Another Fissure In The Internal Affairs Doctrine?


In this post from last November, I mentioned two New Jersey decisions applying New Jersey law rather than the law of the state of incorporation. Krzastek v. Global Resource Industrial & Power, Inc., No. A-1815-06T2 (N.J. Super. Ct. App. Div. Sept. 11, 2008) and Conway v. DialAmerica Marketing, Inc., No. BER-C-116-08 (N.J. Super. Ct. Ch. Div. Sept. 30, 2008). Last December, Judge Thomas Griesa of the U.S. District Court for the Southern District of New York has ruled that New York law should be applied to a corporation’s claim for constructive fraud and the remedy of forfeiture of compensation against a former corporate officer. Tyco Int’l, Ltd. v. Kozlowski, Case No. 02 Civ 7317 (TPG) (Dec. 1, 2010).

Dennis Kozlowski had been the Chief Executive Officer and Chairman of the Board of Tyco International, Ltd. before his conviction in New York state court on 22 counts of a 23 count indictment. He demanded that Tyco pay him over $100 million pursuant to various deferred compensation agreements. He also sought indemnity pursuant to the corporate bylaws. Not surprisingly, Tyco refused and filed suit in federal district court. Among other things, Tyco asserted a claim for constructive fraud and sought forfeiture of compensation as a remedy.

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