Lucian Manganella was the president and sole shareholder of Jasmine, a clothing retailer. See Manganella v. Evanston Ins. Co., 2012 U.S. App.  LEXIS 24360 (1st Cir. Nov. 27, 2012). Donna Burgess, whose sexual harassment allegations against Manganella formed the underlying claims, was Jasmine's human resources manager from 1997 to 2006. 

   In 2005, Manganella sold Jasmine to Lerner New York, Inc., for $30 million. Manganella and Lerner entered a stock purchase agreement ("SPA"), which included an employment agreement stating Manganella would remain Jasmine's president for three years. The SPA placed $7 million of the purchase price in escrow as security in case of a major employment breach by Manganella. 

   In May 2006, allegations of sexual harassment were made against Manganella. He was fired for sexually harassing four female employees, including Burgess, in violation of Lerners Code of Conduct. Lerner invoked the arbitration clause under the SPA to recover the $7 million security. The arbitration panel found Manganella had sexually propositioned several women employees and inappropriately touched and propositioned one of these employees in willful violation of Lerner's Code of Conduct.

   Burgess filed a charged of discrimination against Manganella with the state agency. Manganella notified Evanston, Jasmine's insurer under an Employment Practices Liability Policy. Coverage was denied under the Disregard Exclusion, which barred coverage for conduct committed with willful disregard of any law that was the foundation for the claim.

   Manganella filed suit against Evanston. The trial court agreed with Evanston that the arbitration panel's determination of harassment in willful violation of the Code of Conduct also established the Manganella acted with willful disregard of the sexual harassment law underlying Burgess' charge. Therefore, issue preclusion barred Manganella from relitigating the question.

   On appeal, Manganella argued that Lerner's Code of Conduct was broader and stricter that the state sexual harassment law. The First Circuit disagreed. Both the state law and the Code both reached "sexual advances," "requests for sexual favors," and other verbal" or "physical" "conduct of a sexual nature." Moreover, the arbitration presented Manganella with a full and fair opportunity for adjudication of the issue. Therefore, Manganella was barred from disputing the applicability of the Disregard Exclusion.