1

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

GOPI NATARAJAN, §

§

Plaintiff, §

§

V. §

§

ALPHA THOUGHT GLOBAL, INC., § CIVIL ACTION NO. 3: 04-CV-0475-B

§

Defendant and Third Party Plaintiff, §

§

V. §

§

ANURAG MEHTA, §

§

Third Party Defendant. §

MEMORANDUM OPINION AND ORDER

Before the Court are: 1) Plaintiff’s Motion for Summary Judgment (docket no. 34), filed

December 30, 2004; 2) Defendant and Third Party Plaintiff Alpha Thought Global, Inc.’s (“ATG”)

Motion for Summary Judgment Against Third Party Defendant Anurag Mehta (“Mehta”) (docket

no. 65), filed March 14, 2005; and 3) ATG’s Motion for Summary Judgment against Plaintiff Gopi

Natarajan (“Natarajan”) (docket no. 68), filed March 14, 2005. For the reasons that follow, the

Court DENIES Natarajan’s Motion for Summary Judgment, DENIES as moot ATG’s Motion for

Summary Judgment against Mehta, and GRANTS in part and DENIES in part ATG’s Motion for

Summary Judgment against Natarajan.

I. Factual and Procedural Background

In March 2001, Mehta presented his idea for a medical billing company to Vidhan Chaudhari

(“Chaudhari”), an investor and Mehta’s relative. (Def.’s App. in Supp. Mot. Summ. J. Ag. Pl. Gopi

 

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Natarajan [“Def.’s App.”] at 87-90). Formed under the name “Alpha Thought, Inc.”, the company

would provide medical billing services to health care providers. (Def.’s App. at 91-92). In August

2002 Alpha Thought Global, Inc. (“ATG”), a related entity, was formed. (Id. at 136-37). The sole

shareholder of ATG is an entity wholly owned by Chaudhari. (Id. at 137). Mehta became the

President and Chief Executive Officer of ATG. (Id. at 12). The Board of Directors was initially

comprised of Chaudhari, Mehta, and Hari Rao, with Chaudhari serving as its Chairman. (Id. at 13,

388). Benno Disler was added as a Board member in December 2002. (Id. at 388).

In June 2002, Mehta and others at ATG began employment discussions with Natarajan.

(Pl.’s App. in Supp. Mot. Summ. J. [“Pl.’s App.”] at 5-6, 56; Def.’s App. at 15, 173). Natarajan was

an attractive hire to ATG in light of his significant experience in the health care management service

field. (Pl.’s App. at 4, 56). Natarajan, Mehta, and Rao negotiated Natarajan’s employment terms

that were ultimately memorialized in a final Memorandum of Understanding (“MOU”) dated August

29, 2002. (Pl.’s App. at 9, 50-52; Def.’s App. at 188). The parties agreed that Natarajan would

receive a $137,142.00 base salary together with a $102,857.00 guaranteed bonus, bringing his total

annual compensation to $240,000.00. (Pl.’s App. at 13, 50-52). Natarajan’s severance pay was

negotiated at $100,000 if he was terminated without cause. (Id. at 51-52). The MOU stated that

the terms and conditions set forth in the MOU were non-binding, but that they would be

“incorporated into a formal Employment Agreement.” (Id.). 

Even though Natarajan understood that he would not be receiving a formal employment

agreement prior to commencing work, he nevertheless decided to begin working for ATG, and his

first day on the job was September 16, 2002. (Def.’s App. at 202-04, 314-17, 207). Although the

MOU had provided that Natarajan’s title would be Executive Vice President, he was later promoted

 

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 ATG contends that the February 19, 2003 letter is a fraud and did not come into existence until

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after ATG asked both Mehta and Natarajan to resign. For summary judgment purposes, however, ATG

assumes that the letter was drafted on February 19, 2003. (ATG’s Brief in Supp. Mot. Summ. J. [“ATG’s MSJ

Brief”]at 12 n.11). 

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to Chief Operating Officer (“COO”). (Pl.’s App. at 12, 51-52, 57). As COO, Natarajan was an

officer of the company, and ATG’s highest paid executive. (Def.’s App. at 390). 

Natarajan made several inquiries about the promised employment agreement. (Pl.’s App. at

10-11). Rao was responsible for drafting components of ATG employment agreements, but finalizing

such agreements was not a high priority in light of more pressing problems facing the company.

(Def.’s App. at 141-42). As time passed, Natarajan grew increasingly frustrated by ATG’s failure to

deliver him an employment agreement, and on February 18, 2003, Natarajan, while in India,

allegedly told Mehta that he would resign from ATG if he did not have an employment agreement

upon his return from India. (Pl.’s App. at 14-15, 58-59). Responding to Natarajan’s threat to quit,

Mehta allegedly drafted the letter which forms the basis of this lawsuit on February 19, 2003. (Id.

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at 65). The letter, referred to throughout this order as the “Severance Agreement”, provided in

pertinent part:

Dear Gopi,

First, I want to thank you for all your hard work and dedication to Alpha Thought and for

the significant efforts you have expended to help our global operations. . . .

I know that your employment contract has not been done, though repeatedly promised by

the Board, and specifically Hari Rao. I am also aware that your role has changed significantly

as well as your compensation elements (i.e. commission paymentsfor Business Development

related activities) and you are seriously concerned that this change will not allow you to

potentially earn what you had planned on earning with Alpha Thought.

In light of this, and until your employment agreement is finalized, I do want to assure that

in the event that your employment with Alpha Thought is terminated, that you will be paid

 

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 Natarajan’s annual compensation was $240,000. Thus he would be entitled to receive $720,000 2

under the Severance Agreement if his employment with ATG was terminated for any reason.

 Natarajan and Mehta have varying accounts as to when Natarajan first received the Severance

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Agreement. Mehta testified that he provided it to Natarajan within a day or two of writing it (Def.’s App.

at 28), while Natarajan believes that he received it in early March 2003. (Id. at 229).

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a severance amount, equal to your total current yearly compensation, for a period of three 2

years (i.e. salary plus bonus).

Leaving a senior position at EDS [Natarajan’s previous employer] to join Alpha Thought

shows how much enthusiasm and faith you have in our company and our vision. The

purpose of this letter is to memorialize the agreement made when we first hired you into the

company.

(Pl.’s App. at 23). 

Mehta and Natarajan characterized the Severance Agreement as a “stop gap” measure

intended to be in place only until an employment agreement was finalized. (Def.’s App. at 230, 252,

32-33). Natarajan contends that he decided not to leave ATG in exchange for the Severance

Agreement, and in fact he continued working for ATG for approximately five months after receiving3

the February 19 letter agreement. (Pl.’s App. at 16-17, 61). Neither Natarajan nor Mehta provided

the Severance Agreement to anyone at ATG, nor did they inform anyone at ATG of its existence

during Natarajan’s tenure with the company. (Def.’s App. at 34, 235-36, 252). Natarajan testified

that he “saw no reason” to mention the agreement to Rao, who was responsible for creating

executive employment agreements. (Id. at 252, 266). Mehta testified that he did not want Rao to

see it “[b]ecause he was against everything that I was doing”, nor did he want Chaudhari to see it

because “[i]t was their responsibility to get the employment agreement done.” (Id. at 39-40). 

During this time ATG was experiencing financial troubles. On January 15, 2003, Natarajan

sent e-mails establishing a hiring freeze and stating that “[c]lients [are] constantly threatening to

 

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 Natarajan contends that he was terminated, while ATG maintains that Natarajan was asked to 4

resign. The Court will assume, solely for the purposes of this order, that Natarajan’s employment was

terminated by ATG.

 That same day ATG also asked Mehta to resign, or else face termination. (Def.’s App. at 8- 5

10). 

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leave us” and that “revenues appear to be dropping ”. (Id. at 245-46, 351, 352, 246-47, 353). And

in February 2003 the company was so cash-starved that Andrew Johnson, ATG’s Chief Financial

Officer, asked Chaudhari to pour cash into the company; in response Chaudhari provided a $700,000

cash infusion. (Id. at 43-45, 67-71, 72-73, 250-51, 360-61, 371, 385-86). 

On July 14, 2003, the ATG Board terminated Natarajan’s employment , allegedly because 4

he was not performing as expected. (Id. at 151; Pl.’s App. at 18-19). Natarajan testified that 5

Chaudhari had told him that the company’s plan to migrate work to India, for which Natarajan held

ultimate responsibility, was a “disaster.” (Pl.’s App. at 19). And Rao testified that Natarajan was

terminated because of the company’s flagging performance and because information was not

consistently being provided to the Board. (Def.’s App. at 151). Natarajan did not present the

Severance Agreement to ATG immediately upon his termination. In fact, ATG did not receive a

copy of it until August 20, 2003 when Natarajan’s counsel forwarded the agreement to Eric

Grossman, ATG’s General Counsel. (Def.’s App. at 473, 501-02). The ATG Board disavowed the

Severance Agreement as soon as it learned of its existence. (Id. at 394). 

Natarajan filed suit against ATG in Texas state court on February 6, 2004. ATG removed

the case to federal court on March 5, 2004. Natarajan brings claims for breach of contract, fraud,

and for violations of the Texas Payday Act. ATG asserts counterclaims against Natarajan for fraud,

conspiracy to commit fraud, breach of fiduciary obligations, and conspiracy to commit breaches of

 

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 ATG originally also brought a negligent misrepresentation claim against Natarajan in its original 6

answer and counterclaim filed on March 19, 2004. ATG since dropped that claim in its amended answer and

counterclaim of June 28, 2004. 

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fiduciary obligations. ATG also asks the Court to declare, pursuant to the federal Declaratory 6

Judgments Act, that the Severance Agreement is not enforceable against ATG. ATG additionally

filed a third party complaint against Mehta, asserting causes of action for common law indemnity,

fraud, breach of the duty of loyalty, breach of fiduciary duties, and breach of the duty of good faith.

Mehta, in turn, filed counterclaims against ATG for contractual and common law indemnity and

various other state law causes of action. Mehta has since informed the Court that he and ATG have

resolved certain of his counterclaims against ATG, leaving only his counterclaim for contractual and

common law indemnification. Natarajan and ATG have filed cross motions for summary judgment.

ATG has also filed a separate motion for summary judgment against Mehta. All motions are ripe for

review and determination.

 II. Analysis

A. Legal Standard

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate

when the pleadings and record evidence show that no genuine issue of material fact exists and that

the movant is entitled to judgment as a matter of law. Little v. Liquid Air Corp., 37 F.3d 1069, 1075

(5 Cir. 1994). “[T]he substantive law will identify which facts are material.” Anderson v. Liberty

th

Lobby, Inc., 477 U.S. 242, 248 (1986). Only disputes about material facts will preclude the granting

of summary judgment. Id. 

The burden is on the summary judgment movant to prove that no genuine issue of material

 

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fact exists. Latimer v. Smithkline & French Lab., 919 F.2d 301, 303 (5 Cir. 1990). If the non-movant th

bears the burden of proof at trial, the summary judgment movant need not support its motion with

evidence negating the non-movant’s case. Rather, the movant may satisfy its burden by pointing to

the absence of evidence to support the non-movant’s case. Id.; Little, 37 F.3d at 1075.

Once the movant has met its burden, the non-movant must show that summary judgement

is not appropriate. Little, 37 F.3d at 1075 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)).

“This burden is not satisfied with ‘some metaphysical doubt as to material facts,’ . . . by ‘conclusory

allegations,’ . . . by ‘unsubstantiated assertions,’ or by only a ‘scintilla’ of evidence.” Id. (quoting

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). The non-moving party

must “come forward with ‘specific facts showing that there is a genuine issue for trial.’” Matsushita, 475

U.S. at 587 (emphasis in original) (quoting FED.R.CIV. P. 56(e)). To determine whether a genuine

issue exists for trial, the court must view all of the evidence in the light most favorable to the nonmovant, and the evidence must be sufficient such that a reasonable jury could return a verdict for

the non-movant. Munoz v. Orr, 200 F.3d 291, 302 (5 Cir. 2000); Anderson, 477 U.S. at 248. th

B. Whether the Severance Agreement Lacks Consideration

ATG first argues that the Severance Agreement is not a binding contract because Natarajan’s

promise of continued employment was not sufficient consideration. In support of its argument ATG

primarily relies on the Texas Supreme Court’s opinion in Light v. Centel Cellular Co. of Texas, 883

S.W.2d 642 (1994), which held that 

[c]onsideration for a promise, by either the employee or the employer in at-will employment,

cannot be dependent on a period of continued employment. Such a promise would be

illusory because it fails to bind the promisor who always retains the option of discontinuing

employment in lieu of performance. When illusory promises are all that support a purported

bilateral contract, there is no contract. 

 

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 The Court assumes for purposes of the consideration issue that Mehta had proper authority to bind 7

ATG to the Severance Agreement.

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Id. at 644-45. Light also recognized, however, that a unilateral contract could still be formed where

a promise is accepted by performance. Id. at 645 n.6. 

Here, after Natarajan was offered the Severance Agreement by Mehta in late February/early

March 2003, Natarajan continued to work for ATG until the time he was terminated on July 14,

2003. (Pl.’s App. at 61, 65, 18, 19). Thus, by continuing to work for ATG after ATG offered to

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pay him severance upon termination, Natarajan accepted ATG’s offer, creating a binding unilateral

contract. Numerous cases, post-Light, have recognized that a unilateral contract may be formed

when an employee stays on the job in response to an employer’s offer. In re Halliburton Co., 80

S.W.3d 566, 569 (Tex. 2002) (at will employee accepted employer’s Dispute Resolution Program by

the employee’s continued employment); Brown v. Alcatel USA, Inc., 2004 WL 1434521, at *2 (Tex.

App. – Dallas 2004, pet. denied) (“[A] unilateral contract, though it is not mutual at the time it was

made, becomes enforceable if the party seeking to enforce the contract has performed, conferring

some benefit on the other party.”); Shaw v. Maddox Metal Works, Inc., 73 S.W.3d 472, 479 (Tex.

App. – Dallas 2002, no pet.) (finding that employee, by working until his death, accepted employer’s

offer to pay a lifetime annuity, thus creating a binding unilateral contract); Helle v. Landmark, Inc.,

472 N.E.2d 765, 775 (Ohio App. – 6 Dist. 1984) (concluding that employer’s “offer of severance th

pay precipitated the formation of a unilateral contract, and acceptance was effective where [the

employees] remained with [the employer] after learning of the new severance policy.”). That

Natarajan was not certain whether he would leave ATG at the time he was offered the severance

deal is irrelevant: “[f]or purposes of consideration, the employee’s retention and continued

 

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performance of his work suffices to render the new condition of severance pay enforceable.” Id.

Thus, ATG’s argument that the Severance Agreement is not a binding contract due to a lack of

consideration fails as a matter of law.

C. Actual Authority

As an initial matter, the Court will address the choice of law issue only grazed by the parties.

ATG, relying on the Second Circuit’s opinion in Lee v. Jenkins Bros., 268 F.2d 357, 363 (2 Cir.

nd

1959), argues that Delaware law should apply to issues concerning the authority of corporate officers.

As Natarajan correctly points out, however, the conflict of law rules of the forum state, here Texas,

determine which state’s substantive law will govern. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.

487, 496 (1941); Alberto v. Diversified Group, Inc., 55 F.3d 201, 203 (5 Cir. 1995). Applying Texas th

law may ultimately require the application of Delaware law here, as Texas has a statute providing

that “the internal affairs of a foreign corporation, including but not limited to the rights, powers, and

duties of its board of directors and shareholders” shall be governed by the laws of its jurisdiction of

incorporation. TEX. BUS. CORP. ACT ANN. art. 8.02 (emphasis added); Madison P’ship Liquidity

Investors 31, LLC v. USAA Properties III, Inc., 1998 WL 1782544, at *2 (W.D. Tex. Sept. 28, 1998).

Nevertheless, the Court need not definitively determine whether Texas or Delaware law controls this

case because, as shown below, there is no significant difference between general principles of agency

in those two states. See Karam v. Travelers Ins. Co., 813 F.2d 751, 752-53 (5 Cir. 1987) (accepting th

the assumption that Louisiana, as opposed to Delaware, law applied to determine whether corporate

manager had authority to act on behalf of corporation where identical principles applied to corporate

agency issues in Louisiana and Delaware).

The law does not presume agency. Buchoz v. Klein, 184 S.W.2d 271, 271 (Tex. 1944). The

 

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party asserting that a particular act of an alleged agent was within the scope of that agent’s authority

bears the burden of proof by a preponderance of the evidence. Id.; Thermo Prods. Co. v. Chilton

Indep. Sch. Dist., 647 S.W.2d 726, 732 (Tex. App. – Waco 1983, writ ref’d n.r.e.). To bind a

principal, an agent must act with either actual or apparent authority. Disney Enters., Inc. v. Esprit

Fin., Inc., 981 S.W.2d 25, 30 (Tex. App. – San Antonio 1998, pet. dism’d w.o.j.). Actual authority

of a corporate officer to bind the corporation to a contract may stem from a statute, corporate bylaws,

appropriate action taken by the board of directors or shareholders, or it may be implied from the

nature of the officer’s position or the custom or habit of doing business. Templeton v. Nocona Hills

Owners Assoc., 555 S.W.2d 534, 537 (Tex. App. – Texarkana 1977, no writ); Ennis Business Forms,

Inc. v. Todd, 523 S.W.2d 83, 85 (Tex. App. – Waco 1975, no writ); Petition of Mulco Prods., Inc., 123

A.2d 95, 103 (Del. Super. Ct. 1956); Schoonejongen v. Curtiss-Wright Corp., 143 F.3d 120, 128 (3rd

Cir. 1998).

Natarajan argues that ATG’s bylaws unequivocally granted Mehta, as President and CEO,

express authority to enter into the Severance Agreement. The ATG bylaws describe the powers and

authority of the President and CEO as follows:

Section 4.2: Chief Executive Officer. Subject to the control of the Board of Directors and

such supervisory powers, if any, as may be given by the Board of Directors, the powers and

duties of the Chief Executive Officer of the Corporation are:

(d) To affix the signature of the Corporation to all deeds, conveyances, mortgages,

guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing

which have been authorized by the Board of Directors or which, in the judgment of the Chief

Executive Officer, should be executed on behalf of the Corporation[.] 

 

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 The bylaws also provide that, subject to the direction of the Board of Directors, “the President shall 8

have the responsibility for the general management the control of the business and affairs of the Corporation

and the general supervision and direction of all of the officers, employees and agents of the Corporation

(other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President)

and shall perform all duties and have all powers that are commonly incident to the office of President or that

are delegated to the President by the Board of Directors.” (Def.’s App. at 490).

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(Def.’s App. at 490) (emphasis added).8

Natarajan seizes on the latter half of subsection (d) following the disjunctive in support of his

view that the bylaws conferred unchecked authority on Mehta to enter into employment-related

agreements. But as ATG points out, while it may be true that the bylaws generally allow the CEO

to affix the corporate signature to certain corporate obligations, such powers are not unqualified: the

prefatory language of Section 4.2 makes clear that the CEO’s powers remain “[s]ubject to the control

of the Board of Directors.” (Id.).

ATG argues that, through common practice and its regular way of doing business, the ATG

Board exercised its prescribed powers to control the scope of Mehta’s authority as President and

CEO. Specifically, ATG contends that the Board limited Mehta’s authority to enter into high level

executive employment contracts and to make substantial corporate guarantees without prior Board

approval. Mehta concedes that Board approval was required for executive-level employment

agreements. (Id. at 25). Rao also declared that Mehta did not have the authority to enter into

employment agreements for executive management or corporate officers without first obtaining the

approval of the Board of Directors and Chaudhari, ATG’s Chariman of the Board and sole

shareholder. (Id. at 389). According to Rao, as a matter of common practice, the Board deferred

to Chaudhari’s judgment on matters relating to ATG. (Id. at 389). Mehta even testified that

Chaudhari was one of the sources of his authority. (Id. at 19).

 

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 Rao declared, and common sense dictates, that severance is a key term of an employment contract. 9

(Def.’s App. at 389).

 Mehta testified that the Severance Agreement constituted a binding corporate obligation and a

10

guarantee. (Def.’s App. at 37-38).

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ATG maintains that Mehta’s own writings reflect that his authority was restricted in certain

fundamental ways. For example, in an e-mail exchange that took place on January 9, 2003, Mehta

wrote: 

Bhaisahab [Chaudhari], there are a few items that we discussed in India that you wanted me

to confirm with you – they are the following:

 . . . 3. All VP level and above to be approved by Board for employment contracts

 . . . 5. No company guarantees to be done without Board approval (I assume you mean of

any sizeable nature . . .). 

(Id. at 96, 110). Responding to item number 5, Chaudhari wrote back: “YES”. (Id. at 96). Thus,

prior to creating the Severance Agreement, Mehta understood, and Chaudhari confirmed, that

Board approval was required for certain high-level employment contracts and “sizeable” corporate

guarantees. There can be no question that Natarajan’s Severance Agreement fits both criteria.

Natarajan was COO of ATG, a higher level position than a vice president. (Pl.’s MSJ Brief at 4)

(describing Natarajan’s title change from Executive Vice President of Business Development to COO

as a “promotion”). He was also the company’s highest paid executive. (Def.’s App. at 390). And

a contract potentially obligating ATG to a $720,000 severance payment is, if not a complete

employment agreement, at least a contract for a key term of employment. Moreover, a corporate

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obligation of that magnitude could only be characterized as a “sizeable” guarantee , particularly for 10

a company experiencing financial difficulties.

 

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Other communications further establish ATG’s policy and custom of requiring Board and/or

Chaudhari approval for executive employment matters. For example, in e-mailing Natarajan during

the negotiation of Natarajan’s MOU, Mehta indicated that Natarajan would have to accept

$240,000 in annual compensation, as opposed to $245,000, because the lower figure was “what was

agreed upon by us in good faith, and signed off from Mr. Chaudhari.” (Def.’s App. at 292). Mehta

also acknowledged in an e-mail sent to Eric Grossman during the negotiation of Grossman’s hire as

ATG’s General Counsel, that “I know we have to get board approval on your joining[.]” (Id. at 85,

121). The Board did, in fact, approve Grossman’s hire. (Id. at 147-48, 392), and Mehta afterwards

sent Grossman an e-mail, copying Chaudhari and Natarajan, congratulating Grossman on the

Board’s approval of his hire. (Id. at 334). In another instance Mehta indicated that he would even

have to seek Board approval to change an employee’s title. (Id. at 127).

Natarajan contends that, under ATG’s interpretation of the bylaws, the CEO can exercise

no judgment, and that all of the CEO’s actions are subject to Board approval. Not so. Rather than

subjecting the CEO to total subserviency, the bylaws simply allow the Board to limit the powers of

the CEO on matters deemed by the Board to be of such importance that they needed to be passed

on by the Board. The record evidence demonstrates that executive-level employment agreements

and sizeable corporate guarantees fell within this category for the ATG Board.

The limitations imposed by the Board on Mehta’s authority thus were not in contravention

of the bylaws, but were explicitly provided for by the bylaws in that the bylaws explicitly provide that

the CEO’s actions are “[s]ubject to the control of the Board.” (Def.’s App. at 490). Natarajan’s

argument that the Board could only restrict Mehta’s power through formal action – e.g. by amending

the bylaws, issuing a resolution, or issuing a formal edict – is unsupported in the law. Courts have

 

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routinely held that bylaws may be amended informally. See In re Osteopathic Hosp. Ass’n of Delaware,

195 A.2d 759, 762 (Del. 1963) (quoting In re Ivey & Ellington, Inc., 42 A.2d 508, 509 (Del. Ch.

1945)) (“Ordinarily, a corporate by-law may be amended by implication and without any formal

action being taken by clear proof of a definite and uniform custom or usage, not in accord with the

by-laws regularly adopted, and by acquiescence therein; but usually the course of conduct relied on

to effect the change must have continued for such a period of time as will justify the inference that

the stockholders had knowledge thereof and impliedly consented thereto.”); Keating v. K-C-K Corp.,

383 S.W.2d 69, 71 (Tex. Civ. App. – Houston 1964, no writ) (“it is a general rule that by-laws may

be adopted, or amended, orally or by acts evidenced by a uniform course of proceeding, or usage and

acquiescence.”). If bylaws may be amended through informal means, it necessarily follows that here,

where the bylaws explicitly provided for Board control over the CEO, the ATG Board could exercise

control over Mehta through an established course of conduct.

Natarajan argues that ATG has failed to show, under Osteopathic, “clear proof of a definite

and uniform custom of the company” that was “regularly accepted” and “continued for a period of

time” sufficient to justify the inference that stockholders had knowledge of the practice and

consented to it. Osteopathic, 195 A.2d at 762. The Court questions the relevance of Osteopathic and

other cases dealing with how corporate bylaws may be amended because here, as stated above, ATG

was not amending the bylaws but was rather acting pursuant to them. Nevertheless, ATG has shown

by clear and uncontradicted proof that it was customary for Chaudhari to speak with the authority

of the full Board and that the Board maintained a consistent policy that executive-level employment

contracts and sizeable corporate guarantees needed to be approved by the Board. Although

Natarajan points out that the course of conduct urged by ATG spanned only an eight-month period,

 

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the custom need be in place only so long as to justify the inference that the shareholders agreed to

it. Osteopathic 195A.2d at 762. As Chaudhari was ATG’s sole shareholder, he obviously consented

to company’s policy that all executive level employment agreements and sizeable corporate

guarantees be approved by him and/or the Board.

Considering the above evidence, the Court finds that ATG has met its burden of showing

that no material fact issue exists on the question of Mehta’s actual authority to bind ATG to the

Severance Agreement without obtaining prior Board approval. Therefore, the burden shifts to

Natarajan to show that summary judgment is not appropriate. Little, 37 F.3d at 1075. In an attempt

to do so, Natarajan claims that Mehta’s authority was demonstrated by the fact that Mehta had, in

the past, hired and fired “key” ATG employees. Natarajan cites Mehta’s involvement with the hire

of Amy Lewis as Director of Business Development as an example. Natarajan says that Mehta hired

Lewis and negotiated the terms of her employment, which included a $108,000 base salary, a $30,000

guaranteed bonus, a 3% commission on new sales revenue, and severance in the amount of two

months base salary plus benefits. (Pl.’s App. in Supp. Resp. to Def.’s Mot. Summ. J. [“Pl.’s App. II”],

at 3-7, 10). Natarajan fails to mention, however, that Mehta and Natarajan purposefully kept

Lewis’s salary at such a level to avoid having to seek Board approval. (Id. at 4). According to Lewis,

Mehta and Natarajan also told her that she could not get the title she wanted – Executive Vice

President – because such a title would require Board approval. (Id. at 6). 

Nor, says Natarajan, did Mehta need Board approval for the hire of Jody Locke. Locke,

however, was hired for a sales position, not for senior management. (Id. at 14). And even though

Mehta testified that he did not clear the negotiations with Locke through Chaudhari, Natarajan

believed that Mehta should have done so: in an e-mail sent to Mehta, Natarajan wrote: “I assume

 

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16

you will or have already got the okay from Mr. Chaudhari?” (Def.’s App. at 164, 271; Pl.’s App. II

at 15)). As discussed in more detail below in the Court’s discussion of apparent authority, if

Natarajan himself believed that Chaudhari’s approval was required for the hire of an employee for

a sales position within the company, it is difficult to understand how Natarajan can now argue that

he reasonably believed that Mehta had the unilateral authority to bind ATG to a $720,000

commitment with respect to a key term of his employment.

Natarajan also claims that Mehta had the authority to fire none other than Rao, a fellow

Board member. Mehta testified that he had the power to fire Rao without Chaudhari’s permission.

(Pl.’s App. II at 16). But Mehta later backpedaled, testifying that he believed that Chaudhari would

not allow him to fire Rao. (Def.’s Supp. App. in Supp. Def.’s Mot. Summ. J. [“Def.’s Supp. App.”]

at 20-21). And in an e-mail dated December 8, 2002, Mehta indicated his belief that Chaudhari

would likely fire him if he tried to fire Rao. (Id. at 25). Thus, far from establishing that Mehta had

complete discretion and authority to enter into employment-related agreements with executive

personnel, the evidence shows that Mehta’s authority in that regard was restricted and that both

Mehta and Natarajan either knew or should have known that it was so restricted. 

D. Apparent Authority

Natarajan contends that apparent authority is “irrelevant” to the Court’s determination of

Mehta’s authority because of his belief that he has demonstrated Mehta’s actual authority.

Nevertheless, Natarajan makes what is at least a veiled apparent authority argument by contending

that he had no notice that Mehta’s authority to offer him the Severance Agreement was limited in

any way. “The doctrine of apparent authority is based on estoppel, and one seeking to charge a

principal through the apparent authority of an agent to bind the principal must prove such conduct

 

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17

on the part of the principal as wold lead a reasonably prudent person, using diligence and discretion,

to suppose that the agent has the authority he purports to exercise.” Chastain v. Cooper & Reed, 257

S.W.2d 422, 427 (Tex. 1953); Int’l Boiler Works Co. v. Gen. Waterworks Corp., 372 A.2d 176, 177

(Del. 1977). 

Natarajan must therefore demonstrate that ATG’s actions could lead a reasonably prudent

person, exercising diligence and discretion, to believe that Mehta had the authority to execute the

Severance Agreement without Board approval. ATG argues that the company’s course of

established conduct could not have led a reasonable person in Natarajan’s position to believe that

Mehta wielded such authority and that, indeed, Natarajan had actual knowledge that Mehta lacked

such authority. ATG relies on a number of communications to Natarajan in an attempt to establish

that Natarajan knew, or should have known, that significant corporate decisions, including those

involving executive compensation, required Board approval. For example, on December 10, 2002,

Rao, in anticipation of his impending resignation from the company, forwarded to Natarajan and

others a Transition Plan expressly providing that the Board needed to review key terms and

conditions of employment agreements. (Def.’s App. at 325, 332). Natarajan was also blind copied

on an e-mail from Mehta in which Mehta stated that an employee’s request for a title change would

have to be brought to the Board. (Id. at 127-28). And as previously stated, in a March 17, 2003

e-mail dealing with the potential hiring of Jody Locke for a non-management level position,

Natarajan asked Mehta: “I assume you will or have already got the okay from Mr. Chaudhari?”, thus

indicating that Natarajan was aware that major employment decisions needed to be cleared through

Chaudhari. (Id. at 123). 

Natarajan’s experience in negotiating his own terms and conditions of employment with ATG

 

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18

also should have informed his understanding of the way ATG treated executive compensation

matters. For example, Rao wrote to Natarajan in late August 2002, advising him that shareholder

decisions were required for “proper approvals” of various items typically associated with executivelevel hiring. (Id. at 197, 309-10). Responding to this e-mail, Natarajan acknowledged that

shareholder approvalwasrequired for some issues related to executive level hiring. (Id. at 197, 309).

Because Chaudhari was ATG’s sole shareholder, shareholder approval equated to Chaudhari’s

approval. The Court finds that the above evidence shows that Natarajan had, or should have had,

knowledge that the approval of the Board and/or Chaudhari was necessary for executive employment

and compensation matters. Tres Palacios Rice & Irrigation Co. v. Eidman, 41 Tex. Civ. App. 698, 701

(Tex. Civ. App. – 1906) (“[I]t is held with . . . unanimity that one with actual knowledge of

restrictive power or lack of authority cannot bind the principal by acting on appearances.”).

And even if Natarajan did not have actual knowledge that Mehta lacked authority to bind

ATG to the Severance Agreement, he was at the very least aware (or should have been aware) of

sufficient information about the company’s operations to require him to exercise diligence and

discretion to ascertainwhether Mehta had authority to enter into the Severance Agreement without

Board approval. Chastain, 257 S.W.2d at 427. Where the act of an agent is of an unusual or

extraordinary nature, the party relying on apparent authority is put to inquiry to ascertain the scope

of the agent’s authority. Davis v. Texas Co., 232 S.W. 549, 554 (Tex. Civ. App. – Galveston 1921,

rev’d on other grounds, 254 S.W.304 (1923)); J.I. Case Threshing Mach. Co. v. Dallas Chamber of

Commerce, 206 S.W.206, 206 (Tex. Civ. App. – Dallas 1918, no writ) (internal quotations omitted)

(quoting Manhattan Liquor Co. v. Joseph A. Magnus & Co., 94 S.W. 1117, 1119 (Tex. Civ. App. --

1906, no writ)) (“[I]f the act by which the corporation is sought to be bound is out of the usual

 

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When negotiating the MOU with Jody Locke, Mehta indicated that ATG might be willing to grant 11

Locke a two-month severance “if we let you go for any changes in business objectives”, but he went on to say

that “[i]f we let you go due to ‘cause’ then that’s a different story of course.” (Def.’s App. at 271-73). In this

light, Natarajan’s Severance Agreement, which provided for 36 months severance, even for a termination

for cause, was extraordinary indeed.

19

course of business of the concern, those dealing with the agent are bound to inquire as to the

authority of the agent and deal with him otherwise at their peril.”).

The record evidence suggests that the Severance Agreement was unusual and extraordinary

in a number of ways. First, the three-year duration of the severance obligation was much longer than

was typical at ATG. ATG’s Vice President of Human Resources, William Voigt, testified that he

has never seen even a six-month severance agreement, much less a three-year severance package.

(Def.’s App. at 515). Voigt also stated that, based on ATG’s usual practice, he did not believe the

Severance Agreement was real when he eventually saw it, and that Mehta would normally involve

him in the process of setting executive orseniormanagementterms of employment. (Id.). Chaudhari

testified that he is unaware of anyone at ATG ever receiving one year of severance pay, and he stated

that the company never did and never would agree to provide severance to an employee terminated

for cause. (Id. at 373-75). Nor could Natarajan himself recall anyone other than himself being

awarded more than three months of severance. (Id. at 233). Natarajan’s final MOU provided for

only $100,000 in severance, a far cry from the $720,000 to which he would be entitled under the

Severance Agreement, and Natarajan would receive severance under the MOU only if terminated

without cause, whereas he would be paid severance under the Severance Agreement whether

terminated with or without cause. (Pl.’s App. at 51-52).11

Natarajan attempts to demonstrate that his Severance Agreement was garden variety for

 

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 In fact the evidence shows that Burleigh negotiated at least some parts of his compensation 12

package directly with Chaudhari. (Def.’s Supp. App. at 9).

20

ATG by pointing to the example of Mehta’s successor as CEO, Robert Burleigh, who negotiated and

reached and agreement with ATG providing for a three-year term of employment with an 18 month

severance packageworth $390,000. (Pl.’s App. II at 22). Not only is Burleigh’s negotiated severance

package worth nearly half that of the one offered to Natarajan in the Severance Agreement, but

Burleigh testified that he believes there was a distinction made in his agreement between a

termination with or without cause. (Def.’s Supp. App. at 7-8). Moreover, as ATG points out, no

employment agreement was ever actually executed between Burleigh and ATG. (Id. at 6), and

Burleigh ended up receiving only $61,000 in severance, not the promised $390,000. (Def.’s Supp.

App. at 10-11). And in any event, Burleigh’s example is irrelevant to the present inquiry because

Burleigh did not come on board at ATG until July 2003, almost four months after Natarajan was

purportedly offered the Severance Agreement. (Id. at 6). The relevant question is whether

Natarajan reasonably relied on Mehta’s apparent authority at the time he was offered the Severance

Agreement. Natarajan has put forward no evidence indicating that a $720,000 severance agreement

for any termination, with or without cause, was standard practice at ATG at that time.

And even ifBurleigh had been hired before Natarajan was offered the Severance Agreement,

the relevance of his example is still questionable because Natarajan has neither argued nor offered

any evidence suggesting that Burleigh was hired by Mehta, or any other officer, without seeking the

prior approval of the Board or Chaudhari. This is significant because ATG’s offer of a generous

12

severance package to Burleigh would only go to the reasonableness of Natarajan’s reliance on

Mehta’s unilateral authority if Mehta, or any other officer, had hired Burleigh without the approval

 

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 It is also worth pointing out that perhaps the Severance Agreement would have had more of a 13

“stop gap” effect had Natarajan or Mehta actually apprised ATG of its existence. Knowledge that the

company could be on the hook for a $720,000 obligation if it terminated Natarajan seemingly would have

acted as a spur to ATG to deliver the long-promised employment agreement. Strangely, however, neither

Mehta nor Natarajan saw fit to inform ATG of the Severance Agreement until August 20, 2003, over a

month after Natarajan was terminated and approximately six months after the Severance Agreement was

allegedly drafted. (Def.’s App. at 39-40, 66, 252, 266). 

21

of the Board or Chaudhari.

Natarajan further argues that the Severance Agreement, by its nature, could not be

considered extraordinary because it was merely a “stop gap” agreement intended to simply appease

Natarajan until he received the long-promised employment agreement. In other words, Natarajan

appears to be arguing that the Severance Agreement was not unusual because he and Mehta

intended it to be a mere temporary measure designed to become inoperative upon the delivery of the

employment agreement. The Court fails to see, however, how the mere possibility that the

Severance Agreement could be rendered nugatory makes that agreement any less unusual. Under

its terms, the Severance Agreement would still bind ATG to a $720,000 commitment if an

employment agreement was not forthcoming. Indeed, the very existence of this lawsuit belies

Natarajan’s suggestion that the Severance Agreement was intended to function solely as an

innocuous “stop gap” measure – on the contrary it shows that Natarajan believes that the agreement

was intended to have, and does have, real teeth.13

Natarajan also contends that Mehta’s corporate title as ATG’s President and CEO alone

clothed Mehta with apparent authority to enter into the Severance Agreement. Some courts have

found that corporate titles may create apparent authority in some contexts. See Federal Deposit Ins.

Corp. v. Texas Bank of Garland, 783 S.W.2d 604, 607 (Tex. App. – Dallas 1989, no writ); In re Walt

Disney Co., 2004 WL 2050138, at *4 (Del. Ch. Sept. 10, 2004). Such circumstances do not exist

 

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22

here. No reasonable person in Natarajan’s shoes, knowing what Natarajan knew or should have

known about Mehta’s limited authority to bind ATG to an obligation of similar magnitude to the

Severance Agreement would have relied on Mehta’s capacity as President and CEO alone. At the

very least a reasonable person in that position would have taken steps to ascertain the parameters

of Mehta’s authority. The undisputed evidence here shows that Natarajan made no effort to do so.

When asked whether he had taken any steps to determine the scope of Mehta’s authority, Natarajan

responded: “No. Why should I? He was the president and CEO.” (Def.’s App. at 234). The Court

finds that no reasonable juror could find that Natarajan’s head-in-the sand, reflexive reliance on

Mehta’s corporate title alone was reasonable.

The evidence presented by Natarajan thus fails to create a genuine issue of material fact on

the question of whether Mehta had the actual authority to enter into the Severance Agreement. See

Templeton, 555 S.W.2d at 538 (concluding that there was no evidence in the record of any act on

the part of the board of directors or other authorized person to lead a reasonable person to believe

that president of board “was invested with the power to execute, without approval of the board of

directors, a year’s employment contract.”); Nelms v. A&A Liquor Stores, Inc., 445 S.W.2d 256, 259-

60 (Tex. Civ. App. – Eastland 1969, writ ref’d n.r.e.) (affirming trial court’s award of summary

judgment to defendants where plaintiff provided no evidence that president of corporation had

express, implied, or apparent authority to enter into oral agreement for lifetime employment); Brown

v. Grayson, Enters., Inc., 401 S.W.2d 653, 656-57 (Tex. Civ. App. – Dallas 1966, writ ref’d n.r.e.)

(finding no evidence in record that would justify an ordinary competent person familiar with the

corporation’s ordinary methods of business to conclude that contract for lifetime employment

contract was within the authority of the Chairman of the Board/CEO and Vice President). 

 

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Although ATG’s bylaws allowed for the CEO to make certain guarantees for the company,

ATG has proven that, pursuant to the bylaws, Mehta’s authority in that regard was limited in certain

respects by the actions of the Board, and particularly Chaudhari, the company’s Chairman and sole

shareholder. Specifically, ATG has presented evidence sufficient to establish that, as a matter of

practice, Mehta was not authorized to enter into employment-related contracts for high level

corporate officials or make sizeable corporate guarantees without seeking prior approval from

Chaudhari or the Board. ATG has thus met its summary judgment burden such to throw the burden

back on Natarajan to come forward with “specific facts showing that there is a genuine issue for

trial.” Schoonejongen, 143 F.3d at 129 (quoting Matsushita Elec. Indus. Co., 475 U.S. at 586).

Considering the record as a whole, the Court finds that no reasonable jury could find that Mehta had

either actual or apparent authority to enter into the Severance Agreement, and thus there is no

genuine issue of fact as to whether Natarajan is entitled to enforce the Severance Agreement against

ATG. Accordingly, the Court grants ATG’s motion for summary judgment on Natarajan’s breach

of contract claim and denies Natarajan’s motion for summary judgment on that claim.

E. Natarajan’s Reimbursement and Vacation Pay Claims

Natarajan also charges that ATG failed to pay amounts allegedly due to him under the

company’s vacation and reimbursement policies, in violation of the Texas Payday Act and various

contracts between him and ATG. (Pl.’s Orig. Pet. at ¶ 13). Natarajan specifically complains that

ATG failed to reimburse him for an airline ticket for a trip to India in December 2002 (Def.’s App.

at 255) and that ATG improperly excluded his guaranteed bonus compensation from the calculation

of his unused vacation pay at the time of his separation from the company in July 2003. (Id. at 258-

59). 

 

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As a matter of policy ATG requires its employees to submit receipts to receive reimbursement

for expenses incurred on behalf of the company. (Id. at 542). Natarajan admits that the submission

of receipts was required for reimbursement under company policy. (Id. at 161). In December 2002,

Natarajan flew to India for an ATG Board meeting. (Id. at 257). It was not until July 2003, eight

months after the India trip and after Natarajan was asked to resign, that Natarajan submitted a

reimbursement request to ATG. (Id. at 255, 542). ATG requested that Natarajan provide a receipt

or proof of payment. (Id. at 542). To date, Natarajan has not provided a receipt. (Id. at 255-56,

542). He has, however, offered ATG the check number for the check allegedly used to pay for the

airline ticket. (Id.). Because the undisputed summary judgment evidence shows that Natarajan has

failed to provide sufficient proof of payment, and hence has failed to comply with ATG’s

reimbursement policy, the Court finds that ATG is entitled to summary judgment as to Natarajan’s

claim for reimbursement for travel expenses incurred in December 2002. Natarajan has failed to

point the Court to any evidence suggesting that Mehta’s alleged oral promise that the company

would pay for Natarajan’s ticket was anything other than a gratuitous promise unsupported by

consideration. See Central Texas Micrographics v. Leal, 908 S.W.2d 292, 296 (Tex. App. – San

Antonio 1995, no writ).

Natarajan also maintains that ATG has failed to live up to its vacation pay obligations.

ATG’s policy is to calculate unused vacation time pay based on the employee’s salary. (Id. at 516).

It is undisputed that at the time of Natarajan’s departure from ATG, he had accumulated 104 hours

of vacation pay. (Id. at 516, 521). ATG paid him $6857.09 for those hours based on his annual

salary of $137,142. (Id. at 516). Natarajan contends, however, that his unused hours should have

been based not only on his base salary, but also on his guaranteed bonus of $102,857. ATG’s

 

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 Natarajan’s contention that the policy manual referred to in his deposition is actually the manual 14

for Alpha Thought, Inc., a related entity to ATG, is unavailing in light of the unchallenged summary

judgment evidence that ATG’s vacation pay policy is calculated according to salary. (Def.’s App. at 516;

Natarajan’s Resp. Brief at 23) (“ATG is correct in stating that payments for accrued but unused vacation pay

is calculated based on the employee’s salary.”).

25

vacation policy is clear that payments for accrued but unused vacation is calculated based on

“salary”, not “bonuses”, whether guaranteed or not. (Id.). The Court therefore finds that ATG’s

calculation of Natarajan’s vacation pay has not been shown to be improper, and it is accordingly

entitled to summary judgment.

14

F. Natarajan’s Fraud Claim

Natarajan pleads an alternative claim for fraud, arguing that ATG made promises and

representations with no intention of performing them in order to induce him to work for the

company. (Pl.’s Orig. Pet. ¶ 14). The fraud claim appears to be premised on ATG’s failure to deliver

the employment agreement for a set term that had allegedly long been promised to Natarajan.

Natarajan claims that such promises were made during negotiations for his employment with ATG

and continued after he had started work there. (Pl.’s App., at 8, 10, 34-37, 48-49, 50-52).

The elements of a fraud claim under Texas law are: “(1) a material representation; (2) which

was false; and (3) which was either known to be false when made or was asserted without knowledge

of the truth; (4) which was intended to be acted upon; (5) which was relied upon; and (6) which

caused injury.” Shaboon v. Duncan, 252 F.3d 722, 735 (5 Cir. 2001). Although ATG moves for

th

summary judgment on the fraud claim on several grounds, the Court finds the last most convincing

– that Natarajan has no evidence that he suffered an injury as a result of the alleged fraud. That is,

Natarajan has failed to submit evidence that the employment agreement he was allegedly promised

 

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26

would have provided him compensation and benefits beyond those he actually received while

employed by ATG. To the extent that Natarajan is claiming that the final MOU reflected the terms

to be incorporated into an employment agreement, the Court notes that the $100,000 in severance

provided for by the MOU was triggered only by termination without cause. (Pl.’s App. at 52).

Natarajan has pointed to no evidence showing that he had been promised a guaranteed term of

employment preventing him from being terminated even with cause. Nor has Natarajan presented

proof contradicting ATG’s evidence that he was terminated for cause. In short, Natarajan has failed

to show how things would have been any different had he been provided what he was allegedly

promised. ATG is therefore entitled to summary judgment on Natarajan’s fraud claim.

G. Declaratory Judgment Claims

Both ATG and Natarajan have moved for summary judgment on ATG’s counterclaim,

brought pursuant to the federal Declaratory Judgments Act (“DJA”), 21 U.S.C. § 2201 et seq.,

seeking this Court to declare the Severance Agreement unenforceable. Natarajan argues that ATG’s

claim for declaratory relief should be dismissed because the issue of the Severance Agreement’s

enforceability has already been joined by virtue of Natarajan’s breach of contract claim. While a

defendant may generally not file a counterclaim for declaratory judgment pursuant to the Texas

Declaratory Judgment Act to resolve a dispute already pending before the Court, see BHP Petroleum

Co. Inc. v. Millard, 800 S.W.2d 838, 841 (Tex. 1990), the same is not true of claims brought under

the federal DJA. See Republic Servs., Inc. v. Texas Ecological Servs., Inc., 118 F.Supp.2d 775, 776-77

(S.D. Tex. 2000). The federal DJA provides that a declaratory judgment may be used to declare the

rights of the parties “whether or not further relief is or could be sought[.]” 28 U.S.C. § 2201

(emphasis added); Repub. Servs., 118 F.Supp.2d at 777 (“A declaratory judgment action is a perfectly

 

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27

appropriate method for determining rights under a contract.”). The Court therefore denies

Natarajan’s summary judgment motion to the extent it seeks dismissal of ATG’s counterclaim for

declaratory relief.

In light of the Court’s foregoing analysis concerning the unenforceable nature of the

Severance Agreement, the Court declares that agreement to be unenforceable against ATG. ATG

is not entitled to an award of attorney’s fees, however. The federal DJA does not authorize an award

of attorney’s fees in a diversity case that would not otherwise be available under a state’s substantive

law. Century Prods. Co. v. Cosco, Inc., 2003 WL 251957, at *7 (N.D. Tex. Jan. 31, 2003) (citing

Mercantile Nat’l Bank v. Bradford Trust Co., 850 F.2d 215, 218 (5 Cir. 1988)). While the Texas th

DJA does allow for the recovery of attorney’s fees in a declaratory judgment action, see TEX. CIV.

PRAC. & REM. CODE § 37.009, “the Fifth Circuit has clearly held that the Texas Declaratory

Judgment Act functions as a procedural mechanism and does not provide the necessary substantive

legal basis for awarding attorney’s fees in a federal diversity action.” Century Prods., 2003 WL

251957, at *7 (citing Utica Lloyd’s of Texas v. Mitchell, 138 F.3d 208, 210 (5 Cir. 1998)). ATG is th

therefore not entitled to an award of attorney’s fees in this diversity case. The Court denies ATG’s

motion for summary judgment to the extent it seeks attorney’s fees in connection with its federal

DJA counterclaim.

H. ATG’s Fraud and Breach of Fiduciary Duty Counterclaims

Natarajan’s argument that ATG’s counterclaims are simply mirror images of its affirmative

defenses that do not seek affirmative relief is refuted by the record. ATG’s fraud-based counterclaims

and breach of fiduciary duty claims are premised on Natarajan’s failure to disclose the Severance

Agreement to ATG. ATG plainly seeks damages as a result of Natarajan’s alleged wrongful actions

 

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28

for amounts paid for Natarajan’s salary, benefits, and expenses. (ATG’s Am. Answer, Affirmative

Defenses and Countercl. ¶¶ 23, 27, 37).

Natarajan nevertheless contends that ATG’s fraud and fiduciary duty claims must be

dismissed because ATG has no evidence to support such claims and because Natarajan did not have

a fiduciary relationship with ATG with respect to the Severance Agreement, and hence did not have

a concomitant duty to disclose the existence of the Severance Agreement. Natarajan’s assertion that

no fiduciary relationship existed between himself and ATG is baseless. Black letter law provides that

officers of a corporation owe fiduciary duties to the corporation. Roth v. Mims, 298 B.R. 272, 288

(N.D. Tex. 2003). Indeed, the very Disney case relied on by Natarajan establishes that a corporate

officer begins to owe fiduciary duties to the corporation and its shareholders as soon as that officer

is hired and begins working for the company. In re Walt Disney Co., 2004 WL 2050138, at *3.

Furthermore, a corporate officer is required to fully disclose all material facts within his knowledge

relating to corporate affairs. Imperial Group (Texas), Inc. v. Scholnick, 709 S.W.2d 358, 363 (Tex.

App. – Tyler 1986, writ ref’d n.r.e.). The failure to disclose material facts may constitute fraud where

there is a duty to do so. Robbins v. Capozzi, 100 S.W.3d 18, 24 (Tex. App. – Tyler 2002, no pet.) 

Natarajan maintains that he owed ATG no fiduciary duties to ATG in connection with the

Severance Agreement because he was involved in an “arm’s length” transaction and remained free

to look out only for his own interests. While Natarajan certainly may have been entitled to negotiate

the best possible employment terms for himself prior to starting work for ATG, after he was officially

hired he owed fiduciary duties to the company. In re Walt Disney Co. Derivative Litig., 825 A.2d 275,

290 (Del. Ch. 2003). Therefore, Natarajan owed a fiduciary duty to ATG as the company’s COO

as of September 16, 2002, his first day of employment. Id. There is no evidence in this case that the

 

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29

terms of the $720,000 Severance Agreement were arrived at prior to that date. Cf. In re Walt Disney

Co., 2004 WL 2050138, at *5-6 (finding that Michael Ovitz did not breach fiduciary duties by

signing employment agreement and accepting its benefits while serving as Disney President because

the essential terms of that agreement were negotiated before Ovitz was officially hired by Disney).

On the contrary, construing the facts in a light favorable to Natarajan, the evidence shows that

Mehta drafted the Severance Agreement on February 19, 2003 and that Natarajan “accepted” it

during the course of Natarajan’s service as COO. Thus, the Court finds that Natarajan owed

fiduciary duties to ATG at the time the Severance Agreement was allegedly entered into and that

fact issues exist as to whether Natarajan breached those duties by failing to disclose the existence of

the Severance Agreement. Accordingly, the Court denies Natarajan’s motion for summary judgment

on ATG’s breach of fiduciary duty-related counterclaims.

Natajaran also asserts that “there is no evidence of fraudulent conduct on Natajaran’s part

because ATG cannot point to any evidencewhich would indicate that Natajaran was ever instructed

or had knowledge that he was required to disclose any employment-related agreements directly to

the Board of Directors.” (Pl.’s MSJ Brief at 14). The Court disagrees. Natajaran admits that he did

not provide the Severance Agreement to anyone at ATG (Def.’s App. at 235), although ATG has

presented evidence that normal practices at the company would have dictated that such agreements

be provided to William Voigt, ATG’s Vice President of Human Resources. (Id. at 515). 

Also, in April 2003 Rao sent a directive to the ATG executive management team, of which

Natajaran was a part, requesting that the team provide the Board with certain records. (Id. at. 239-

40, 240-41, 341, 393, 416-19). Natajaran and Mehta were responsible for working on Rao’s request

for information relating to “the Organization Model and Major Issues including Risk Assessment.”

 

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 According to ATG, English is Chaudhari’s fourth language. (Def.’s App. at 364). 15

30

(Id. at 473, 497). By e-mail dated April 2, 2003, Rao specifically requested, with respect to the

“Organization Model”, information regarding employee commitments, including “a compiled list of

all outstanding MOU’s and EA [employment agreements] were [sic] detailed (personnel name, type,

title/job function, duration, salary, additional compensation).” (Id. at 340). The next day Chaudhari

also sent the following e-mail to Natarajan and Mehta, among others:

I will not tolerate followings, so do the Board of directors (MY TOLERANCE WILL BE

ZERO FOR THESE)– . . . TRY TO HOLD/HIDE INFORMATION FROM ME and TRY

TO BLOCK FREE COMMUNICATION. 

15

(Id. at 348).

Therefore, contrary to Natarajan’s assertion, ATG has put forth some evidence that

Natarajan was indeed instructed to provide any “employment-related agreements” (Pl.’s MSJ Brief

at 14) to the ATG Board and that he failed to do so. Accordingly, the Court finds that Natarajan

is not entitled to summary judgment on ATG’s fraud- and breach of fiduciary duty-related

counterclaims.

I. ATG’s Motion for Summary Judgment on Mehta’s Counterclaims is Moot

Mehta originally brought counterclaims against ATG for fraud, intentional and negligent

misrepresentation, breach of contract, and contractual and common law indemnification. (Mehta’s

Answer and Third Party Counterclaim ¶¶ 6-18). Mehta subsequently informed the Court that

certain of his counterclaims against ATG have been resolved. (Def. Mehta’s Unopposed Mot. Leave

to File First Am. Answer and Third Party Counterclaim). The lone remaining counterclaim is for

contractual and common law indemnification. 

 

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ATG filed a separate motion for summary judgment seeking to dismiss all of Mehta’s

counterclaims on various grounds. That motion is now obviously moot with respect to Mehta’s

claimsfor fraud, intentional and negligent misrepresentation, and breach of contract, as those claims

have been dropped. ATG’s summary judgment ground with respect to Mehta’s counterclaim for

contractual and common law indemnification is also moot because ATG’s motion was premised on

the argument that Mehta was not entitled to be indemnified by ATG for attorney’s fees and costs

incurred on Mehta’s affirmative counterclaims because “Delaware law does not provide

indemnification for personal claims brought against the Company that would only benefit the

claimant.” (ATG’s Brief in Supp. Mot. Summ. J. Ag. Mehta at 40). As Mehta is no longer asserting

affirmative counterclaims against ATG, ATG’s motion for summary judgment on Mehta’s

indemnification counterclaim is now moot. Mehta’s counterclaim for contractual and common law

indemnification for attorney’s fees and costs incurred in connection with his defense of this action

and any judgment or settlement paid by him shall remain for resolution at trial.

III. Conclusion

For the reasons explained above, the Court DENIES Natarajan’s Motion for Summary

Judgment in its entirety, DENIES as moot ATG’s Motion for Summary Judgment against Mehta, and

GRANTS in part and DENIES in part ATG’s Motion for Summary Judgment against Natarajan.

The Court GRANTS ATG’s motion against Natarajan as to Natarajan’s contract claim, fraud claim,

and all claims for reimbursement and for unused vacation pay. The Court further DECLARES that

the February 19, 2003 Severance Agreement is unenforceable against ATG. ATG’s motion is

DENIED to the extent it seeks an award of attorney’s fees. 

SO ORDERED.

 

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SIGNED July 25, 2005

_________________________________

JANE J. BOYLE

UNITED STATES DISTRICT JUDGE

 

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