The tough job of CEO: Court dismisses SmartStream’s Chambadal $25m claim
Chambadal’s claim that he is entitled to $25 million because SmartStream was allegedly in the process of preparing for a sale to a strategic buyer for $500 million was dubbed illogical by the Court.
Philippe Chambadal, former Chief Executive Officer (CEO) of provider of software and managed services SmartStream Technologies, Inc., has lost a $25 million counterclaim against the company.
SmartStream and its former CEO have been engulfed in a legal fight at the New York Southern District Court for more than a year. Whereas the company has accused Chambadal of misappropriation of SmartStream’s trade secrets and breach of his Confidentiality Agreement, he has filed a counterclaim arguing that the company did not allow him to make use of a Long Term Incentive Plan.
On Monday, April 16, 2018, Judge Vernon S. Broderick of the New York Southern District Court, issued an Opinion & Order, dismissing Chambadal’s counterclaims for breach of contract, breach of the covenant of good faith and fair dealing, accounting, and unjust enrichment against SmartStream.
Chambadal worked at SmartStream as Chief Executive Officer from January 2009 through April 2016. On or around May 2, 2014, he was awarded an option to acquire one million shares in D-CLEAR EUROPE Limited, SmartStream’s parent company, pursuant to the Long Term Incentive Plan of SmartStream.
On January 23, 2017, approximately three weeks after SmartStream notified Chambadal that his employment was terminated, he wrote a letter to SmartStream indicating that he intended to exercise his option under the Plan. He claims that he decided to exercise his option because he “anticipated that certain executives were preparing the sale of SmartStream to a strategic buyer for $500 million”.
Chambadal contends that he satisfied all conditions precedent in order to be paid the full value of his option under the plan – approximately $25 million. Despite him having fully performed under the Plan, “SmartStream breached the express terms of the Plan by failing to honor its agreement with Defendant and by lapsing his duly earned award.”
For the option to be exercised, an Exit event, such as a takeover, had to take place. Whereas Chambadal concedes that no Exit event has occurred, he contends that under a plain reading of the Plan, an Exit event is not a requisite condition that must be satisfied for a plan participant to exercise options, but that options may be exercised prior to an Exit. He claims that he satisfied the condition because he believed that SmartStream was in the process of preparing for a sale to a strategic buyer for $500 million and he exercised his option prior to that anticipated sale.
The Judge found that Chambadal’s “strained interpretation of the word “may” is an unreasonable attempt at creating ambiguity in the Plan language where none exists”. The Judge notes that no sale has occurred; therefore, under the terms of the Plan, Chambadal has not properly exercised his option.
In any event, defendant’s proposed interpretation of the Plan language—that an Exit event is not a requisite condition that must be satisfied for a plan participant to exercise options—would require the company to cash out any and all plan participants at any point in time, without regard to any Exit event or other required vesting and exercise conditions, the Judge stressed. This proposed interpretation is illogical, according to the Judge.
The counterclaims against SmartStream are, hence, dismissed.
