United States District Court, W.D. Pennsylvania
October 20, 2005.
MICHAEL D. HANNA, Plaintiff,
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
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 executive
coaching and seminars.
40. Commencing in early 2003, Zomnir, on behalf of SEH, began
discussions with GPE, through its then CEO Bernie Beaudoin, to
determine the fair market value of Strategic Energy in order to
place a fair market value on the "Put Interest" held by SEH.
41. In early September, 2003, SEH retained the services of Paul
"Mickey" Pohl ("Pohl"), a senior litigation partner at the
Pittsburgh office of Jones Day, and the Jones Day firm to
represent SEH's interest in connection with a potential dispute
with GPE regarding the valuation of Strategic Energy for purposes
of SEH's "put" interest.
42. Pohl began working on SEH's matter on September 6, 2003.
43. During a dinner meeting on September 23, 2003 at Palomino's
Restaurant in Pittsburgh, Pennsylvania, Zomnir, on behalf of SEH,
and Hanna tentatively agreed to the terms of an oral contract for
Hanna to represent SEH.
44. Other than Hanna, Zomnir was the only person involved in
the discussion where the contingent fee contract was discussed
and entered. 45. Zomnir promised Hanna that he (Zomnir) and his partners
would provide Hanna with any information he requested in
connection with his negotiations with GPE.
46. SEH and GPE agreed to an alternative dispute resolution
("ADR") and binding appraisal process set forth in a letter
agreement dated February 9, 2004, whereby, inter alia, three
appraisal firms would assign both a discounted and non-discounted
value to Strategic Energy; the question of whether a minority
interest discount should apply to SEH's 11.45% interest in
Strategic Energy would be submitted to a neutral arbitrator; and
after the neutral's decision regarding the applicability of a
minority interest discount, the relevant numbers from the
appraisal firms would be averaged, with the average becoming the
enterprise value for Strategic Energy.
47. On February 23, 2004, Zomnir sent an e-mail message to
Hanna requesting that Hanna make himself available for a call
with Zomnir and Pohl to prepare for a March 10 arbitration before
retired Second Circuit Court of Appeals Judge George C. Pratt
regarding the minority interest discount issue. The arbitration
was being held in accordance with the February 9, 2004 letter
agreement between SEH and GPE.
48. Hanna attended the arbitration in Uniondale, New York
before Judge Pratt and testified on behalf of SEH, as did Zomnir,
Babst, and Purdy.
49. As of the date of the arbitration (March 10, 2004), Zomnir
owned 2.76% of Strategic Energy.
50. Judge Pratt ultimately determined that no minority interest
discount should apply to SEH's "put" interest. 51. The fair market value of Strategic Energy for purposes of
SEH's "Put Interest" was determined to be $776,000,000.
52. Each of the owners of SEH received an amount of money
equivalent to their respective ownership interests in SEH based
on the $776,000,000 valuation.
53. The closing of the exercise of the "put" and transfer of
funds to SEH and its members occurred on or about May 10, 2004.
B. Findings of Fact by the Court
1. June 11, 2002 Transactions
54. In a transaction effective June 11, 2002, a GPE entity
purchased preferred stock owned by SEH. Greg Orman ("Orman") was
the principal decision-maker on behalf of the GPE entity involved
in the June 11, 2002 transaction.
55. One business goal of GPE in conducting the June 11, 2002
transaction was to remove the non-Strategic Energy management
shareholders of SEH (i.e., Babst, Calland, and Clements) from the
decision-making process in SEH.
56. Paragraph 14(a) of the June 11, 2002 Purchase Agreement to
which SEH and all its members were parties, in relevant part,
gave Zomnir "sole, exclusive, unfettered irrevocable authority
and empowerment with respect to, and in all matters relating to"
SEH's ownership interest in CEH LLC. Paragraph 14(b) provides, in
relevant part, that Zomnir "shall have no duties (fiduciary or
otherwise) or liability whatsoever for any and all acts or
failures to act with respect to" SEH's ownership interests and
the "authority and empowerment provided in clause (a)" above.*fn1
57. At no time from June 11, 2002 through May 2004, was the
authority given to Zomnir in the June 11, 2002 transaction
Purchase Agreement ever rescinded.*fn2
2. SEH Search for a Negotiator re: Orman
58. In late 2002, Zomnir asked Orman if Orman would represent
SEH in the negotiation process to "put" SEH's interest to GPE. At
the time, Zomnir told Orman that he believed the total enterprise
valuation for Strategic Energy would be $350,000,000. Zomnir
proposed to pay Orman 10% of any amount SEH received as a result
of a valuation of Strategic Energy over $350,000,000 as compensation for Orman's negotiation and
representation services. Importantly, Zomnir's proposal to Orman
contained no deadlines for Orman's performance.
59. Orman declined Zomnir's proposal because Orman was employed
by GPE until the end of December, 2002, and believed it would not
be appropriate to represent SEH in negotiations with GPE until
his GPE employment was terminated.
3. Smith Evans Carrier
60. As stated above, in Spring of 2003, Zomnir, on behalf of
SEH, retained Smith Evans Carrier to value an ownership interest
in Strategic Energy, and SEH paid Smith Evans Carrier $25,000 for
this initial valuation of Strategic Energy.
61. After completing the initial valuation, SEH then engaged
Smith Evans Carrier to assist in the negotiations to reach a
settlement of the "put" with GPE. The terms proposed by Smith
Evans Carrier for this second task included a contingency fee
that escalated in percentage based upon the valuation ultimately
determined for Strategic Energy. In response, Zomnir on behalf of
SEH made an alternative proposal that SEH would pay Smith Evans
Carrier five (5%) percent of the amount received by SEH as a
result of any valuation of Strategic Energy which exceeded
62. By letter, dated October 6, 2003, to Zomnir, Evans
memorialized Zomnir's proposal. Although Zomnir never signed the
letter, an oral contingent fee contract was entered into between
Smith Evans Carrier and SEH during a discussion Evans had with
Zomnir regarding the October 6, 2003 letter. Importantly, if SEH
would have had to sue GPE in order to exercise the "put" at a
fair valuation of Strategic Energy, that suit would not have
voided this contingent fee contract, and further, this Agreement
contained no deadlines for the performance of Smith Evans Carrier only an engagement end date (i.e., December 31, 2004).
4. Hanna Background
63. In 2001, Hanna entered into a contract with Strategic
Energy for Hanna to provide executive coaching/consulting
services to Zomnir and Strategic Energy. This contract was
extended through 2007 in a letter to Hanna dated April 4, 2003.
As summarized above, Hanna also had a contract with Strategic
Energy to provide communication and sales seminars. For such
seminars attended by 100 or more Strategic Energy employees,
Hanna was paid $10,000 per day, plus expenses. For seminars
attended by fewer than 100 Strategic Energy employees, Hanna was
paid $5,000 per day, plus expenses.
64. In early 2003, Zomnir, on behalf of SEH, commenced
negotiations to determine the fair market value of Strategic
Energy so that a fair market value on the "put" interest held by
SEH (11.45%) could be established. Zomnir kept Hanna informed of
the negotiations and sought Hanna's advice as to how to proceed
in the negotiations.
5. Hanna Daily Fee Agreement
65. During a telephone conversation in early September, 2003,
Zomnir and Hanna entered into a daily fee agreement, pursuant to
which Hanna would assist in, and represent SEH's interests in,
the "put" negotiations. Zomnir agreed to pay Hanna a daily rate
of $7,500 (which was midway between the $10,000/day and
$5,000/day seminar rates) to represent SEH in the negotiations
and exercise of the "put." (There was no agreement on expenses.)
A payment of $7,500 per day was reasonable and fair based upon
the course of dealing between the parties. In fact, the parties
expressly used that course of dealing in arriving at the $7,500
per day amount. Zomnir had full and sole authority to enter into
this Agreement. See Findings of Fact 56 and 57. The daily rate was payable without regard to the outcome of any
negotiations or exercise of the "put" or the amount of the final
valuation. This agreement constitutes (coupled with the Hanna
Contingent Fee Agreement of September 23, 2003) Zomnir's
"non-litigation" portion of his overall "put" strategy.
6. Pohl Background
66. Zomnir also developed and implemented the "litigation"
portion of his overall "put" strategy at about the same time in
early September, 2003. Zomnir, on behalf of SEH, retained Pohl,
the nationally-known senior litigation partner at Jones Day, to
prepare for possible litigation against GPE. (This "litigation"
should not be confused with the arbitration re: minority interest
issue, where Pohl also served on counsel.) Thus Zomnir
simultaneously pursued a negotiation (non-litigation) approach
using Hanna (and others) and a litigation approach using Pohl
7. Hanna Contingent Fee Agreement
67. In addition to the Daily Fee Agreement, during a dinner
meeting on September 23, 2003, at Palomino's restaurant in
Pittsburgh, Zomnir, on behalf of SEH, and Hanna entered into a
contingent fee contract. Zomnir had full and sole authority to
enter into this Agreement. See Findings of Fact 56 and 57.
Under the contract, if the total enterprise valuation of
Strategic Energy exceeded $600,000,000 in connection with the
"put" of SEH's beneficial interest in Strategic Energy, Hanna
would receive as compensation 20% of the 11.45% "Put Interest" of
the total valuation of Strategic Energy in excess of
$600,000,000. Hanna immediately began performance thereunder. 68. Based upon the credibility of the witnesses, the Court
finds that Zomnir did not condition the Contingent Fee Agreement
and the Daily Fee Agreement on the valuation process being
completed by certain date, nor payment being made to SEH for the
"Put Interest" by a certain date.*fn3 Likewise, at no time
did Zomnir tell Hanna that, if SEH had to pursue the "litigation"
option or actually commenced litigation against GPE, Hanna would
not be paid under these Agreements. On the contrary, both the
litigation and non-litigation options were conducted in
69. This credibility decision between Hanna and Zomnir was
required in this case. Based upon the demeanor of the witnesses,
the consistency/inconsistency of their testimony, and the
consistency/inconsistency between their testimony and the trial
exhibits, the Court as the finder of fact resolved the
credibility decision in favor of Hanna. In fact, Zomnir was not
credible. He claimed that he was unaware of provisions of June
11, 2002 Purchase Agreement granting him full authority to make
all decisions (including sale or transfer) relating to SEH. His
denial of authority to enter into the Daily Fee Agreement and the
Contingent Fee Agreement is inconsistent with paragraph 14 of the
June 11, 2002 Purchase Agreement. He signed documents which he
claimed that he did not read and which contained false
information, including personal information relating to his stock ownership. He also consistently
signed SEC Form 10-Ks and Form 10-Qs containing false information
relating to his ownership interest in SEH. Further, his testimony
was inconsistent within itself and with numerous trial exhibits,
and he was often evasive on cross-examination.
70. Although Zomnir claimed at times in his trial testimony
that the non-litigation track was not simultaneous with the
litigation track, Zomnir's testimony is inconsistent with (a)
Joint Exhibit 44, in which Zomnir said to Hanna that Zomnir was
"going to work with [litigation counsel] on a parallel path to
get [Pohl] ready . . ." (b) and Zomnir's testimony on cross
71. Also, Zomnir claimed that Hanna would receive payment only
if Hanna obtained an acceptable "settlement" amount, and not if
the amount was achieved through a negotiation process, even
though Zomnir involved Hanna in the "negotiation" process. This
position was not credible. Further, Zomnir's actions throughout
the Fall and Winter of 2003 were inconsistent with the alleged
existence of deadlines for Hanna's work. In Zomnir's assessment
of the process prepared on December 3, 2003, Zomnir still wanted
Hanna to manage the valuation process. However, in that same
assessment, Zomnir also was laboring under the perception that
the valuation reports would not be completed until January 15,
2004, with the closing and payment to occur on January 27, 2004,
although both dates were beyond the purported deadlines for
8. Hanna's "Non-Litigation" Activities on Behalf of SEH
72. Pursuant to these Agreements, Zomnir asked Hanna to devote
substantially all of his time to representing the interests of
SEH in the "put" valuation negotiations. Thus, Hanna began active negotiations in September, 2003 to obtain the best
possible valuation of Strategic Energy. Hanna was the lead
negotiator on behalf of SEH in the Fall and early Winter of 2003.
73. Hanna actively negotiated with William Downey ("Downey"),
GPE's negotiator, regarding the valuation of Strategic Energy,
reviewed documents sent to him by Zomnir and appraisers, met with
appraisers, and attempted to resolve the issue of whether a
minority interest discount would apply to SEH's 11.45% indirect
interest in Strategic Energy. Continuously through mid December,
2003, until Zomnir halted Hanna's involvement in the
negotiations, Hanna communicated, almost daily, with Zomnir
regarding the status and strategy of the negotiations and
exchanged thoughts, strategy, and tactics regarding the process.
Hanna was involved in over 500 e-mails in his work for SEH in
74. Throughout the "put" negotiation process, Zomnir repeatedly
identified Hanna as the negotiator on behalf of SEH.
75. In October, 2003, Hanna discovered that he needed to have
surgery immediately Hanna's physician told him that Hanna had
only a short time to live. Due to the surgery and life
threatening condition, Hanna offered to Zomnir to withdraw from
the negotiations. Zomnir declined Hanna's offer because Hanna was
a "critical aspect" of the negotiations.
76. Although the surgery took place on October 15, 2003, and
while he was recovering at home, Hanna was responsible for
facilitating a telephone conference between SEH and GPE on
October 21, 2003, and addressing the next steps of the
77. On November 15, 2003, Hanna sent an e-mail to Zomnir
proposing a process regarding the "put" based on his negotiations
with GPE to that point. That e-mail provided for, among other
things, a review by a third valuation expert of the two completed
valuation studies, the third appraiser's determination of a binding number after
that review, no minority interest discount on "put", and a
payment date of January 15, 2004.
78. In November, 2003, through many telephone conversations and
e-mail exchanges involving Michael Chesser (GPE's chief executive
officer), Downey (GPE's negotiator), Zomnir (SEH's chief
executive officer), and Hanna (SEH's negotiator), SEH and GPE
reached a "tentative" agreement regarding the process and timing
by which the valuation of Strategic Energy and exercise of the
"put" would occur. This "agreement" was substantively identical
to the proposal set forth by Hanna to Zomnir in the November 15,
2003 e-mail. However, GPE eventually refused to proceed under the
November, 2003 "agreement".
79. In late November and early December, 2003, Hanna and Downey
interviewed representatives of three valuation firms and
ultimately selected the same. The only representative of SEH who
met with representatives from these valuations firms prior to the
selection of the firms was Hanna.
80. In late November and early December, 2003, Zomnir allegedly
represented to SEH owners and agents that he had halted Hanna's
role in the negotiations. Zomnir allegedly told Pohl that he
would halt Hanna's role in the negotiations in late November,
2003. Zomnir allegedly told Hanna on December 13, 2003 that
Zomnir was removing Hanna from the negotiations. However, Hanna
at Zomnir's request continued to work with Zomnir on the "put"
negotiations and valuation even after December 13, 2003.
9. Smith Evans Carrier Contingent Fee Agreement
81. In January, 2004, Zomnir contacted Evans and asked if Smith
Evans Carrier would continue to assist with the negotiations
under an oral contingent fee contract on terms similar to the SEH oral contingent fee contract with Hanna, but at a 5% of
proceeds over $600 million for Smith Evans Carrier (plus
out-of-pocket expenses), rather than the 20% for Hanna, but again
without deadlines. Smith Evans Carrier agreed.
10. Pohl's Litigation Activities
82. In late 2003 and early 2004, Jones Day implemented the
litigation plan, by preparing draft complaints on behalf of SEH.
The basic drafting was performed by Tom Jones ("Jones") who is an
attorney at Jones Day's Pittsburgh office who worked with Pohl on
the SEH matter.
83. In a draft prepared in or around December, 2003, in Count
V, SEH sought specific performance of the November, 2003
"agreement" (see Findings of Fact 78) between SEH and GPE
regarding the process to value Strategic Energy. The third and
fourth versions of the draft of the complaint stated that the
SEH/GPE "agreement" had been consummated during the Fall of 2003,
and said drafts discussed provisions regarding the number of
appraisers who would value Strategic Energy, the projections that
would be used, and assumptions that would be used.
84. Jones obtained the information for the drafts from three
sources: conversations with Pohl, Babst, and Zomnir; reviewing
documents; and corporate structure information obtained from Leo
Hitt, an attorney with Reed Smith LLP.
85. Ultimately, by letter agreement dated February 9, 2004, SEH
and GPE agreed to a process whereby, (a) three appraisal firms
would assign both a discounted and non-discounted value to
Strategic Energy; (b) the question of whether a minority interest
discount should apply to SEH's 11.45% interest in Strategic
Energy would be submitted to a neutral arbitrator; and (c) after
the neutral's decision regarding the applicability of a minority
interest discount, the average of the relevant numbers from the
appraisal firms would be the enterprise value for Strategic Energy.
86. In substance, the February 9, 2004 letter agreement was
similar to the November, 2003 "tentative" agreement concerning
the process of valuation and payment, which was similar to the
proposal suggested by Hanna to Zomnir in the November 15, 2003
e-mail (except the "neutral arbitrator" idea which originated
11. Arbitration re: Minority Interest Discount Issue
87. The neutral selected to decide whether or not there would
be a minority interest discount was retired Judge George C. Pratt
(United States Court of Appeals for the Second Circuit).
88. On February 23, 2004, after several calls in February
between Zomnir and Hanna, Zomnir sent an e-mail message to Hanna
requesting that Hanna make himself available for a call with
Zomnir and Pohl to prepare for a March, 2004 arbitration before
89. During a call with Zomnir, prompted by the e-mail, Hanna
asked Zomnir whether Hanna should discuss with Pohl the payment
arrangement promised by Zomnir, namely Hanna's entitlement to 20%
of SEH's portion of the value of SEL over $600,000,000. Zomnir
said that Zomnir would discuss the issue with Pohl.
90. Hanna attended the arbitration in Uniondale, New York,
before Judge Pratt, and testified on behalf of SEH, as did
Zomnir, Babst, and Purdy. Hanna was not asked specifically about
the Contingent Fee Agreement at the arbitration, only about
"compensation" in general and whether he had "any financial
interest in the outcome of the [arbitration]." The Contingent Fee
Agreement was not disclosed. Defendant argues that this failure
to disclose is proof that the Agreement had lapsed. Based upon
the credibility of the witness, including several hours of videotaped depositions of attorneys who participated in the
arbitration, the Court as the finder of fact disagrees that the
specific questions and answers thereto so prove. The questions
were not sufficiently specific to decide whether "deadlines" were
part of the Contingent Fee Agreement especially in light of the
other Findings of Fact above. No transcript exists of the
91. During the arbitration, Zomnir testified that he owned 6.4%
of the SEH 11.45% interest in Strategic Energy, as set forth in
the SEC filings referred above. During the same arbitration,
however, Babst testified that Zomnir actually owned something
closer to 3% and that Babst, Calland, and Clements each owned 1%.
In fact, as of the date of the arbitration (March 10, 2004),
Zomnir owned only 2.76%. Zomnir admitted to Hanna after the
arbitration that Zomnir had lied about his ownership interest in
Strategic Energy and that he consistently misrepresented that he
owned more than he actually did.
92. Judge Pratt ultimately determined that no minority interest
discount should apply to SEH's "put" interest.
12. Final Valuation
93. In 2000, the highest offer that could be obtained to
purchase Strategic Energy was $45,000,000. In 2002, Zomnir was
willing to accept a valuation of between $325,000,000 and
$350,000,000 for Strategic Energy. In September, 2003, Zomnir
told Hanna that Zomnir would be happy and willing to accept a
valuation of $500,000,000 for Strategic Energy. Thereafter, after
several months of negotiations led by Hanna, SEH was willing to
accept a valuation of $625,000,000 for Strategic Energy. Based
upon the non-discounted average of the values of Strategic Energy
submitted by the three valuation firms, the final total valuation
of Strategic Energy was determined to be $776,000,000. 13. Zomnir Denies Existence of the Daily Fee Agreement and
Contingent Fee Agreement
94. Zomnir and Hanna talked by telephone on March 31, 2004 when
Zomnir told Hanna the final numbers from each of the valuation
experts and the final "put" valuation of $776,000,000. During the
call, Hanna asked Zomnir how Zomnir wanted to handle payment of
Hanna's compensation the daily fee, plus the contingent fee
since the valuation exceeded $600,000,000. Zomnir immediately
reacted angrily to Hanna and denied the existence of any
obligation to pay any compensation to Hanna.
95. Zomnir told Hanna that he was not entitled to compensation
because Hanna did not close the deal within some alleged required
time frame. Zomnir's position thus was that Hanna did all his
work for free or that Hanna should look to GPE for payment even
though the benefit of Hanna's work accrued to Zomnir and his
96. As stated above, the Court finds that prior to March 31,
2004, Zomnir never mentioned time frames or deadlines to Hanna as
a condition for payment under the Daily Fee Agreement and
Contingent Fee Agreement.
97. Such deadlines would have been inconsistent with Zomnir's
conduct throughout the negotiation process, wherein Zomnir
continually changed target dates for proposed valuation deadlines
and payment dates, one of those changes, as early as November 16,
2003, extended beyond the deadlines SEH now claims existed for
Hanna to complete his negotiations.
14. Benefits to Zomnir and SEH and Others
98. Hanna fully performed under the Daily Fee Agreement and
Contingent Fee Agreement. 99. As a result of the "put," Zomnir received in excess of
$20,000,000 of the approximately $88,000,000 paid to SEH in this
"put" transaction. Babst, Calland, Clements, Purdy, Booritch,
Molinda, and Kubacki likewise received significant proceeds.
100. Hanna conferred a benefit on SEH; namely, Hanna actively
negotiated on behalf of SEH which led to a total valuation of
Strategic Energy in excess of $600,000,000.
101. During Hanna's work for SEH, he actively negotiated on
behalf of SEH with GPE, including negotiating the framework of
the valuation process ultimately agreed to by GPE and identifying
and selecting the three valuation firms ultimately used to
determine the total valuation of Strategic Energy.
102. Hanna was a "critical aspect" in achieving a valuation of
Strategic Energy of $776,000,000 that formed the basis of the
payment for SEH's "put" interest. Prior to his involvement in the
negotiations, SEH was willing to accept as little as $350,000,000
and as much as $500,000,000 as the valuation of Strategic Energy.
However, several months after Hanna's involvement, SEH was
prepared to accept a valuation of $625,000,000 for Strategic
103. Hanna's contribution was substantially more than that of
Smith Evans Carrier. From October, 2003, the time an oral
contingent fee contract existed between SEH and Smith Evans
Carrier to March 31, 2004, Evans estimates Smith Evans Carrier
performed between 50 and 500 hours of work for SEH. Evans can be
no more precise in the estimate of hours worked. As a result of
the oral contract with SEH, Smith Evans Carrier earned slightly
more than one million dollars; approximately $900,000 of which
has already been paid to Smith Evans Carrier.
104. Smith Evans Carrier, a well known and respected valuation
firm, earned 5% of the excess for the work it performed on behalf
of SEH. Based upon all the evidence, this Court finds that Hanna's contribution to SEH was four times (20% of the
excess) Smith Evans Carrier's contribution to SEH.
105. According to the Contingent Fee Agreement between Hanna
and SEH, Hanna is entitled to be paid $4,030,400 (20% × (11.45%
× (776,000,000-600,000,000))), as well as $367,500 under the
Daily Fee Agreement (49 days × 7,500).
II. Conclusions of Law
A. Breach of Contract Contingent Fee Contract (Count I)
Under Pennsylvania law, a breach of contract claim "involves
(1) the existence of a contract, (2) a breach of a duty imposed
by the contract, and (3) damages." Sullivan v. Chartwell Inv.
Partners, LP, 873 A.2d 710, 716 (Pa.Super. 2005) (citing J.F.
Walker Co., Inc. v. Excalibur Oil Group, Inc., 792 A.2d 1269
(Pa.Super. 2002)). A contract may be manifested orally in
Pennsylvania. Id. at 716. Plaintiff bears the burden of proving
the existence and terms of the oral contract, defendant's breach
of the contract, and resulting damages. Idell v. Falcone,
235 A.2d 394, 396 (Pa. 1967).
As stated above, on September 23, 2005, at Palomino's
restaurant, Zomnir (on behalf of and with full authority from
SEH) and Hanna entered into a Contingent Fee Agreement. See
Findings of Fact 67. The terms of the contingent fee contract
were that Hanna would work to assist SEH in obtaining a high
enterprise valuation for Strategic Energy, and if such enterprise
value exceeded $600,000,000.00, Hanna would be paid 20% of SEH's
11.45% interest as a result of the portion of the valuation
exceeding $600,000,000.00. As stated above, this Court finds that this contingent fee contract contained no deadlines. See
Findings of Fact 68.
Hanna fully performed his duties under the Contingent Fee
Agreement, and ultimately, the enterprise valuation of Strategic
Energy was determined to be $776,000,000. Therefore, Hanna's
contingent fee for a valuation of $776,000,000 is $4,030,400
(which is 20% multiplied by 11.45% multiplied by the difference
between $776,000,000 and $600,000,000).
The proper measure of damages in a breach of contract action is
generally that which would place the aggrieved party as nearly as
possible in the same position he or she would have been in had
there been no breach. Com., Dept. of Transportation v.
Brozzetti, 684 A.2d 658, 665 (Pa.Cmwlth. 1996) (citations
omitted). Because SEH has failed to pay Hanna the contingent fee
to which Hanna was entitled under their express oral agreement,
SEH has breached the contract and Hanna has suffered damages in
the amount of $4,030,400.
Further, in addition to the $4,030,400, Hanna is entitled to
prejudgment interest. Somerset Community Hospital v. Allan B.
Mitchell & Associates, Inc., 685 A.2d 141, 148 (Pa.Super.
B. Breach of Contract Daily Fee Plus Expense Contract (Count
As stated above, plaintiff bears the burden of establishing the
existence and terms of the alleged Daily Fee Agreement,
defendant's breach of said contract, and resulting damages. This
Court has found that Hanna and Zomnir (on behalf of and with full
authority for SEH), entered into a Daily Fee Agreement during a
telephone call in early September 2005. See Findings of Fact
65. Zomnir and Hanna agreed that Hanna would assist Zomnir in
negotiating on behalf of SEH on exercise of the "put" and that
Hanna would be paid $7,500 per day for his services. That fee,
which was not contingent upon Hanna negotiating any particular
outcome or any particular deadline, did not cover Hanna's expenses.
Also, just like the Contingent Fee Agreement, defendant
breached this Agreement by failing to compensate Hanna for his
services. Accordingly, Hanna has been damaged as a result
thereof, in the amount of $367,500, which represents the 49 days
Hanna worked multiplied by the $7,500 rate per day.
In addition to the $367,500 that Hanna is owed as damages on
the daily fee contract, Hanna is also entitled to prejudgment
interest on these damages. Somerset Community Hospital,
685 A.2d at 148.
C. Plaintiff's "Alternative" Claims
In his Complaint, plaintiff alleges several alternative claims
including breach of unilateral contract (Count II),
quasi-contract (Count IV), and estoppel (Count V). Because this
Court has found that there was an express oral contract on the
Contingent Fee Agreement claim (Count I) and the Daily Fee
Agreement claim (Count III), this Court finds that plaintiff's
alternative claims for breach of an alleged unilateral contingent
fee contract, quasi-contract and estoppel are not applicable and
therefore will not address them.*fn4 D. Conclusion
Based upon the credibility determinations set forth herein
above, this Court finds in favor of plaintiff, and against
defendant, on plaintiff's express breach of contract claims under
the Contingent Fee Agreement and the Daily Fee Agreement (Counts
I and III). An appropriate order follows.
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