Trial for Collins vs Parkway Properties set for June

September 22, 2011

Legal Affairs, Real Estate

Plaintiff seeks release of financial documents, accuses Parkway of forging e-mail attachment

JACKSON – At a recent hearing a judge ruled the case in which the former CFO of Parkway Properties Inc. (NYSE: PKY) alleges wrongful termination and fraud will be tried June 4. The judge did not rule on disagreements about the plaintiff’s expert witnesses or the production of certain Parkway financial records.

Parkway says it fired its former CFO Mitch Collins in February 2010, accusing him of being a “workplace bully.” Collins, however, says he had already resigned from the company in January 2010, and filed suit in Hinds County Circuit Court for wrongful termination, defamation and fraud, claiming there were issues with forward-looking guidance and liquidity. Parkway denies the accusations.

At a Sept. 19 hearing Collins’ counsel stressed the need for financial documents Parkway won’t provide. Collins claims he was terminated because he refused to participate in fraudulent activities these documents would show, an attorney said. The plaintiff is seeking documents concerning alleged loan compliance problems; Parkway’s $190 million line of credit starting in May 2010; tenant move outs, vacancies and occupancy declines starting in October 2010; and some acquisitions and renovations.

Another unresolved issue is a disagreement over an e-mail attachment regarding leasing assumptions that Collins’ counsel said Parkway has forged.

In a deposition Collins said that while still employed at Parkway in January 2010, he sent an e-mail predicting that FAD (funds available for distribution) would “be short around 30 to 40 cents” to key executives. Collins says he attached a spreadsheet, which his counsel has retained, showing leasing assumptions of $5 and $3 per foot that would reflect that shortfall.

Parkway said in a court filing the actual attachment that accompanied that same e-mail from Collins contains leasing assumptions of $2.93 and $3.54, thus showing no FAD shortfall. Collins says Parkway’s attachment is fraudulent.

FAD is a measure of the amount of capital on hand for paying shareholders in a real estate investment trust (REIT) like Parkway that holds a portfolio of income-producing properties and pays dividends.

Parkway said its expert IT witness has verified the attachment with lower numbers predicting no FAD shortfall was actually the original attachment to Collins’ e-mail, suggesting that Collins’ attachment was “a post-termination invention crafted to support this suit.”

Parkway also says the plaintiff’s counsel inappropriately maintained copies of electronic documents that should have been returned to Parkway under an agreed protective order issued by the court.

Collins counsel said in a filing that Parkway’s counsel was made aware a copy of the attachment was retained and that “although it was certainly the hope and expectation that Parkway would not falsify Collins’ e-mail, one of the reasons that a copy was retained as ‘insurance’ was for this very purpose.”

Parkway Properties, a member of the S&P Small Cap 600 Index, is a self-administered REIT specializing in office properties. Parkway owns or has an interest in 67 office properties in 12 states with an aggregate of approximately 14.5 million square feet of leasable space as of Sept. 19. Included in the portfolio are 26 properties totaling 6.6 million square feet that are owned jointly with other investors, representing 45.5 percent of the portfolio.

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One Response to “Trial for Collins vs Parkway Properties set for June”

  1. CA Says:

    Effective July 16, 2010, the Company received a formal notice from the Area Director of OSHA, that Mr. Collins withdrew the Sarbanes-Oxley complaint he filed with OSHA.

    On May 4, 2010, Mr. Collins filed a personal injury lawsuit against the Company in the Circuit Court of Hinds County, Mississippi, alleging defamation, wrongful discharge, conversion, and fraud based on substantially the same factual predicate set forth in the OSHA complaint. Mr. Collins is seeking compensatory and punitive damages in excess of $10.0 million in the lawsuit. The Company has carefully reviewed Mr. Collin’s personal injury complaint and believes that the allegations made are without basis in fact or law and will vigorously defend the Company’s prior actions and reputation. Management believes the final outcome of this matter will not have a material adverse effect on the Company’s financial statements.

    In addition to the personal injury lawsuit, Mr. Collins issued a shareholder demand letter to the Company threatening to commence a derivative lawsuit on behalf of the Company against the Company, its directors and officers based on substantially the same allegations as set forth in the personal injury suit. On July 27, 2010, the Company’s Board of Directors appointed the audit committee (the ―Committee) of the board to review and evaluate the claims made in Mr. Collins’ demand letter. The Committee engaged independent legal counsel to assist with the review and evaluation of these claims. After thoroughly investigating the allegations in good faith and fully informing itself of all material facts relevant thereto, the Committee believes that the Company did not operate in a fraudulent or misleading manner regarding either the termination of Mr. Collins or the disclosure of the Company’s 2010 earnings guidance. Further, the Committee has determined that it would not serve the interests of Parkway or its shareholders for the Company to take any of the further actions requested in the demand letter.

    For the year ended December 31, 2010, the Company had expensed $1.3 million with respect to the pending litigation and the demand letter. During the fourth quarter of 2010, the Company removed its reserve for potential future exposure with respect to the pending litigation and demand letter. Management has evaluated the risks involved with the pending litigation and demand letter and determined that no reserve was necessary at December 31, 2010.

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