Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...
By Jef Feeley and Zeke Faux
Aug. 1 — A judge temporarily blocked John Gorman IV, a Texas bond salesman with an exotic animal ranch, from taking over as Westech Capital Corp.'s top executive in an ongoing fight for control over the parent of Tejas Securities Group Inc.
The Delaware Court of Chancery's John Noble issued an order July 31 confirming current Westech Chief Executive Officer Gary Salamone in the top job at the distressed debt firm while a lawsuit over Gorman's bid is pending. Chancellor Noble also granted Salamone's request for a “status quo order” to allow Tejas to operate normally during the continuing litigation.
“At some point, we're going to have to come together to get a resolution of all of this,” Salamone said in a telephone interview. “I don't know what Mr. Gorman thinks he's going to accomplish at the end of the day.”
Salamone sued July 10, saying Gorman, co-founder and controlling shareholder of Austin, Texas-based Westech, is wrongfully seeking to amend company bylaws to allow shareholders to remove directors and executives. Gorman is misusing that amendment to seek Salamone's ouster both as CEO and as a Westech director, according to the lawsuit.
Gorman declined to immediately comment on Noble's ruling because he said he hadn't seen the decision. He had appointed himself CEO by citing his authority as majority shareholder, according to a July 7 letter to employees. Salamone said an earlier ruling by Noble left him in charge.
Noble ruled May 30 that Gorman failed to honor a voting rights agreement by installing his slate of Westech directors and improperly removed an existing board member. That decision has been appealed to the Delaware Supreme Court.
Noble's ruling left the seven-member board with only four validly elected directors, including Gorman and Salamone. The chancellor also found that Gorman acted in accordance with the agreement when he ousted another director and named an ally to the board.
Noble's ruling didn't resolve the question of who controls Westech and Tejas, Salamone said. He has requested that Noble appoint a custodian to break the board deadlock.
Gorman owns more than 2.4 million shares, or 59 percent of Westech's common stock, along with about 51 percent of the holding company's preferred shares, according to court filings.
In the earlier case, some Tejas employees and a former Westech director claimed that Gorman's trading losses and extravagant spending forced the firm to undertake an $8.5 million recapitalization.
Gorman denies the wasteful-spending allegations, saying he invested $15 million in the company and never took a salary or a dividend. In the January interview, he said he donated millions of dollars to private schools and charity wine auctions, and helped the city of Austin expand its hiking and biking trails.
The bond salesman sued Salamone and ex-Westech Director Robert Halder in state court in Austin earlier in July, seeking to have a Texas judge ratify his move to oust Salamone (Gorman v. Salamone,Tex. Dist. Ct. (201st Jud. Dist. (Austin)), Cause No. D-1-GN-14-002043, 7/14).
Gorman claimed that Salamone and others refused to recognize his “status as CEO and have denied him access in any capacity to the company's premises, employees, books or records,” according to court filings.
Salamone and Halder countered that Gorman's move to amend the company's bylaws violates Delaware law and the voting agreement created as part of the recapitalization deal.
In his July 31 status quo order, Noble reaffirmed that the current Westech directors are Gorman, T.J. Ford, Salamone and Michael Dura. Given the board's split alliances, the finding “appears to have had the unfortunate result of creating deadlock on Westech's board,” the chancellor said.
Noble has ordered Westech and Tejas officials to operate “in the ordinary course of business” in connection with spending or transferring funds and to preserve records, according to court filings.
To contact the editor responsible for this story: Michael Hytha at firstname.lastname@example.org
Noble's July 31 order is available at http://www.bloomberglaw.com/public/document/Salamone_Gary_et_al_vs_John_J_Gorman_et_al_Docket_No_9870_Del_Ch_/1.
©2014 Bloomberg L.P. All rights reserved. Used with permission.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)