Predatory Raiding and High-End Executive

Defections

Joel P. HoxieSnell & Wilmer LLP

Phoenix, Arizona

WINDY CITY LITIGATION MANAGEMENT TRIAL.COM CHICAGO SUPERCOURSE 2011

“With Blackstone having paid a super-premium price for Hilton, [Hilton CEO Christopher] Nassetta will be under intense pressure to deliver immediate results.”

ehotelier.com

November 9, 2007

Departing Executives Owe A Duty of Loyalty

... even in absence of any restrictions contained in an

employment agreement

Duty of Loyalty

• Subordinates and other employees

• Customers/Clients

• Company’s confidential and proprietary information

Solicitation of Subordinates and Other Employees

Solicitation of Subordinates and Other Employees

Solicitation of

Customers/Clients

Solicitation of

Customers/Clients

Transfer/Use of Company’s Confidential and Proprietary

Information

Transfer/Use of Company’s Confidential and Proprietary

Information

Making Plans/Preparing to Compete

Solicitation Preparation

Permissible Preparation/Planning

• Interview with competitors or form new company

• Work on logistical arrangements– (new office space, computer/

telephone systems, business cards, press release, etc.)

• Notify current customers and subordinates of departure (?)

Predatory Raiding

Disloyal Executive

+

Competitor’s Overzealous Recruiters

__________________

= Liability

Predatory Raiding – Primary

Claims (In Addition to Employment Agreement Rights)

• Breach of fiduciary duty

• Aiding and abetting breach of fiduciary duty

• Tortious interference

• Uniform Trade Secrets Act

Security Title v. Pope

Security Title Agency, Inc. v. Pope,

219 Ariz. 480, 200 P.3d 977 (Ariz. Ct. App. 2008)

A Textbook Predatory Raid

on Security Title

– extensive clandestine meetings– strategy to make defection “look proper”– Pope involved key subordinates in the plan– First American agreed to indemnify Pope “against

anything” in her new employment agreement– Pope paid a signing bonus and provided funds to

pay bonuses to her key people– Pope solicited all of branch’s key customers– Pope had subordinates copy all pending escrow

files and maintain at home– successfully stole 80% of branch staff and 70% of

branch business

Linda Pope

+

First American Title (Talon Group)

___________________

= $6.3 Million (Compensatory)

+ $35.2 Million (Punitive)

[$41.5 Million]

Among the incriminating emails at Talon Group obtained during discovery:

“[Pope is] a very significant recruit [who] controls $8,000,000 in revenue … She is with Security Title and would be a major coup for us (or blow to [Security Title])”

“The attached [employee] list contains all the users that will soon join the Talon team. This could happen at any time within the next week or two. NOTE!!! We need to hide all of these recipients in the [First American Title global address book] (potential political repercussions).”

“Ross Klein Leaving W Hotels

for . . . Hilton?!!”

June 2, 2008

www.hotelchatter.com

Starwood Sues Hilton and Two Former Starwood Executives for Corporate Espionage, Theft of Trade Secrets, and Unfair Competition

October 8, 2009

“Hotel Feud Prompts Grand Jury Into Probe“

by Peter Lattman

“A federal grand jury is investigating whether Hilton Worldwide and several of its former executives should face criminal charges for allegedly stealing tens of thousands of pages of confidential documents from rival Starwood Hotels & Resorts, according to people familiar with the situation…”

Wall Street Journal

“Starwood Amends Suit to Implicate Top Hilton

Executives” www.successfulmeetings.comJanuary 19, 2010

“Starwood Lobs New Allegations Against Hilton”

The Wall Street JournalJanuary 15, 2010

PRESS RELEASE:

HILTON WORLDWIDE ANNOUNCES SETTLEMENT AGREEMENT WITH STARWOOD HOTELS & RESORTS

WORLDWIDE

“ … Hilton Worldwide regrets the circumstances surrounding the dispute with Starwood Hotels & Resorts Worldwide and is pleased to bring an end to this pro longed litigation,” said Christopher J. Nasseta, president and chief executive officer, Hilton Worldwide.

(cont’)

“Hilton Worldwide is committed to fair, ethical, and robust competition in the marketplace, and we will continue to focus on what we do best – providing exceptional services for all of our guests around the world …”

December 23, 1010

Ross Klein & Amar Lalvani

+

Hilton Worldwide

________________

=

Hilton Settlement (12.22.10)

• Consent to Permanent Injunction Against Hilton, Klein, Lalvani

• Moratorium on Hilton working on development/planning/creation of any lifestyle brand until January 2013

• Cash Payment to Starwood (Confidential)• Ongoing supervision of Hilton by two

federally appointed monitors – Injunction Monitor and Branding/Marketing Monitor – to ensure Hilton abiding by terms of injunction.

• U.S. Grand Jury investigation ongoing

Preventative Measures

• Involve corporate counsel early and advise lateral recruiters

• Determine up front if executive bound by contractual limitations

• Remind executive of duty of loyalty• Obtain written certification re

confidential materials/solicitation• Condition indemnification upon

compliance with certification