Barnes & Noble Is Sued by Former CEO for Breach of Contract

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From Bloomberg:

Barnes & Noble Inc.’s former chief executive officer sued the company for defamation, claiming the company falsely suggested he’d engaged in sexual misconduct when it fired him suddenly last month after 14 months on the job.

Demos Parneros accused founder and Chairman Leonard Riggio of engineering his firing without cause and “falsely and irrevocably” damaging a reputation he had worked for 35 years to build. Riggio made up reasons to fire Parneros after a deal to sell Barnes & Noble fell through and then refused to pay him at least $4 million in severance even though previous executives had received millions of dollars, he claimed in a suit filed Tuesday.

“Parneros had not violated company policies and always conducted himself in a professional manner,” according to the complaint, which also includes a breach-of-contract claim. “Given Riggio’s erratic and unprofessional behavior, the false allegations of cause to fire Parneros rang especially hollow.”

Barnes & Noble is now searching for its fifth CEO since 2010 as the company continues to fight online retailers and tries to lure customers to brick-and-mortar stores plagued by sluggish sales. The book seller said on July 3 that it fired Parneros due to an unspecified violation of company policies, adding that it wasn’t “due to any disagreement with the company regarding its financial reporting, policies or practices or any potential fraud.”

. . . .

Parneros cited that statement in his lawsuit, claiming it was written in a manner as to falsely suggest that he “had engaged in serious sexual misconduct.”

Link to the rest at Bloomberg and thanks to Dave for the tip.

PG says this is just what a floundering company needs as it fights for its continuing survival.

In PG’s litigiously humble opinion, the list of qualified prospects interested in taking over as BN’s CEO was just reduced by 90%

In PG’s bankruptly humble opinion, the chances of Barnes & Noble avoiding bankruptcy were just reduced as well.

In PG’s financially humble opinion, the number of non-bottom-feeder investors willing to buy or hold Barnes & Noble stock just dropped like a pole-axed bull.

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47 thoughts on “Barnes & Noble Is Sued by Former CEO for Breach of Contract”

  1. B&N has somewhere between $1.5 billion and $2.5 billion in returnable publisher inventory sitting on their shelves.

    Some idiot wrote a 2016 article about how monthly oversize cash infusions from B&N for big batches of newly released books keep publishers healthy. The article’s author clearly failed to understand that the cost of ordering of each month’s new book shipments gets offset by credits from the publisher for returns of last-month’s unsold hardcovers (and stripped paperbacks).

    So all those unsold books sitting in B&Ns aren’t generating incremental cash for publishers — but they do represent $1.5 – $2.5 billion dollars that publishers would have to write checks for, should a failing B&N decide to return all those books–as allowed by their publisher contracts–all at once.

    • Don’t be surprised if those return rights get trimmed/capped. That is what they did to Borders that pushed them to Chapter 11.

      • That could actually be worse, from a publisher perspective — because all that inventory will then be liquidated by B&N for pennies on the dollar and scooped up by resellers, who will then be able to use that inventory to “win the Amazon buy box” for those titles out from under the publishers themselves, hollowing out the publishers’ Amazon sales, too.

          • Of course not — when it happens, publishers’ll act all surprised and blame evil Amazon for their plight, rather than B&N or their own archaic, returns-dependent business practices.

  2. Sadly I think it is nothing or nothing. Some of the mud sticks. Even if he gets an abject apology some will still say B&N only did so to get the matter out of the way at a very sensitive time.

    He needs to get a lot of money. From a company fast headed for bankruptcy. Riggio is not a defendant.

    • Very likely.
      They must be very short of cash to have risked this very scenario to save a couple million.

      The lawsuit might actually outlast the company.

  3. PG, you forgot to predict Parneros’ future. Not that he had much of one. Since he took the job at B&N, he obviously didn’t have a lot of companies beating a path to his door a year ago. I’ll bet he has a lot fewer now that he’s shown himself to be litigious with former employers.

    • I don’t think this litigation is going to do anyone’s future much good, Suzie.

      In the complaint (which includes Parneros’ account of what happened), Riggio comes across as an impulsive and egotistical jerk who is anything but an ideal corporate chief. If a future CEO candidate believes much of what Parneros contends, he/she will be unlikely to take on BN’s CEO role. I think Riggio will be the de facto CEO for a long time.

      Again, without knowing what is true and not true, the statements made by BN about Parneros at the time his firing was announced seemed like a big departure from the usual “the company and the CEO agreed it would be in everyone’s best interests to have an amicable separation”. Additionally, announcing a basis for terminating Parneros that was vague, but implied Parneros had done some really bad things was tantamount to an invitation for a lawsuit. If Parneros did nothing, he would be seen as acquiescing to those claims and any future employment prospects for him would be very poor.

      Typically in this sort of situation, a termination deal is made behind the scenes, all parties agree that nobody will say anything about the split other than what an innocuous press release says and the press release includes statements about how much each side admires the other.

      A public fight doesn’t provide BN and Riggio with any benefits and harms Parneros as well.

      • The only way Parneros gets a future is by winning outright. He has to come out as a totally blameless victim or he’s done.

        I can’t see any kind of settlement leaving him employable.
        Discovery is going to be scorched earth, no?

        • The only way Parneros has a future is if he gets a big payout, and that’s all the future that’s available to him.

          • If money is all he gets that is no future.
            He needs vindication if anybody is to work with him or for him.

            This is all or nothing.

  4. I agree with everyone that it’s close to game over for them, but I’m terribly disappointed that it is. They were our last real chance for not being dependent entirely on Zon for our sales. Once BN goes down, we’ll be at their mercy, and I’m not comfortable with that anymore. They’ve been good to me, but it’s getting scary.

    • I agree, actually. And more than that, I use the local B&N as a place to shop for children, because overwhelmingly the kids in my life (toddler to teen) are still enamored of paper books. They’ll spend hours playing games on their tablets or computers or phones, or texting, or doing youtube, but if they want to read a book they want a paper book.

      I’ve bought a *lot* of Christmas and birthday gifts at B&N. I’m going to regret having to do that shopping online, when it’s more fun to take them with me and say, “Pick something out, and then we’ll talk about it in the cafe.”

      *shrug*

      • No alternatives in your area? BAM? Half-price? A good Indie?

        If B&N folds somebody will step in to fill the niche.

        • None, unfortunately, no. I’ll become one of those people in a bookstore desert who have to order in order to get anything other than what you can buy at a Wal-Mart or airport.

          • Sorry to hear that. I know exactly how that goes.

            Our last Borders was very profitable, enough that the mall operator offered to buy it lock, stock, and staff…but the BPHs blocked it.

        • We only have the huge B&N in my county. BAM closed years ago, even though they had a great location and were busy every day. I much preferred the BAM, since it only had a tiny cafe and loads of books and magazines I actually would read. I refuse to drive 35 more miles to the big city and deal with that traffic.

      • The ebook editions.
        Print? Not so much. That is why Agency Part Deux is such a boon to Amazon. In driving (some) readers from digital to print they hurt Apple, Google, and Kobo, help B&N a bit, and help Amazon a lot.

        And then people wonder why Apple and Google aren’t more gung ho about their ebook business.

      • Mine too, but the numbers are heavily skewed toward Zon, with B&N a distant second. And the simple evidence to date is that both Apple and Google could have taken on Zon in ebooks hard and gained a lot of market share. They passed. Kobo is good for international, but their storefront makes them hard to shop compared to Zon or B&N.

        While yes, technically, all those places have our ebooks, they don’t have our print books (and I do sell there), and they were our very best shot at a really competitive ebook store alternative to Zon.

        • B&N is also the primary alternative for online pbook sales.
          Not sure how much Rakuten and Overstock move but it doesn’t appear to be significant anymore.

  5. B&N has issued a press release in reply. I guess they really don’t want a new CEO.

    Quote:

    Barnes & Noble, Inc. (NYSE:BKS) today commented on the lawsuit filed by former CEO Demos Parneros. As announced on July 3, 2018, Mr. Parneros was terminated for cause following multiple violations of the Company’s policies.

    The Board of Directors of Barnes & Noble issued the following statement:

    The lawsuit filed by Demos Parneros is nothing but an attempt to extort money from the Company by a CEO who was terminated for sexual harassment, bullying behavior and other violations of company policies after being in the role for approximately one year. The allegations contained in the complaint about Len Riggio are replete with lies and mischaracterizations. They are an example of someone who, instead of accepting responsibility for blatantly inappropriate behavior, is lashing out against a former employer. The Board, advised by legal counsel at Paul, Weiss, Rifkind, Wharton & Garrison LLP, unanimously terminated Mr. Parneros’ employment following a thorough investigation that revealed multiple examples of significant misconduct. Mr. Parneros not only violated his employment agreement, but also compromised the trust and respect that we strive to foster throughout our organization.

    For more than 50 years, since founding Barnes & Noble, Mr. Riggio is widely known amongst his business associates, colleagues and employees for his impeccable reputation and as an individual and leader that upholds the highest standards of integrity and decency.

    Mr. Parneros’ actions were unacceptable and not representative of the high standards by which Barnes & Noble operates. At Barnes & Noble, we are committed to providing an inclusive, welcoming, respectful and safe workplace.

    Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal counsel to Barnes & Noble in connection with this matter.

  7. According to the filing, there was a deal to sell B&N to another book retailer, but t fell through in June.

    I wonder who that was?

    • It would take money. Either Indigo, Amazon (unlikely, methinks) or perhaps someone European. I don’t see BAM having the scratch to do it, but who knows.

      Whoever it was, the offer didn’t just “fall through” – B&N accepted it, the company did it’s due diligence (looked over the books, etc,) and then withdrew it’s offer.

      Due Diligence gets you access to information you wouldn’t necessarily get to see otherwise. The reveal that someone has done that and decided B&N isn’t worth purchasing, at least not for what should have been a reasonable offer, is a HUGE embarrassment. Not only that, but the offering company didn’t just try to adjust the terms of their offer (as far as we know,) but instead withdrew it entirely. This is a neon red flag waved in the face of anyone who might be, or want to be, financially involved with B&N.

      • It’s also possible the offer was not made in good faith to get access to information about B&N. I’ve seen that in other industries, usually to startups who pose rising competition.

        • Most well-run companies attach breakup penalty clauses to those kinds of deals, triggered when the deal falls through.

          https://corporatefinanceinstitute.com/resources/knowledge/deals/breakup-fee/

          “Events that Trigger a Breakup Fee

          Some of the events that may trigger the breakup fee provision include the following:

          – Company’s board of directors changes their mind.
          – Shareholders fail to approve the deal.
          – The seller chooses a competing bidder.
          – Seller opts to open the deal to the public rather than just negotiating with the buyer named in the preliminary agreement.
          – A previously undisclosed defect is discovered in the target company.”

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