Jemison v. Jemison
| Decision Date | 29 March 2021 |
| Docket Number | Civ. Action No.: 17-13571 |
| Parties | Steven C. Jemison, Plaintiff, v. Michael S. Jemison, in his capacity as trustee for the Jemison Family Trust and in his capacity as president and co-chairman of the board of directors of JJKL, Inc. F/K/A Heyco, Inc.; and William D. Jemison, in his capacity as Trustee for the Jemison Family Trust and in his capacity as Co-Chairman of the Board of Directors of JKL, Inc. F/K/A Heyco, Inc., Defendants. |
| Court | U.S. District Court — District of New Jersey |
*NOT FOR PUBLICATION*
Plaintiff Steven Jemison ("Steven"), a former shareholder of Heyco, Inc. ("Heyco" or the "Company") and a co-trustee and beneficiary of the Jemison Family Trust, initiated this action against his brothers, defendants William D. Jemison ("William") and Michael S. Jemison ("Michael"), who are former officers and members of Heyco's Board of Directors and co-trustees and beneficiaries of the Jemison Family Trust. In his Complaint, Plaintiff alleges that between 2012 and 2017, certain transactions were approved by Defendants without any discussion or input of their co-trustees and co-beneficiaries, breaching their fiduciary duties to both the Jemison Family Trust and Heyco's shareholders. Michael and William (collectively, "Defendants") now move for summary judgment pursuant to Federal Rule of Civil Procedure 56. For the reasons set forth below, Defendants' motion is GRANTED.
The parties to this action are siblings and the co-trustee of the Jemison Family Trust, along with their sister Susan Jemison ("Ms. Jemison").1 ECF No. 44, Def. SOMF ¶101. The trust was formed by their father, William H. Jemison, the initial trustee, on November 30, 2019, and the four siblings are the beneficiaries of the trust and have equal interests in the Trust's assets. Id. at ¶101. The Trust Agreement provides that it is to be governed by New Jersey law, and the rights of the trustees include the ability to vote to exercise or sell any shares. Id. at ¶¶177, 178. Pursuant to the Trust Agreement's terms, upon their father's death in 2010, the four siblings became co-trustees of the Trust, in addition to being its beneficiaries. Id. at ¶¶101, 177. The Trust's primary asset is the majority of the of the voting shares of Heyco, Inc, ("Heyco"), a company founded by the siblings' grandfather, Horace Heyman, along with Ferdinand Klumpp in the early 20th century. Id. at ¶¶1, 100.
At the time of the founding, and all relevant time since then, Heyco was a holding company for two wholly-owned subsidiaries: Heyco Metals, Inc. ("Metals"); and Heyco Products, Inc. ("Products"). Id. at ¶2. Metals produced "rolled-strip products," made primarily from copper and copper alloys, pursuant to customer orders, with a focus on the electronic connector market. Id. at ¶¶4-5. Products, in turn, manufactured electrical connectors using raw materials supplied by Metals and other mills. Id. at ¶6.
Through the Jemison Family Trust, the Jemison siblings own 70% of Heyco's voting shares. Id. at ¶¶100, 186. The remaining shares are owned by non-parties, Hank Klumpp and Harry Largey, the nephew and son-law, respectively, of Ferdinand Klump, co-founder of Heyco. Id. at ¶¶ 107, 118.
Heyco's Board of Directors consists of four members: Michael, William, Mr. Klumpp and Mr. Largey. Id. ¶¶107, 121. Both Mr. Largey and Mr. Klumpp were employees of Heyco, at some point, and remained on the Board of Directors after their respective retirements. Id. at ¶¶114, 115, 121, 122
William began working for Products in 1981, and became president of that subsidiary in 1986 - a position he held through 2016, when Products was eventually sold. Id. at ¶¶102, 141. Similarly, Michael began working for Metals in 1979, when he was named president of that subsidiary - a position he held until Metals was sold. Id. at ¶103. In addition, both William and Michael were on Heyco's Board of Directors from the mid-1980's and at all times relevant to the instant lawsuit. Id. at ¶104. Neither Susan nor Plaintiff were members of the Company's Board of Directors. Def. SOMF ¶¶105-106. According to Plaintiff, "there was talk [of having him] join the board," but Pl. Resp. SOMF ¶105; see also Ex.2 D., Deposition of Steven Jemison ("Steven Dep.") T64:16-65:13.
Heyco held regular board meetings, at least once a year. Def. SOMF ¶40. In anticipation for the Board meetings, documentation would be sent to the Board of Directors, as well as theJemison Family Trust, and the other shareholders. Id. at ¶41. Although Steven was invited to attend the board meetings, he did not do so. Id. at ¶43.
In this litigation, Plaintiff challenges three discrete corporate actions which occurred between 2012 and 2017: 1) Heyco's issuance, and subsequent forgiveness, of two $500,000 loans to Michael and William; 2) the commission payments to Michael and William in connection with the sale of Products to a third-party; and 3) the sale of Heyco Metals to Hummock Holdings, a company owned by Michael and his children.
As presidents of Products and Metals, respectively, both Michael and William received a salary from the company, the amount of which was voted on and approved by the Board of Directors. Def. SOMF. ¶¶187,188. In 2008, following the recession, both brothers voluntarily agreed to take a reduction in their base pay. Id. at ¶188. In 2012, William and Micahel received annual salaries of $437,500; which increased in 2013 to $480,000 where it remained in 2014. Id. at ¶189. In 2015, their salaries increased to $540,000, where they remained through 2016. Id.
On May 18, 2012, William took a $500,000 loan from Heyco. Id. at ¶192; see also Ex. EEE, May 2012 Promissory Note. A few months later, in November 2012, Michael also took a $500,000 loan from the Company.3 Def. SOMF ¶193. Both loans were structured the same way and provided for the brothers to repay the loans, with interest, in $50,000 annual increments. Id. at ¶197. However, the loans were never repaid. Def. SOMF ¶¶1, 198; Pl. Resp. SOF ¶198. Rather, they were forgiven by the Company, by way of director compensation, over the course of the next four years. Def. SOMF ¶198; Pl. Resp. SOMF ¶198.
At the December 17, 2012 meeting of the Board of Directors, the Board voted to approve the loans, and also, simultaneously, to forgive William and Michael's first $50,000 payment. Def. SOMF ¶¶195, 198; see also Exhibit NN, January 11, 2013 email from Heyco's accountant ( that the loans were "unanimously approved" at the December 17, 2012 Board meeting); Ex. H, 2012 Heyco, Board of Directors Meeting Book, 481-83. The same forgiveness from the Board also occurred during the years 2012, 2013, and 2014. Def. SOMF ¶198; see also Ex. I, 2013 Heyco, Board of Directors Meeting Book at 565-70; see also Ex. J, 2014 Heyco, Board of Directors Meeting Book at 645-50. Then, in 2015, the remaining $300,000 balance of the loan, plus accrued interest, was forgiven. Def. SOMF ¶198; see also Ex. K, 2015 Heyco, Board of Directors Meeting Book at 776-80.
The parties dispute precisely why the loans were paid out, and to what extent the shareholders, specifically Plaintiff and Susan, were aware of the decision prior to the loans being approved by the Board. Plaintiff asserts that "[William] and Michael sought the loans because they were purchasing real property and did not want to use their retirement funds or other investment assets to make the purchases." Pl. SOMF ¶12; Def. Resp. SOMF ¶12. Defendants dispute that contention, arguing that the loans were intended to be a form of director compensation, and "in the years prior to taking the loans, Defendants' base pay had been static from 2001 to 2008 at which time they voluntarily cut their pay." Def. Resp. SOMF ¶12. Plaintiff also asserts that "[t]here was no Trust meeting held, no vote of the co-trustees, no prior notice to the beneficiaries, and no effort to obtain approval from Steven and Susan in advance of the Board's decision to approve both the loans and their forgiveness." Pl. SOMF. ¶18; Def. Resp. SOMF ¶18. However, Plaintiff and Susan were provided with the Notices of the Annual Meeting and the Board Books in advance of each meeting. Pl. SOMF ¶11; Def. Resp. SOMF¶ 11.
Between 2012 and 2015, when Heyco forgave the loans, it consistently issued dividends to shareholders. Def. SOMF ¶202, Pl. Resp. SOMF ¶202. In 2012, for example, Heyco made four distributions to its shareholders, payments which in aggregate totaled $2,531,613.50. Def. SOMF¶ 9; Pl. Resp. SOMF ¶9. Similarly, it paid out total dividends of $4,083,457.95 in 2013; $5,487,140.62 in 2015; and $4,062,743.10. in 2015. Def. SOMF¶ 9; Pl. Resp. SOMF ¶9.
In September 2016, Products was sold to Penn Engineering for $130 million. Def. SOMF. ¶9. In 2013, prior to the sale, Heyco enlisted an investment banking firm, DunnRush & Co. ("Dunn Rush"), to value Products. Def. SOMF ¶207. Dunn Rush concluded Id. at ¶208; see also Ex. X, December 2013 Valuations. Thereafter, William sought to increase the value of Products by expanding its products line. Def. SOMF ¶210. In October 2015, Dunn Rush conducted a new valuation of Products and valued it between $100 million and $120 million. Def. SOMF ¶211; see also Ex. Z, October 2015 Valuation.
Following the 2015 valuation, toward the end of 2015, William and Michael, proposed the idea of selling the Products division, and the Board agreed to begin explore selling both divisions. Def....
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