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State Court Upholds Judgment For Former MassMutual CEO

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A Massachusetts court has upheld an arbitration panel’s decision that Massachusetts Mutual Life Insurance Company must pay $50 million in severance pay to Robert O’Connell, its former CEO.

MassMutual, Springfield, Mass., fired O’Connell in June 2005, alleging he had engaged in “willful gross misconduct.” It declined to award him severance pay, arguing that his conduct had breached his employment contract with the company.

MassMutual charged he had had affairs with two women employees, improperly funneled $30 million into a retirement account, caused the company to sell him a condominium at substantially below market value and made personal use of company aircraft.

After O’Connell appealed to the American Arbitration Association, an AAA panel in August 2006 acknowledged some of the charges may have been true but disagreed that they were enough to breach the contract.

In a Jan. 2 ruling, a state Superior Court justice in Suffolk County refused to overturn the panel’s decision, arguing that the court had no authority to rule on the merits of the case. The AAA panel’s judgment could not be reversed except on strictly limited grounds, noted Judge Allan van Gestel.

“An arbitration award may only be overturned for corruption, illegality, errors in procedure or conflict with public policy,” van Gestel noted in his ruling.

“Many may be appalled at the way America’s corporate executives are compensated and at the lifestyles that they assume are their due, but no public policy has been shown here to be sufficiently well defined and dominant,” he stated. “This was a private tug of war over money, created, facilitated and dominated by a contract between the participants in the scrum.”

In asking the Superior Court to throw out the arbitrators’ decision, MassMutual argued that the lead arbitrator, William S. Sessions, a former FBI director, had been terminated from the FBI because of charges similar to those against O’Connell. That experience could have prejudiced Sessions against MassMutual’s case, the company argued.

Van Gestel, however, said the company failed to prove this assertion.

The $50 million award to O’Connell includes a lump-sum payment of 3 times his salary along with incentives and welfare benefits, plus interest. He is also entitled to keep proceeds from a supplemental compensation account that had been set up for him under the employment agreement, minus earnings of around $23.6 million that MassMutual was entitled to keep, the arbitrators ruled.

They also decreed that O’Connell had to turn over a condominium in Marco Island, Fla., he had purchased from the company.

A spokesman for the insurer said it intended to appeal the ruling “aggressively.”

“MassMutual is disappointed that the court failed to recognize the vital public policy and fiduciary duty issues at stake in this matter,” said the spokesman, Mark Cybulski. “MassMutual continues to believe that the company was correct in its decision to terminate Mr. O’Connell for cause under his contract, given the findings of the arbitration panel.”

O’Connell’s lawyer, Michael B. Keating of Foley Hoag LLC, Boston, insisted any appeal by MassMutual was “futile.”

Massachusetts courts have “a strong presumption in favor of upholding arbitration awards,” Keating said. “It would be very unusual for a court not to uphold this ruling.”