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HANNA v. SE HOLDINGS

October 20, 2005.

MICHAEL D. HANNA, Plaintiff,
v.
SE HOLDINGS, LLC, Defendant.



The opinion of the court was delivered by: ARTHUR SCHWAB, District Judge

FINDINGS OF FACT AND CONCLUSIONS OF LAW

I. Findings of Fact

A. Parties' Joint Stipulations of Findings of Fact

  1. Plaintiff Michael D. Hanna ("Hanna") is a citizen of Florida, residing at 9801 Blandford Road, Orlando, Florida 32827.

  2. Hanna is not a citizen of Pennsylvania.

  3. SE Holdings, L.L.C. ("SEH") is a Delaware limited liability company with a registered agent listed as The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.

  4. The amount in controversy exceeds $75,000.00.

  5. This Court possess jurisdiction over this case.

  6. Venue is proper in this judicial district.

  7. Pennsylvania law governs the substantive aspects of this case.

  8. Richard Zomnir ("Zomnir") is a citizen of Pennsylvania residing at 141 Beech Ridge Drive, Sewickley, PA 15143.

  9. Strategic Energy Incorporated ("SEI") is a Pennsylvania S Corporation and general partner of SEH.

  10. Strategic Energy, L.L.C. ("Strategic Energy") is a Delaware limited liability company with its principal place of business at 2 Gateway Center, Ninth Floor, Pittsburgh, Pennsylvania 15222.

  11. Chester Babst ("Babst"), Frank Clements ("Clements"), Dean Calland ("Calland"), and Zomnir formed the law firm of Babst, Calland, Clements & Zomnir, P.C. ("BCCZ") in 1986. As a result of work arising out of the deregulation of the natural gas industry in the mid 1980s, Zomnir began providing energy management and consulting services to large industrial clients of BCCZ. Because those services were not necessarily legal services, Strategic Energy Ltd. was formed as a wholly owned subsidiary of BCCZ in September, 1991.

  12. In January, 1996, BCCZ established Strategic Energy, Ltd. as a separate company, owned by certain individuals who were either shareholders or employees of BCCZ or employees of Strategic Energy Ltd.

  13. The general partner in what was then Strategic Energy Partners, Ltd. was Strategic Energy, Inc. ("SEI"), a Pennsylvania Subchapter S Corporation owned equally by Babst, Calland, Clements, and Zomnir. The remaining owners of Strategic Energy were limited partners.

  14. In September, 1998, Strategic Energy Partners, Ltd. was converted into SEH. SEI was the voting member of SEH with the limited partners becoming non-voting members.

  15. At the same time, SEH formed, wholly owned, and transferred all of its assets and liabilities to Strategic Energy Ltd. 16. Strategic Energy is an energy management company that provides retail electricity service in competitive markets nationwide. At least throughout 2004, Strategic Energy procured and managed over $2 billion of electricity and natural gas per year and had over $1 billion of annual revenue and no debt.

  17. Zomnir was the CEO of Strategic Energy from at least January, 1999 through April 1, 2004, and the other employee owners of Strategic Energy included James Booritch, Pat Purdy, Alex Galatic, Joe Kubacki, and John Molinda.

  18. Zomnir was President of SEH from December 31, 1999 through at least April 1, 2004.

  19. In January, 1999, SEH and Strategic Energy entered into an agreement with Custom Energy, LLC pursuant to which certain subsidiaries of Great Plains Energy ("GPE") obtained a seventy-five percent ownership interest in and SEH retained a twenty-five percent ownership interest in Strategic Energy.

  20. The GPE executive charged with managing GPE's investment in Strategic Energy was Gregory Orman ("Orman").

  21. Effective December 31, 1999, SEH, through its president, Zomnir, executed a Limited Liability Company Agreement of Custom Energy Holdings, L.L.C. ("Operating Agreement"), which was principally negotiated on SEH's behalf by Zomnir and Babst.

  22. The purpose of Custom Energy Holdings, L.L.C. ("CEH, LLC") included holding all of the ownership interests of, inter alia, Strategic Energy.

  23. SEH was a "member" of Custom Energy Holdings, L.L.C. 24. The Operating Agreement expressly provided SEH with a "put option" permitting it to "put" all or part of its economic and/or voting interest to CEH, LLC and obligating CEH, LLC to purchase such interest, if certain events did not happen.

  25. SEH could exercise its "put option" within the 90 days following January 31, 2004 if CEH, LLC had not consummated an initial public offering, merged with or into another entity, or dissolved or liquidated its assets by January 31, 2004.

  26. The Operating Agreement provided that "[t]he `fair market value' of the Put Interest shall be determined by the mutual agreement of [GPE] and [SEH] or, if [GPE] and [SEH] cannot agree upon such value, then by appraisal by one or more third party appraisers selected by [GPE] and [SEH] with significant experience in valuing companies of the size and otherwise similarly situated as the Company."

  27. In two transactions in 1999 and 2000, GPE through its subsidiaries, purchased the ownership interests in Strategic Energy held by various non-Strategic Energy employee shareholders.

  28. After those transactions, SEH retained an 11.45% economic and voting interest in and GPE, through a number of its direct and indirect subsidiaries, owned an 88.55% economic and voting interest in CEH, LLC and indirectly in Strategic Energy.

  29. In the Spring of 2003, SEH, acting through Zomnir, retained Smith Evans Carrier ("SEC") to value an ownership interest in and provide an opinion as to the fair market value of Strategic Energy.

  30. Frank Evans ("Evans") and Kelly Carrier ("Carrier") performed the work done by SEC. 31. SEH agreed to pay, and did pay, SEC $25,000 for its work in connection with issuing a written opinion of the fair market value of Strategic Energy, LLC.

  32. Hanna became acquainted with Orman when the two of them were Board members at a Canadian corporation known as Bracknell Corporation.

  33. In May, 2001, Orman called Zomnir and told Zomnir that he was sending Hanna to Strategic Energy to evaluate the management of Strategic Energy and, in particular, Zomnir's management skills.

  34. Hanna visited Strategic Energy's Pittsburgh office in May, 2001 and spent two days meeting with various management employees, including Zomnir. At the conclusion of that review, Hanna advised Orman that Zomnir was doing a good job of running the company but suggested that he could assist Zomnir and the company with communication seminars and executive coaching.

  35. By way of a letter agreement dated August 15, 2001, Strategic Energy and Hanna entered into a contract for Hanna to provide communication training and executive coaching to Zomnir and Strategic Energy. The agreement provided Hanna 10,000 options in Strategic Energy as compensation.

  36. After providing these services for a period of time, Hanna, Zomnir, and Orman agreed that Hanna should continue providing these services but, at Orman's insistence, the compensation arrangement was changed such that Hanna was paid $10,000 per day plus expenses, for each seminar attended by 100 or more Strategic Energy employees, and $5,000 per day, plus expenses, for each seminar attended by fewer than 100 Strategic Energy employees. 37. Zomnir and Hanna also entered into an agreement pursuant to which Hanna agreed to provide executive coaching to Zomnir and other Strategic Energy management personnel for $5,000 per month.

  38. The executive coaching arrangement provided Zomnir the ability to discuss with Hanna, by telephone and e-mail, issues concerning any aspect of Strategic Energy's business and to meet with Hanna to discuss those issues whenever Hanna was in Pittsburgh to conduct communications or new hire seminars for Strategic Energy.

  39. From May, 2001 through March of 2004, Hanna received more than $900,000 in payments from Strategy Energy for ...


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