Your Business Deserves To Thrive

When a Business Partnership Turns Out To Be a Bait-and-Switch (Part II)

On Behalf of | Sep 27, 2016 | Partnerships

Soon after Hogan was brought in as a 1/3 owner of Turbine Asset Holdings, LLC (“TAH”), he began assisting TAH with business opportunities using his contacts and expertise.[1]  One such opportunity involved Pratt & Whitney (“Pratt”), which was expected to be a very substantial inventory management opportunity worth at least $80MM of a net profit.  Hogan led the day-to-day discussions and planning with Pratt and kept Glassman informed of the progress, while Glassman started contacting banks to finance the deal.  In August 2015, Glassman and Hogan made Webex presentations and sent relevant materials to Credit Suisse and Deutsch Bank, two potential lenders, identifying both AerReach (Hogan’s company) and TAH as the entities seeking funding.  Hogan did not hear back from Credit Suisse afterwards and looked to Glassman for guidance, as Credit Suisse was Glassman’s contact, and continued to work to close the deal over the next few months.  In October 2015, Hogan called a joint meeting between Pratt, Deutsche Bank, and Glassman at Pratt’s office in Dallas in an attempt to seal the deal.  Shortly before the meeting, however, Pratt asked Hogan not to attend and to let Glassman lead the negotiation, citing the sensitive nature of the deal and Hogan’s prior employment at Pratt.  Hogan agreed.  The meeting turned out to be a failure, or so Hogan was told, as Deutsche Bank declined to finance the deal.  Hogan urged Glassman to look for other funding sources, including Credit Suisse, but Glassman remained silent.

Meanwhile, the complaint alleges that Glassman and Stanford, through another entity they formed separately, were secretly working with Credit Suisse on the same deal.  According to the complaint, utilizing the exact same information and work product developed by the AerReach and TAH partnership, Stanford and Glassman submitted a proposal to Pratt to fund the deal through Credit Suisse, deliberately concealing their actions from Hogan.  Moreover, the complaint says, Glassman kept sending Hogan text and email messages, in feigned attempts to console and deceive him, such as “[w]e are going to make this happen” and “[t]here will be other deals . . . you are my partner and we’re brothers.”  In December 2015, Stanford and Glassman closed the deal with Pratt and Credit Suisse without ever informing Hogan.

You can imagine how the rest of the story goes.  Hogan found out from his sources that he had been cut out of the deal and confronted Stanford and Glassman.  According to the complaint, Glassman did not respond to his “partner and brother’s” question.  Hogan sued Stanford, Glassman, TAH, and TAHG, among others, claiming breach of joint venture/partnership/joint enterprise agreement, breach of fiduciary duty, tortious interference with prospective business relations and with existing contract, and fraud and fraudulent inducement.

What could Hogan have done to avoid the situation, you ask?  It is hard to think of anything that could have prevented such a calculated, targeted, and brazen scheme to defraud, especially when it was done by someone so trusted.  But Hogan could have used some due diligence to learn more about TAH, its affiliates (e.g., TAHG), and any related party transactions, and insisted on a more detailed limited liability company agreement than the one-page amendment that he signed, spelling out the exact business of the LLC and what types of activities were business opportunities of the LLC.  And while it could have been difficult for Hogan to demand such arms-length items, given the nature of their relationship at that time, Hogan could have sought the help of a professional to negotiate on his behalf.

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This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

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[1] See generally AerReach Aero Space Solutions, LLC v. Stanford, No. DC-16-07714 (D. C. Tex. [44th Dist.] June 27, 2016).  Unless otherwise noted, all references to the case are to this citation.