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Richard Garriott Says He Was 'Forced Out' Of NCsoft, Sues For $27m
Richard Garriott Says He Was 'Forced Out' Of NCsoft, Sues For $27m
May 6, 2009 | By Kris Graft

May 6, 2009 | By Kris Graft
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    18 comments
More: Console/PC



Ultima Online and Tabula Rasa creator Richard Garriott is suing his former employer NCsoft for $27 million, alleging that the online game publisher engaged in "multi-million dollar fraud" by mis-characterizing his departure from the company.

The suit, filed by Garriott's attorneys yesterday in a U.S. District Court in Texas, says that South Korea-based NCsoft breached its stock option agreement with the game designer, which was established when NCsoft acquired Garriott's Destination Games in 2001.

The complaint, obtained by Gamasutra, also claims that Garriott did not depart NCsoft voluntarily as widely reported in November 2008. The suit alleged that around that time, Chris Chung, president of NCsoft's North American operations, told Garriott that NCsoft had decided to "part company" with the famed game creator.

The suit said that Garriott "objected to his dismissal," but claimed "Chung insisted the decision was final -- Mr. Garriott had to go." The filing said at that point, Garriott was prepared to leave NCsoft.

However, Garriott's complaint claims that Chung had meanwhile internally "re-characterized" his termination as "voluntary." The problem is that the alleged re-characterization of the dismissal would have a significant impact on Garriott's stock options.

The suit said if Garriott was terminated by NCsoft, the options would remain in effect until June 2011. However, upon a voluntary resignation, NCsoft would terminate those stock options unless exercised within 90 days of his departure.

Garriott's complaint said NCsoft gave him the "Hobson's choice" of "exercising his options prematurely or risking that NCsoft would refuse to honor the options later."

As a result, according to the filing, Garriott exercised the options within the 90 day window, "[forcing] him to sell into one of the worst equity markets in modern history." The complaint said the move caused Garriott to take on "hundreds of thousands of dollars" in costs and taxes, as well as lose "millions of dollars in value" having lost two-and-a-half years of his options period.

Garriott is suing for breach of contract, fraud, and/or negligent misrepresentation. He seeks to recover damages, interest and legal fees. The complaint claimed Garriott has "suffered more than $27 million in actual damage" from NCsoft's alleged actions.

An NCsoft rep told Gamasutra over the phone that due to the pending litigation, the company cannot comment on the suit in detail. "NCsoft will respond to the complaint as required by law," she stated.

One of Garriott's lawyers, Steve Fox with Dallas' Fish & Richardson told us, "We are confident that this dispute between Mr. Garriott and NCsoft will be resolved in due course."

Fired Upon Return From Space, Suit Claims

The announcement of Garriott's departure came around the same time NCsoft announced that it would soon be shutting down the game designer's most recent MMORPG project, Tabula Rasa. Garriott had also been taking a working leave of absence for space exploration around that time.

The suit alleges that in late October 2008, NCsoft terminated his employment while he was still in quarantine in Russia from his recent space flight to the International Space Station, via a phone call from NCsoft North America head Chung.

Chung allegedly said Garriott's time with NCsoft was "over." The suit said Garriott "protested" the alleged decision by Chung.

NCsoft had subsequently issued what was portrayed to the public as an "open letter" written by Garriott to his fans on the Internet, a letter that claimed Garriott was leaving to pursue "new interests" following his space flight, the suit said. The filing stated that Garriott approved the letter, but in hindsight, the plaintiff suspects that NCsoft was setting up a means to show that Garriott's departure was voluntary.

In 2008, Garriott had taken a working leave of absence to travel to the International Space Station through Russia's space program. He said he went on leave as Tabula Rasa was up and running and he was between major projects. NCsoft had approved the leave, the suit said.


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Comments


Ian Fisch
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Hmmm it seems like he should have sued at the point if and when he tried to cash in the stock options at a later date and was denied by the company rather than suing after he had already sold the options. Also knowing how important the nature of his departure was to the fate of his stock options, he should have gotten something official in writing about the nature of his departure. If NCSoft had difficulty doing that, he could have just stayed in his office until he was forced out by security. Of course hindsight is 20/20 but someone is giving this man bad advice.

steve roger
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It is important to note that Garriott is making "constructive discharge" claim against NCSoft. The fact that he wrote that open letter affirming that he left the company for other interests does not destory his case. Nor is it imperative in situations like this to "hold your ground." NcSoft was the one who got the bad advice. Garriot may very well previal. This type of fact pattern begs for a jury trial.



Due to the amount of money in controversy and the amount of litigation costs that could ultimately be ordered to be paid by NcSoft, I expect that a settlement is likely.



I am willing to bet a years worth of W.O.W, monthly gift cards that Garriot got plenty of legal advice prior to the issuance of that open letter. No lawyer in his right mind would have advised Garriott to merely set up a plain old wrongful termination case against NcSoft. What good would that do? Because there were plenty of reasons that Garriott should have been fired: the failure of Tabula Rasa as a business venture and his extended leave of absence to play space man.



Instead, we have a voluntary departure that shows that he was doing just fine at the company couple with the Hobson's choice--and BINGO now we have a constructive termination.



So, he has plenty of hindsight and he has the best lawyers n town.

F. Taloots Marghezeeeele
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just because he had to exercise the options does not mean he had to sell the stock. you aren't required to exercise AND sell, just exercise.



he's just pissed because the stock went up 100%+ after he quit (and sold). I would attribute the rise in NCSoft's stock in a material way to his departure because he was a human wrecking ball at that company.

Peter Vessenes
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FTM, you're right, technically, but the story Garriott tells goes like this. Just to remind you, exercising options that have a strike price below prevailing prices for a security generates tax liability for the exerciser, so $1 options on a $101 stock result in $100 in taxable income assessed to you, regardless of whether or not you sell a single share.



If that stock then goes to, say, $1 in value on April 1 of the following year, you have big tax problems: $100 in tax liability per share, but no way to generate the tax money you need. This is why one might sell some of the stock one gets on an exercise to cover taxes.



NCSoft: Ordinarily, you'd be able to wait on exercising these options until it's an opportune time for you. Instead, we're setting you up so that you have to exercise your options now. Suckah!



Garriott: I was forced to sell $xmm in options to cover taxes in this short 90 day period, due to you guys being bastards. If I had been able to hold it until today, I would now have $ymm more dollars. Pay up!!

Bill Louden
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I suspect that Garriott lost his credibility with NCSoft Korea months before he became a Cosmonaut as the overly-hyped Tabula Rasa was delayed, over budget, and turned out to be a dog of a game. Tabula Rasa underwent six years of costly development, which, even at a conservative estimate of $6M/yr development costs would have been $36M dollars, and likely it cost twice as much.



The bottom line was that Tabula Rasa failed to achieve critical mass, selling just over 61,000 copies at US retailers as of September 30, 2008, according to the NPD Group. MMOGCHART.com estimates that Tabula Rasa peaked at ~135,000 users in 2007 and dropped back to some 60,000 players in 2008. At $12.95 month, the MMO would have generated $770,000 revenue in 2008. At that rate, it would take some 20 years to see a decent Return on Investment. Not surprisingly, NCsoft reported a 50% drop in profits for their financial quarter ending September 30th, 2008.



In the realm of any corporate board room, the 'ceo' is the one who takes the fall for such results. NCSoft USA has needed sound business leadership at the helm for some time. MMO games are big business, if they are 'cool' -- but they most also be profitable if the company is to survive to build another game. NCSoft USA's decline in market share, narrow focus, and past layoffs have certainly not helped them attract or keep top creative talent. On top of all that, 60% of NCSoft's revenues are from Lineage II, and most of that is from Korean players. I can certainly understand why those at Corporate HQ saw a need for change.



Everyone knows that when CEO's 'leave voluntarily to pursue other interests,' that they were fired. To save [the departing CEO's] face, many companies would announce that the CEO left voluntarily. But that would not change their content of whatever the termination agreement stated. Sounds like Garriott had the option to keep his options through 2011 or cash them in 90 days. Perhaps he is just suffering from seller's remorse as the markets begin to pick up.

Paul Tozour
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Well, according to Wikipedia, Garriott owns the Lunakod 21 moon rover currently sitting on the surface of the moon, and has used his ownership of the rover to claim the moon in the name of Lord British.



http://en.wikipedia.org/wiki/Lunokhod



So, I don't think he needs to worry too much if things get rough ... he can always just sell his moon rover.



And the moon, if he can find a buyer.

Simon Carless
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I think you dropped a zero on your calculations on Tabula Rasa, Bill - at 60k subscribers paying $10-ish monthly, it's $7.2 million a year, and scales from there, obviously. Nonetheless, with teams being kept on to expand content and continuing costs for servers, bandwidth, and community management, it was clearly a losing proposition for NCSoft.

An Dang
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Interesting. I hope justice prevails, whatever that means in this situation. I wish I could see the actual claims and NCSoft's reply.

E Zachary Knight
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An Dang,



Here is Richard's complaint. http://media.libsyn.com/media/gamepolitics/Garriott-NCsoft-compla
int.pdf



Don't have any documents from NC Soft.

Bill Louden
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Simon, You're right. That's what I get for doing math in my head. :) So, it might break-even in 5-10 years depending on how much development really cost ($36-$50M I would estimate).



Bottom line, it is the same; especially compared to EA's and Mark Jabobs; hit Warhammer Online reaching over 300,000 subs in the last 6 months and still growing.

Tommy Rhyne
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As I recall from Akamai's crazy options, you can basically be forced to sell your options for pennies to cover the taxes on them. In some cases, the taxes far exceed the worth. It's quite likely he didn't have the means to pay all the tax due without selling some/most of his shares.



As a note, Richard has long since not been in charge of business decisions. His brother was higher in that regard until last year.

F. Taloots Marghezeeeele
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in your Tabula Rasa costs you guys are ignoring the mere $50+ M front-end pay to Garriott & Co. for when NCSoft acquired Destination Games. that upfront cost + years of development is the true fully loaded cost. I wouldn't be surprised if the game reached $100+ M in wasted dollars, particularly if this lawsuit is included in it.



and the bottom line is that if this guy performed, generated a decent game and wasn't living in the clouds or in outer space, none of this would have happened. breaking even on total costs would have been a dream come true for Tabula Rasa... !

Kevin Potter
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The Alternative Minimum Tax can hit you pretty hard for receiving stock options as an employment compensation, but that's part of the American tax code. As a British citizen receiving payment from a Korean company I'm curious whether or not he even pays taxes to America in the first place. I'm not familiar enough with tax law to know.

Frank Lenk
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Garriott was once a truly great game designer. But his recent actions are probably best explained by the well-known axiom: "No bucks, no Buck Rogers."

Edward Hunter
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Personally, my feeling is that NC Soft made the first bad choice in enlisting Lord British to begin with. With no deference whatsoever to the venerable Ultima founder, hiring him was like hiring Tom Edison to work on modern power plants today - brilliant back in the day, but things just evolve to fast for the choice of NC in hiring him to be a good one.



Tabula Rasa was a trainwreck - poorly marketed, misunderstood target demographics, improper market sizing and, a game that just wasn't good enough to boot.



They should revamp the interface to display adds and open that sucker up to free play.



Just goes to show you - brilliance then brilliance now.

Edward Hunter
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uh...brilliance then not equal to...brilliance now...that is

William Anderson
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While I have held great respect for Richard’s work over the years, yet find his space venture one humongous ego-fest and waste of a great deal of money that could have gone to better humanitarian uses, if he wanted to throw it away like that, in the end I think his departure from NCsoft frees him up to get back to supporting the fans of his original works!

Kevin Fishburne
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Lord British due to his prior success has been caught up in the nearly incomprehensible bullsh*t of modern corporate gaming (from an artist's perspective). While back in the day his bro probably helped him out so he could deliver a fantastic product, the corporate cats that cut throats these days are playing on a different level. His only recourse is to ask his lawyers how to best take vengeance on the tools who have wronged him. Most of us would likely do the same given similar circumstances.



His trip to space is obvious to anyone who knows him or his family. Even if you've only played Ultima II, it was pretty clear. It's not about ego but about the fulfillment of a lifetime dream.



The wrong move consistently equals selling your company for any amount of money (EA, NCflaccid), as you lose control while supposedly gaining financing for your dreams. Once you attempt to exercise control the carpet is quickly pulled from under you and you suddenly no longer have either control or financing, to the fullest extent allowed under the law (according to said multi-million dollar "parent" company). Good lucking finding Justice, one of the eight virtues, in that situation.



Not that Lord British is listening, but if he were, I'd recommend enlisting the support of the open source community to collaboratively build the next game of his dreams completely free from financial obligation. No monetary investments, returns or support, other than his own resources. He would be an excellent benevolent dictator to such a project and could still turn a dollar on all sides using a subscription-based model.



I recently opened the Codex and it revealed an axiomatic truth: when the smiling man in the suit asks you how much money you need, smite him with your sword and rifle through his pockets.


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