Listen to the 8/14/17 interview of Attorney J E Cullens, Jr. with Dan Claitor about this notable decision.
On Friday, July 14, 2017, Baton Rouge law firm Walters, Papillion, Thomas, Cullens, LLC secured a jury verdict in excess of $20 Million against several defendants, but most notably John Paul DeJoria, founder of Paul Mitchell Studios and Patron Tequila and a frequent guest on the TV show “Shark Tank.” J.E. Cullens, Jr. of WPTC was lead counsel. DeJoria became a director of Latitude Solutions, Inc. (“LSI”), a publicly traded company, in October 2011. Although worth more than $3 billion according to Forbes Magazine, DeJoria had never served on the board of a publicly traded company before LSI. DeJoira was introduced to LSI by two long-time friends and business associates, Howard Appel and Ernest Bartlett, both of whom had checkered histories of stock manipulation and fraud.
LSI produced water-remediation units which used electro-precipitation technology to clean waste water in the oil and gas industry. In essence, an LSI unit would be placed near an oil well or fracking site to process and clean contaminated flowback water for reuse. LSI claimed that its water-remediation technology had the potential of effectively and rapidly cleaning so much water on site that it would “revolutionize” the way the oil industry handled waste water. Although most of the work performed by LSI took place in Texas and Oklahoma, LSI was based in Boca Raton, Florida.
In May 2011, LSI signed a multi-million dollar manufacturing contract with Jabil Circuits, Inc., one of the world’s largest manufacturers with over 90 facilities worldwide and 175,000 employees. Although Jabil’s due diligence revealed that LSI’s technology had potential, LSI did not provide Jabil with access to its price model or financial data regarding its projected operational costs.
DeJoria owned about 11.5 million shares of LSI stock (or about 16% of the company). After LSI filed for bankruptcy in Fort Worth, Texas in 2012, the court-appointed Bankruptcy Trustee, Carey Ebert (“plaintiff”), hired special litigation counsel to file suit against a group of shareholders and directors, including DeJoria, alleging, inter alia, breach of fiduciary duty and aiding and abetting breach of fiduciary duty. The Trustee also sought punitive damages against these defendants. At trial, defendants maintained that despite their best efforts and significant monetary support, LSI failed; that the business judgment rule shielded the directors and officers of LSI from any liability.
The one-week jury trial proceeded in federal court in Fort Worth, Texas, and concluded on July 14, 2017. The jury ruled that DeJoria and others breached their fiduciary duty to LSI and aided in the breach of duties by others. The jury also awarded punitive damages against DeJoria and others. The jury awarded a total of $13.4 million in compensatory damages, and a total of $8 million in punitive damages. Plaintiff counsel anticipates an appeal.
CITATION: Ebert v. Appel, et al., No. 4:15-cv-225-O (U.S., N.D. Tx—Fort Worth, July 14, 2017).
PLAINTIFF COUNSEL: Walters, Papillion, Thomas, Cullens, LLC, Baton Rouge. Lead Counsel: J.E. Cullens, Jr. (special litigation counsel for the Bankruptcy Trustee).
PLAINTIFF EXPERTS: Robert Manz, certified fraud examiner and damages expert, BVA Group, Plano, Texas; Professor Marc Steinberg, corporate governance / SEC regulation expert, SMU Law School, Dallas, Texas; Ethan McBroom, water-remediation services expert, Amarillo, Texas.