BY KYNLI SMITH
Plaintiffs in the ongoing Campbell versus Tri-County Telephone Association lawsuit are alleging that defendants are blocking discovery in the case. The plaintiffs, Joe and Barbara Campbell, claim that they have produced 14,500 documents along with 71 witnesses. For the defendants, the firm of Hathaway & Kunz has produced just one document, they allege.
The suit alleges that TCT held more than $90 million in hard assets when it was sold for $51 million in 2014. Of the $51 million sale price, $12 million was to retire debt and $10 million was held back for “unseen liabilities,” leaving just $29 million to be paid to TCT cooperative owners.
The suit names TCT CEO Chris Davidson, TCT CFO Steve Harper and former board members Dalin Winters, J.O Sutherland, Daniel Greet, Clifford Alexander and John K. Johnson as defendants. Also included as defendants are Neil Schlenker, accounting firm Hathaway and Kunz and attorney Michael Rosenthal.
More details resulting in 70 more pages of legal documents were added to the complaint in the case in late December 2016, which included new details about termination fees, two book allegations and the code name “Project Buckskin” to refer to a takeover plan.
Since December, the plaintiffs have been trying to collect documents from the defendants as the case entered into the discovery phase.
The Campbells did not get too far into the discovery phase after the defendants filed a motion for Bifurcation of Discovery and Motion for Protective Order.
“Discovery is usually not desired by one who does not wish to be discovered,” the plaintiffs state in their memorandum opposing the motion for Bifurcation of Discovery. “More specifically, the person who has taken money from someone is not interested in the discovery of what he has done. Given their obvious motivations in seeking to withhold information, the actions of the Defendants should be scrutinized for their motivations in bringing the instant motion.”
A subpoena was also served to Rep. Mike Greear, R-Worland, who represented BHT Holdings and Schelenker when purchasing TCT. Greear objected to the subpoena, stating that the subpoena did not allow enough time, was a burden and that it violated attorney-client privileges.
The defendants also filed a motion to quash the subpoena served to Greear stating similar reasons as Greear’s written objection.
In the plaintiff’s Response to the Motion to Quash, it states, “David Clark is the lawyer for Mr. Greear. David Clark is also the lawyer for Defendant Schlenker and BHT. In the motion to quash, Mr. Clark says that, rather than asking Greear for the documents, the Plaintiffs should get documents from Schlenker or BHT. The same Mr. Clark has sought to block the Plaintiffs from obtaining the documents from Schlenker and BHT. Mr. Greear and Mr. Clark are simply playing a discovery shell game: go there; no go there; no go over there. This ploy is not new. It is one of the tools frequently used by cover-up artists.”
The cost of delaying discovery
In the plaintiffs’ Memorandum in Opposition to motion for
Bifurcation of Discovery, they list the many benefits the defendants have from attempting to block and delay discovery. The memorandum takes note that BHT entities withheld $10 million in funds from owners as a “litigation fund” to “fund their own defense of a lawsuit by the owners.”
The plaintiffs also allege that the delay benefits the defendants financially, claiming that every day that passes Schlenker and BHT make more than $20,958 in daily operating profits. By their calculations, delaying the discovery and the case by 180 days could result in more than $3.7 million in potential profit.
They also allege that the delay gives defendants time to move assets, pointing out that Defendant Davidson is moving assets potentially in an effort to avoid judgment.
“Delay allows the defendants to restructure to avoid judgment,” the memorandum states. “TCT, Schlenker and BHT are in the process of partially restructuring the TCT entities from a financial perspective and counsel for the TCT and the BHT entities have refused to answer questions relating to the actions being taken before the Public Service Commission.“
The memorandum also alleges that the delay could give defendants time to destroy evidence, forestalls a judgment on the merits, allows defendants to further coordinate their stories rather than to disclose the underlying facts, will slow the plaintiffs’ efforts to indentify further claims and necessary parties and will foster
PLAINTIFFS VS DEFENDANTS
The plaintiffs in their memorandum also list a variety of different comparisons from how the Campbells and the defendants have handled the ongoing case.
They point out that when asked to be more specific by the court on the allegations relating to fraud, they added 70 pages to their First Cause of Action. They allege the defendants have denied the allegations and “failed to admit or deny many, if not most, of the factual allegations of the Second Amended Compliant.” The plaintiffs have also produced more than 14,500 pages of documents and stated that the plaintiffs were required to decode the encryption that the defendants allegedly embedded into those files that would have prevented the disclosure of critical documents. They also state that most defendants have yet to produce a single document. Rosenthal and Hathaway & Kunz have provided one document and that the defendants have listed 18 witnesses compared to the plaintiffs’ 71 witnesses.
They also state that the plaintiffs have revealed through initial disclosures that members of the class were excluded from the payout and that they disclosed internal correspondence in which the defendants allegedly discussed ways of withholding money from specified owners they did not like.
The memorandum also states that the plaintiffs have issued document requests to each of the defendants and have issued subpoenas to non-parties when seeing that none of the defendants were producing documents with their initial disclosures. They go on to state that the defendants have served no discovery requests, no class discovery and no merits discovery but filed the instant motion to block discovery.
“The defendants are not responding or providing documents on what they think is class-based discovery, but rather, are refusing to respond to any and all discovery,” the memorandum states.
They also state that the defendants claim that there is an inconvenience and expense to the discovery request but noted in the memorandum, “The defendants have the assistance of at least 10 lawyers, numerous paralegals and staffs and yet most of the defendants have yet to produce a single document.”
The memorandum also discloses in a footnote that one of the lawyers for the Schlenker and BHT group of defendants is James Kramer of the Orrick Law Firm in San Francisco. Kramer advertises himself as the co-chair of the White Collar Crime section of the firm.
The plaintiffs’ claim the defendants did not inform them of this and that they learned of it by emails. Kramer was present in the case and copied in on emails from the defendants.
WHAT THE DEFENDANTS DON’T WANT YOU TO KNOW?
In the plaintiffs’ memorandum, they list out a section with the subhead “What the defendants don’t want you to know.” They listed out a list similar to the “Late Show with David Letterman” would do with a “Top 10 List.” The plaintiffs came up with their “Top Four List” of issues they allege the defendants don’t want you to know in this case.
They are as follows:
Number 4: The plaintiffs have produced to the defendants drafts of “Change of Control Agreements” that, if signed, would have provided for substantial payments to Davidson as CEO and Harper as CFO if the takeover occurred. The plaintiffs have requested unrestricted discovery of all such information because the change of control payment agreements allegedly would show that Davidson and Harper, while officers of the Cooperative owing fiduciary duties to the owners, had financial incentive to be working for Schlenker against the owners.
Number 3: On behalf of the owner class, the plaintiffs requested discovery of emails between Davidson, the board members and Rosenthal, discussing the manufacturing of alleged reasons to not pay some members their portion of the payout from the transaction.
The plaintiffs claim they are in possession of email correspondence reflecting that the defendants were inventing reasons not to pay certain owners and that they do not have a complete list of information on how much of the $29 million in the transaction funds are not paid to owners.
Number 2: The plaintiffs requested discovery related to USF and NECA income, much of which they allege is unaccounted for.
They state that in “the September 19, 2014 sale packet, the Defendants reported the rural subsidy had severely declined and might be eliminated in the future. However, contrary to these statements, High Cost USF Funds were actually up by $1,051,690 in calendar year 2014 compared to calendar year 2013, according to publicly available USAC data. The Defendants don’t want to talk about the USF funds.”
Number 1: The plaintiffs requested discovery of emails to and from Kelly Fowler, who is Schlenker’s business partner, on Fowler’s 2008 business valuation of the TCT entities. The plaintiffs allege knowledge of an allegedly much higher value of the cooperative than what was disclosed to the owners in public statements in 2014.
“The business valuation was sent to Defendant Chris Davidson from Kelly Fowler for Davidson’s ‘eyes only. The presentation also discussed the possibility of a TCT management takeover of the TCT entities. While searching for required rule 26 discovery material, the Plaintiffs uncovered this secret email and secret business valuation embedded in an email,” the memorandum states. “According to the Kelly Fowler 2008 valuation, performed by GLC, which is a private equity firm, based on sales of companies comparable to TCT, the owners could expect to receive cash payments of between $72.5 million and $81.6 million for their ownership. The value of the Verizon partnership would have resulted in additional cash payments to the owners on top of the potential $81.6 million.”
The plaintiffs allege that Schlenker began his effort to “take over TCT” allegedly by using the owners’ own cash just seven months after the date of the Fowler business valuation.
The plaintiffs point out that the defendants’ 2014 disclosure to the owners stated that the owners would be receiving “actual cash outlay” of $51 million “paid by the buyer.” And they go on to claim that that statement to the owners was an alleged fabrication and point out the reason they believe so.
“The transaction documents show that Schlenker and the BHT entities agreed to pay $19.3 million for the Verizon asset and the TCT investment companies, with approximately $9 million paid in patronage credits from the owners’ own cash (what the owners already owned), with nothing paid for the Cooperative (telecom assets), yet in 2008, Kelly Fowler, in discussing a ‘management takeover’ did a valuation stating that up to $81,600,000 would be the fair payment to the owners not considering the additional value of the Verizon asset and outside investments. Thus, the 2014 claim of an ‘actual cash layout’ of $51 million was a total fabrication,” the memorandum states.