Atari Must Pay Benefits to 2 Fired Federated Executives

Atari Corp. was ordered Thursday to pay severance and other benefits totaling about $600,000 to two top officials of the Federated Group who were fired shortly after Atari bought the retail chain two years ago.

Atari officials had tried to convince an Orange County Superior Court judge that the two executives had forfeited the money through questionable business decisions.

Superior Court Judge Jack K. Mandel was not persuaded by that argument.

Ruling only minutes after the four-day trial ended, he awarded former Federated president Keith Powell of Laguna Hills about $260,000 in severance pay and former vice president Merrill Lyons of Los Angeles $175,000.

“I feel like we’ve been exonerated,” said Powell, now head of a door and window company in San Juan Capistrano. “I’m just glad I had my day in court. All the facts are finally in, and clearly we didn’t do anything wrong.”

Powell’s and Lyons’ life insurance policies will resume, and the men will also receive interest on the severance payments, bringing the total value of the award to about $600,000, their attorney said. The judge did, however, deny punitive damages against Atari, a computer maker based in Sunnyvale.

The case is one of the first in a number of legal disputes arising from Atari’s purchase of Federated for $67 million. Atari has since soured on Federated, as Federated’s losses have continued.

Federated is now for sale, and about 15 of its 65 stores nationwide have closed in the past few months. Atari had hoped Federated would be a retailer for its computers and video games.

In the broadest of its legal claims, still pending in federal court in Northern California, Atari argues that Federated officials and others close to the deal duped Atari into buying a company that had been overvalued by as much as $43 million.

A similar line of argument was presented in the Orange County case. Atari Chairman Jack Tramiel and other Atari officials testified that they were never made aware of, and therefore probably would never have agreed to, several business decisions Powell and Lyons made at the time the acquisition was being completed. Powell and Lyons were fired a few months after Atari bought Federated.

The decisions included the transfer at favorable terms of an $800,000 condominium to Federated commercial personality Shadoe Stevens and a $1-million payment to the investment firm of Goldman, Sachs & Co. for its role in the Atari acquisition.

Mandel, in an interview after the ruling, said that Powell and Lyons “acted reasonably” in their business decisions and that Atari wrongly refused to honor legitimate severance agreements.

At the same time, in denying punitive damages against Atari, Mandel said that Atari officials may have had reason to question those business decisions and that they did not act in bad faith in refusing to pay severance benefits.

Because of the denial of punitive damages, Powell described Mandel’s ruling as “bittersweet.” “It’s a disappointment to the extent that we still have a lot of legal fees to pay, but we never had great expectations” about collecting punitive damages, he said.

Officials with Atari could not be reached for comment after the ruling.