part of its
“Future Strategy” analysis, the document recognizes the relationship was “[n]ot
competitive on castings and forged products,” and recommended that Spirit
“[c]ontinu[e] to keep competitive threats on fasteners and skins to lever reductions in
22

price” — that is, that Spirit would put pressure on Arconic. Overall, the document
stated that “the relationship [with Arconic] remains strong.”
83.

Arconic did not, during the relevant time period, actually pressure Spirit

to make price concessions. If anything, the pressure went in the other direction. When
the contract for aluminum skins expired in September, 2017, the contract was extended
after Arconic agreed to price concessions sought by Spirit.
84.

As noted earlier, Spirit did not publicly identify Arconic as a competitor in

its Form 10-K statements. Arconic’s Form 10-Ks do not identify Spirit as a competitor.
85.

Spirit recognized that Lawson’s role in the proxy contest did not then

present a competitive threat. While concerned about ongoing price negotiations
between Spirit and Arconic, Gentile acknowledged in his testimony that, during the
proxy fight, this was merely “a possible future threat.”
86.

Spirit’s 360 Report on Arconic demonstrates that the company was not

considered a present-day competitive threat. The Report’s “Strengths, Weakness,
Opportunities and Threats” (SWOT) assessment of Arconic observes that Arconic was
the only source for rolled aluminum skins and for many fasteners, the only “Threat”
identified relating to supply was a “[l]ong-term price creep,” not contemporary
demands for price concessions.

23

The Parties’ Interpretation of the Employment Agreement
87.

Lawson’s testimony that he did not believe Arconic was a competitor of

Spirit, because it was a supplier, and because like other Tier 1 producers it had no
design capacity, was credible. It is also corroborated by Spirit’s own documents
(including SEC statements) and common understanding of the term “competition.”
While Spirit suggests that Lawson’s communications with Marnick and Spirit shows
some doubt on his part, all it really reveals is Lawson’s reasonable efforts to avoid a
dispute.
88.

Similarly, Spirit’s 2017 declaration that the nomination of Lawson to the

Arconic board would violate the Retirement Agreement is not conclusive nor entitled to
particular weight. Notwithstanding the supposedly intensive review of the SpiritArconic relationship by teams of executives undertaken in January 2017, at trial Spirit
was only able to product a few documents (such as the Spirit 360 report) which had
actually been generated months before Lawson’s involvement with Elliott. That report
essentially shows Arconic as a “partner” rather than an active competitor. Most
importantly, the Retirement Agreement does not give Spirit the unilateral right to
interpret the Agreement or determine the existence of a breach.
89.

The only trial witnesses with personal knowledge of the parties’ intent at

the time of the Employment Agreement were Lawson and Samantha Marnick
(Currently the Spirit Chief Operating Officer, at the time of the Employment
Agreement, Marnick served as Senior Vice-President, Chief Administration Officer).
24

90.

Lawson credibly testified that he understood the non-compete clause to

preclude him from either (1) working or providing services for, or owning, managing,
operating, controlling, or directly holding more than 2% of the outstanding securities in
a company in the Business, or (2) working or providing services for an entity that owns,
manages, operates, or controls a company in the Business. Lawson credibly testified
that he did not participate in such employment. Finally, Lawson credibly testified that
he did not understand the clause to preclude him from working for any of the
approximately 100 suppliers of Spirit, or prevent him from working for another
company simply because there was some overlap in the products of that company and
Spirit.
91.

The court does not find credible the interpretation of the Employment

Agreement by Samantha Marnick. Marnick testified that Paragraph 4(c) precluded
Lawson from any employment which “could somehow harm Spirit,” and from working
from any company which indicates “they’re going into the business … [i]n the future,”
or that that “ha[s] the capability perhaps to do that [produce aerostructures and
components]” sometime in the future. Marnick testified that the term “interest,” as used
in the non-compete covenant, is not restricted to an ownership or economic interest, but
includes even an indirect benefit, such as responding with interest to a prospective offer
of employment, and the Agreement bars Lawson from working for any company which
loans money to a company such as Arconic. Marnick deemed Arconic as out of bounds
because it was a Spirit supplier.

25

92.

Marnick did not discuss her expansive understanding of the Agreement

with Lawson at any relevant time. Further, the claim that the Lawson was barred from
any indirect relationship with any company which might have (even if unknown to
Lawson) the capability to produce or supply some aircraft part at some future time is an
interpretation which finds no purchase in the language of the Agreement itself, in
common understandings of the language in the Agreement, or in generally accepted
economics.
93.

Similarly, Gentile’s theory that Arconic is a competitor of Spirit because

both companies operate in the same “profit pool” is not an interpretation which either
arises from the language of restrictive covenant or has any grounding in the
communications between the parties at the time of the Employment Agreement.
Further, such an interpretation clashes with general understandings of competition, as
set forth below. The mere chance or risk that a supplier may increase costs and become
more profitable does not make it a “competitor.”

Alleged Competition
94.

As noted earlier, almost all of Spirit’s sales for its aerostructures are to

OEMs under long term contracts for specific models of aircraft. In addition, no new
aircraft models were launched during the non-compete period.
95.

Defendant’s evidence was essentially restricted to showing that Arconic

was capable of producing some similar aerostructure products.

26

96.

During the relevant time period, Spirit did not consider Arconic an active

97.

Aerostructure components are specially-designed and not interchangeable

threat.

for similar products on different aircraft. Although there is some evidence that Arconic
has marketed or sold some aerostructure parts such as pylons, wing ribs, and wing
spars, Arconic did not actually make particular aerostructures or aircraft components
that Spirit also made, despite some similarity in the name of products. Despite the
enormous record, there is no example of Spirit competing against Arconic as to any
particular component. For example, while Kevin Matthies, the Spirit’s Chief Technology
Officer, identified photos of aerostructural products from Arconic marketing materials,
he also acknowledged that he cannot specifically tie those parts to ones produced by
Spirit.
98.

In January 2017, Boeing invited suppliers to a conference the following

Month to discuss its Focus Factory initiative. Spirit and Arconic were among the
companies that supplied information in response. These responses, cited by Spirit, are
not an example of actual and contemporaneous competition. The Focus Factory
initiative was apparently quickly abandoned. Boeing never followed up the preliminary
solicitation by issuing a request for quote or request for proposal.
99.

In responding to the request for information, Arconic merely supplied

some information on its recurring costs; but it did not actually make the referenced
Boeing parts at the time. Arconic would have needed to make additional cost and
capital expenditure estimates before deciding to respond to any request for proposal—a
27

choice rendered moot by Boeing’s pulling the plug on the project later in 2017. In
addition, to take this work away from Spirit, Boeing would have had to breach its
existing contracts with Spirit. The Spirit executive who testified about the initiative
acknowledged he viewed other companies with “paranoia,” considering what might
happen “[e]ven though legally it [the Boeing contract] was solid.”
100.

In May 2018, Spirit representatives visited the Arconic Technology Center

in connection with a potential Joint Development Agreement between the companies.
During the trip, Spirit learned that Arconic had developed a 3-D printing capability and
the ability to produce advanced fuselage skins. The information obtained during the
JDA is not evidence of actual and contemporaneous competition. Spirit’s representative
testified the fuselage skin and 3D-printing technologies did not show competition with
Spirit as to an existing product, but reflected Arconic’s “capabilities,” a demonstration
in which Arconic only showed only the “capability to do it in the future.” Spirit’s
executive testified he was not worried about Arconic taking any specific Spirit product,
as this was a “collaborative” demonstration which “was more about them being a
supplier” rather than a competitor.
101.

Spirit’s third-party production initiative, under which it considered selling

products it made internally, was not actual competition with its supplier Arconic. These
efforts were abandoned after Spirit recognized that other supply pricing strategies were
more economic.
102.

Spirit’s professed concerns about its supplier Arconic’s ability to negotiate

prices does not establish actual competition. Gentile was concerned that Arconic was
28

“looking to consolidate other suppliers” and worried that it “was going to try to pursue
a similar strategy” to that employed by the far larger supplier PCC. However, Gentile
acknowledged that he does not know if Arconic actually carried through a plan to
consolidate Tier 2 suppliers, and that Arconic actually sought price concessions (as to
fasteners) only in 2020—long after the end of the restriction on Lawson’s employment.
103.

The buyer-seller relationship is not considered to be competition, either in

ordinary usage or among economists. Although buyers and sellers may bargain over
price, both parties also have a strong cooperative interests which are not present
between competitors.

Conclusions
104.

In the light of these findings and all the evidence in the case, during the

time period when the non-compete clause was in effect, the Court finds:
105.

Lawson complied with the terms of the non-complete clause, and all other

terms in the Employment and Retirement Agreements.
106.

Lawson was not himself in the Business during this time, and did not

provide services for an entity that owned, managed, operated, or controlled an entity in
the Business.
107.

Elliott was not in the Business.

108.

Arconic did not produce the same aerostructures or aircraft components

as Spirit.

29

109.

Arconic was a supplier of Spirit.

Damages
110.

As large as it was, the Retirement Agreement was not an unearned

windfall for Lawson. As Gentile himself recognized, given Lawson’s service as CEO, the
compensation package was “fair” and not “excessively generous,” as “he was paid out
the shares that he'd already earned but had not vested yet.”
111.

The Retirement Agreement required Spirit to compensate Lawson by

paying (a) $228,461.43 for Consulting Services, (b) $666,400 in Separation Payments, (c)
a STIP Payment of $1,115,000, and (d) LTIP shares in the following amounts:

Time-Based Shares
Grant
Date

Shares
Granted

Unvested as
of 2/2/17

Vesting
Date

2/7/15
2/9/16
5/8/13
5/8/14
2/7/15
2/9/16
2/9/16

94,115
117,855
192,031
103,260
94,115
117,855
117,855

31,368
39,285
64,010
34,420
31,379
39,285
39,285

2/7/17
2/9/17
5/8/17
5/8/17
2/7/18
2/9/18
2/9/19

Performance Shares
Grant
Date

Target
Award

Ultimate
Award

Vesting
Date

5/8/14
2/7/15
2/9/16

25,353
23,744
31,370

50,706
45,707
31,370

5/8/17
2/7/18
2/9/19

30

112.

Spirit did not make these required payments. Plaintiff’s Expert Dr. Keven

Murphy testified credibly to the value of the 406,815 LTIP shares which were not paid
to Lawson. This calculation was based on the closing price of the stock on each
prospective vesting date. The value of the LTIP stock in Time-Based and Performance
Shares which was not delivered to Lawson is shown below:

Time-Based Shares
Vesting
Date

Shares
Vesting

Vesting
Price ($)

2/7/17
2/9/17
5/8/17
5/8/17
2/7/18
2/9/18
2/9/18

31,368
39,285
64,010
34,420
31,379
39,285
39,285

56.35
55.91
52.99
52.99
90.34
86.84
94.21

Vesting
Value ($)
1,767,587
2,196,424
3,391,890
1,823,916
2,834,779
3,411,509
3,701,040

Performance Shares
Vesting
Date

Ultimate
Award

Vesting
Price ($)

5/8/17
2/7/18
2/9/16

50,706
45,707
31,370

52.99
90.34
94.21

113.

Vesting
Value ($)
2,686,911
4,129,170
2,955,368

Spirit thus failed to deliver LTIP shares worth $28,898,594 at the time of

vesting. Coupled with his other losses for consulting service payments, separation
payments, and STIP payment, Lawson suffered losses in the amount of $30,908.455.
114.

Plaintiff has not been fully compensated for this $30.9 million loss by

Elliott, which paid him $26,363,891.80 under the Indemnification Agreement.
31

115.

Spirit has presented no alternative calculations which would support any

different conclusion as to the amount of damages owed.

Conclusions of Law
Prior Rulings
1. In this diversity action alleging breach of contract, the court applies Kansas
law.7
2. To prevail on a claim for breach of contract under Kansas law, the plaintiff
must show “(1) the existence of a contract between the parties; (2) sufficient
consideration to support the contract; (3) the plaintiff’s performance or willingness to
perform in compliance with the contract; (4) the defendant’s breach of the contract; and
(5) damages to the plaintiff caused by the breach.”8
3. The court has determined that Lawson bears the burden of proof for each of
the elements of his claim.9 The court also determined that Spirit had the burden to
prove its condition precedent affirmative defense. 10
4. The court has also previously determined as a matter of law that

7

See Klaxon Co. v. Stentor Elec. Mfg., 313 U.S. 487, 496 (1941).

8

Van Brunt v. Jackson, 212 Kan. 621, 512 P.2d 517, 520 (1973).

Summary Judgment Order, Dkt. 511, at 19. See State ex. rel. Stovall v. Reliance Ins., 278 Kan. 777,
789, 107 P.3d. 1219 (2005).

9

10

Id. at 21.

32

the plain language of the Employment Agreement must be read to mean
that “the Business” refers to the specific products and services provided,
marketed, or sold by Spirit at the time of contracting, as well as the
products and services Spirit later chooses to provide, market, or sell, if and
when Spirit chooses to do so.11
5. Thus, the restrictive clause targets the products actually made by Spirit, or
products which Spirit makes in the future, if and when such products are actually
produced. The court concluded that a contrary interpretation would both render some
of the language in the definition superfluous, and would also prevent the plaintiff from
being able to make an informed decision about which prospective employers to avoid.12
A focus on actual competition arising from Spirit’s actual work is also warranted given
the Agreement’s explicitly Spirit-centric definition:

Business is what “[w]e are

engaged” in — making and selling and marketing “our products.”

Breach of Contract Elements
6. The parties have stipulated to the first two elements; only the last three
elements are in issue.13
7. Lawson performed and was willing to performed under the Agreements. The
evidence establishes Lawson provided consulting services when Spirit asked.

11

Dkt. 25, at 16.

Id. at 14-16. In any event, as noted infra, the court need not resolve whether Arconic was or
was not in the Business.

12

13

Pretrial Order, Dkt. 429 ¶¶ 2(a)(3) & (4).

33

8. Other than its claim Lawson violated Paragraph 4(c), Spirit has presented no
evidence that Lawson otherwise violated other provisions in the Agreements, such as
the prohibition on the misuse of confidential information.
9. The bar in Paragraph 4(c) of the Employment Agreement may be divided into
three elements: (1) a Prohibited Actor, (2) a Prohibited Action, and (3) a Prohibited
Object, and may be presented thus:

[1]

neither you, nor any individual, corporation, partnership, limited
liability company, trust, estate, joint venture, or other organization
or association (“Person”) with your assistance, nor any Person in
which you directly or indirectly have any interest of any kind
(without limitation)

[2]

will, anywhere in the world, directly or indirectly own, manage,
operate, control, be employed by, serve as an officer or director of,
solicit sales for, invest in, participate in, advise, consult with, or be
connected with

[3]

the ownership, management, operation, or control of any business
that is engaged, in whole or in part, in the Business, or any business
that is competitive with the Business or any portion thereof, except
for our exclusive benefit.

10. Although some of these elements are internally disjunctive (for example, the
Prohibited Actor element includes Lawson, or an entity he invests in, or an entity he
assists), Paragraph 4(e) is not violated if one of these three linked elements is missing.
11. Lawson did not have an interest in Arconic.

34

12. Spirit argues that Lawson had an interest in Elliott, based on his contractual
rights.14 An “interest” is ‘[t]he most general term that can be employed to denote a
right, claim, title or legal share in something.”15 But, like his employment with Elliott, this
interest merely creates a potential Prohibited Actor for further analysis. There is no
evidence at all that Lawson had any “interest” in terms of contract rights with Arconic.
13. Lawson was employed by Elliott, but Elliott was not in the Business.
14. With respect to Arconic, the only entity even arguably in the Business,
Lawson served solely as a potential CEO, his relations with the existing Arconic
management were adversarial and bitterly contested, and he did not own, control,
manage, invest in, or influence that business.
15. Elliott did not control Arconic. Under Kansas law, “control” reflects the right
to manage or govern another.16 During the relevant time period, Elliott did not manage
or govern Arconic.
16. This conclusion is also buttressed by Gentile’s testimony, who candidly
characterizes Elliott as trying to “influence” rather than “control” Arconic.17 But
“influence” is not a prohibited action under Paragraph 4(c). In any event, the actions of

14

Resp. at ¶ 51.

Russello v. United States, 464 U.S. 16, 21 (1983). See, e.g., In re Dynamic Tooling Sys., 349 B.R. 847,
854 (Bankr. D. Kan. 2006) (stating that the term “‘[i]nterests’ includes contractual rights”).

15

See Shelman v. Western Cas. & Sur., 1 Kan. App. 2d 44, 49, 562 P.2d 453, 458, op. approved, 564
P.2d 152 (Kan. 1977) (“The word ‘control’ has no strict or technical definition which necessarily
excludes all others,” but “is synonymous with superintendence, management, or authority to
direct, restrict, or regulate”) (internal quotations and citations omitted).

16

17

Tr. IV. 168-70 (Gentile).

35

Elliott (and even more so Lawson) did not even rise to this low level. The proxy contest
arose precisely because Arconic’s management rejected Elliott’s advice (which centered
on removing Kleinfeld), and the existing Arconic board “dug in its heels” in favor of
Kleinfeld. The proxy context was resolved months after Spirit repudiated its obligations
under the Retirement Agreement. And Elliott did not win the proxy contest, Kleinfeld
yielded the field by escalating the personal attacks to a level the existing Arconic board
was unwilling to countenance. And Elliott’s “success” in the contest was to simply to
place three new directors on the 15-member Arconic board, who promptly showed they
were indeed independent directors by rejecting Elliott’s CEO suggestions.
17. Elliott did not own, manage, or operate Arconic. “Ownership” under Kansas
law implies a right to own, use or control.18 Elliott was a minority shareholder in
Arconic, holding at most around 13% of that company’s common stock. As just noted,
Elliott had no right to use or control the Arconic.

In Nickelson v. Bell, 53 Kan. App. 2d 8, 12–13, 382 P.3d 471, 475 (2016), the Kansas Court of
Appeals observed generally:
18

Turning to more general definitions, Black's Law Dictionary defines owner as
“[s]omeone who has the right to possess, use, and convey something; a person in
whom one or more interests is vested.” BLACK'S LAW DICTIONARY 1280 (10th ed.
2014). Similarly, the ordinary meaning of the term own is “to have or hold as
property [or to] possess.” WEBSTER'S NINTH NEW COLLEGIATE DICTIONARY 843
(9th ed. 1991). And when explaining the “doubleness of meaning” imbedded in
the word ownership, Bryan Garner explains that “ownership ... implies the right
of control over an object, quite apart from any actual or constructive control.”
Garner's Dictionary of Legal Usage 649 (3d ed. 2011). Quoting from a treatise, he
continues: “‘While it is usual to speak of ownership of land, what one owns is
properly not the land, but rather the rights of possession and approximately
unlimited use, present or future.’” Garner's Dictionary of Legal Usage 649.

36

18. Elliott did invest in Arconic, but it did not invest in Arconic “with your [i.e.,
Lawson’s] assistance.” The evidence is clear that Lawson simply served as the face of the
proxy contest. Elliott’s substantial investments in Arconic began before, and lasted well
after, Lawson’s service. The evidence is unrefuted that during the proxy contest, Elliott
took no advice from Lawson as to the size or timing of its Arconic investments.
19. Finally, Elliott was not connected with Arconic, given the language, context,
and purpose of the non-compete clause. The term “connected with” requires a
reasonable link in light of the interests under protection.19 Further, this final, catch-all
phrase must be construed in light of the other explicitly enumerated Prohibited Actions,
such as ownership, management, or control. Kansas follows the doctrine of noscitur a
sociis, “one is known by one’s associates,” under which
the meaning of a word of phrase which may be obscure or doubtful when
considered in isolation may be clarified or ascertained by reference to
those words or phrases with which it is associated [and] that, taken in
context, a word may have a broader or narrower meaning than it might
have if used alone.20
Here, the “associates” all denote strong powers of dominion or authority such as
ownership or control. Elliott owned 13% of Arconic, and it did not attempt to acquire the

See National Gypsum v. State Empl. Sec. Bd. of Rev., 244 Kan. 678, 687, 772 P.2d 786, 792 (1989)
(statute suspending unemployment compensation benefits to persons fired for
misconduct “connected with” their employment requires a showing that the misconduct
had a reasonable relationship to employer’s interests).
19

Young Partners LLC .v Board of Educ., Unif. Sch. Dist. No. 214, 284 Kan. 397, 408, 160 P.3d 830,
840 (2007) (citation and internal quotation omitted). See also Straub v. BNSF Ry. Co., 909 F.3d
1280, 1287 n.8 (10th Cir. 2018) (citing Yates v. United States, 574 U.S. 528, 543 (2015)). The doctrine
serves to “to avoid ascribing to one word a meaning so broad that it is inconsistent with its
accompanying words ” Gustafson v. Alloyd Co., 513 U.S. 561, 576 (1995).

20

37

majority of Arconic’s stock. The most it could hope for was adding some independent
voices to the Arconic board. At the time Spirit repudiated the contract Elliott was locked
in a poisonous fight with Arconic’s management—the very opposite of influence,
management or control.21
20. None of the arguments advanced by Defendant warrant a contrary
conclusion. Spirit argues the Agreement should not be construed in Lawson’s favor,
contending no ambiguity exists, that the parties agreed to neutral construction, and that
the restrictive clause is a conditional benefit rather than a covenant not to compete.22
None of these contentions is persuasive. The court has already determined that as to the
key definition of Business, the contract is ambiguous,23 a conclusion only confirmed by
the wildly different contract interpretations offered at trial by Lawson and Marnick.
21. Spirit’s argument that Paragraph 4(c) should be considered a condition
precedent rather than a covenant not to compete,24 and hence the Agreement should not

A broad interpretation of “connection,” unmoored to the other language of the clause or to
the reasonable interests involved, would also render superfluous the express prohibition of
investing “with your [Lawson’s] assistance”—since any investment in a Prohibited Entity
(assisted or unassisted) would automatically be “connected” with that company.

21

22

Dkt. 592, ¶¶ 26-31.

23

Dkt. 511, at 21.

The claim is subject to doubt. First, to the extent that Paragraph 4(c) bars employment not just
with Spirit’s competitors but with any other company which makes (or as Spirit would have it,
is capable of making) a product similar to one made by Spirit, this simply means that the
burden on Lawson is more onerous than a standard non-compete. Second, the relevance of
Spirit’s continuing benefit/condition precedent distinction is of doubtful application where the
effect of the agreement was to hold hostage benefits which, as Spirit’s subsequent CEO
acknowledged, Lawson had earned. Third, the Retirement Agreement does not in fact restrict
the use of the term “competition” to the headings. Indeed, the term is integral to the most
specific provision governing Lawson’s continuing obligation after his retirement. Paragraph 7

24

38

be construed in Lawson’s favor, is not controlling. The findings of fact set forth above
are supported by a preponderance of the evidence; the court reaches these conclusions
of law without resort to any rule of construction for or against any party.
22. Because the facts fail to show a Prohibited Act by a Prohibited Actor, it is
irrelevant whether Arconic was a Prohibited Object.
23. Lawson’s actions did not violate Paragraph 4(c).
24. Spirit breached the Retirement Agreement by failing to pay Plaintiff the sums
due under the Agreement. Defendant’s argument that Plaintiff cannot recover for all the
sums due under the Retirement Agreement because he did not advance a separate
claim for anticipatory repudiation is not compelling. Spirit’s February 2, 2017 letter
unilaterally declaring that Lawson had “forfeited any continuing entitlement to
payments” under the Retirement Agreement explicitly repudiated its remaining
obligations.25 The statement is sufficiently definite as to be reasonably interpreted mean
that it would stop any further payments to Lawson.26 As the repudiation lacked

provides that it is “the noncompetition and non-solicitation periods as set forth under Paragraphs
4(c) and (d) of the Employment Agreement [which] shall be extended to the end of the
Consulting Term.” However, as noted above, the issue is not decisive. The court employs no
rule of construction against Spirit in finding that Plaintiff has met his burden of showing that he
complied with the relevant provisions of the Employment and Retirement Agreement.
25

Exh. 137.

26

RESTATEMENT (SECOND) OF CONTRACTS, § 250, cmt. b.

39

justification, Spirit breached the Agreement, and the Plaintiff was entitled to recover for
the remaining payments.27

Damages
25. Payment of monetary damages is appropriate notwithstanding Elliott’s
indemnification of Lawson, as the evidence shows Lawson is obligated to repay
Elliott.28 Kansas law provides that the damages for breach of contract may be reduced
by the amount of compensating benefits the plaintiff may have received from a third
party.29 However, this “benefits rule” cited by Spirit is premised on the concern that the
failure to offset in certain circumstances “would permit the plaintiff to obtain

See id. at § 243(2) (“a breach by non-performance accompanied or followed by a repudiation
gives rise to a claim for damages for total breach”), cmt. b. Contrary to Spirit’s argument (Dkt.
592, at 39-40), Lawson has not advanced a separate and untimely anticipatory repudiation
claim. The plaintiff’s claim, explicitly stated in the Pretrial Order (Dkt. 429, ¶ 4(a), at 17) is a
breach of contract in that he performed all conditions and “Spirit had no basis to repudiate its
payment and share issuance obligations.”
27

28

Finding of Fact ¶ 47.

See King Grain Co. v. Caldwell Mfg. Co., 820 F.Supp. 569, 573-74 (D. Kan. 1993). See also
Anderson v. Rexroad, 180 Kan. 505, 306 P.2d 137 (1957); Raney v. Total Fitness Athletic Ctr., No. 92,
670 2005 WL 214255, *4 (Kan.Ct.App. May 20, 2005).

29

40

unreasonable damages.”30 That prospect of does not arise here given Elliott’s right of
subrogation, and the benefits rule does not reduce the recovery.31
26. Plaintiff is entitled to prejudgment interest at the Kansas statutory rate. The
authorities cited by Spirit32 against an award of interest do not involve Kansas law and
in any event fall far short of the mark. Spirit invokes a general encyclopedia of the law,33
which establishes nothing more than the general rule that an insurance company’s
subrogation rights are defined by what it paid its insured.34 The same authority later
clarifies: “Prejudgment interest is not recoverable on unliquidated damages that an insurer
seeks in a subrogation action.”35 This court has observed that in an appropriate case,
prejudgment interest at the Kansas statutory rate may be appropriately awarded.36

Wichita Fed. Sav. & Loan Ass’n v. Black, 245 Kan. 523, 540-41, 781 P.2d 707, 719 (1989) (emphasis
added), citing Macon–Bibb County Water & Sewerage Auth. v. Tuttle/White Constr. 530 F.Supp.
1048, 1055 (M.D. Ga.1981) (superseded by statute on other grounds as stated in RTC v. Fleischer,
257 Kan. 360, 892 P.2d 497 (1995)). In King Grain, the prospect of double recovery by the bailee
of damaged grain arose because the plaintiff had settled with its insurer, which expressly
disclaimed “subrogation rights in any recovery by plaintiff.” 820 F.Supp. at 573.

30

See Lexington Ins. Co. v. Western Roofing Co., 316 F.Supp.2d 1142, 1153 (D. Kan. 2004) (rejecting
reduction of damages where subrogation right existed and there “no suggestion that either [the
insurer or insured] will potentially enjoy a windfall double recovery”). Here, the only prospect
of an unfair windfall would be if Spirit were allowed to keep the rewards Lawson had earned.

31

32

Dkt. 594, Resp. at 29-30.

46A C.J.S. INSURANCE § 2074. Spirit also cites Zurich Am. Ins. v. Wis. Physicians Servs. Ins., 306
Wis. 2d 617, 743 N.W.2d 710, 720 (Wis. Ct. App. 2007), a case which was explicitly based on
Wisconsin statutory insurance law, W.S.A. 628.46.
33

The only Kansas authority cited by C.J.S. is plainly distinguishable. See id. (citing State v.
Hinkley, 13 Kan. App.2d 417, 777 P.2d 857 (1989) (discussing the authority of court in a criminal
sentencing to assign restitution under state statute)).
34

35

46A C.J.S INSURANCE at § 2074 (emphasis added).

See First Specialty Ins. Corp. v. Novapro Risk Solutions, 468 F. Supp. 2d 1321, 1343 (D. Kan. 2007)
(“an award of prejudgment interest is necessary and appropriate to rule First Specialty whole,

36

41

27. Spirit presents no valid argument that the sums due under the Retirement
were not liquidated. Nor could it reasonably do so, having moved before trial to
exclude the testimony of Plaintiff’s expert Dr. Murphy on the grounds, in part, that
Lawson’s losses could be established by “basic mathematical calculations without
assistance form any expert or fact witness.”37
28. Because Lawson’s damages are liquidated, he is entitled to prejudgment at
an annual rate of 10%, starting from when the amounts became due.38 For damages
which are liquidated, Kansas provides by statute that a creditor is entitled to
prejudgment interest at a rate of 10 percent per annum.39 “Typically, that 10% interest
compounds annually.”40 The decision to award prejudgment interest is committed to
the discretion of the court.41

especially since the amounts in question are liquidated”). Similarly, in Yousuf v. Cohlmia, 741 F.3d
31, 48 (10th Cir. 2014), the court concluded that a subrogated insurer seeking contribution for
legal defense costs was not entitled to recover prejudgment because “attorney fees in this
context are subject to a reasonableness determination by the fact finder and thus are not
liquidated.” Such a conclusion would be unnecessary if a subrogated party can never recover
prejudgment interest.
37

Dkt. 508, at 10.

K.S.A. 16-201. See Gruber v. Est. of Marshall, 59 Kan. App.2d 297, 323, 482 P.3d 612, 630 (2021)
(“A claim becomes liquidated when both the amount due and the date on which such amount is
due are fixed and certain, or when the same become definitely ascertainable by mathematical
calculation.”).

38

39

K.S.A. 16-201.

See Hale v. Emporia State Univ., No. 16-4182-DDC, 2020 WL 5038785, at *11 (D. Kan. Aug. 26,
2020), recon. denied, 2020 WL 7770929 (D. Kan. Dec. 30, 2020) (citing Mathiason v. Aquinas
Services, 187 F.Supp.3d 1269, 1278 (D. Kan. 2016) (awarding prejudgment interest on plaintiff's
back pay award at the Kansas statutory rate of ten percent, compounded annually); Leidel v.
Ameripride Services, 276 F.Supp.2d 1138, 1147 (D. Kan. 2003) (ordering that prejudgment interest
is compounded annually); Rahn v. Junction City Foundry, Inc., 161 F.Supp.2d 1219, 1241
(D.Kan.2001) (awarding prejudgment interest at the Kansas statutory rate of ten percent, K.S.A.

40

42

29. Thus, through the beginning of the trial on June 15, 2021, Plaintiff is entitled
to prejudgment interest in the following amounts:
Award Due ($)

Interest ($)

2016 Bonus
Consulting Services
Separation Payments
LTIP Time-Lapse
Performance Shares

1,115,000
228,461
666,400
19,127,145
9,771,449

572,076
93,946
319,024
7,813,719
3,583,506

Total

30,908,455

12,382,272

30. For the period between June 15, 2021 and the entry of Judgment, Plaintiff is
entitled to additional prejudgment interest in the amount of $11,860 per day.42
31. After Judgment and prior to payment by Defendant, Plaintiff is entitled to
post-judgment interest at the rate of 4.25%.43
32. As noted above, Defendant’s claim that Lawson suffered no actual damages
is unsuccessful under the actual facts of the case, which show Elliott is subrogated to
Lawson’s recovery.

§ 16–201). See also Solis v. Merrill, No. 08-4083-SAC, 2009 WL 10688147, at *6 (D. Kan. Nov. 24,
2009) (“an appropriate rate of prejudgment interest is the 10% rate set out in … K.S.A. § 16-201
… compounded annually”).
See First Media Ins. Specialists v. OneBeacon Insurance, No. 10-2501-EFM, 2015 WL 2062857, at
*14 (D. Kan. May 4, 2015).

41

42

Tr. III. 272 (Murphy); Exh. 247-5.

See K.S.A. § 16-204; Finance Rates, State of Kansas Secretary
https://sos.ks.gov/business/finance-rates.html (last accessed Oct. 17, 2021).

43

43

of

State,

33. Plaintiff was not fully compensated by Elliott for the damages caused by
Spirit’s breach.44 Accordingly, independent of Elliott’s right of subrogation, the Lawson
remains the proper party for bringing this action.45
34. Further, Spirit’s argument that Lawson suffered no damages is more properly
characterized as an assertion that Lawson is not the real party in interest in the action.
Any such argument has not been properly placed before the court and has been
waived.46 The decision not to raise a real party in interest claim was a deliberate choice
of Defendant, made for strategic advantage. At the June 11 pretrial hearing, Spirit
agreed:
we didn't raise it [real party in interest] as a specific claim, but if in our
motions to summary judgment we made that very clear, that without
Elliott as an actual party in this case, with a claim against summary
judgment, the only party you can look at to determine damages is Mr.
Lawson. He is the only party in the case seeking money damages from
Spirit. And he himself did not suffer any damages. If Elliott had joined the
action and had sued Spirit in connection with that indemnification
agreement, Your Honor, I would not be able to have that conversation
with you.47
That conscious, strategic decision was also candidly acknowledge in Defendant’s
opening statement:

44

Finding of Fact, ¶ 114.

See Fid. & Deposit Co. of Maryland v. Shawnee State Bank, 13 Kan. App. 2d 182, 185, 766 P.2d 191,
194 (1988) (collecting cases).

45

Hall v. Life Care Centers of Am., Inc., No. 16-2729-JTM-KGG, 2018 WL 3377212, at *6 (D. Kan.
July 11, 2018) (“failure to timely raise a real-party-in-interest defense operates as a waiver”);
Ross-Williams on behalf of Sprint Nextel Corp. v. Bennett, 55 Kan. App. 2d 524, 550, 419 P.3d 608,
627 (2018) (“objections to whether a party is the real party in interest do not involve subject
matter jurisdiction and may be waived”).

46

47

June 11, 2021 Hearing, Dkt. 593, Tr. at 56.

44

[H]ad we filed a real party interest motion, which we discussed … let's
just say we filed that motion at the very beginning, Your Honor would
have allowed substitution and that sort of thing.
…. We knew that was -- if they wanted to, if they wanted to restyle their
case, that was easily fixable.48
As noted above, the evidence shows that Elliott is indeed subrogated to Lawson’s
recovery. The Court finds that by deliberately avoiding filing a motion which might
have easily resolved the issue, Defendant has waived any claim that Plaintiff has not in
fact the party injured by the breach.
35. Plaintiff is entitled to recover from Spirit $30,908,455, the amount it owed
Lawson under the Retirement Agreement.
36. Because these damages are liquidated, Plaintiff is entitled to prejudgment
interest in the amount of $12,382,272 through June 15, 2021 and $11,860 per day up to
the date of Judgment.
37. Accordingly, in light of Conclusions of Law ¶¶ 35 and 36, Judgment shall be
entered in favor of Plaintiff in the amount of $44,785,087.
38. Following Judgment, Plaintiff is entitled to interest at the rate of 4.25 percent.
39. In light of these findings and conclusions, the Court denies Spirit’s request
for its attorney fees in the present action.
IT IS ACCORDINGLY ORDERED that the court finds in favor of Plaintiff and
against Defendant. Judgment should be entered in accordance with terms of this Order.

48

Tr. I. at 48.

45

IT IS SO ORDERED.
Dated this 19th day of October, 2021.
This case is closed.

ERIC F. MELGREN
UNITED STATES DISTRICT COURT

46