Former shareholders sue Steve Case, Grove Farm

Members of the Wilcox family filed a civil suit claiming that they were allegedly “duped” into selling their Grove Farm shares to America Online co-founder Stephen Case for a fraction of the company’s value.

In the lawsuit, the family members allege that Grove Farm’s attorneys and members of its board of directors “betrayed Grove Farm from within” to ensure that Case, the son of the managing attorney of Grove Farm’s law firm, could buy the company for $26 million in December 2000.

The Wilcox family members seek a jury trial at which they hope to be awarded compensatory damages of $750 million, plus punitive damages of $2 billion against Case, punitive damages of $2 billion against leaders of the company’s law firm, and $2 billion in punitive damages against members of the company’s board of directors.

The 187-page lawsuit was filed Nov. 29 in Fifth Circuit Court.

A similar suit was filed against Case in U.S. District Court in Honolulu.

In a statement sent to The Garden Island, Case’s attorney, Paul Alston, responded to the lawsuits.

“These two new lawsuits recycle old and unfounded allegations against Steve Case and his companies. The merger between Grove Farm and Steve Case’s company was approved by almost 99 percent of the shareholders — including the plaintiffs in these lawsuits — in a process that was thorough and appropriate,” said Alston.

“This new challenge, brought by a few disgruntled investors who apparently have a bad case of sellers’ remorse, has no merit. Mr. Case looks forward to being fully vindicated by the courts in both cases.”

Warren Haruki, president and chief executive officer of Grove Farm, also responded by e-mail to queries from The Garden Island.

“Steve Case’s investment in Grove Farm has been instrumental in solving Grove Farm’s financial problems, and in helping us build a future that will be good for both the company and Kaua’i as a whole. We are truly grateful for his commitment, his vision, and his investment,” said Haruki.

Haruki pointed out some of Case’s investments on Kaua’i:

“The Kukui Grove Shopping Center was significantly upgraded and renovated; infrastructure was put into the surrounding commercial property to attract tenants such as Home Depot and Costco; roads, a new sewer plant, and water resources were built in the residential area around Puakea-Puhi; affordable-housing projects in Puhi and Hanama’ulu are under way; a new water-purification plant is operational, and charitable gifts have been made to Kaua’i charities and nonprofit organizations. For this, Steve should be thanked for his commitment to Kaua’i and its people,” said Haruki.

“This lawsuit, filed by a few disgruntled shareholders, has no merit,” said Haruki. “Nonetheless, Steve and Grove Farm will have to divert the time and resources to deal with it. However, we are confident that, in the end, the shareholders’ arguments will be rejected by the court.”

Besides monetary damages, the family members want a judge to issue a preliminary injunction restraining Case and Grove Farm from selling any more land as of Dec. 1, 2000, or from selling after-acquired land bought with proceeds traceable to those land sales, without letting the family members know, and with court approval.

The family members want a permanent injunction after the trial is held, and they want the court to cancel the sale and to restore the family members to their prior status as stockholders, as if the sale did not go through.

Additionally, the Wilcox family members seek a court order to have a trust set up into which proceeds and profits from the company will be put, from the time that the company was sold.

The family also wants a court order directing the attorneys and members of the Grove Farm board to account for and to reveal gains or benefits they had or obtained in connection with the allegations.

According to the lawsuit, the plaintiffs in the case controlled approximately 61,000 shares of Grove Farm, or more than 36 percent of the 171,126 shares of outstanding stock.

The lawsuit claims that leaders of Grove Farm’s law firm allegedly represented both the seller and the buyer.

“Just as a person playing both sides of a chess match decides whether white or black wins, a lawyer representing two sides with directly conflicting interests controls who will come out on top,” the lawsuit says.

According to the lawsuit, the Wilcox family members allege that attorneys in the firm Case Bigelow & Lombardi helped Case buy Grove Farm.

According to the lawsuit, in 1999 and early 2000, Scott Blum, the son-in-law of Grove Farm’s President and Chief Executive Officer at the time, Hugh Klebahn, allegedly attempted to take over the company with help from within.

The lawsuit alleges that a series of letters were ghost-written by attorney James Cribley and sent to Grove Farm shareholders over the signature of Klebahn and director Randal Moore in 1998, 1999, and 2000.

The lawsuit claims that the shareholders were allegedly led to believe that the company was “in dire financial straits.”

However, according to the lawsuit, Blum “was unable to come in under the radar,” and he dropped his bid in mid-2000. That allegedly opened the door for Case, and his attorney-father, Daniel Case, to pounce.

The Wilcox family members allege that the younger Case “picked up and finished off Grove Farm.” They allege that he was “fed insider information by his father and by the company’s CEO.”

The lawsuit claims that, after the sale, the Wilcox family members found out that the fair market value of the company’s 21,600 acres after debt was “in excess of $26 million,” and that the true value of the company was concealed.

Members of the Wilcox family in their lawsuit allege that they were not informed of a Bank of Hawaii appraisal that was done four months before shareholders voted to sell the company. That appraisal estimated Grove Farm’s land to be worth $152 million.

According to the lawsuit, the Wilcox family members allege that Case was given the appraisal, and used it in considering whether or not to buy Grove Farm.

The lawsuit alleges that members of Grove Farm’s board of directors did not get the highest dollar amount for the company, and that board members misled shareholders about the company’s financial standing.

According to the lawsuit, the Wilcox family members allege that Grove Farm’s chief executive officer conspired with attorney Daniel Case, with other Grove Farm attorneys, and with Stephen Case, to defraud shareholders into believing that $152 per share was the highest price that could be attained, when another, superior offer was made at $170 per share.

The Wilcox family members claim that Case profited from the sale by “liquidating Grove Farm in earnest.” According to the lawsuit, Case recently sold Kukui Grove Center for $63 million, and received about $26.5 million for selling 88 lots in a Lihu’e-Puhi housing project.

The family members point out that Case may expect about $54.3 million more after another 191 lots were recently put on the market.

In 2003, according to the lawsuit, Grove Farm leaders sold 10 acres to officials at The Home Depot, and brought in $10 million to $20 million to Grove Farm.

“After reaping some $150 to $200 million from selling off bits of Grove Farm, Stephen Case still has over 20,000 acres of land in Grove Farm,” the lawsuit says.

According to the lawsuit, the Wilcox family members believe that the remaining land is worth at least another $1 billion.

The Wilcox family members allege in their lawsuit that they were led to believe that, over the course of 1999 and 2000, the company “was on the brink of insolvency.”

They claim that the board members allegedly withheld information for the purpose of having the shareholders vote in favor of selling the company.

According to the proposal that was sent out to shareholders concerning the sale, the company “has not paid any dividends on its stock, and has no current ability to do so.”

In 2000, according to the proposal, current market conditions for Hawai’i and national real estate were not favorable.

According to the proposal, the historical sales prices of the company’s stock over the past 10 years “indicates an average sales price of $58.75, with sales prices ranging from $40 to $125 per share.”

The proposal stated that company leaders would have to spend $4 million to $5 million through early 2001 to repair termite damage at Kukui Grove Center.

According to the proposal, the company “has a negative book value and substantial debt and significant principal-reduction payments are due over the next five years.”


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