Wooh v. Schnitzer Steel Industries, Inc. et al
Filing
39
Opinion and Order. The Court STAYS Plaintiff's motion 5 for Preliminary Injunction pending the outcome of a jury trial to resolve the intentions of the parties at the time they entered into the undertaking as to this disputed issue. Signed on 07/11/2011 by Judge Anna J. Brown. See 15 page Opinion and Order for full text. (bb)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION
SI CHAN WOOH,
Plaintiff,
v.
SCHNITZER STEEL INDUSTRIES, INC.,
and MANUFACTURING MANAGEMENT,
INC.,
Defendants.
JANET LEE HOFFMAN
Janet Lee Hoffman & Associates, LLC
10000 S.W. Broadway, Suite 1500
Portland, OR 97205
(503) 222-1125
Attorneys for Plaintiff
PER A. RAMFJORD,
Stoel Rives LLP
900 S.W. Fifth Avenue, Suite 2600
Portland, OR 97204
(503) 224-3380
Attorneys for Defendants
1 - OPINION AND ORDER
3:11-CV-00593-BR
OPINION AND ORDER
BROWN, Judge.
This matter comes before the Court on Plaintiff Si Chan
Wooh’s Motion (#5) for Preliminary Injunction.
For the following
reasons, the Court STAYS the resolution of this matter pending
the outcome of an expedited jury trial on Plaintiff’s Claim One
for Breach of Contract - Damages.
BACKGROUND
I.
PLAINTIFF’S COMPLAINT
A.
Factual Allegations.
Plaintiff alleges he was employed by Defendant Manufacturing
Management, Inc. (MMI) as a manager and officer from 1985 and by
both MMI and Defendant Schnitzer Steel Ind., Inc. (SSI) from 1995
until September 2006 when he was terminated by both MMI and SSI.
During his employment, Plaintiff reported directly to the Chief
Executive Officer and Chairman of the Board of SSI.
Plaintiff became a whistle-blower in May 2004 by revealing
to SSI’s in-house counsel and its compliance officer that SSI had
made payments to the purchasing agents of Asian customers for
years, potentially in violation of the Foreign Corrupt Practices
Act (FCPA), 18 U.S.C. § 371.
SSI cooperated with a resulting federal investigation and
believed “it was vital to their interests” for Plaintiff both to
cooperate with the government and SSI and to keep SSI “informed
2 - OPINION AND ORDER
of all facts” and “assist[] in factual development.”
SSI’s in-house counsel referred Plaintiff to attorney Janet
Lee Hoffman to represent him on the pending criminal
investigation.
On June 15, 2005, MMI’s Board of Directors
authorized MMI to indemnify Plaintiff “to the fullest extent not
prohibited by law” and “to pay all expenses” that Plaintiff
incurred in defending himself.
The indemnification agreement was subsequently memorialized
in an Affirmation and Undertaking in Connection with Advancement
of Expenses (Undertaking) setting forth the terms by which MMI
and SSI agreed to advance expenses incurred by Plaintiff in
defending himself.
The Undertaking provided SSI and MMI “would pay
[Plaintiff’s] expenses, on an ongoing basis, during the pendency
of the Investigations and any other proceedings arising out of
the same subject matter of the Investigations, and prior to their
final dispositions.”
The Undertaking also provided:
“In
consideration of [MMI and SSI] authorizing such payments,”
Plaintiff and his counsel would cooperate with MMI and SSI and
their attorneys in connection with the government investigations,
and Plaintiff would repay all expenses “if it shall be ultimately
determined by a court that [he was] not entitled to be
indemnified by the Company.”
3 - OPINION AND ORDER
Plaintiff signed the Undertaking on July 6, 2005, and
alleges he has fully complied with the Undertaking and cooperated
with investigations conducted by the government, SSI, and outside
counsel.
Based on its cooperation, SSI thereafter was permitted by
the government to enter into a deferred prosecution agreement and
to pay a $7.5 million criminal fine (which Plaintiff alleges was
a favorable outcome for SSI).
On June 29, 2007, Plaintiff pled guilty to one count of
Conspiracy to Violate the FCPA.
The government agreed it would
recommend at sentencing a 15-level downward departure pursuant to
the sentencing guidelines based on Plaintiff’s “substantial
assistance to authorities” and would not recommend a term of
imprisonment.
On May 10, 2010, Plaintiff learned the government would not
prosecute SSI’s former CEO and Chairman of the Board.
Plaintiff
also learned an FBI agent assigned to investigate SSI, MMI, and
Plaintiff had recommended to the Department of Justice that
Plaintiff should not have been charged with any crime.
Plaintiff’s counsel thereafter advised SSI’s in-house counsel
that Plaintiff intended to seek dismissal of the charges against
him.
Defendants continued to advance the legal fees of
Plaintiff’s counsel through November 2010.
4 - OPINION AND ORDER
At that time SSI’s
in-house counsel informed Plaintiff’s counsel that outside
counsel had advised SSI that it was unlikely Plaintiff would
prevail in having the criminal charges against him dismissed or
that he would be permitted to withdraw his guilty plea.
In
addition, Plaintiff’s counsel was advised of SSI’s concern that
Plaintiff would be unable to reimburse SSI for the advanced fee
payments if SSI determined Plaintiff was ineligible for
indemnification of those fees pursuant to the Undertaking.
Plaintiff’s counsel was unsuccessful in her efforts to meet with
outside counsel.
On February 2, 2011, Plaintiff’s counsel was advised SSI
would no longer advance Plaintiff’s legal fees and would not pay
two outstanding attorneys’ fee invoices.
This civil action
followed (even as the criminal case against Plaintiff remains
pending).
B.
Claims for Relief.
First Claim:
Breach of Contract - Damages.
Plaintiff alleges Defendants have breached their agreement
in the Undertaking to pay Plaintiff’s past and future legal
expenses incurred in defending against the alleged FCPA criminal
charges.
Second Claim:
Breach of Contract - Injunctive Relief.
Plaintiff seeks an injunction prohibiting Defendants from
5 - OPINION AND ORDER
ceasing to pay Plaintiff’s legal expenses through the end of the
criminal proceedings against him in light of the alleged
immediate and irreparable harm that Plaintiff would suffer if he
lost the services of his long-serving, trusted counsel.
Third Claim:
Breach of Contract - Declaratory Relief.
Plaintiff seeks a Declaratory Judgment that Defendants are
required to continue advancing attorneys’ fee to Plaintiff until
the criminal charges against him are resolved.
II.
DEFENDANTS’ ANSWER AND AFFIRMATIVE DEFENSES
Although Defendants admit Plaintiff’s allegations as to the
origins of the FCPA investigation and the Undertaking, they deny
each of the other allegations in Plaintiff’s Complaint.
Defendants also assert the following language in the
Undertaking entitled MMI to terminate the payment of attorneys’
fees to Plaintiff as long as doing so was “not statutorily
prohibited”:
I agree and acknowledge that [MMI] may
terminate the further payment of any and all
Expense Advances, except to the extent
forbidden by the Oregon Revised Statutes.
Such termination by [MMI] shall have no
effect on this Affirmation and Undertaking
and my continued obligation to repay prior
Expense Advances to the extent required by
this Affirmation and Undertaking.
See Def.s’ Answer and Affirmative Defenses at ¶ 30; Stip. Ex. 2.
6 - OPINION AND ORDER
PRELIMINARY INJUNCTION
I.
STANDARDS
The decision to grant or to deny a motion for preliminary
injunction is within the discretion of the court.
Dish Network
Corp. FCC, 636 F.3d 1139, 1143 (9th Cir. 2011).
Two alternative standards are applied to requests for
preliminary injunctions.
Ranchers Cattleman Action Legal Fund
United Stockgrowers of Am. v. United States Dep't of Agric., 415
F.3d 1078, 1092 (9th Cir. 2005)(citing Save Our Sonoran, Inc. v.
Flowers, 408 F.3d 1113, 1120 (9th Cir. 2005)).
An order may be
issued under the traditional standard if the court determines
plaintiff has shown “(1) a strong likelihood of success on the
merits, (2) the possibility of irreparable injury to plaintiff if
preliminary relief is not granted, (3) a balance of hardships
favoring the plaintiff, and (4) advancement of the public
interest (in certain cases).”
Ranchers Cattlemen Assoc., 415
F.3d at 1093.
The requirement for showing a likelihood of irreparable harm
prior to trial increases or decreases in inverse correlation to
the probability of success on the merits at trial.
v. Borg, 918 F.2d 793, 795 (9th Cir. 1990).
Diamontiney
See also Sun
Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115, 1119
(9th Cir. 1999)(these factors represent two points on a sliding
7 - OPINION AND ORDER
scale:
“[T]he greater the relative hardship to the moving party,
the less probability of success must be shown”)(citation
omitted).
The essence of the court's inquiry is whether the
balance of equities favors granting preliminary relief.
Int’l
Jensen, Inc. v. Metrosound U.S.A., Inc., 4 F.3d 819, 822 (9th
Cir. 1993).
Courts apply a more exacting standard when the moving party
seeks a mandatory as opposed to a prohibitory preliminary
injunction.
See Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH
& Co., 571 F.3d 873, 879 (9th Cir. 2009)(“In general, mandatory
injunctions ‘are not granted unless extreme or very serious
damage will result and are not issued in doubtful cases or where
the injury complained of is capable of compensation in damages.’”
(citing Anderson v. U.S., 612 F.2d 1112, 1115 (9th Cir. 1979)).
Courts should be extremely cautious in issuing mandatory
preliminary relief.
Such relief is disfavored and should be
denied unless the facts and law clearly favor the moving party.
Anderson, 612 F.2d at 1114.
II.
DISCUSSION
Plaintiff contends he told SSI about alleged illegal foreign
payments, SSI then investigated, and SSI thereafter disclosed the
payments to the Securities Exchange Commission and the Department
of Justice as a strategy to minimize SSI’s “exposure to
8 - OPINION AND ORDER
potentially crippling fines and other liability.”
4.
Pl.’s Mem. at
Plaintiff asserts he was “a crucial part of that cooperation
effort” because he “carried out . . . SSI’s practice of making
commission payments to customers.”
Id. at 5.
Plaintiff also
asserts SSI knew Plaintiff’s cooperation with the government
would put him at risk of criminal prosecution under the FCPA.
In
addition, Plaintiff contends SSI’s defense strategy included the
indemnification of Plaintiff’s legal expenses as set out in the
Undertaking.
According to Plaintiff, his cooperation, in fact, led the
government to defer prosecution of SSI and to fine SSI “only”
$7.5 million even though SSI made $55 million in profit from the
illegal foreign payments.
In June 2007 Plaintiff pled guilty to one count of
Conspiracy to Violate the FCPA.
SSI then asserted its right to
cease further payments under the Undertaking on the basis that
Plaintiff’s guilty plea resolved the criminal case in a manner
that made Plaintiff ineligible for further indemnification of
attorneys’ fees pursuant to the Undertaking.
After Plaintiff’s
counsel objected, SSI resumed payments.
In May 2010 the government informed SSI that it would not
prosecute SSI’s former CEO.
In addition, FBI Agent Joseph
LaMonica wrote to the Department of Justice stating that
9 - OPINION AND ORDER
Plaintiff should not have been charged in the criminal case and
recommending that the government dismiss the charges.
Based on these developments, Plaintiff’s counsel advised
SSI’s counsel, Rich Josephson, later in May 2010 that Plaintiff
would seek dismissal of the charges against him.
SSI’s counsel
then advised Hoffman that he had instructed SSI’s insurance
carrier to continue funding Plaintiff’s legal expense through the
remainder of the criminal proceedings.
In November 2010, however, George Terwilliger, another one
of SSI’s counsel, advised Josephson that he did not believe
Plaintiff would be allowed to withdraw his guilty plea and would
likely be unable to reimburse legal expenses previously paid by
SSI if SSI determined that Plaintiff was ineligible for
indemnification under the Undertaking.
SSI then stopped
advancing defense funds to Plaintiff, which, according to
Plaintiff, has jeopardized his defense in the still-pending
criminal case.
A.
Substantial Likelihood of Success on the Merits.
Plaintiff seeks a mandatory injunction requiring SSI to pay
Plaintiffs’s legal fees for services rendered in the future.
Plaintiff, therefore, must establish he has a “substantial
likelihood” of succeeding on the merits of his claim against
Defendants.
See Marlyn Nutraceuticals, 501 F.3d at 879.
10 - OPINION AND ORDER
Defendants assert Plaintiff is not likely to succeed on the
merits of his claim because Defendants were free pursuant to the
Undertaking to cease advancing legal payments to him at any time
for any reason not barred by Oregon statute.
Plaintiff, in turn, asserts his allegations raise serious
questions as to the merits of his claims for breach of contract.
Specifically, in the context of the Undertaking as a whole,
Plaintiff contends SSI’s putative freedom to cease paying
Plaintiff’s legal fees for any reason whatsoever would render the
Undertaking meaningless and illusory and also defeat the
reasonable expectations of the parties.
Plaintiff contends the
provision for termination of payments for legal fees referred to
in the Undertaking pertains to “further payments” other than
those payments for services rendered through February 2011, which
is the date when SSI first notified Plaintiff that it was going
to cease making such payments.
Plaintiff, in effect, asserts he
kept his part of the bargain by cooperating with the government,
and he had a reasonable expectation that Defendants would honor
the Undertaking by paying his legal fees.
According to
Plaintiff, the equities, therefore, favor Plaintiff.
It is difficult to assess the likelihood of Plaintiff’s
chances to establish a “substantial likelihood of success on the
merits” without definitely resolving the meaning of the
Undertaking as to whether Defendants are, in fact, free to
11 - OPINION AND ORDER
withdraw from performing at any time and for any reason.
The
language Defendants used in drafting the Undertaking, which
permitted them to withdraw payments covering the cost of
Plaintiff’s defense at any time, suggests their agreement to make
the legal payments was voluntary and not based on any legal duty.
On the other hand, it appears that SSI and MMI intended to seek
and actually obtained substantial benefits in their dealings with
the government based in part on Plaintiff’s cooperation with the
government, which then placed Plaintiff in criminal jeopardy.
If
SSI and MMI were free to cease advancing Plaintiff’s defense
costs for any random reason regardless of the benefits they
obtained from Plaintiff’s conduct, their agreement to pay
Plaintiff’s defense costs could be illusory.
For these reasons, the Court concludes the literal terms of
the Undertaking are, at the very least, ambiguous in regard to
this issue.
In light of the continued pendency of the criminal
case against Plaintiff, the Court also concludes the ambiguity as
to the respective obligations of the parties pursuant to the
Undertaking and, in particular, as to the right of SSI to
terminate payments prematurely regardless of the benefits
conferred on it by Plaintiff’s ongoing cooperation with the
government needs to be resolved promptly and definitively by a
trier-of-fact; i.e., a jury.
12 - OPINION AND ORDER
Accordingly, as noted at oral argument, the Court shall
convene a jury trial promptly as to this issue.
B.
Possibility of Irreparable Injury.
Plaintiff’s counsel asserts she will have to withdraw as
counsel for Plaintiff if SSI does not reimburse the attorneys’
fees that she reasonably incurred in defending Plaintiff against
the government’s charges because nonpayment of her attorneys’
fees for services rendered would interfere with her personal
interests and prevent her from continuing to represent Plaintiff
under Oregon’s Rules of Professional Conduct.
In addition, counsel argues she will, in effect, have agreed
to a contingency fee (i.e., SSI would only reimburse her fees if
Plaintiff prevailed against the government’s charges), which is a
fee arrangement that is not permitted in criminal cases.
See
Caplan & Drysdale, Chartered v. U.S., 491 U.S. 617, 633, n.10
(“contingent fees in criminal cases are generally considered
unethical.”).
See also Or. R. of Professional Conduct
1.5(c)(2)(“A lawyer shall not enter into an arrangement for,
charge or collect . . . a contingent fee for representing a
defendant in a criminal case.”).
Moreover, Plaintiff asserts if his counsel is forced to
resign because her attorneys’ fees are not paid, Plaintiff will
be deprived of his Sixth Amendment right to the counsel of his
choice.
Although counsel’s resignation may or may not give rise
13 - OPINION AND ORDER
to a Sixth Amendment violation, Plaintiff asserts the loss of his
counsel’s services at this stage of the criminal proceedings will
irreparably harm him in light of counsel’s role in his defense
against the government’s charges over a six-year period and the
fact that he is scheduled for sentencing on his guilty plea in
the near future.
On this record the Court agrees Plaintiff may be
disadvantaged, possibly irreparably, if his present counsel is
unable to continue her representation.
C.
Balance of Hardships.
SSI does not argue that the balance of hardships in this
matter favors SSI.
speculative.
SSI merely states any injury to Plaintiff is
On this record, this factor strongly favors
Plaintiff.
D.
Public Interest.
Plaintiff asserts the scarcity of federal funding for courtappointed counsel suggests the public interest favors requiring
Hoffman to continue her representation of Plaintiff and to be
paid for her services by SSI pursuant to the Undertaking.
SSI,
in turn, contends the public interest weighs against Plaintiff
because an injunction would “undermine the public policy favoring
voluntary indemnification of corporate employees.”
At its core this matter involves an agreement by a private
employer to reimburse the legal expenses incurred by one of its
14 - OPINION AND ORDER
employees who was purportedly acting in the scope of his
employment.
Although there may a “public interest” in the nature
of the alleged criminal conduct that is at the heart of this
matter, the dispute between the parties here is essentially a
private, contractual dispute; i.e., there is not a “public
interest” to be considered in its resolution.
In summary, the Court concludes the language in the
Undertaking as to SSI’s continuing obligation to reimburse
Plaintiff’s legal expense is ambiguous.
That ambiguity
necessarily must be resolved before deciding whether Plaintiff
has established a substantial likelihood of prevailing on the
merits of his claims against Defendants.
Accordingly, the Court STAYS Plaintiff’s Motion (#5) for
Preliminary Injunction pending the outcome of a jury trial to
resolve the intentions of the parties at the time they entered
into the Undertaking as to this disputed issue.
IT IS SO ORDERED.
DATED this 11th day of July, 2011.
ANNA J. BROWN
United States District Judge
15 - OPINION AND ORDER
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