One of the key arguments for government court proceedings versus private arbitration is that the open and publicly accessible nature of courts is better for the industry. Sometimes, it's the desire to avoid the pain of having dirty laundry publicized that makes executives do the right thing. As Best Buy (NYSE:BBY) is now proving, that's not necessarily the case.
A federal judge has thrown out the lawsuit that the former CEO of Napster filed against Best Buy. Why was it thrown out? That's unknown as the judge agreed to discuss it in a hearing that was immediately sealed. (And who said a retailer has to surrender backroom deals when being sued in federal court?)
Gorog was CEO of Roxio when it bought Napster in 2002 and he took over as CEO of Napster when it relaunched. Best Buy then bought the whole company for $121 million in 2008 and made Gorog a Best Buy employee, according to the Minneapolis St. Paul Business Journal. Gorog left Best Buy the next year, but in his lawsuit said he was owed an undisclosed share of a pay package worth up to $5.85 million, and he accused Best Buy of structuring the 2011 sale of Napster to Rhapsody to shortchange him.
Best Buy apparently paid Gorog an undisclosed sum, but Gorog continued the fight in federal court, a fight that ended rather abruptly on May 8, when U.S. District Judge David Doty issued a cryptic order that Best Buy's motion to dismiss the lawsuit was granted.
But given that the judge ruled in favor of Best Buy and Napster (Napster in July 2012 changed its name to Project Jaguar), the last filed documents from that pair offer some clues. Best Buy's position is that Gorog is seeking compensation for financial accomplishments of Napster that happened after he left the company and that his contract tied those incentives to whether he had stayed on payroll.
There was also some dispute about which documents were relevant for the court to review. "To the extent Plaintiff is now bizarrely trying to avoid the actual Performance Award Agreement, Plaintiff's claim must be dismissed because Section 5.3 of the Employment Agreement makes clear that the Employment Agreement itself does not provide any performance award," was said in one Best Buy filing. "The corporate transaction documents submitted by Defendants provide the content of the transaction that Plaintiff claims triggers his entitlement to payment for events that occurred long after his employment ended."
Best Buy also got in a dig about Gorog's attempts to get more Napster documents from Best Buy. "Plaintiff has yet to explain how he reconciles his discovery strategy of assuming that Best Buy can produce Napster Inc.'s documents because it owns the entity with his litigation position that Best Buy has sold 'majority ownership' of Napster, Inc."
What's not clear is whether the judge agreed with Best Buy that Gorog was not entitled to the award or whether the secret settlement already delivered to Gorog sufficient dollars to cover the debt.
- See this Minneapolis St. Paul Business Journal story