Fired tech execs fight for fair share
Three InfoSpace founders say they were victims of a
bait-and-switch hiring practice 2000-08-17
by Noel S. Brady Journal Reporter
REDMOND -- The founder of Bellevue's InfoSpace Inc., one of the world's fastest growing Web service outlets, built the market-dominating company by luring competitors' top masterminds with generous stock options and partnerships.
But three top executives who helped start the company in spring 1996 claim they were fired just months later, and watched the promise of millions, possibly billions, in stock options vanish.
InfoSpace founder and chairman Naveen Jain last year paid $15 million to two former vice presidents to keep their suits against him from going to trial in federal court.
A third is waiting for a magistrate to rule on his claim after filing for a summary judgment.
``This happens in any company,'' said Joni Hanson, InfoSpace spokeswoman. ``These cases have been around for quite a while. It's nothing more than people thinking they deserve more than they actually deserve.''
Jain is on vacation and was unavailable for comment yesterday.
InfoSpace creates services such as maps, telephone directories, bulletin boards and address books to sell to Web sites. The company also is a leading innovator in providing Web services via cellular telephones. Its 1999 sales were $37 million.
As InfoSpace's chairman and chief strategist, Jain, 40, reportedly is worth more than $3 billion, mostly in his more than 20 million shares of his company's stock. He spent eight years as a product manager at Microsoft before quitting in 1996.
InfoSpace was founded that same year.
Kent Plunkett and Mark Kaleem were among those Jain persuaded to join him in the start-up. Plunkett was vice president of marketing while Kaleem became vice president of business development.
In their separate civil suits, both men claim that Jain agreed to sell them shares in the company at a penny apiece. Yesterday the stock was trading at $26.88 per share.
In federal court documents, Plunkett said his deal amounted to 2 million shares to lure him away from the Massachusetts software publishing firm ProCD Inc. After a month at InfoSpace, he said, Jain told him that his options were being slashed in half and they would cost him 10 cents each.
Kaleem said his agreement was for 1.25 million shares to leave his post as vice president of corporate development for AboveNet Communications of San Jose, Calif.
Plunkett was fired first, three months after joining InfoSpace. Kaleem, who worked from a California office, was fired in October 1997. Jain told both that they were fired because they weren't producing. Kaleem was also told that Jain wanted to close the rented $250-per-month California office.
``I'm normally a cheerleader type,'' Jain said in a deposition, ``so if I decide to start to fire somebody, I tell them they're doing a good job until I decide to tell them otherwise, and at that time, you know, I fire the people.''
When they pursued their stock options, Jain told them they were getting nothing because the benefits were subject to a four-year vesting period, which means they had to work for the company for at least that period of time to purchase stocks.
But Plunkett and Kaleem say Jain never mentioned that when they accepted his offers.
Both sued. Last year, Jain settled their claims out of court, paying Plunkett $10.5 million and Kaleem $4.5 million.
Last December, another lawsuit was filed by Robert Hoffer, who was fired from InfoSpace in 1996 after two months as vice president of sales.
His five-count complaint included accusations of fraud, breach of contract, breach of a good faith covenant and negligent misrepresentation. Hoffer maintains that Jain lured him from his $150,000 annual salary with Database America Companies of New Jersey, promising him a 50 percent partnership in InfoSpace.
But after Hoffer quit DAC, he said, Jain sent him an employment agreement letter offering him a $50,000 annual salary and options to purchase 300,000 shares of stock at 10 cents a share.
The salary was low because Jain couldn't afford to pay what Hoffer had been making.
To compensate, Hoffer said, Jain offered him copious stock options, albeit much less than his original offer of half the company. Without a job, the father of two said he had no choice but to accept, but he never received a single share of InfoSpace stock.
``During our early stages of development, our procedures in respect to the manner of granting options to employees were not clearly documented,'' Jain said in his response to Hoffer's suit. ``As a result ... we have in the past received, and may in the future receive, similar claims.''
In court documents, Hoffer said Jain told him he was being fired because his performance was poor and he didn't want to maintain two offices at the time. Hoffer was working out of an office in New York City.
In June, InfoSpace attorneys convinced a New Jersey U.S. District Court magistrate to transfer the case to the western Washington district, where state law mandates a three-year statute of limitations on the claims -- half that of New Jersey. Washington also excludes punitive damages in such cases.
Hoffer's Seattle attorney Jeff Johnson said it appears that transferring the case was a large part of InfoSpace's strategy for dealing with Hoffer.
But the game's far from over, he said. Johnson believes he can convince a federal magistrate in Seattle to try the case under New Jersey law.
``Our belief is that those particular claims should be tried based on New Jersey law,'' he said, ``because Mr. Hoffer lived in New Jersey at the time, and he agreed to the employment terms in New Jersey.''
Both sides hope a magistrate next month will decide whether to grant an early ruling on Hoffer's first complaint, that Jain reneged on a signed employment contract.
InfoSpace also has requested an early ruling -- or summary judgment -- against the claims they say aren't covered under Washington law.
The company has filed a countersuit against Hoffer, accusing him of stealing trade secrets and moving in on one of InfoSpace's biggest customers.
``(Hoffer) essentially took away one of our key clients, which was Advanced Publications,'' Jain said in his deposition. ``It was the largest publishing house in the country.''
Hoffer and his attorneys sternly deny that, saying Advanced Publications chose to work with Hoffer because InfoSpace didn't have what they were looking for.
InfoSpace's general counsel and senior vice president of legal affairs, Ellen Alben, yesterday said Hoffer's case is far different from the two earlier suits by Plunkett and Kaleem.
Hoffer didn't file his claim until after their settlements, and he's just trying to jump on the bandwagon, she said.
``This is not a trial we're prepared to settle,'' Alben said. ``I'd like to send a message with this one.''
Noel Brady can be reached at noel.brady@eastsidejournal.com or 425-453-4252.
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