The opinion of the court was delivered by: ARTHUR SCHWAB, District Judge
FINDINGS OF FACT AND CONCLUSIONS OF LAW
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
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
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,
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
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
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
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
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
39. From May, 2001 through March of 2004, Hanna received more
than $900,000 in payments from Strategy Energy for ...