Corporate Governance

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (Those Tee Hee Purchases)

By J Robert Brown Jr.

A portion of the case centered around alleged improper reimbursements submitted by the CEO and alleged improper approval by at least one officer of the expenses.  To make its case, plaintiff tried to show some improper expenditures that ostensibly should have been picked up by the approving officer. 

The court characterized the efforts as "tee-hee fun" that focused on "certain adult store purchases and certain restaurant receipts."  The Vice Chancellor's objection, apparently, was the relatively small nature of the expenses.  "But their oddity far outweighs their financial materiality, because the expenses [the company] highlighted involve the sort of smaller items that a financial officer . . . might pay less attention to than larger items."  It was as if plaintiff had introduced them not for their probative value but because of the titillation that would result. 

Yet plaintiff needed to establish that expenses were improperly approved.  To do so, this presumably required the identification of some expenses that were obviously improper and that should have been noticed by those reviewing the expenses.  Purchases from adult stores seemed to be a reasonable attempt to show these types of expenses. 

Similarly, plaintiff presented receipts from a coffee shop that caused the court to "wonder[] if [the CEO] grabbed them from a trash can or ripped the receipt tape off of a cash register." Yet the court viewed them in isolation and despite the potential impropriety, considered them unimportant because the "the amounts in question are de minimis."  But even small expenses could be material if they suggested a broader dishonesty in the submission process.  They may have established the need for those looking over the expenses to provide a more exacting review.

Convincing evidence?  They did not convince the Vice Chancellor in this case.  Tee-hee fun?  The opinion on this score was unconvincing. 

Full post as published by The Race to the Bottom on August 12, 2010 (boomark / email).