No sooner than news of a lawsuit against Michael Sitrick was out, his attorney issued a blistering response. It was fast. It was detailed. It was textbook crisis PR.

But that’s not surprising: Sitrick may be L.A.’s best-known crisis communications manager, handling problem cases for celebrities and corporations. So he’d naturally follow the same advice he’s given to clients for decades when faced with a former employee’s lawsuit, which alleges the company’s employee stock ownership plan was shortchanged in a way that benefited Sitrick.

Sitrick said his firm has some of the best crisis managers in the business, so he has no plans to hire an outside PR consultancy to handle this lawsuit.

But is that the right move? Opinions are divided.

“Just as barbers shouldn’t give themselves haircuts or surgeons shouldn’t operate on their own bodies and judges should recuse themselves when the case involves a relative, so too a crisis management firm would be better served by retaining an outside firm,” said Tom Madden, chief executive of TransMedia Public Relations, a corporate PR firm in Boca Raton, Fla.

Howard Bragman, chairman of Hollywood PR agency Fifteen Minutes, isn’t so sure.

“Michael and his team are well equipped to handle this,” Bragman said. “If he had hired an outside firm, it might raise the embarrassment factor: ‘You guys can’t do the job, so you brought in someone else?’”

The lawsuit was filed by Richard Wool, a retired executive at Century City-based Sitrick & Co. Wool alleges breach of fiduciary duty in the firm’s employee stock ownership plan.

Sitrick, who has handled PR for bankrupt Global Crossing, the scandal-ridden Catholic Archdiocese of Los Angeles and controversial billionaire Ron Burkle, has the reputation of running a great company that delivers results for clients, said Stan Steinreich, chief executive of Steinreich Communications in New York, who has known Sitrick for 20 years.

However, this lawsuit touches on his image in the business as a tough boss.

“Michael’s reputation on the employee side has always been rocky, so I don’t think people in our industry are surprised at all by this development,” Steinreich told the Business Journal.

Sitrick deferred questions about the suit to his lawyer, but said the issue has not affected morale or daily operations at his firm.

“I was surprised for a variety of reasons, many which my attorney won’t let me get into at this point,” he said, “but most of all because the allegations are false and the suit has no merit.”

In simple terms, the suit alleges that the company paid Sitrick for the value of his good will – his reputation and contacts – and those payments led to decreased value for the ESOP.

90 percent man

The suit alleges that while Sitrick prepared to sell his company, he and a trustee determined that Sitrick personally represented 90 percent of the value of the company, and that the ESOP gave employees 25 percent of the remaining 10 percent of the company’s value.

The ESOP was terminated in 2008. In October 2009, Sitrick merged his company with Brincko Associates, a bankruptcy advisory firm, and sold both companies to Resources Connection Inc., a publicly traded turnaround firm based in Irvine, for $43.3 million.

The suit states that employees discovered the good will percentages in 2009 when Resources Connection disclosed the details in a filing with the Securities and Exchange Commission.

John A. Kober of Morgan Lewis & Bockius, which is the legal counsel for Sitrick on ESOP matters, issued a statement shortly after the suit was filed, noting that the valuation of the ESOP was independently established.

“The ESOP’s trustee approved the termination at the price paid to participants,” the statement said. “Mr. Sitrick had no role in the valuation that was set.”

James Brosnahan, an attorney at Morrison & Foerster in San Francisco who is also representing Sitrick in the suit, said the allegations are simply untrue.

Specifically, both the setup and buyout of the ESOP were handled by Reliance Trust Co. of Atlanta, an independent company with expertise in such matters, and “at arm’s length” from Sitrick. A spokesman for Reliance, which is also named as a defendant in the suit, said the company’s attorneys were reviewing the suit and declined to comment.

Overvaluation of good will is a common temptation among public relations practitioners, said Steinreich of Steinreich Communications, who has bought and sold several agencies during his career.

“In the PR business, clients come to a firm because of the person whose name is on the door,” he said. “The challenge is managing your ego when that happens, because a successful agency can’t be a one-man shop. That in turn affects the question of succession planning, whether a merger, acquisition or other strategy.”

Gary Greenwald, the attorney at Keller Rohrback in Phoenix who filed the suit, said that Wool’s suit falls under the Employee Retirement Income Security Act. If the judge approves the suit as an ERISA action and if Wool prevails, the main beneficiary will be the ESOP. All the plan’s participants would receive financial payouts, Greenwald said.

Wool told the Business Journal that he expects a PR barrage from Sitrick & Co. against him in response to the suit.

“They may countersue, and they will try to portray me as another disgruntled former employee,” Wool said. “I’m prepared to endure that because I don’t think it has any relevance to the case.”

Both Brosnahan, the attorney for Sitrick, and Greenwald, the attorney for Wool, estimated it will be several months before the case is assigned to a judge in the federal district court of Los Angeles. If the case proceeds to trial, Greenwald said it could take one to three years.

Meanwhile, stay tuned for more PR jockeying.

“You have to try the case in the court of law and in the court of public opinion,” said Bragman of Fifteen Minutes. “Ultimately, you want to win both. But the vast majority of theses cases reach an out-of-court settlement. I predict that eventually there will be a confidential settlement and a press release that the ESOP dispute with Sitrick has been resolved. And that will be the end of it.”