On March 8, the Judge Richard Holtzberg suspended court proceedings in the University’s lawsuit against former Chief Investment Officer, Thomas Kannam, while an arbitrator decides whether the case will be resolved out of court.

In February, the defense called for the suit to be thrown out entirely, citing a provision in Kannam’s contract which states that any dispute related to “the interpretation, validity, or performance of this Agreement, and any other dispute arising out of [it]” will be settled in by arbitrators in accordance with the rules of the American Arbitration Association (AAA). The University’s attorneys maintain that much of the lawsuit is not subject to arbitration. So far, the case has only been temporarily suspended until arbitrators decide which parts of the suit can be settled out of court.

“Arbitration is a legally-binding process where you have an impartial arbitrator, a person who renders a decision on a dispute that can be enforced in court,” said Emanuel Psarakis, a professor at the Quinnipiac University School of Law and an AAA-qualified arbitrator. “It’s an alternative way of litigating a dispute.”

According to Psarakis, arbitration is very similar to regular court proceeding. Both sides present evidence and call witnesses before arbitrators render a decision. The process differs from other forms of alternative dispute resolution in that the arbitrator ultimately renders a decision (which is legally binding under the Federal Arbitration Act), rather than helping the parties reach an agreement, as occurs in mediation.

Parties choose to arbitrate for a variety of reasons. Psarakis cited the speed and relative simplicity of proceedings as characteristics that have popularized arbitration. Jean Sternlight, a law professor at the University of Nevada, Las Vegas and the director of the Saltmarsh Center for Conflict Resolution says that parties turn to arbitrators because they believe that they can get more congenial results.

“What’s it’s all about is that in each lawsuit each side is trying to pick a forum that will be better for it,” Sternlight said. “It’s thought—it’s not necessarily true, but it’s thought— that juries, when they get outraged, can be more generous [when assigning damages] than arbitrators, who tend to be more reasoned, more analytical.”

Sternlight added that this thinking is based on assumptions about the kind of people who serve as arbitrators as opposed to jurors.

“[The parties’] guess is that the folks on a jury would include more working class and middle class people who would be more outraged by what this guy supposedly did,” he said. “And everybody’s fairly sure, which tends to be true, that arbitrators will likely be some middle-aged or older-than-middle-aged white man who comes out of a business background and might not be as emotionally outraged by what the defendant allegedly did. Nobody’s really sure, but that’s the kind of calculation that they’re making.”

Michael Harrington, an attorney representing Wesleyan, alluded to several possible drawbacks to arbitration proceedings, including limited rights of discovery (that is, the ability to compel the other side to release information) and limited basis for appeal.

“The Supreme Court has held in some cases that parties who have agreed to accept an arbitrator’s decision may not challenge the decision on whether the arbitrator has interpreted the law correctly or not,” he said.

Kannam’s attorney declined to comment.

Psarakis explained that although courts are responsible for enforcing arbitrators’ decisions, they rarely examine them with much scrutiny.

“When arbitration decision is rendered, nobody has to comply with it until one of the parties goes and says ‘court, will you enforce this thing’ or ‘court, this thing is no good, throw it out,’” he said. “But the courts don’t review it that much, they give the arbitrators a wide hand in deciding the dispute.”

Arbitration can only occur when both parties agree in advance, but Psarakis said that disputes over what exactly parties have agreed to are fairly routine.

“Nobody is forced to arbitrate anything unless they have agreed to arbitrate,” Psarakis said. “Oftentimes disputes arise in respect to what’s covered and what’s not, and someone has to interpret them.”

At a hearing before the Middletown Superior Court on March 8, Harrington argued that the scope of the arbitration should be limited. He maintained that only the claims that arise from Kannam’s alleged violation of the terms of his contract are subject to arbitration, but that other claims, which include civil theft, fraud, and improper use of the University’s proprietary information are not covered.

“The parties could have said that any dispute related to Kannam’s employment should be arbitrated, but they didn’t,” Harrington said in an interview with The Argus. “The arbitration provision in Mr. Kannam’s employment agreement repeatedly refers back to the agreement. The University did not make an agreement that its employees would not steal from it or violate the trade secret laws. It felt that those things were understood.”

The arbitrators have yet to decide which parts of the case they have the authority to review, but experts agree that in recent decades, arbitration agreements have been interpreted fairly broadly.

“If I had to place a bet on it, the defendant probably has a better shot than the plaintiff,” Sternlight said.

It is unclear how arbitration could affect the University’s case against Kannam’s co-defendants, who include his wife and many of his business associates. The Belstar Group and Ralph Gil have motioned for stays, which the court has yet to act on. Since they did not have a contract with the University, their cases will not be arbitrated. However, resolving the dispute against Kannam out of court may pose some problems for Wesleyan in its other suits. Sternlight said that any admissions that Kannam might make in arbitration proceedings would probably be confidential, and hence not useable in other cases.

Even if the arbitrators decide in the defense’s favor, litigation will have only begun. At present, arguments center around whether Kannam will have to set aside money that could be awarded as damages if he ultimately loses the suit. The University has not yet filed a formal complaint against its former administrator.

“At the end of the day all the University wants at this moment is sufficient assets preserved while the merits of the case are determined,” Harrington said. “The wheels of justice move slowly, and we want to make that if we win it isn’t a hollow victory because [Kannam] has sold his house or depleted his bank accounts.”

Arbitrators typically take several months to render any decision. Sources within the University were unable to say when there might be new developments in the case, although Director of Media Relations David Pesci counseled patience.

“From my experience these tend to move slowly,” Pesci said.

  • David Lott, ’65

    “Unless someone posts a copy of the complaint in its entirety, everything is only a best guess based on available news articles.”

    Now there’s an idea for the Argus editors. How hard would that be? Why won’t they do this? Too lazy? Too unimaginative? Too afraid of libel? Has someone threatened them? Misadvised them? (Libel is really not a risk, if they just link the document.)

  • anon

    Complaints filed by a plaintiff typically do not reveal the entire case. They offer just enough to get the ball rolling. Discovery takes care of the rest, and it almost always reveals more salacious details. At that point ‘settlement’ talks become real negotiations, not just posturing. And remember, the money that Wes is claiming is just an initial figure. Once all the discovery has been reviewed, the amount can increase (or decrease, though unlikely). The complaint is a public document, let’s get it posted.

  • David Lott, ’65

    “Complaints filed by a plaintiff typically do not reveal the entire case. ”

    Even more than that. A complaint is merely the plaintiff’s version of the facts and (implicitly) applicable law. It’s by definition a one sided view of the case. To put it differently, all we have heard is Wesleyan’s version of the case. Kannam’s version is not before us yet, and will not be until he files an answer to the complaint. The stay pending arbitration relieves him of that responsibility for now.

    Anyone who lives in Middletown can go to the court house and for a fee get a copy of the complaint. Scan it to PDF and publish it.

    Apparently this is too hard for the Argus to do.

  • hmm


    Why do you say it’s not likely to decrease? I don’t understand what the damages are here. Where on earth does the $3mm number come from?

  • Anonymous

    Guess case got thrown out. Did Wes ever get its 3 mill?

  • skeptic

    My understanding is that this is going nowhere.

  • lawyer alum

    As an attorney, I hope I can explain a little about the proceedure and maybe connect some dots that this article misses.

    This is a civil [NOT CRIMINAL] action brought by the university against a former employee stemming out of a contract between the two parties. [Yes, a lawsuit is a complaint.] No one is saying that a criminal law was broken here. This is simply a contract dispute between parties. The allegations are of a civil matter not criminal. There is a big difference.

    If the Court thought there was good cause or good evidence against Kannam, the judge would have already ruled on the Motion for PreJudgment Remedy [PJR] to freeze assets, etc. That did not happen.

    This, coupled with the fact that originally the university announced that Kannam had left to pursue other interests and only later indicated he was fired has led me to an opinion about this whole matter. My opinion is that is clearly meant to smear the former employee’s reputation-ask any lawyer who knows anything about these types of cases. Someone is pissed off and using/wasting university money based upon the “facts” I’ve seen. If it couldn’t get any action on a PJR, there’s can’t be a strong case in the eyes of the Court. Again, this is my opinion.]

    Back to the facts…The defense filed a Motion to Dismiss around the same time as the Motion for Arbitration under the contract. The Court has sent stayed the case to which puts the Motion to Dismiss on hold until the Arbitration is completed. If it even gets out of arbitration, the case could still be completely dismissed when a Motion to Dismiss or other motions are decided.

    Further, what is seeming to be confused here is that if someone sues another person, everything alleged must be true. That is not how our court system works in a civil action. ANY person/entity can sue any other person/entity for ANYTHING without an independent authority verifying the facts alledged. Keep that in mind when you go to work tomorrow. Scary, huh? Hopefully, you get along very well with your boss, or if you’re the boss, hopefully your subordinates really like you.

    As far as damages, attorneys pull these damages figures out of their… well you know….and hope that it will be high enough to get everyone angry. [Therefore, further accomplishing the goal of trashing ex-employee’s reputation.]

    Skeptic, Fascinating, David Lott, I agree. We must ask why some of these things aren’t being shared by Argus? Like a copy of the complaint. Are we just being hand fed facts that the university wants to put out there? I feel that this is just some sort of pr campaign.
    We must always ask, what could be really going on here? I’m so glad to see that people are finally starting to questions motives here.

  • Smear

    Yes that whole smear (and falsehood) that someone was trying to spread that university officials are ethically and morally obligated to not serve on any boards. Did anyone read the Sunday New York Times 2 weeks ago featuring this very issue – the propensity of university officials to serve on corporate boards these days/

  • Wesleyan ’10