Lippert Components, Inc. (LCI) is seeking the return of more than $15 million in stock awards, plus severance benefits, that it granted its former president, Scott Mereness.
The recovery request appears in LCI’s First Amended and Supplemental Complaint it filed Jan. 23 in Elkhart Superior Court 2, where the company is suing Mereness.
The original complaint, filed in January 2019, alleged that Mereness used LCI’s confidential information to usurp a corporate opportunity for his own benefit while still employed by LCI.
Mereness denied the allegations in the original suit. In response to a request by RV PRO for comment on LCI’s recent amended filing, John D. LaDue, an attorney for Mereness, said, “Scott Mereness devoted his career to building LCI into the successful business that it has become today. Scott remains one of LCI’s largest shareholders and wishes LCI much future success. The lawsuit that LCI has filed against Scott, including the claims alleged in the proposed amended complaint, are overreaching and vindictive. Scott denies that he has breached any of his obligations to LCI. Scott looks forward to proving his case at trial.”
David K. Herzog, counsel for LCI, stated “our Amended and Supplemental Complaint explains the bases for our claims against Mr. Mereness in detail, and we intend to pursue the claims vigorously.”
The Jan. 23 amended filing by LCI goes beyond the original complaint by detailing Mereness’s alleged self-dealing acts while still employed by the company.
The company announced in November 2018 that Mereness – who worked for the company for 24 years in various positions and became president in January 2015 – would be stepping down. Subsequently, the company paid him severance benefits in the form of cash and specified “treatment” of stock-based awards.
However, once Mereness’s alleged misdeeds came to light, LCI says it is entitled to recover $15,310,960 from him based on LCI’s rescission of the awards of 143,906 shares of LCI stock, together with prejudgment interest at the rate of 8 percent from and after Nov. 29, 2019, through the date of judgment.
LCI also is seeking that Mereness’s employment under his employment agreement is terminated for cause, retroactively as of Nov. 23, 2017, when it alleges that Mereness began pursuing the target company opportunity for his own account.
The company additionally alleges in the amended complaint that Mereness has violated a non-compete clause by working for a competitor that does business within 100 miles of LCI’s base of operations. The Michigan Secretary of State’s office lists Mereness as a director of Modineer Co., a metal components supplier located in Niles, Mich., located less than 50 miles from LCI’s headquarters, according to the lawsuit.
Modineer is understood to be the “target company” that Mereness was negotiating with, although the company is mentioned just once by name in the amended suit.
Background in Amended Suit
The amended complaint provides more details from the original suit filed in January 2019. On page 8 of the 19-page amended suit, it states, “As LCI grew, Mereness was not able to perform the duties assigned to him in his role as president. To try to salvage some value from the employment relationship, LCI put Mereness in charge of mergers and acquisitions, investor relations, purchasing and Europe.”
It was in that capacity, the suit alleges, that while still employed by LCI, Mereness became aware of an opportunity to acquire a target company and represented LCI in its negotiations with that company. However, without telling anyone at LCI, Mereness decided on or about Thanksgiving 2017 to deem the target company as a “discarded target” that he was free to pursue for his own account, according to the lawsuit.
Mereness subsequently ceased pursuing the acquisition of the target company on behalf of LCI and “instead used LCI’s confidential information ... for his personal benefit, usurping the very corporate opportunity that Mereness was in charge of investigating and negotiating for the benefit of LCI,” according to the lawsuit.
The lawsuit further alleges that “Mereness sent the target company his own letter of intent by which Mereness proposed that he, ostensibly in combination with other investors, would acquire the target company for his/their own account. Mereness also floated the idea that he would ‘take the helm’ at the target company.”
The target company’s CEO questioned whether Mereness was engaged in wrongdoing; but Mereness misled the target company’s CEO as well, the lawsuit states.
Ultimately, Mereness closed on a transaction by which he acquired more than 40 percent of the equity of the target company and two of five seats on the target company’s board, according to the lawsuit.
According to the lawsuit, LCI was unaware of Mereness’s activities involving the target company when it entered into its separation agreement with Mereness and agreed to provide him with the severance benefits.