by Tom Berreman
He debated whether to have his firm’s forensic computer analyst confirm PCI prepared the testing documents in the ordinary course of business. After years representing Louis Hartwig, he had grown complacent to his questionable representation of facts. He often worried about his client’s win at all costs approach to business, and his less than ethical tactics to succeed. But Hartwig never questioned the bills for his excessive legal fees, and he couldn’t risk losing his most valuable client who would fire him on the spot if he were challenged.
So, he took Hartwig at his word.
“Okay,” Buchwald said. “I’m confident we can beat the criminal charges by showing the company performed reasonable testing in the sensor’s development. But, you know what’s next, don’t you?”
Hartwig was well aware the burden of proof in a civil wrongful death lawsuit was lower than the “beyond a reasonable doubt” burden in a criminal matter. O. J. Simpson still owed the Goldman family millions for the murder a jury found him not guilty of committing.
“This conversation is privileged, correct?”
“Of course.”
“I’ve got a strategy that can soften the financial blow of fourteen wrongful death lawsuits, perhaps eliminate the risk altogether.”
Chapter 57.
“You are hereby served,” were the words reverberating through Jason’s mind as he stared at the document on his desk.
Motion to Join Jennco Corporation as Defendant
In the matter of
Sally J. Crittenden, James L. Nelson, et al. vs. Autonohaul Corporation and Pacific Coast Industries, Inc.
The criminal court had acquitted Pacific Coast Industries of negligent vehicular homicide after Buchwald convinced the court his client followed a prudent, industry accepted testing protocol prior to releasing its long-range laser sensor. The same day of the acquittal, wrongful death lawsuits were filed on behalf of the fourteen high school marching band members killed in the crash. With the plaintiffs’ unanimous agreement, the court joined the cases into one lawsuit with fourteen named plaintiffs.
Additional lawsuits by those injured in the accident were sure to follow.
In its motion to join Jennco as a party to the suit, PCI claimed it purchased the technology from Jennco, and any defect that caused the crash was attributable to Jennco’s negligence. Exhibit One to the motion was a sensor schematic with Jennco’s copyright declaration printed at the bottom. Buchwald had redacted the technical elements of the schematic asserting confidential proprietary content. Exhibit Two was a five hundred thousand dollar wire transfer confirmation to Brent Jennings’ Cayman Islands account.
Jason sat in disbelief. He had set aside a lifestyle he cherished, and might have destroyed a relationship with the woman he loved, when he agreed to come to California to help Allison. Ryan gaining a controlling interest in his father’s company rewarded his efforts. But Brent’s greed and Hartwig’s unethical business practices could make it all moot.
He took care not to funnel his frustration into hatred for the two men he despised, but to focus on constructive efforts to overcome yet another dilemma.
The first thing Jason did after being served was to draft a board of directors’ resolution terminating Brent Jennings as an officer and director. The company’s by-laws allowed board actions without a meeting by written resolution executed by a supermajority. Given the current board roster the resolution required approval by four members.
Allen Ginsburg had to sign, so Jason called his office.
“I’m sorry, Mr. Ginsburg requested he not be disturbed,” his secretary said after Jason’s call to his direct number rolled over to her.
“I hate to be rude,” Jason said. “But it’s critical I talk to him right away, and I can assure you he’ll be upset if you don’t interrupt him and he later finds out why I called. It might even cost you your job.”
“One moment.”
“What could be so urgent for you to put the fear of God in my assistant?” Ginsburg asked as he answered the call a moment later.
“I was just served with a motion to join Jennco as a defendant in PCI’s wrongful death lawsuit. PCI claims they purchased the defective sensor from Jennco, so our negligent design caused the accident. An exhibit to the motion is a Cayman Islands bank confirmation of a half million dollar wire transfer to Brent Jennings’ account.”
“I had no idea--”
“You will receive an email I sent to all board members. Attached will be the joinder motion and a board resolution terminating Brent Jennings as an officer and removing him from the board. Sale of the technology blatantly violated his fiduciary duties justifying immediate termination.”
“But--”
“And any director’s failure to execute the resolution will be a breach of that director’s fiduciary duty to the corporation and its shareholders.”
“But--”
Jason slammed the phone without waiting for Ginsburg’s response.
* * *
An email from Allen Ginsburg arrived in Jason’s in-box ten minutes later. Attached was the board resolution with Allen Ginsburg’s signature.
* * *
“Brent, that bastard,” Jason said to Allison, who just stepped into his office. He had called her to come to Jennco to discuss the lawsuit. “His greed could bankrupt the company he felt entitled to control. I guess now that he owns only fifteen percent he deserved a monetary payback in another way.”
“You’re right, he is a bastard.”
Before they could continue their conversation, an uninvited guest burst into Jason’s office without knocking.
But a guest Jason expected.
“What the hell is this board resolution all about?” Brent roared. “You can’t fucking fire me, my dad founded this company.”
“Under the company’s by-laws,” Jason said, “all directors require notification of proposed resolutions, so consider this your notice.”
“You can’t be crazy enough to think I’ll sign this.”
“Only four out of five directors need to sign.”
“Four out of five?” Brent paused then started to laugh. “Well, you assholes are screwed, Ginsburg will never sign.”
“He already has,” Jason said. “Clean out your office, turn in your security card and leave the premises. I’ll give you an hour.”
“Or what?”
“Or I’ll call the police to remove a trespasser from company premises.”
“Go to hell,” Brent said as he stormed out, leaving the door open.
* * *
Ten minutes later Jason and Allison noticed Brent hurry by the still open office door, carrying a box they assumed contained his personal belongings. Jason walked to his office and found it cleared out, his security badge on the otherwise empty desk.
* * *
“Remember Eric’s comment after his cabin burned and destroyed his sensor research?” Jason asked as he and Allison resumed their discussion.
“Yeah, he assumed Hartwig was behind it, that he stole his research and burned the cabin to cover it up.”
“But Brent was late for the hearing the Monday after the fire, claiming he went to Oregon to visit a friend.”
“Yeah.”
“And when I searched Brent’s emails a few weeks later, I found a half million dollar wire transfer to his Cayman Islands account?”
“Yeah.”
“You told me it could not be the proceeds from his Crummey Trust, and when I confronted him about the funds’ source, he gave me some bullshit about a delayed commission payment from a confidential deal with his New York consulting firm.”
“He told you litigation delayed the payment.”
“Right. But it was less than a month after Eric’s cabin burned, and the wire transfer came from PCI.”
“So, you’re saying Brent stole Eric’s research, burned his cabin and sold the technology to Hartwig for a half million dollars?”
“I don’t know how else he could have the final tech
nology. And if he did, it could be devastating for Jennco.”
“Why do you say that?”
“Because if Brent sold PCI the final sensor schematic and research, it was the technology Eric swears is no longer defective, that his extensive testing proved it. And if Jennco is joined as a defendant, Eric’s testing would be admissible as evidence. And if that happens, Hartwig could prevail in his argument Jennco is liable for the crash.”
They were sure Brent stole the sensor technology from Eric’s cabin and sold it to Hartwig. But knowing and proving are two different things.
* * *
“That greedy, little son of a bitch,” Eric Rogers exclaimed as he stood from the conference table in Jason’s office and walked over to look out the window. Jason just told him about the joinder motion and walked him through the circumstantial evidence suggesting Brent stole his sensor technology files, burned his cabin and sold the sensor to Hartwig. Jason remained seated at the table, not saying a word, giving Eric time to absorb what he just learned.
“But if he stole the sensor’s design and sold it to Hartwig, how can we be liable?”
“It doesn’t seem right, but under the legal theory of agency, Brent was an officer of the company, and a significant shareholder, so PCI has every right to claim he possessed the authority to transact its business, and that it purchased the technology from Jennco.”
Eric didn’t respond, still fuming.
“And to make matters worse, we have documentation you tested the revised sensor, the final version Brent stole, and you resolved all the problems we identified.”
“So how does that matter?”
Now more confused than angry, Eric returned to his chair at the table.
“In the criminal negligent homicide case the prosecutor failed to prove beyond a reasonable doubt PCI didn’t adequately test the device before putting it into service. But PCI’s defense of the civil wrongful death case claims they relied on your testing when they purchased the technology. And if Jennco is joined as a party to the lawsuit, your files will be admissible evidence.”
“Are you fucking kidding me?” Eric said as he pounded his fist on the table. “So, you’re telling me I’m guilty of negligent testing?”
“I’m not saying that, I’m just saying what PCI will claim in its defense. Please don’t shoot the messenger.”
“You fucking lawyers, you’re all alike. It’s all bullshit!” Eric exclaimed, standing and returning to the window. After a moment he returned his attention toward Jason.
“I’m not taking the fall for this, not putting my reputation at risk. The truck crashed into the bus because it accelerated. That’s the defect I found causing us to take it out of development, and the defect I fixed. You and all your lawyer buddies who want to blame this on me can go to hell!”
“Eric, please wait,” Jason said.
Eric ignored Jason, stormed out and slammed the door so hard the windows shook.
Chapter 58.
The mood in the courtroom was tense as Allen Ginsburg entered, followed by Brent Jennings. Jason and Allison had waited impatiently at the defendant’s counsel table as the pair were twenty minutes late for the hearing whether to join Jennco as a defendant to the wrongful death lawsuit. The board had agreed to have Jason represent the company instead of hiring outside counsel.
As they waited, neither could bring themselves to make eye contact with Curt Jennings’ mortal enemy seated at the other counsel table next to Trevor Buchwald. Judge Albert Kleinschmidt, a judge with a reputation for micromanaging his court calendar to keep matters on schedule, looked annoyed.
Henry Mattson, Autonohaul’s general counsel, sat in the gallery behind Buchwald and Hartwig. He would not be taking part in the hearing as PCI brought the motion, however his vested interest in its outcome was clear.
“Your Honor, I apologize for being late,” Ginsburg said to the judge as he and Brent took their seats in the gallery next to Mattson.
“As all parties are finally present, this Court is now in session,” Judge Kleinschmidt said without acknowledging Ginsburg’s apology. “Mr. Buchwald, as the moving party you may present your case.”
“Thank you, Your Honor. Pacific Coast Industries calls Mr. Louis Hartwig, the company’s chief executive officer, to the stand.”
Hartwig proceeded through his well-orchestrated testimony. He confirmed Brent Jennings approached his company without solicitation and offered to sell Jennco’s sensor technology for $1 million, half upon delivery and the other half when Autonohaul signed the final contract. Trevor Buchwald entered into evidence the wire transfer confirmation and the laser sensor schematic PCI purchased. He had highlighted the Jennco copyright at the bottom of the schematic, and the technical elements were unredacted.
Hartwig then testified PCI conducted a well-designed, industry standard testing protocol on the sensor it purchased from Jennco before submitting it to Autonohaul in response to its request for proposal. He added PCI would have performed significant, additional diagnostics if Brent hadn’t assured him the sensor passed all of Jennco’s diagnostics. To support his testimony, Buchwald entered into evidence the testing documentation on which the criminal court relied when it acquitted Hartwig and the company of negligent vehicular homicide.
As Buchwald finished Jason stood for his cross-examination.
“Mr. Hartwig, in a transaction of this magnitude, isn’t it normal business practice to execute a contract for sale with customary obligations, representations and warranties of each party?”
“Generally, but not always.”
“And in a transaction of this magnitude isn’t it normal business practice for the company’s board of directors to pass a resolution approving the transaction?”
“It depends. Some boards delegate significant authority to the company’s CEO to transact business without board approval.”
“To your knowledge, does the Jennco board generally delegate significant authority to its CEO? No wait, let me rephrase. Would it be reasonable for the Jennco board to delegate significant authority to a recently appointed, interim CEO?”
Jason scripted his rephrasing to further emphasize the point he intended to make.
“Honestly, I don’t know.”
“Okay. But if you didn’t know, wouldn’t it be reasonable to request a certified copy of the board’s resolution approving the sale?”
“I didn’t think it was necessary.”
“Mr. Hartwig,” Jason said as he handed him a document. “This is a Jennco press release announcing Brent Jennings’ termination for the unauthorized sale of the company’s proprietary technology. Have you seen this press release?”
“Yes.”
“So, you knew the board did not grant Mr. Jennings actual authority to sell Jennco’s sensor technology to your company?”
“Yes, after the fact. But at the time of the transaction he was Jennco’s CEO, the son of the founder and a significant shareholder, so it was reasonable for me to conclude he possessed the authority to act on the company’s behalf.”
Touché, Jason thought as Hartwig put extra emphasis on the word reasonable, a well-coached challenge to Jason’s likely approach to rebut PCI’s reliance on Jennco’s technology testing.
“So, you were relying on Mr. Jennings’ apparent authority versus his actual authority?”
“Objection,” Buchwald responded. “Your Honor, the question calls for a legal distinction, and Mr. Hartwig is testifying as his company’s president and CEO, not it’s legal counsel.”
“Your Honor,” Jason replied. “The question is not calling for a legal conclusion, it goes to the foundation of whether it was reasonable for him to rely on Mr. Jennings’ authority. It is a fact that Mr. Hartwig graduated law school, and in the top ten percent of his class I must add. And while I concede he never took the bar exam, I would expect he has the basic legal knowledge to understand the difference between actual and apparent authority.”
“Objection overruled, Mr. Hartwi
g you may answer the question.”
“Yes,” he said.
“Mr. Hartwig, was the payment for the sensor made to a Jennco corporate bank account?”
“I don’t know. Mr. Jennings provided my accounting department with wire transfer instructions and they completed the transaction.”
“But it was clear from the wire transfer confirmation your lawyer entered into evidence Brent Jennings owned the account, not Jennco Corporation. If Mr. Jennings was acting on the company’s behalf, shouldn’t the wire transfer have been to a corporate account instead of Mr. Jennings’ personal Cayman Islands account?”
“Objection, the witness has already testified he has no direct knowledge where his accounting department transferred the funds.”
“Sustained.”
“Black’s Law Dictionary defines apparent authority, in part, as ‘such authority as a reasonably prudent man, using diligence and discretion, in view of the principal’s conduct, would naturally suppose the agent to possess.’ In your opinion, did you rely on diligence and discretion when you assumed Mr. Jennings, a recently appointed, interim CEO, possessed the authority to sell Jennco’s proprietary technology to his father’s hated competitive rival?”
“Objection,” Buchwald replied.
“Withdrawn,” Jason said without waiting for a ruling by Judge Kleinschmidt as he grabbed a document from the counsel table and presented a copy to Hartwig.
“Mr. Hartwig, are you familiar with this document?”
“Yes. It’s an article from the Pacific Business Journal questioning the ethics of my company’s competitive intelligence efforts.”
“Were the assertions in this article credible and accurate?”
“Absolutely not, they were based on suppositions, innuendos and unfounded assumptions.”
“Mr. Hartwig, was Chelsea Williams an intern at your company?”