Parneros v. Barnes & Noble, Inc.

Background

Demos Parneros was Barnes & Noble’s chief executive officer and a member of its board. His amended employment agreement provided for an annual equity award valued at $3.6 million, with the first payment scheduled to vest on July 13, 2018. The agreement provided severance for termination without cause, but not for termination for cause. It defined cause to include a material breach of the agreement or of a written company policy or agreement.

Barnes & Noble terminated Parneros for cause on July 2, 2018. The company cited allegations that he sexually harassed an executive assistant, bullied Chief Financial Officer Allen Lindstrom, and mishandled a meeting with a potential acquirer. Parneros disputed the allegations and argued that the company’s leadership had previously dismissed or minimized some of them.

On July 3, 2018, Barnes & Noble issued a press release stating that its board had terminated Parneros “for violations of the Company’s policies.” The release also stated that the termination was unrelated to financial reporting, policies, or practices, and potential fraud; that Parneros would not receive severance; and that he was no longer on the company’s board.

Parneros’s amended complaint asserted claims for breach of contract, defamation, and breach of the implied covenant of good faith and fair dealing. The motion addressed in this opinion sought partial summary judgment on the defamation and good-faith-and-fair-dealing claims.

Legal Standard

Summary judgment is appropriate when there is no genuine dispute about a fact that could affect the outcome and the moving party is entitled to judgment as a matter of law. At this stage, the court may not weigh evidence or decide which witnesses are credible. It must draw reasonable inferences for the party opposing the motion, but unsupported speculation and conclusory allegations are insufficient.

Defamation Claim

New York law governed the defamation claim. The court explained that a plaintiff generally must prove a written defamatory statement of fact, publication to a third party, fault, falsity, and either defamation that is actionable without proof of special injury or actual injury.

The court held that Barnes & Noble was entitled to judgment as a matter of law because the press release was substantially true. The parties did not dispute that Parneros was terminated, that the board made the decision, that the board was advised by Paul, Weiss, Rifkind, Wharton & Garrison LLP, that the termination was unrelated to financial reporting or fraud, that he received no severance, or that he left the board.

The court also found no genuine dispute about the statement that Parneros was terminated for violating company policies. The board had unanimously voted to terminate him for sexual harassment, bullying behavior, and his conduct concerning the potential acquisition, and multiple directors testified that they believed his conduct violated company policies. The court stated that Parneros’s disagreement with the fairness of his firing or with whether he actually violated company policies was relevant to his contract and good-faith claims, not to whether the press release was substantially true about the board’s stated reasons.

Parneros also argued that the press release defamed him by implication by suggesting that he had engaged in sexual harassment. The court held that, even if readers could interpret the release that way, Parneros could not show a false implication because sexual harassment was one of the reasons the board voted to fire him. The court therefore granted Barnes & Noble’s motion for summary judgment on the defamation claim.

Good-Faith-and-Fair-Dealing Claim

New York law implies a covenant of good faith and fair dealing in contracts. The covenant generally prevents a party from acting in a way that destroys or injures the other party’s right to receive the benefit of the contract. When a contract gives a party discretion, the covenant includes a promise not to exercise that discretion arbitrarily or irrationally. A claim may proceed when a party’s conduct, while not technically breaching the contract, deprives the other party of the benefit of its bargain.

Parneros argued that Barnes & Noble violated the covenant by firing him days before his equity payment was scheduled to vest. Barnes & Noble argued that the employment agreement allowed it to terminate him at any time and did not promise new equity awards after termination.

The court rejected Barnes & Noble’s argument that the agreement necessarily defeated Parneros’s claim. It concluded that the agreement did not specifically tie the equity award to the timing of termination and that the company’s discretion to terminate Parneros did not eliminate the requirement that it act in good faith. The court held that Parneros had a viable theory that firing him immediately before the payment vested deprived him of the benefit of his bargain.

The court found triable factual issues about whether the timing was arbitrary. Parneros offered evidence that Barnes & Noble’s leadership had previously treated the sexual-harassment allegations as unimportant or resolved, that Lindstrom’s complaints about Parneros were not new, and that the board chair had not intended to recommend firing Parneros immediately after the meeting with the potential acquirer. Barnes & Noble argued that the timing resulted from the timing of Parneros’s alleged misconduct or another business justification. Resolving those competing accounts would require credibility determinations, which are not appropriate at summary judgment.

Disposition

Judge Mary Kay Vyskocil granted in part and denied in part Barnes & Noble’s motion for partial summary judgment. The motion was granted with respect to Parneros’s defamation claim and denied with respect to his claim for breach of the covenant of good faith and fair dealing. The court also ordered the parties to appear for a final pretrial conference and submit the required pretrial materials.