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.

  • PROOFREADER

    ARGUS, you mispelled Ralph Gill’s name. It has two ‘Ls’, not one.

  • Question

    Does anyone know if Wes can file a criminal complaint with the state on the charges of theft, without invalidating their civil claim? Can it be done during arbitration? That seems to be a pretty powerful arrow in their quiver. It would appear that Wes is not going to fold their tent under any situation whatsoever.

  • So there is no lawsuit….

    “The University has not yet filed a formal complaint against its former administrator.”

  • Time for editing….

    So there is no lawsuit…. Great catch. It is a poorly written paragraph. Obviously a complaint has been filed (otherwise they would not be in court). It likely means that a request for arbitration with an associated complaint has not been filed…. or a formal prejudgment remedy complaint has not been filed (which seems odd). The paragraph which follows focuses on the prejudgment remedy.

    Kannam is burning a lot of money on this case. The arbitration action at least will slow the burn rate, but not by much. Wonder if he was smart enough to take out a personal liablity insurance umbrella. Would such an insurance policy cover this type of action?

    Argus editors should clarify.

  • Arby

    Arbitrators are often retired judges. Common sense and the law usually prevail. I can see the arbitrator initially attempting to steer the parties to a voluntary out of court settlement for the entire matter, but the chance of that approach working is none. I believe that the arbitrator’s focus will ultimately be very narrow. My guess is that travel expenses will be covered by arbitration. The rest of the charges seem very unlikely to be subject to any type of binding arbitration. Is the limit for an arbitrator rendered judgment $50,000. Is this right? Does anyone know?

  • So there is no lawsuit

    Check back on the previous blog, where Ron Medley ’73 admits that the administration would be unlikely to bring suit if there was an arbitration clause in Kannam’s contract. Now we learn – there is. So, is the administration reckless? Yes, Argus should clarify – is there a formal complaint?

  • Legal Issues not Mathematical

    Should have just fired him and called it a day.

  • Independent Thinker

    Can’t you people understand or think independently? This case is about alleged fraud and theft, among other things. You don’t arbitrate fraud or theft. Why are you people always trying to find fault in the administration? It is beyond belief. If one of you were ripped off, what would you do? Simply give up and blame yourself?

  • How about this?

    Dear Independent Thinker —
    Imagine that your contract says that (as with professors) work done outside the university on your own hours is permissible, HOWEVER if any questions arise concerning this work, then arbitration will take over. Arbitration will be conducted by those who understand the letter of the law and who render judgements. Your passionate response is more reflective of the type of jurors (mentioned above) whose “emotional outrage” blinds them to the legalities of contract law.

  • Independent Thinker

    Dear How about this —

    Kannam was not a university professor. He was not tenure eligible. He held an administrative post serving at the pleasure of the trustees. I know it is difficult for you, but go imagine that. Take off your ivory tower hat, and put on your business hat. In this case, one hat is key!

    Your logic makes as much sense as –
    1. The President being allowed to simultaneously serve as the president of another university on the weekends
    2. The General counsel being allowed to be a partner in an outside law firm and argue cases in night court.

    Get real! And please get more “legal”.

    ps. There is no “e” after the “g” in judgment

  • Rob Wohl

    Clarification time: no formal complaint has been filed. So far Wesleyan has only applied for a prejudgment remedy.

  • Rob Wohl

    Second clarification: That doesn’t mean there’s no lawsuit. Filing for a pre-judgment rememdy is a kind of litigation. It just isn’t a formal complaint.

  • Homework Monitor

    ARGUS, I think you need to dig out your pre-law books and do some homework on what a complaint is. A complaint is the basis for a lawsuit. No complaint, no lawsuit. Also, a prejudgment remedy can only be initiated as part of a complaint. Yes, even the law makes sense.

  • David Lott, ’65

    “Wonder if he was smart enough to take out a personal liablity insurance umbrella. Would such an insurance policy cover this type of action?”

    Does Wesleyan have D&O insurance? Probably. Will Mr. Kannam at some point ask that Wesleyan’s D&O insurer pay for the cost of his defense? Stay tuned.

  • So there is no lawsuit?

    If there is no lawsuit, has the Argus committed libel?

  • Hatchet Job

    Not likely, they were just reporting facts related to a total nuisance waste of time lawsuit. Court has made it pretty clear to get out of its face and settle this through arbitration, which was stated in the employment contract.

  • current student

    @ Hatchet Job: except for the fraud and civil theft not covered under arbitration

  • Theatre of the Absurd

    Yes, current student, clearly the judge was impressed with the saliency of these charges….

    BTW “Question” – if the university is trying to ensure that Kannam’s assets aren’t depleted, why would they press for criminal charges?

    Overall, the Argus should asking why would the administration and trustees first approached a civil court when the contract clearly included an arbitration clause? Is Wes truly seeking compensation or, as the defense suggests, looking to smear reputations?

  • David Lott, ’65

    “Overall, the Argus should asking why would the administration and trustees first approached a civil court when the contract clearly included an arbitration clause?”

    Because they are seeking a prejudgment remedy to preserve assets, and because numerous defendants are not subject to arbitration. The article is pretty clear on these points.

    This order is pretty much a non-event. The judge wants the arbitrators to decide what is subject to arbitration. He would rather not sort through that in the first instance, but will get involved once the arbitrators act. The only slight surprise is that he seems to have put the entire case on hold.

    This is going to be a long, involved process.

  • Holzberg Translation

    Get out of my courtroom and stay out.

  • alum2

    @Lott
    Preserve assets on what basis? This is what I can’t get my arms around, because Wes does not allege harm to the endowment. Basically, they want his salary back (yes, they dispute some expenses as well, but that seems like a number in the small thousands of dollars – small beer). But on what grounds can you ask for someone’s salary back if there was no harm?

    It seems absurd on its face, and they must have known there was a high likelihood of arbitration, unless the lawyers are complete boobs. It seems like every action was undertaken to destroy a reputation, which is what it’s done quite effectively. (Or perhaps to enhance the reputation of our new president? Michael Roth – he has rooted out evil in our midst!)

  • alum too

    No doubt. What concerns me is the whole process seems haphazard. Naming 20 defendants in such a public manner? Seems like Wesleyan is tempting counter-suits. Plus, is the Argus a tool for the administration, given the conveniently published emails?

  • Brilliant Lawyering!

    Kannam’s contract is upheld as per the ‘arbitration clause’ but nothing will prevent the 20 defendants from countersuing!

  • Court Reporter

    Looks like the defendants are back posting their comments

  • Or….

    … or folks who actually think are posting, too.

  • Court Reporter

    … or armchair ‘legal experts’ who will attack the administration no matter what they do. C’mon folks, get with it. Unless you have reviewed the case file, you are just shooting into the ether based on your personal biases. The last time I looked, you don’t ‘arbitrate’ fraud or theft.

  • alum too

    No one is trying to indict anyone, just understand what the Argus won’t ask. Why not arbitrate first, then sue if something egrigious come out? Are all the Trustees on board? Why all the other defendants? Is our legal rep contingency or fee?

    With this strategy, Kannam has been backed into a corner and will have to countersue to save his reputation.

  • Court Reporter

    You don’t arbitrate fraud. You don’t arbitrate theft. You arbitrate employment contracts where there is a disagreement. So what is the disagreement? That he was permitted to hold outsides jobs to stuff his pockets with cash? Let alone an outside job in the very industry with which Wes would seek investment advice and direct investments. C’mon. Use your brain. Apply some common sense!

  • alum2

    Theft of what? I get back to where is the alleged harm to Wes, if not to the endowment? If the alleged theft was merely a few thousand dollars of expense padding, why the huge suit and all the publicity?

    And if the harm was limited to expense padding, what is the justification for asking for $3 million, not to mention the justification for suing 20 parties.

    I’m no fan of Kannam, but it strikes me that on the legal front, this case is a joke. But I think this was about politics from the start…

    @Court…you can arbitrate anything. It depends what was in his contract. It is generally EMPLOYERS who want broad arbitration language because they are almost always the defendants. So my guess is if you read Kannam’s contract, you would find broad language.

  • @ Court Reporter

    Sounds like you are admonishing the court decision. “You don’t arbitrate fraud. You don’t arbitrate theft.” Do you think this is helping your case?

  • Court Reporter

    C’mon people, get with it (or should I say defendant apologists?). Your homework is pitiful.

    “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.”

  • Mythbuster

    Looks like we have a number of students from Conspiracy Theory 101. Political? Are you aspiring conspiracy theorists serious? Get with the program!

  • What really happened

    The judge did the right thing. He sent the case to the arbitrator so that the arbitration language could be fully vetted. He had no choice. He could have dismissed the arbitration clause, but that would have been grounds for appeal and would have placed a fog over the trial. What you are seeing is very typical of the legal process. There are no surprises here. There is basically nothing here other than due process, and judge that wants to insure a clean trial. At the end of the day, Kannam and his co-defendants will be back in court, after his little side trip to Arbitration Land.

  • cls99

    I got 5 bucks this stays in arbitration.

  • Q

    How can Kannam arbitrate theft and fraud as Wes has accused him of?

  • anonymous

    I got 5 bucks that arbitration is a failed strategy. Why? The only thing an arbitrator will do is interpret clauses in an employment contract. The very best he could do for the defense is to render a decision that Kannam could hold fulltime outside jobs (which seems pretty unlikely). That still does not address the underlying fraud and theft issues. Remember, this is not mediation, its arbitration. There is a huge difference.

    The fat lady will not be singing anytime soon.

  • Judge Wapner

    this case is like a dog chasing its tail into infinity.

  • Here’s an idea

    Most of the commentary on this blog is uneducated conjecture, mostly by those who have an interest in the cause of the plantiff or defendants. The only thing that has resonated to me is the role of the Argus.

    Argus, the NYT wrote a balanced article, starting with how atypical this lawsuit is. As opposed to writing puff pieces about the GC or circulating emails on behalf of the administration, why don’t you ask some hard questions as to the rationale of the suit? Why don’t you find out the genesis of such? There are a lot of examples in the blog.

    You role is a watchdog for the University, not a communication tool for the administration.

  • anonymous

    Commentary on this blog is occasionally farcical like the ‘know it all’ above. What this blogger fails to understand is that blogs are meant for opinions. Some are good, some are not so good. It is up to us to sift through them and make our own decisions. Apologists for the defendants or the plaintiffs are pretty easy to spot. Those are the ones without any supporting facts; just your basic cheerleading. He would have all of us wait patiently until a self-appointed progressive like him renders a morsel for all to worship and consume, and then wait patiently for the next tid bit.

    The rationale for the suit: alleged theft and fraud. How can it be any clearer?

    The genesis for such: someone blew the whistle. How many times does that need to appear in print before you ‘get it’?

  • Captain Queeg

    Who took my strawberries? I have only 2 left, think i’ll name them “theft’ and ‘fraud’

  • David Lott, ’65

    @Alum 2:

    I have no idea what the basis or strategy is for the preservation of assets approach. I was just pointing out the fact that this is what they did. Seems to me there would have to be an awfully strong showing to get this kind of order. The court seems in no hurry to engage the issue.

  • cls99

    I’m curious about the economics of this, from Wesleyan’s perspective. I know something about suits like this, and they are expensive. I’m speculating, but I’d hazard a guess that this has cost the University $500,000 to $1 million so far, given all the legal maneuvering and the number of defendants. It couldn’t be much less.

    They are suing for $3 million, a number they won’t get since they don’t claim any monetary damage to the endowment. It’s hard to imagine they get any meaningful percentage of $3 million. I can easily see a scenario where they win in arbitration (or in a suit) but end up losing financially, perhaps big time.

    I don’t think this is lost on Wes, which leads me to believe there was some other motivation for this suit. I agree with “Here’s an idea.” The Argus should explore what’s behind this suit, because it sure isn’t money.

    Somebody REALLY didn’t like Kannam, because if you wanted to destroy someone, you couldn’t have done a better job. The guy’s future is toast – he simply doesn’t recover from this, even if he wins the suit.

    So, is this suit because someone in the administration or on the board really hates Kannam? They could have just canned him, after all. Is it because they are making a political point to please the obvious inclinations of the Wesleyan community? Is it something more personal? Did Kannam do something inappropriate that no one’s talking about? I have no idea, but there’s a large piece of this of this puzzle that’s missing. It’s not about money. This is very personal.

    Argus?

  • simple

    dont you ‘get it’? if hachet job wasnt done, someone else would have been left to take the blame

  • current student

    @ simple: take the blame for what? the endowment losses? Wesleyan has no motivation to scapegoat that – all endowments took hits. all elite schools have had to pare budgets. this isn’t about the endowment. if you are talking about the oversight (or lack thereof) of Kannam’s activities, you still don’t have a point because Wes could have just kept it quiet and wouldn’t have suffered any damage for it.

  • Here’s an idea

    @ anonymous – I guess I am a slow know it all, but I don’t get it. What fraud did the 20 defendants commit? Are you suggesting they knew of Kannam’s contract, coerced him to violate this and somehow benefited at the expense of Wes? It just doesn’t make sense to me. Plus – whistleblower? Pretty convenient given the policy likely prohibits identifying the individual or circumstances. Finally, how did the Argus those emails? Does a quid pro quo exist?

    I am suggesting that there exist an illogic (or at least inconsistency) that the Argus could attempt to remedy.

  • anon

    It appears that the e-mails were quoted out of the complaint. It would also appear that someone at the Taj, Quant Center, or in accounting got upset and blew the whistle. Best guess at this point based on available information.

    The other defendants? Best guess is that they were co-conspirators. The ‘Korean dignitary’ e-mail points in that direction.

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

  • @Here’s an idea

    I suspect ‘whistleblower’ is fiction too, Admin must be covering up that it was snooping on its employee’s email and communications for quite some time.

  • anon

    Its all discoverable, so the chances that the Admin is “covering up” is zero. A whistleblower came forward, maybe with emails, and the rest is history.

  • Fascinating!

    Cls99 and @Here’s an idea put forth fascinating questions for the Argus to explore.

    *Would* the Administration fabricate a whistleblower to destroy Kannam’s reputation — and at the risk of losing biggo bucks?

    If so, he must have royally ticked someone off… and they’re out for blood.

  • David Lott, ’65

    “Admin must be covering up that it was snooping on its employee’s email”

    Why cover it up? An employee has no right to privacy in an employer supplied email system. Kannam is pretty ignorant if he does not know that.

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