Barnes & Noble CEO May Proceed on Claim of Breach of the Covenant of Good Faith and Fair Dealing

In Parneros v. Barnes & Noble, Inc., 2020 WL 5350531 (S.D.N.Y. Sept. 3, 2020), the court denied defendant’s motion for summary judgment on plaintiff’s claim that Barnes & Noble violated the implied covenant of good faith and fair dealing by firing him mere days before the equity payment for the prior year, when he served as CEO, was set to vest.

According to the court, it was undisputed that the board unanimously decided to terminate plaintiff for sexual harassment, bullying behavior and plaintiff’s conduct concerning a failed deal with a potential acquiror.

After summarizing the law relating to the covenant of good faith and fair dealing, the court explained:

Barnes & Noble argues that it is entitled to judgment as a matter of law because Parneros negotiated an employment agreement that gave it discretion to terminate him at any time and did “not provide for the grant of any new equity awards” after his termination, with or without cause. Def. Mem. at 22 (emphasis added). The company’s arguments are unpersuasive. It suggests that a high-level executive can never succeed on a claim for breach of the covenant, even if a company intentionally times his termination to avoid triggering payment obligations, citing Woodard v. Reliance Worldwide Corp., 18-cv-9058 (RA), 2019 WL 3288152 (S.D.N.Y. July 22, 2019). Barnes & Noble misunderstands Woodward. In that case, the parties specifically negotiated a contract that provided a bonus if, and only if, the plaintiff were terminated within seven days of an acquisition, and the court explained that it could not rewrite that specifically negotiated provision. Id. at *3. But Parneros’s employment agreement did not specifically tie his equity to the timing of his termination. Rather, Barnes & Noble exercised its discretion to fire Parneros at any time, and the Second Circuit has made clear that the covenant of good faith and fair dealing “includes a promise not to act arbitrarily or irrationally in exercising [such] discretion.” Fishoff, 634 F.3d at 653. Thus, Parneros has a claim that the decision to fire him right before he would receive the equity he earned over the previous year, “though not breaching the terms of the contract in a technical sense, nonetheless deprived [him] of the benefit of its bargain.” Pearce, 528 F. Supp. 2d at 180–81.

Parneros raises a triable question as to whether the timing of his firing was arbitrary. Barnes & Noble argues that the timing of his firing was based on the timing of his alleged misconduct, Def. Mem. at 25, but Parneros offers evidence that the leadership of Barnes & Noble knew about and dismissed the allegations against him before it cited those allegations as reasons to fire him. Specifically, Parneros offers evidence that Riggio assured him that, even if everything the executive assistant said were true, her complaint was “not a ‘big deal.’ ” Pl. 56.1 ¶ 26. He cites Keating’s testimony that, after Parneros apologized, Keating told him the problem was “over with.” Id. ¶ 104; Keating Dep. 229:17. Riggio likewise considered the matter “closed.” Pl. 56.1 ¶ 105. Parneros also offers evidence that Lindstrom’s complaints of bullying were nothing new. Lindstrom testified that, a year before Parneros was fired, Lindstrom reported that Parneros’s treatment was causing him “chest pains,” and the head of HR and Feuer, the general counsel, responded only that Lindstrom needed to “figure out a way to work with” Parneros. Pl. 56.1 ¶ 32; Lindstrom Dep. 237:1–14. According to Parneros, when he spoke to Riggio about Lindstrom’s self-evaluation, in which Lindstrom stated that he felt bullied, Riggio responded that the underperforming CFO was just “trying to ‘cover his ass.’ ” Pl. 56.1 ¶ 37; Parneros Decl. ¶ 16. With respect to the timing of the June 18, 2018 meeting that Parneros allegedly mishandled with the potential acquirer, Riggio testified that he had no intention of recommending that the board fire Parneros as of that afternoon. Riggio Dep. 255:21–24. Of course, Barnes & Noble might be able to convince the trier of fact that the timing of Parneros’s firing was based on the timing of his conduct, or was not arbitrary because it was based on some other “business justification.” Sec. Plans, Inc., 769 F.3d at 820. Perhaps learning of the loss of the potential acquisition was the last straw. However, it would be up to the trier of fact to decide whether to believe that, or to accept Parneros’s argument that the deal was dead in the water anyway, and the leadership decided to push him out instead of paying him.

The court concluded that “[r]esolving these competing views will require weighing” testimony, and “[c]redibility determinations are inappropriate at the summary judgment stage.”

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