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Steel v. Hunt

United States District Court, D. Nevada

July 18, 2014

PACIFIC COAST STEEL, et al., Plaintiffs,
v.
TAMRA MAE L. HUNT, et al., Defendants.

ORDER

KENT J. DAWSON, District Judge.

Presently before the Court is the Motion for New Trial (#508) of Defendants Tamra Mae L. Hunt, individually, and as Trustee of the Tamra Mae L. Hunt Irrevocable Trust ("Defendants"). Plaintiffs filed a response in opposition (#509).

I. Background

This action arose from Pacific Coast Steel (PCS) and San Diego Steel Holdings Group, Inc. April 2008 purchase of the assets of Century Steel and related entities for $151, 500, 000. Sellers, Tamara M. Hunt, through the Tamara Mae L. Hunt Irrevocable Trust, held a 40.5% interest, Lynn Leany, through the Lynn M. Leany Family Trust, held a 1% interest, and Todd Lee Leany, through the Todd Lee Leany Irrevocable Trust, held a 58.5% interest in the Century entities.

The purchase price for the Century entities consisted of $121, 500, 000 in cash and two promissory notes in the amount of $15, 000, 000 each as "hold back" to insure that ongoing projects acquired by PCS would reach an agreed upon profitability level. The two promissory notes consisted of a Pacific Coast Steel note in the amount of $15, 000, 000 and a San Diego Steel Holdings Group note in the principal sum of $15, 000, 000. The San Diego Steel Holdings Group note was payable on demand and, as part of the purchase, converted by Todd Leany to stock in San Diego Steel Holdings Group, Inc. The PCS instrument was a term note conditioned on the profitability of work in progress purchased by Plaintiffs from Century as part of the acquisition. From the PCS Note, $12, 150, 000 was assigned to Tamara Hunt as Trustee of the Tamara Mae L. Hunt Irrevocable Trust. Todd Leany was assigned $2, 550, 000 and Lynn Leany was assigned $300, 000.

The Asset Purchase Agreement provided that on the day of closing, Plaintiffs would receive net working capital of at least $59, 679, 400. PCS actually received $60, 666, 908 in net working capital, or $987, 508 more than required by the express terms of the contract. It is alleged, however, that Defendants manipulated the net working capital through various mechanisms, including shareholder distributions, bonuses, adjustments to notes receivable and pay down of accounts to deprive Plaintiffs of the benefit of their bargain.

Plaintiffs assert that they paid an acquisition premium of $95, 000, 000 over and above the value of the Century entities' assets and that this premium was based upon the Century entities' customer relations and Todd Leany's agreement to become an employee and officer in PCS.

Pursuant to the Asset Purchase Agreement, Century was required to deliver to PCS a Work-In-Progress Report showing current projects as of the time of closing. Within fifteen days of the due date of the PCS note, PCS was to deliver to Century, a written statement showing the actual cost on each project to determine whether the projects had met the agreed upon profitability level. If there was a profit shortfall, the Century entities would be required to repay the deficiency or offset against any amounts outstanding under the PCS note.

The Asset Purchase Agreement required that the Century owners, including Defendants Tamara Hunt, Lynn Leany and Todd Leany, personally guaranty certain contractual obligations of the Sellers under the Asset Purchase Agreement. That Agreement also contained certain representations and warranties concerning current and former directors, officers and employees of the Century entities. Specifically, Section 4.25 of the Asset Purchase Agreement provided:

Related Party Transactions. Except as set forth in Schedule 4.25, no current or former directors, officers or employees of any Century Entity nor any affiliate of any Century Entity, (a) has or during the last three fiscal years has had any direct or indirect interest (i) in, or is or during the last three fiscal years was a director, officer, or employee of any Person that is a client customer, supplier, lessor, lessee, debtor, creditor or competitor of any Century Entity, or (ii) in any property, asset or right that is owned or used by any Century Entity in the conduct of their business, or (b) is or during the last three fiscal years has been a party to any agreement or transaction with any Century Entity, excluding stock option and/or purchase agreements.

At the time the parties closed the asset purchase transaction, Plaintiffs and Todd Leany entered into an Employment Agreement whereby PCS agreed to employ Todd Leany as Executive Vice-President of PCS for a five-year term ending March 31, 2013, unless the agreement was sooner terminated. The Agreement provided a five year term of employment, compensation, benefits, confidentiality of trade secrets and other confidential information, a non-competition covenant, and termination.

Following closing of the Asset Purchase Agreement on April 1, 2008, Todd Leany proceeded to work for PCS as Executive Vice President of the company.

In June of 2009, the parties commenced discussions concerning a potential profit shortfall. These discussions culminated in the negotiation of a "Second Codicil". Plaintiffs assert that the Second Codicil clarified the method for calculating the profitability rate of 18%. Defendants assert that it completely altered the profitability determination. The document was negotiated by Defendants' attorney, Bud Stoddard, Esq., and signed by Todd Leany and Lynn Leany as officers of the Century entities on July 16, 2009. The Second Codicil was also signed by representatives of Plaintiffs, however, Tamara Hunt did not sign the document.

This action was commenced on November 16, 2009. Plaintiffs asserted claims for declaratory relief, injunction, tort, breach of contract and rescission. Defendants asserted counterclaims and third party claims for civil conspiracy and breach of the covenant of good faith and fair dealing. Prior to trial Plaintiffs and all defendants other than Tamra Hunt individually and as Trustee for the Tamra Mae L. Hunt Irrevocable Trust settled their claims. The only claims remaining at trial were Plaintiffs' claims for breach of contract and breach of the ...


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