A federal jury in California decided this week that the student-loan servicer Navient wrongfully withheld severance money from Earnest co-founder Louis Beryl, who was fired less than three months after the companies merged.
The verdict means Navient could potentially owe Beryl more than $4.4 million. The former fintech CEO sought damages for Navient's "improper" failure to pay him compensation, restricted stock and performance bonuses following his termination in January 2018, according to court documents.
Navient paid $155 million to acquire Earnest, a startup that refinanced student loans, in October 2017. Beryl said in a statement at the time that he was "proud to share the momentous news," and that the deal should boost Earnest's growth.
The deal called for Earnest, which Beryl co-founded in 2013, to remain a separate entity under Navient's corporate structure, according to court documents.
After the merger, Beryl served as Earnest's CEO, and he became senior vice president of Navient Solutions. He sought to renegotiate his salary, which Navient approved, according to court documents.
During the fourth quarter of 2017, Earnest's performance exceeded its operating plan, and the firm reported a record volume of loan originations, the documents stated. Navient CEO Jack Remondi reached out to Beryl in December of that year to congratulate him on "the great month," according to Beryl's complaint.
But the following month, Navient fired Beryl after determining that his actions since the merger amounted to a "willful and continuing failure to perform substantially your duties and responsibilities," according to the complaint.
Since Navient cited poor performance, the company told Beryl that he was "not entitled to severance or certain other benefits."
Lawyers for Navient said in response to Beryl's complaint that he was not wrongfully fired and that he "failed to sustain his burden of proving eligibility for severance benefits or any of the other forms of compensation."
During the trial, Navient's lawyers argued that Beryl was an entrepreneur who became unwilling to cede management decisions to his company's new owner. His termination resulted in part from his missing a deadline to submit a 2018 business plan for Earnest while focusing on renegotiating his compensation package, Navient's lawyers argued during the trial.
Beryl's lawyers pointed to Earnest's performance in the fourth quarter of 2017 and said that delivering the business plan on time became unachievable after Beryl was informed of expenses and conditions that were not presented before the acquisition agreement. The former CEO's lawyers said the case was an example of a company purchasing a smaller company for its technology and then firing its management.
In court documents, the lawyers argued that "with the exception of time periods when he was taking intermittent paternity leave, Beryl performed all of his job duties from the day he began working."
While the judge in Beryl's case will determine the exact amount he should receive, the jury's verdict included the finding that Beryl is entitled to $1 million in restricted stock and $1.4 million in performance awards, and that Navient agreed to increase his salary to $400,000 and his bonus to 100% of his annual base salary before firing him.
A lawyer for Beryl did not respond to a request for comment. A lawyer for Navient declined to comment.
