John Doe v. PR Pharmaceuticals, Steven Howard and Dr. Patrick Bols

Class action against PR Pharmaceuticals ("PRP") and its President, Steven Howe, and CEO, Dr. Patrick Bols Colorado investors, including all minority shareholders, for breach of fiduciary duties that controlling officers and directors of a company owe to the minority shareholders not to run the company for the majority shareholders own benefit, to the detriment of the minority shareholders whose investment is at their mercy. By special verdict, after a full trial on the merits, an Arapahoe County jury found that the Defendants breached their fiduciary duties to Englewood-based Verex Laboratories, Inc. ("Verex") and a certified class of its minority shareholders by running the company for their own benefit and to the Plaintiffs' detriment. Judge J. Mark Hannen of Colorado's 18th Judicial District, presided over the trial and entered judgment against all of the Defendants in the amount of $1,569,462, and allowing the Plaintiffs to file a motion requesting the costs and attorneys fees incurred in the case.

CASE FACTS: Verex is an Englewood based publicly traded company that has specialized in the research and development of important drugs and drug technologies in the fight against diseases such as Cancer and AIDS. In March 2000, PRP purchased a majority of the stock in Verex and took control of the company, installing Patrick Bols and Steven Howe, PRP's President and CEO respectively, as the President and CEO of Verex. At the time PRP took control, one of the promises they made to gain control was that PRP would make a Tender Offer to buy out all of the shares owned by the remaining (minority) shareholders at $.50/share within one year. However, PRP made the Tender Offer conditional on timely completion of an audit of the books and records of Verex.

Once PRP took control of Verex, through various actions, and despite written notification from the auditors that they the audits were complete and simply awaiting confirmation from PRP of certain information before the audits would be signed, PRP failed to timely complete the audits. For many months even after the deadline for completing the audits had passed, PRP continued to represent that they were still intending to make the tender offer. But instead they were planning how to close down Verex and walk away from the company all together. In the fall of 2001, without any prior notice to the minority shareholders, PRP, Bols and Howe fired the employees of Verex, gave the employees minutes to gather their things and leave, closed and deadlocked the Verex doors, and sold off the Verex assets in a sale for substantially less than fair market value. PRP then tendered back its Verex stock, and Bols and Howe, who were in control of Verex while all of this took place, resigned their positions from Verex and walked away from the company. PRP never made the tender offer to the minority shareholders, and as a result of PRP, Bols and Howe's actions, the value of the company stock became virtually worthless.

PRP argued at trial that it technically was not obligated to pay the Tender Offer because the audits were not completed. However, it was PRP, Bols and Howe, as those in control of Verex, who had fiduciary obligations to the minority shareholders to insure that they did everything reasonably necessary to complete the audits to protect the minority shareholders' rights. When PRP Bols and Howe tortiously failed to complete the audits, and then used their own failure as a basis to avoid their obligations to the minority shareholders, they breached their fiduciary obligations under Colorado law.

PR Pharmaceuticals is a biopharmaceutical company located in Ft. Collins Colorado. Steve Howe is the president of PR Pharmaceuticals and at the time PRP purchased control of Verex, he became the president of Verex. Dr. Partick Bols is the CEO of PR Pharmaceuticals and at the time PRP purchased control of Verex, he became the CEO of Verex.

Plaintiffs' verdict for $1.569 million.

The class of minority Verex shareholders is comprised of 1185 shareholders holding 1,195,470 shares for a total value of $597,735. The class was represented by Richard Schaps and James Fleming. The class was awarded $1.06 million. Richard Schaps was awarded $123,227 and James Fleming $94,784; Verex was awarded $284,609.

All awards included prejudgment interest compounded both annually and daily; total interest exceeded $300,000 and post judgment interest may continue to accrue, compounded annually. Costs and expenses of litigation, including attorneys fees, are yet to be awarded but will be significant.
"It was particularly gratifying that punitive damages were awarded in this case since the Defendants willfully and wantonly breached their fiduciary duties," said Plaintiffs' lead trial counsel David P. Hersh of Burg Simpson Eldredge Hersh Jardine, P.C. Hersh added, "our clients are, of course, delighted that after all of these years, this matter has been favorably resolved."
"It's good to win vindication for the little guys -- this is what we practice law for -- to fight injustice, even against big companies at great odds. Verex and its 1185 minority shareholders have finally, after several years of a long hard fight, received justice in this case," said Plaintiff's co-lead trial counsel David K. TeSelle.