The court granted the defendant’s motion for summary judgment in this matter involving clawback claims related to accounting errors identified in a restatement of the company’s financial statements.
Retained by Dechert
The Hertz Corporation (Hertz) sued its former CEO Mark Frissora, seeking to recover incentive-based compensation paid to Mr. Frissora under the company’s clawback policies in the wake of a restatement of Hertz’s financial statements for fiscal years 2011, 2012, and 2013. In order to claw back Mr. Frissora’s compensation, Hertz was required to establish, among other elements, that Mr. Frissora caused or contributed to the need to restate the company’s financial results. Hertz alleged that Mr. Frissora caused or contributed to the need to restate by establishing a “wrongful ‘tone at the top’.”
Counsel for Mr. Frissora retained Cornerstone Research to support Guhan Subramanian of Harvard University, Douglas Prawitt of Brigham Young University and a member of the five-member Board of COSO (an independent body responsible for the internal control framework that is used by public companies), Michael Ussery of Kral Ussery LLC, and Jennifer Marietta-Westberg of Cornerstone Research as expert witnesses. These experts opined on a number of issues, including the company’s decision to attempt to claw back Mr. Frissora’s compensation, Mr. Frissora’s contributions to Hertz’s financial reporting process and the company’s tone at the top, and the plaintiffs’ damages claims.
- Professor Subramanian submitted a rebuttal report focusing on Hertz’s compensation committee’s process for deciding to claw back Mr. Frissora’s compensation, finding that the process was flawed and did not follow well-accepted corporate governance practice.
- Professor Prawitt submitted a rebuttal report that addressed an opposing expert’s use of the COSO Framework to evaluate Mr. Frissora’s conduct. Professor Prawitt opined that the opposing expert provided a misleading view of the COSO Framework and that the opposing expert misused the COSO Framework to evaluate Mr. Frissora’s contribution to tone at the top and its impact on Hertz’s financial reporting.
- Mr. Ussery submitted a rebuttal report that addressed whether an opposing expert’s analysis provided a sufficient basis to support his opinion that Mr. Frissora’s contribution to tone at the top contributed to the need for the restatement of Hertz’s financial results. Mr. Ussery opined that the opposing expert did not assess the totality of Mr. Frissora’s contribution to tone at the top, did not demonstrate a connection between Mr. Frissora’s contribution to tone at the top and the accounting errors that were part of the restatement, and did not address evidence that was inconsistent with or contrary to his opinions.
- Dr. Marietta-Westberg analyzed the plaintiffs’ damages claims and opposing expert opinions regarding incentive compensation. She concluded that the plaintiffs’ damages claims were excessive and not commensurate with their theory of harm. She further opined that the compensation structure at issue was consistent with typical executive compensation structures.
In June 2023, a New Jersey federal judge granted summary judgment to our client, Mr. Frissora.
Washington
