Federal jurors began hearing a contract dispute today over whether Ingersoll Rand Plc owes $11 million or $72 million to 130 employees under an incentive plan tied to its sale of a subsidiary, Dresser-Rand Group Inc. (DRC)
Ingersoll Rand, which makes heating and ventilation equipment, offered the plan, dated in 2000, to retain workers when it began trying to sell Dresser-Rand. After Dresser-Rand, which makes oilfield equipment, was sold in 2004 for $1.2 billion, Ingersoll Rand said the 2000 plan no longer applied. Workers sued in federal court in Newark, New Jersey, and a judge ruled the plan remains in effect, setting up the trial.
“This case is about an attempt by Ingersoll Rand to get out of the legal requirement of the contract by playing around with the figures,” Rusty Hardin, an attorney for the workers, said in an opening statement. It’s an attempt to cheat “these people out of what they contracted and promised them,” he said.
The amount paid will depend on a formula tied to the net sale price, after deductions for taxes and transaction costs, and additions for other items. Ingersoll Rand claims it owes $11 million, while workers say they are due $72 million. Workers say the judge can add interest of at least $25.5 million.
Hardin and another plaintiffs’ lawyer, Mark Lanier, introduced about 10 workers in the courtroom, saying they built value in Dresser-Rand after initial sale attempts failed. Workers received varying amounts of sale value units, or SVUs, which the jury will value after determining the net sale price.
Barry Ostrager, an attorney for Ingersoll Rand, said the jury should value the 704,196 SVUs at $16.18 each, not the $102.74 that the workers seek. He pointed out that the top three workers would get bonuses of $5 million each under the plaintiffs’ plan. The difference between the two sides, he said, is $61 million.
“If their calculations are correct, these plaintiffs are going to get a boatload of money,” Ostrager said. “You have to decide whether this $61 million should stay with Ingersoll Rand so it can run its business and employ more people or whether it should go to these 130 plaintiffs.”
Lanier called his first witness, Joanne Maughan, an Ingersoll Rand finance employee who helped draft the sale incentive plan. Lanier asked Maughan about Ostrager’s statement about how the company would use the $61 million if it wins.
“To suggest to the jury that $61 million will either go to the plaintiffs or to employ more people, that’s not a correct statement is it?” Lanier asked.
“I cannot tell you what we would do with the $61 million,” she said.
Lanier questioned Ostrager’s claim that Ingersoll Rand is entitled to deduct $224 million for taxes. Lanier asked about the company moving its headquarters from the U.S. to Bermuda to lower its tax liability.
“You did it to save hundreds of millions of dollars in taxes?” Lanier asked.
“I can’t say,” Maughan said.
“Did you employ anyone in Bermuda?” he asked.
“I believe we did employ someone in Bermuda,” she said.
He asked whether the company moved its headquarters to Ireland in 2009 to avoid paying income taxes. She said she couldn’t comment on that.
“Your company has a very unusual tax structure?” Lanier said.
“Our company tax structure is unusual, that’s true,” she said.
Maughan’s testimony will be interrupted tomorrow so that Vince Volpe, the chief executive officer of Dresser-Rand, can take the witness stand.
The case is Nye v. Ingersoll Rand Co., 08-cv-03481, U.S. District Court, District of New Jersey (Newark).
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