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Originally published April 20, 2007 at 12:00 AM | Page modified April 20, 2007 at 11:16 PM

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McGavick "golden parachute" case dismissed

A federal judge has dismissed claims that the $28 million payout that former Republican Senate hopeful Mike McGavick received when he left...

AP Legal Affairs Writer

SEATTLE — A federal judge has dismissed claims that the $28 million payout that former Republican Senate hopeful Mike McGavick received when he left Safeco Corp. was fraudulent and wasteful.

U.S. District Judge Marsha Pechman ruled Thursday, saying that the severance payment could have been considered reasonable and that therefore it was in Safeco's purview to make the deal.

Emma Schwartzman, a Safeco shareholder and a member of a prominent liberal Seattle family, sued McGavick last summer, as he was campaigning to unseat Democratic Sen. Maria Cantwell. Cantwell easily won re-election, 57 percent to 40 percent. Schwartzman argued that giving such compensation to McGavick — most of it in stock and options — when he was leaving as the company's chief executive was not in the interests of shareholders.

"Obviously, I said at the beginning I thought this was a politically motivated act," McGavick said Friday. "That's the way these things play out these days: The accusation makes all kinds of headlines, and long after the election, the truth catches up."

McGavick was CEO from 2001 until early last year. Safeco noted that his performance was outstanding, and that as part of the compensation package he agreed to help in the transition to a new chief executive. He also extended his agreement not to work for a competitor from one year to three years.

In February, the Federal Election Commission tossed out a complaint by Democrats that the "golden parachute" amounted to an illegal campaign contribution.

The judge ruled that Schwartzman should have taken her complaint for breach of fiduciary duty to Safeco's board before bringing it to federal court. Only if the compensation given to McGavick was clearly an invalid business judgment, or if there was reason to believe the board was not disinterested or independent, could the claim be brought directly to court, Pechman found.

"It is not difficult to conceive how a business person of ordinary, sound judgment could assign a high value to securing transition services from a departing CEO and tripling the length of a non-competition agreement for a former CEO," she wrote.

The judge also rejected claims brought under the Securities Exchange Act.

Nevertheless, Pechman said Schwartzman could file a newly amended complaint against McGavick within the next month if she knows of other facts that might prove her case.

Knoll Lowney, one of Schwartzman's lawyers, said no decision had been made on whether to file a new complaint.

"The technical requirements for this type of a case have been set so incredibly high it is virtually impossible to maintain a case under this ruling, regardless of whether in fact corporate abuse occurred," Lowney said. "The abuses in executive compensation is such a fundamental problem in this country it needs to be addressed, and this type of a decision allows this corporate abuse to continue."

Swartzman is the granddaughter of Stimson Bullitt, a prominent Seattle lawyer and businessman.

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