Two former chief executives at a high-tech mattress base supplier in Santa Barbara have filed a lawsuit against the company, alleging they were cheated out of severance agreements following the business’ acquisition last fall.
In a suit filed Feb. 18 in Santa Barbara County Superior Court, former executives of Santa Barbara-based Ergomotion, Michael Grillo and Leandro Vera, claim they were promised departing wages in written contracts prior to the purchase of Ergomotion by China-based mattress company Softide in late September.
Grillo and Vera claim the agreements were not honored once Ergomotion was acquired. Along with Ergomotion, other defendants named in the case include Softide and Ergomotion’s founder and former CEO, Alain Clenet. Vera and Grillo are seeking a collective minimum of $1.2 million in damages.
“This is a case of corporate greed and betrayal, fueled by a smoldering family dispute that disrupted the operations of Ergomotion,” the lawsuit claims.
Mike McCollum, attorney for Ergomotion, said the company will vigorously defend itself against the allegations.
“Ergomotion is a longstanding Santa Barbara company that is proud of its business and employees. It is unfortunate that two former employees, Mr. Vera and Mr. Grillo, have chosen to sue the company and disparage its founders to try to claim exorbitant payouts,” McCollum wrote in an email. “The complaint severely distorts the facts, and the company disputes the allegations made therein and looks forward to defending itself in the lawsuit.”
Alain Clenet and Softide could not be reached for comment.
Ergomotion was founded in 2005 by father-son duo Alain and Kelly Clenet. Until July of last year, Alain acted as CEO and Kelly served as the company’s president. Meanwhile, Grillo was chief financial officer of the company from October 2012 until September 2014, and Vera was the chief operating officer from October 2011 until July of last year. In July, Vera was named CEO and president by the company’s board of directors.
According to the lawsuit, Ergomotion was owned by a group of shareholders who are all members of the Clenets’ extended family while Alain and Kelly Clenet owned all of the issued voting shares.
The lawsuit claims Vera was hired in 2011 as the company entered a transition period “to allow Alain Clenet to step down officially to one day per week, retaining the CEO title as mostly a symbolic position, while Kelly Clenet and Vera ran the company.”
The complaint alleges Ergomotion experienced tremendous growth afterward and 2013 was “the period of greatest financial and market success for the company.” It alleges that during this time, “Alain had decided that he wanted to sell the company and cash out his stock.” The suit goes on to claim Alain made several failed attempts to sell the company, and in January 2014, he “unilaterally” announced he would assume the executive role.
The lawsuit alleges Kelly and Alain Clenet were in disagreement over whether to sell Ergomotion to an outside investor or undertake an Employee Stock Ownership Plan. When it appeared sale to an outside investor was certain, the suit claims, Vera and Grillo formally arranged severance agreements with Kelly Clenet, who was company president at the time. Their original written employment agreements were amended in February 2014 to include severance agreements for post-acquisition pay, according to court documents.
These agreements required Ergomotion to disclose the agreements to any entity that acquires it, and they required the purchasing company to assume obligations in the severance agreements, according to the lawsuit.
By mid-2014, the suit alleges, Alain Clenet had identified Jack Tang, owner of Softide — which worked with Ergomotion — as a viable buyer of the company. The two had a close working relationship since Ergomotion was a distributor for Softide, the complaint alleges, and Softide froze shipments to Ergomotion in July 2014.
During a board of directors meeting that same month, the board unanimously appointed Vera as CEO and president, while Alain and Kelly stepped down from their positions. The court complaint alleges the severance agreements were discussed at the meeting, and Alain Clenet expressed concern he was not notified of them.
“Alain Clenet complained that he wasn’t consulted before the execution of the agreements, but he did not deny their enforceability,” the lawsuit alleges.
Grillo and Vera allegedly sought assurances that the severance agreements would be honored during the final phase of the acquisition and these inquiries “were defected or ignored,” the lawsuit states.
“The same day the transaction closed, Grillo and Vera were terminated, and the company refused to pay them their severance benefits,” the suit alleges.
A month following the acquisition, in October 2014, Bed Times Magazine reported Kelly Clenet, principal shareholder, left the company while Alain Clenet was expected to remain as a consultant to Ergomotion’s product development and design teams. The publication also reported Grillo and Vera had left the company while other members of the Ergomotion team were expected to remain.
Editor’s note: Plaintiff attorneys Jonathan Light and Glenn Dickinson are with the firm LightGabler LLP. The firm represents the Business Times in employment matters.