Transcript TR Investors, LLC, et al. v. Arie Genger

TR Investors, LLC, et al. v. Arie
Genger
By Pam Moudgill
2007-2008
TRI fell behind in making payments to it’s largest lender
Bank Hapoalim
D
E
B
T
TRI
CEO: ARI GENGER
FOUNDED TRI
Bank
Hapoalim
TRUMP GROUP AND ARI GENGER WORK
TOGETHER TO CREATE A GENGER/TRUMP
GROUP SPONSORED REFINANCING DEAL
THEY FAILED TO CREATE AN OWNERSHIP
STRUCTURE THAT WOULD AVOID LEGAL CHALLENGE
FROM SAGI GENGER
(ARI GENGER’S ESTRANGED SON)
TRI
?
TRUMP
GROUP
TRI IS LEFT WITHOUT REFINANCING OPTIONS AND FACING
POTENTIAL FOR IT’S CREDITORS TO TAKE ADVERSE ACTION.
TRUMP GROUP KNOWS THIS AND SHIFTS ITS COURSE OF
ACTION AIMING TO REMOVE GENGER FROM THE TRI BOARD OF
DIRECTORS
Trump
Group
Has 47%
interest in
TRI
Trump Group
purchases a 19%
bloc of shares from
The Sagi
Genger Trust
(created to benefit Ari
Genger’s son)
$27.5 million
TRUMP
GROUP
BELIEVES THE
PURCHASE GAVE
IT SUFFICIENT
VOTING
CONTROL OF
TRI
TO REMOVE
THE TRI
BOARD AND
INSTALL A
NEW ONE
EARLY AUGUST 2008
LITIGATION BROKE OUT IN THE NEW CASTLE COUNTY COURT OF
CHANCERY
BEFORE THE BOARD OF DIRECTOR’S MEETING ON AUGUST 25, 2008
THE ORIGINAL BOARD OF DIRECTORS CONSISTED OF FIVE MEMBERS:
ARI GENGER, WILLIAM DOWD, AVI PELOSSOF (Both were trusted business
associates of Genger) AND TWO APPOINTEES OF THE TRUMP GROUP: ROBERT
SMITH AND JULES TRUMP
At the meeting, the Trump Group Proposed
1) To increase the number of directs on the board from 5 to 6
2)Remove Ari Genger from the board and from his position as
CEO
3) Trump appointees, Eddie Trump and Mark Hirsch, take the two
remaining seats on the board
The Practical Effect was to eliminate Ari Genger’s control over TRI
THE SECTION 225 ACTION IS PROMPTLY FILED BY
TRUMP GROUP ASKING THE COURT TO:
DECLARE THE TRUMP GROUP THE MAJORITY STOCKHOLDER OF TRI
ENJOIN TRI FROM RECOGNIZING ARI GENGER AS DIRECTOR
DECLARE TRUMP GROUP ENTITLED, AS MAJORITY STOCKHOLDERS, TO
DESIGNATE AND ELECT TWO MORE OF THEIR DESIGNEES TO THE TRI
BOARD AND CONTINUETHE TERMS OF JULES TRUMP AND ROBERT SMITH
DECLARE THE TRI BOARD TO BE COMPOSED OF THEIR FOUR DESIGNEES
PLUS WILLIAM DOWD AND ARI PESSOLOF
DECLARE INVALID ANY ACTION TAKEN BY A BOARD NOT COMPRISED OF
THEIR DESIGNEES
THE TRUMP GROUP ALSO FILED AN ACTION UNDER 8 Del. C. Section 220 asking the
court to :
ORDER TRI TO PERMIT IT TO INSPECT AND COPY BOOKS AND RECORDS
FROM TRI
August 28 2008 Meeting
Genger, Pessolof and Dowd REJECTED the PROPOSAL on the grounds that they did
not believe the Trump Group had enough voting power to reconstitute the Board.
THE PARTIES TO THE
SECTION 225
ACTION
• ENTERED INTO A STANDSTILL AGREEMENT
SCHEDULED TO TERMINATE ON 9/2/08
• TO GIVE THE PARTIES TIME TO SETTLE DISPUTE
AND SORT OUT HOW TRI WOULD BE MANAGED
THE STANDSTILL
AGREEMENT
PROVIDED
• EXCEPT AS OTHERWISE PROVIDED “NO ACTION
WILL BE TAKEN TO PROSECUTE OR DEFENDANY
OF THE LITIGATIONS DURING THIS TERM OF
AGREEMENT”
STIPULATED STATUS
QUO ORDER (THE
AUGUST STATUS
QUO ORDER)
• THE PARTIES SUBMITTED THE ORDER ON AUGUST
29TH 2008
• THE ORDER CONTAINED A STANDRAD PROVISION
PROHIBITING THE DESTROYING OR IN ANY WAY
TAMPERING WITH OR DISPOSINGOF ANY
COMPANY RELATED DOCUMENTS, BOOKS OR
RECORDS.
WHO WAS ARI GENGER AND WHAT DID HE DO?
ARI GENGER KEPT PERSONAL DOCUMENTS RELATED TO HIS CLASSIFIED WORK IN ISRAEL
ALONG WITH RECORDS REGARDING HIS DIVORCE IN UNALLOCATED SPACE OF HIS HARD
DRIVE, WHICH DID NOT WISH TO BE SEEN BY THE TRUMP GROUP OR BECOME MATERIALS
OPEN TO DISCOVERY
IN ORDER TO PRESERVE DOCUMENTS RELEVANT TO THE IMPENDING LITIGATION, GENGER
HAD EVERYTHING SENT TO HIS OUTSIDE COUNSEL FRIEDMAN KAPLAN
• FREIDMAN KAPLAN WAS TO SUPERVISE THE PROCESS BY WHICH GENGER WOULD
SEGREGATE HIS PERSONAL MATERIALS, ACCUMULATED OVER 25 YEARS TO COMPANY
MATERIALS
FRIEDMAND KAPLAN WAS ALSO TASKED WITH PRESERVING ALL NON-PERSONAL
MATERIALS FOR USE BY TRI IN ITS BUSINESS AND TO ENSURE AVAILABILITY
FOR LITIGATION
BECAUSE IT WAS A HURRIED PROCESS, FRIEDMAN KAPLAN EMPLOYED
AN OUTSIDE TECHNOLOGY FIR – KRAFT AND KENNEDY, INC. (“K&K).
THEY WERE OVERSEEN BY GENGER’S TECHNOLOGY CONSULTANT FOR
TRI AND HIMSELF – OREN OHANA
GENGER AND OHANA IN THE DARK
AFTER K&K AND FRIEDMAN KAPLAN
LEFT, OHANA INFORMED GENGER
THAT NON-ENCRYPTED COPIES OF
GENGER’S PERSONAL FILES MAY HAVE
BEEN CREATED AND LEFT ON HIS
HARD DRIVE AND THE TRI SERVER
ON SEPTEMBER 8, 2008 AT 1 AM,
OHANA RAN A WIPING PROGRAM
CALLED SECURE CLEAN AND
SELECTED THE OPTION DEEP
CLEAN ON GENGER’S HARD DRIVE
ON SEPTEMBER 10, OHANA RAN
SECURE CLEAN ON TRI’S SERVER
(WHEN SECURE CLEAN IS RUN ON
ANY COMPUTER OR FILE, IT
LEAVES A TRACE )
Early October
2008
• Genger settled the sec225 action by stipulating to Trump Group’s
proposed board
• Effectively ending Genger’s managerial role in TRI
• Days later, TRUMP GROUP ASSUMES CONTROL OF TRI AND HIRES
A COMPUTER CONSULTANT OF IT’S OWN - FTI
TRUMP GROUP • FTI DISCOVERS FILES HAVE BEEN ERASED FROM TRI’S SERVER
TAKES OVER
• TRUMP GROUP FILES A MOTION TO REOPRN THE SECTION 225
CASE AND AN ORDER TO SHOW CAUSE AS TO WHY GENGER
SHOULDN’T BE HELD IN CONTEMPT
• THE SEPTEMBER SETTLEMENT UNRAVELS AND THE SECTION 225
ACTION
STARTS AGAIN ACTION IS REOPENED
• TRUMP GROUP’S GENERAL COUNSEL – MARK HIRSCH BEGAN WORKING WITH
SAGI GENGER
TRUMP GROUP’S • TO FIND INFORMATION TO USE AGAINST GENGER IN LITIGATION
ACTIONS
HIRSCH AND
SAGI
2007 BACK-UP
TAPE
• SAGI GENGER PROVIDED HIRSCH WITH GENGER’S FINANCIAL INFORMATION
HE THOUGHT WAS KEPT ON TRI’S SERVER
• HIRSCH DID NOT ASK WHERE OR HOW SAGI OBTAINED THE INFORMATION
• TRUMP GROUP FOUND A 2007 BACK UP TAPE FOR TRI’S SERVER WHICH
LIKELY INCLUDED GENGER’S PERSONAL DOCUMENTS AND FILES,
UNENCYPTED
• THE TAPE WAS NOT REMOVED TO SEGREGATE OR REVIEW THE
INFORMATION BEFORE BEING PUT ON THE METALINCS SYSTEM IN
SEARCHABLE FORM
TRUMP GROUP BRINGS TWO CLAIMS AGAINST GENGER
CONTEMPT OF COURT
SPOLIATION OF EVIDENCE
COURT FINDS
GENGER
ACTED IN
CONTEMPT OF
COURT
COURT FINDS
GENGER
COMMITTED
INTENTIONAL
SPOLIATION OF
EVIDENCE
• GENGER AND OHANA THOUGHT
OUT THEIR DOCUMENT
DESTRUCTION PLAN VERY WELL
• GENGER KNEW HE WAS
VIOLATING THE COURT ORDER
AND LIMITING TRUMP GROUP’S
ACCESS TO VALUABLE TRI
INFORMATION
• GENGER WAS CLEARLY AWARE
OF HIS AFFIRMATIVE DUTY TO
PRESERVE EVIDENCE THAT
MIGHT BE RELEVANT TO USE IN
THE
• PENDING LITIGATION WITH
TRUMP GROUP
FEBRUARY 3, 2010 FINAL ORDER
GRANTING TRUMP GROUPS MOTION TO FIND
GENGER IN CONTEMPT AND FIND GENGER
COMMITTED INTENTIONAL SPOLIATION
AWARDED ATTORNEY’S FEES AND PROTOCOL
(THE COST OF A NEUTRAL EXPERT
APPOINTED BY THE COURT TO DISCOVER THE
EXTENT OF GENGER’S DOCUMENT
DESTRUCTION) FEE’S TO TRUMP GROUP
1.Given Trump Groups’ actions
with the 2007 TRI back up
takes and Hirsch’s
communications with Sagi,
do you feel the outcome is
fair?
2.Should Trump Group be
subject to any
sanctions/fines?