Sheehan & Associates, P.L.C.

Detroit software company in legal battle with former CEO

The co-founder and former chairman and CEO of Detroit-based Compuware Corp., Peter Karmanos, Jr., was terminated at the beginning of October for making derogatory statements about the software company's management at a breakfast gathering in his honor. Now Karmanos is suing for over $5 million worth of salary, stock options, bonuses, benefits and damages.

The 70-year-old, who had remained with the company as executive chairman and a consultant, was fired less than two weeks after making those statements. He claims that he was dismissed without just cause, and is accusing the company he helped start four decades ago of, among other things, breach of contract.

A key matter of dispute is whether Compuware could fire him under the terms of his contract. The problem is that he had two different contracts, with varying definitions of cause. His most recent one, a transition agreement drawn up this past April for his consultancy services, spelled out cause as illegal actions, misconduct that caused material damage to the business or refusal to do his job. Karmanos contends that he did none of those things.

A contract drawn up in 2011 when he stepped down as CEO, however, defines cause in somewhat more vague terms. In that contract, it can include making negative statements about the company.

So at issue in the litigation is whether that 2011 contract was still in force when Karmanos addressed his audience at that ill-fated breakfast event in September. If so, Compuware would need to show that what he said caused material damage to the company - such as a drop in the stock price.

This case demonstrates the importance of having experienced legal guidance when drawing up employee contracts. This is particularly crucial when an employee's stake in a company is worth millions. If it is not spelled out that one contract supersedes another, a company can find itself caught in a costly legal battle.

Source: Crain's Detroit Business, "Karmanos' lawsuit against Compuware: It may hinge on what his contracts said" Chad Halcom, Nov. 19, 2013

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