Date: 07-17-2014

Case Style: Giroux Group, LLC v. Patti Bain and Michael Rutsch

Case Number: CJ-2013-5679

Judge: Dana Kuehn

Court: District Court, Tulsa County, Oklahoma

Plaintiff's Attorney: Charles G. Sexson

Defendant's Attorney: No appearance by Defendants

Description: Giroux Group, LLC v. Patti Bain and Michael Rutsch

1. Plaintiff Giroux Group, LLC (“Giroux Group”) is a Missouri limited liability company with its principal place of business in Garfield County, Colorado. Larry Giroux, a resident of Garfield County, Colorado, is the Manager of Giroux Group and owns a controlling interest in Giroux Group.
2. Defendant Michael Rutsch is a resident of Tulsa, Oklahoma. t--i
3 Defendant Patti Bain is a resident of Bixby, Oklahoma
GENERAL ALLEGATIONS
4. Giroux Group incorporates the foregoing allegations as if fully alleged herein.
5. Giroux Group owns a minority interest in Heartland Technology Partners, LLC (“HTP”), which is currently a Delaware limited liability company with its principal place of business in St. Louis, Missouri. HTP is in the business of developing and marketing wastewater treatment technology and services.
6. HTP was formerly known as Giroux Energy, LLC (“Giroux Energy”), a Colorado limited liability company.
7. Mr. Rutsch is the CEO and President of HTP and a member of HTP’s Board of Managers.
8. Ms. Bain is the Secretary of HTP and a member of HTP’s Board of Managers.
9. On September 22, 2008, the members of Giroux Energy executed and enacted the Operating Agreement of Giroux Energy, LLC (the “Operating Agreement”).
10. The initial members of Giroux Energy who signed the Operating Agreement were Larry Giroux, Michael Rutsch, Patti Bain, and Robert Irwin, IV.’
11. On October 24, 2008, Giroux Energy changed its name to HTP.
12. On February 19, 2009, Mr. Giroux, Mr. Rutsch, Ms. Bain, and Mr. Irwin executed the Sixth2 Amendment to the Operating Agreement, which transferred each individual’s interest in HTP as follows:
• Larry Giroux transferred his Membership Units in HTP to Giroux Group, LLC;
• Michael Rutsch transferred his Membership Units in HTP to RBI 2, LLC (“RBI”), which is a Missouri limited liability company owned by Mr. Rutsch;
• Patti Bain transferred her Membership Units in HTP to Bain 2, Investments, LLC (“Bain 2”), which is a Missouri limited liability company owned by Ms. Bain;
Robert Irwin, IV transferred his Membership Units in HTP to Electrum Partners, LLC (“Electrum”), which is a New Jersey limited liability company owned by Mr. Irwin.
Wrongful Removal of Mr. Giroux from HTP’s Board of Managers
13. Giroux Group incorporates the foregoing allegations as if fully alleged herein.
14. Section 5.4 of the Operating Agreement provides:
As long as any Voting Member holds at least an Interest of the issued and outstanding Units or Interests equal to or greater than twenty percent (20%), such Voting Member shall be entitled to appoint one (1) representative to the Board and the number of Board Members shall increase or decrease accordingly, provided however that if the foregoing results in less than three (3) Board Members at any given time, the remaining seats required to bring the number of Managers up to three (3) shall be appointed by Majority Vote of the Voting Members. (emphasis added)
15. On November 1, 2010, HTP’s Board of Managers convened a meeting via telephone conference. In attendance were Mr. Giroux, Mr. Rutsch, and Ms. Bain, who served as HTP’s managing members at the time, Ms. Janet Meibaum who recorded the minutes, and Mr. Irwin who attended as a guest.
16. The meeting minutes state:
• “Motion was made by Michael Rutsch to replace the current managing member, Larry Giroux, with Robert Irwin effective at the end of the managers’ meeting. The replacement is estimated to be for a 90-day period
at which time a Board of Manager’s meeting will be convened to reconsider
the membership of the Board of Managers. Larry Giroux challenged the authority of Michael Rutsch to make the motion to replace him. His challenge is based upon his interpretation of Section 5.4 of the operating agreement. The motion was approved by the yes votes of Michael Rutsch and Patti Bain. Larry Giroux voted no.”
• “Motion was made by Michael Rutsch to replace one of the three current managing members. The current managing members are Michael Rutsch, Patti Bain, and Larry Giroux. The motion to replace Larry Giroux with Robert Irwin was approved by the yes votes of Michael Rutsch and Patty Bain. Larry Giroux voted no.”
• “Motion was made by Michael Rutsch to remove any assumed position of current officers and appoint Officers of the Company. The appointment is estimated to be for a 90-day period, at which time a Board of Managers’ meeting will be convened to reconsider this appointment. The motion is to• appoint Michael Rutsch, CEO, Michael Rutsch, President, and Patti Bain, Secretary. The motion was approved by the yes votes of Michael Rutsch and Patti Bain. Larry Giroux voted no.”
17. At the time of Mr. Giroux’s removal from the Board of Managers, Giroux Group was a voting member and owned 22.39% of HTP’s outstanding Membership Units.
18. Pursuant to Section 5.4 of the Operating Agreement, Giroux Group was entitled to appoint one member to the Board of Managers because it held more than 20% of the membership
interest. Mr. Giroux was Giroux Group’s appointed representative to the Board of Managers.
Based on Section 5.4, Mr. Giroux was wrongfully removed from the Board of Managers on November 1, 2010.
19. On January 24, 2011, a special meeting of HTP’s managers was held at the offices of Reger Rizzo & Darnall LLP in Philadelphia, Pennsylvania (“January 24 Meeting”). Present (in person) for HTP were Mr. Rutsch, Ms. Bain, and Mr. Irwin.
20. At the January 24 Meeting, Mr. Rutsch, Ms. Bain, and Mr. Irwin unanimously voted to elect Mr. Rutsch as President and CEO of HTP and Ms. Bain as Secretary.
21. At the January 24 Meeting, Mr. Rutsch, Ms. Bain, and Mr. Irwin unanimously voted to approve their annual compensation at $240,000 for Mr. Rutsch, $240,000 for Mr. Irwin, and $80,000 for Ms. Bain. Mr. Giroux’s compensation was discontinued on February 7, 2011.
Wrongful Dilution of Giroux Group’s Ownership Interest in HTP
22. Giroux Group incorporates the foregoing allegations as if fully alleged herein.
23. After Mr. Giroux was removed from the Board of Managers, Mr. Rutsch, Ms. Bain, and Mr. Irwin wrongfully diluted Giroux Group’s ownership interest in HTP.
24. On January 1, 2011, Mr. Rutsch, Ms. Bain, and Mr. Irwin, in their capacity as Managing Members of HTP, granted to RBI 2, Bain 2, and Electrum voting units equal to 7.5% of the current number of units held by them.3
25. On August 1, 2011, Mr. Rutsch, Ms. Bain, and Mr. Irwin, in their capacity as Managing Members of HTP, granted 3,656.8 voting units to RBI 2; 1,898 voting units to Bain 2; and 2,457.4 voting units to Electrum.
26. On September 22, 2011, Mr. Rutsch, Ms. Bain, and Mr. Irwin, in their capacity as Managing Members of HTP, granted 2,918.3 voting units to RBI 2; 972.8 voting units to Bain 2; and 2,918.3 voting units to Electrum.V V
27. Neither Giroux Group, nor Larry Giroux received any membership units in HTP in connection with these three transactions.
28. HTP did not have a valid business reason for granting the voting membership units in HTP to RBI 2, Bain 2, or Electrum on these dates.
29. By issuing the voting membership units to RB! 2, Bain 2, and Electrum as described above, HTP caused Giroux Group’s ownership interest to fall below the 20% threshold requirement to appoint a member to the Board of Managers pursuant to Section 5.4 of the Operating Agreement.
30. The additional membership units issued by HTP gave Defendants RB! 2 and Bain
2 a combined controlling interest in HTP.
31. On or about December 21, 2010, Mr. Rutsch, Ms. Bain, and Mr. Irwin proposed an Amended and Restated Operating Agreement. Section 5.4 was revised to remove the provision allowing any member holding a membership interest of 20% or more to appoint a member of the Board of Managers.
32. However, Section 12.1 of the original Operating Agreement provides that it can only be amended by a majority vote of all voting members and Section 12.2 provides that certain provisions can only be amended with the unanimous approval of all the voting members. Giroux Group refused to sign the Amended and Restated Operating Agreement. It is invalid because it was not authorized or was obtained in violation of duties owed to Giroux Group and the original Operating Agreement continues to govern HTP.
FIRST CLAIM FOR RELIEF
(Breach of Fiduciary Duty — Wrongful Removal of Larry Giroux from Board of Managers —
Defendants Rutsch and Bain)
33. Giroux Group hereby incorporates the allegations contained in each of the preceding paragraphs as if fully set forth herein.
34. At all times relevant hereto, Mr. Rutsch and Ms. Bain were managers and officers of HTP and owed Giroux Group, as a member of HTP, fiduciary duties.
35. HTP also owed Giroux Group fiduciary duties.
36. Mr. Rutsch and Ms. Bain breached their fiduciary duties to Giroux Group by, among other things, wrongfully removing Larry Giroux, Giroux Group’s appointed member, from the Board of Managers in violation of Section 5.4 of the Operating Agreement.
37. Giroux Group incurred damages, in an amount to be proven at trial, caused by Mr. Rutsch and Ms. Bain’ s breach of their fiduciary duties.
SECOND CLAIM FOR RELIEF
(Breach of Fiduciary Duty — Wrongful Dilution of Membership Interest —
Defendants Rutsch and Bain)
38. Giroux Group hereby incorporates the allegations contained in each of the preceding paragraphs as if fully set forth herein.
39. At all times relevant hereto, Mr. Rutsch and Ms. Bain were managers and officers of HTP, and Mr. Irwin was a manager, and all owed Giroux Group fiduciary duties.
40. Mr. Rutsch and Ms. Bain breached their fiduciary, duties to Giroux Group by
wrongfully diluting Mr. Giroux’s ownership interest in HTP.
41. On January 1, 2011, August 1, 2011, and September 22, 2011, Mr. Rutsch, Ms. Bain, Mr. Irwin and HTP provided additional membership units to RBI 2, Bain 2, and Electrum.
42. There was no valid reason for this.
43. Giroux Group incurred damages, in an amount to be proven at trial, caused by Mr. Rutsch and Ms. Bain’s breach of their fiduciary duties.
THIRD CLAIM FOR RELIEF
(Breach of Contract — Wrongful Removal of Larry Giroux from Board of Managers —
Defendants Rutsch and Bain)
44. Giroux Group hereby incorporates the allegations contained in each of the preceding paragraphs as if fully set forth herein.
45. On September 22, 2008, Mr. Rutsch, Ms. Bain, and Mr. Irwin, signed the Operating Agreement.
46. Pursuant to Section 5.4 of the Operating Agreement, any voting member holding a 20% or greater interest of the issued and outstanding membership units was entitled to appoint one member to the Board of Managers.
47. On November 1, 2010, Giroux Group was a voting member and owned a 22.39% interest in HTP, and therefore, had a right to appoint an individual to the Board of Managers.
48. Larry Giroux was Giroux Group’s appointed member on the Board of Managers.
49. On November 1, 2010, over Mr. Giroux’s objection, Mr. Rutsch and Ms. Bain voted to remove Mr. Giroux from the Board of Managers and replace him with Mr. Irwin.
50. Thereafter, Mr. Rutsch, Ms. Bain, and Mr. Irwin managed HTP as if they were the Board of Managers.
51. The actions of Mr. Rutsch and Ms. Bain in removing Giroux Group’s appointed member from the Board of Managers constituted a Breach of the Operating Agreement.
52. As a direct and proximate result of the Defendants’ breaches of the Operating Agreement, Giroux Group has suffered damages in an amount to be proven at trial.
FOURTH CLAIM FOR RELIEF
(Breach of Contract — Wrongful Dilution — Defendants Rutsch and Bain)
53. Giroux Group hereby incorporates the allegations contained in each of the preceding paragraphs as if fully set forth herein.
54. Every contract contains a covenant of good faith and fair dealing, which requires the parties thereto to act in good faith.
55. After Mr. Giroux was wrongfully removed from the Board of Managers on November 1, 2010, Mr. Rutsch, Ms. Bain, and Mr. Irwin caused HTP to issue additional membership interests to RBI 2, Bain 2, and Electrum on January 1, 2011, August 1, 2011, and September 22, 2011 respectively.
56. The additional stock issued by HTP diluted Giroux Group’s interest in HTP to below 20%, the threshold requirement for appointing a member to the Board of Managers.
57. The additional membership units issued by HTP gave RBI 2 and Bain 2 a combined controlling interest in HTP.
58. There was no valid reason for the issuance of the additional membership units to RBI 2, Bain 2, and Electrum on January 1, 2011, August 1, 2011, and September 22, 2011.
59. The actions of Mr. Rutsch and Ms. Bain in diluting Giroux Group’s ownership interest in HTP constituted a breach of the covenant of good faith and fair dealing of the Operating Agreement.
60. As a direct and proximate result of these breaches of the Operating Agreement, Giroux Group has suffered damages in an amount to be proven at trial.
FIFTH CLAIM FOR RELIEF
(Civil Conspiracy — Wrongful Removal — Defendants Rutsch and Bain)
61. Giroux Group hereby incorporates the allegations contained in each of the preceding paragraphs as if fully set forth herein.
62. Mr. Rutsch, Ms. Bain, and HTP had a meeting of the minds to wrongfully remove Mr. Giroux, as Giroux Group’s appointed member, from the Board of Managers.
63. Mr. Rutsch and Ms. Bain committed at least one unlawful overt act in furtherance of this conspiracy by voting to remove Mr. Giroux from the Board of Managers.
64. Giroux Group incurred damages as a result of the civil conspiracy.
SIXTH CLAIM FOR RELIEF
(Civil Conspiracy — Wrongful Dilution — Defendants Rutsch and Bain)
65. Giroux Group hereby incorporates the allegations contained in each of the preceding paragraphs as if fully set forth herein.
66. Mr. Rutsch, Ms. Bain, Mr. Irwin, and HTP had a meeting of the minds to dilute Giroux Group’s ownership interest such that it no longer had a 20% ownership interest in HTP, and therefore could no longer appoint a representative to the Board of Managers.
67. Mr. Rutsch and Ms. Bain committed an unlawful overt act by diluting Giroux
Group’s ownership interest without a valid business reason for doing so.
68. Giroux Group incurred damages as a result of the civil conspiracy.
JURY DEMAND
Giroux Group demands a trial by jury on all issues so triable.
PRAYER FOR RELIEF
WHEREFORE, Giroux Group respectfully requests the Court to:
A. Enter judgment in its favor and against Defendants in an amount to be proven at trial;
B. Award Mr. Giroux costs, interest and other amounts provided by law; and
C. Order such other and further relief as the Court deems just and proper.

Outcome: Settled and dismissed with prejudice.

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Defendant's Experts:

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