The former general counsel of a Houston-based lithium-ion battery company was recently found to have breached his fiduciary duty to the company by a jury that also rejected his bid to recoup what he alleged were orally-agreed-to stock options valued at $3.4 million.
Matthew Smith filed the lawsuit against his former client, Microvast, in February 2018, bringing claims for breach of contract, Texas Securities Act violations, negligent representation and fraudulent inducement, statutory fraud and violations of the Texas Business and Commerce Code. Microvast lodged its breach of fiduciary duty counterclaim in July 2019, according to court records.
The 12-person jury that sat through the two-week trial deliberated for about two hours before unanimously siding with Microvast, determining the company had no agreement with Smith entitling him to purchase 2,600 shares that were granted and vested on the first day of his employment. Jurors also found Microvast hadn’t committed fraud against Smith in the verdict returned Sept. 9.
“We made a big deal about the fact that nobody at Microvast in history had ever gotten an oral agreement grant of stock options,” Microvast’s attorney, Glenn A. Ballard Jr. of Dentons, said. “So, the jury did not buy his claim for vesting on the first day.”
As for damages, the jury determined Microvast was entitled to recover the value of a laptop computer it alleged it purchased for Smith and he refused to return, awarding it $2,325.16. The Dentons’ team that represented Microvast in trial, Laura Gibson, Ballard and Mukul S. Kelkar, had also told jurors they could award $285,000 in damages.
“[That] was the price Microvast paid to investigate 65 allegations of discrimination he made against the company when it wouldn’t agree he was entitled to what he was claiming,” Gibson said.
Gibson said this was the first jury trial she had been a part of where all of the jurors agreed to speak to the lawyers afterward.
“They were very inclined to give that amount,” she said of the $285,000 they ended up not awarding. “And someone on the jury said ‘What if we do that and it dissuades an employee from making valid claims in the future?’”
Smith’s attorney, Charles Sturm of Sturm Law, didn’t return a message seeking comment Friday. According to the docket, Harris County District Judge Lauren Reeder, who presided over the trial, had not yet entered final judgment in the case Friday afternoon.
Smith was hired as general counsel for the company on March 11, 2016, to guide it through an initial public offering that was put on hold about a month after he started and didn’t come to fruition during his time with the company, according to court documents.
Microvast alleges that rather than terminating Smith when it realized the IPO wasn’t going to happen, it decided to keep Smith on after learning he and his wife were expecting a child, according to the lawsuit.
He was fired Oct. 2, 2017, after the company learned he had made secret recordings of conversations with Microvast employees — which Smith maintained he did in his role as compliance officer — but that Gibson said the CEO viewed as “deceitful conduct” that merited his termination.
Those secret recordings, Gibson said, came to light after Microvast hired the law firm Ogletree Deakins to investigate Smith’s numerous allegations of discrimination.
The Dentons team had to overcome some hurdles to clear its client of any wrongdoing, including adjusting its trial strategy after jurors informed the court clerk after the first day of testimony that the subject matter was above their heads.
“So we dumbed it down … we went even further and made it very simple,” Ballard said.
Gibson said COVID-19 infections also caused two trial delays — in January when plaintiff’s counsel got sick and again in May when Ballard and a Microvast representative got sick.
“Each one was canceled at the last minute, days before we were supposed to go,” she said, noting the difficulties in staying sharp on the facts of the case and ready for trial in the face of delays.
Whether a finding that a lawyer breached his fiduciary duty could result in disciplinary action from the state bar depends on the specific facts of each case and whether any rules of professional conduct were violated, said Claire Reynolds, public affairs counsel for the Office of the Chief Disciplinary Counsel.
“It also depends on whether someone files a grievance based on the conduct,” she wrote in response to an emailed question. “We have the ability to initiate our own investigations, but unless someone filed a grievance or the case popped up in the news (or the judge referred it to us) we wouldn’t necessarily know about it.”
Ballard said it would “not be appropriate” for the Microvast trial team “to comment on any effect on [Smith’s] law license.”
“But certainly, a finding that you breached a fiduciary duty as a general counsel to a client, it cannot be good,” he said.
Smith is represented by Charles Sturm of Sturm Law, R. Andino Reynal of Fertitta & Reynal and Mark J. Oberti and Edwin Sullivan of Oberti Sullivan.
The cause number is 2018-07693.