Ex-Federated Officials Win Against Atari

Atari Corp. was ordered Thursday to pay severance and benefits totaling about $600,000 to two former top officials at Federated Group who were fired shortly after the retail chain was bought out by the computer maker.

Atari officials had tried to persuade an Orange County Superior Court judge that the two officials had effectively forfeited the money through questionable business decisions at the time of the Federated acquisition.

But Superior Court Judge Jack K. Mandel did not agree. Ruling only minutes after the four-day trial ended, he awarded former Federated President Keith Powell of Laguna Hills $260,000 in severance pay and former Vice President Merrill Lyons of Encino $175,000.

“I feel like we’ve been exonerated,” said Powell, who now heads 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.”

Both Powell and Lyons are also to receive interest on the severance payments as well as the resumption of their life insurance policies, bringing the total value of the verdict to about $600,000, their lawyer said. The judge denied punitive damages against Atari.

Not Aware of Decisions

The case is one of the first in a series of legal disputes arising from Atari’s 1987 buyout of Federated for $67 million, a deal that Atari has since soured on in the face of continued losses by Federated. The retail outlet is now up for sale.

In the broadest of these legal claims, still pending in federal court in Northern California, Atari maintains that it was duped into buying an overvalued company by Federated officials.

In a similar line of argument in the Orange County case, Atari Chairman Jack Tramiel and other Atari officials testified that they were never made aware of and probably would never have agreed to several business decisions made by Powell and Lyon at Federated before they were fired.

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

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

But at the same time, in denying punitive damages against Atari, Mandel said that company officials may have had a reasonable basis to question those business decisions and that they did not act in bad faith in refusing to pay severance.