Minehan v. McDowell

1

KEVIN MINEHAN, individually and derivatively on behalf of CHRISTI INSURANCE GROUP, INC., Plaintiffs, v. ERIC G. MCDOWELL, et al., Defendants, and CHRISTI INSURANCE GROUP, INC., Nominal Defendant.

Civil Action No. 21-cv-05314-CFK

United States District Court, E.D. Pennsylvania

August 18, 2022

ORDER

CHAD F. KENNEY, JUDGE.

I. Introduction

This case concerns a dispute between the shareholders of Christi Insurance Group, Inc. (Christi), an independent insurance agency corporation organized under the laws of Pennsylvania. On December 3, 2021, Kevin Minehan, the former President of Christi, individually and derivatively on behalf of Christi (collectively, Plaintiffs) commenced this shareholders' dispute against Eric G. McDowell, the current President of Christi, and Andrew T. Lunney, the current Vice President of Christi (collectively, Defendants).^[1]

Before the Court is Plaintiffs' Amended Motion for a Preliminary Injunction. ECF No. 6. Plaintiffs ask the Court to enjoin Defendants McDowell and Lunney from continuing in their roles as President and Vice President of Christi, from merging Christi with McFadden or any other company; from conducting Christi's operations from the 550 Pinetown Road, Fort Washington, PA office; from disclosing confidential information or trade secrets to any third parties; from disclosing the identity of Christi's clients to any other persons or companies; and from interfering with any present employees of Christi with respect to any business activity. ECF No. 6-1. Plaintiffs also ask that the Court appoint a receiver pendente lite or custodian to manage Christi's finances and assets for the duration of the litigation. ECF No. 57 at 4-5 39; ECF No. 60 at 8-16. Plaintiffs base their request for injunctive relief on their claims for breach of fiduciary duty, minority shareholder oppression, and violations of federal and state trade secret laws. See ECF No. 6-1 at 2; ECF No. 6-3 at 19-28; ECF No. 57 at 39-41; ECF No. 61 at 23-36.

The Court permitted targeted discovery in advance of a hearing on the Motion for Preliminary Injunction. The hearing was held on June 2, 2022. Upon consideration of the testimony and evidence presented at the hearing and the parties' thorough briefing of the issues, the Court DENIES Plaintiffs' request for a preliminary injunction. The Court finds that Plaintiffs have not established a reasonable probability of success in the eventual litigation and have not shown irreparable harm. Plaintiffs claim that Defendants' continued management of Christi will result in irreparable harm to the agency, resulting in “a situation in which Mr. Minehan is left owning 43 percent of a company worth little to nothing.” However, upon review of the record, the Court cannot find that Christi's financial management and stability have been meaningfully impaired by the management changes and decisions challenged by Plaintiffs. Defendants provided substantial evidence at the hearing that Christi's financial well-being has remained the same, if not improved, since Minehan's removal as President. The parties have also provided detailed evidence that Minehan used Christi's corporate funds for personal expenses, potentially putting Christi in a precarious financial position, which Minehan now uses in an attempt to reassert control over the agency. In these circumstances, a preliminary injunction is neither necessary nor equitable. For similar reasons, Plaintiffs' request for appointment of a receiver pendente lite or custodian is denied. Appointment of a custodian is an extraordinary remedy, and Plaintiffs have not demonstrated why such a remedy is warranted. Accordingly, the Court DENIES Plaintiffs' Motion for Preliminary Injunction.

II. Procedural History

On December 16, 2021, Plaintiffs filed a Motion for Temporary Restraining Order (TRO) and Preliminary Injunction (ECF No. 4) and four days later filed an Amended Motion for TRO and Preliminary Injunction (ECF No. 6). Plaintiffs seek to end Messrs. McDowell and Lunney's financial control over Christi and protect Plaintiffs from the alleged risk that Defendants pose to the financial stability and competitiveness of the agency. This Court held a hearing on December 22, 2021 and subsequently denied the request for a TRO. ECF No. 18.

At the direction of this Court, the parties met and conferred and submitted a Stipulated Order governing the parties' conduct leading up to a hearing on the Motion for Preliminary Injunction. ECF No. 16. On June 2, 2022, this Court held a Preliminary Injunction Hearing. At the hearing, the Court heard testimony from four witnesses: Kevin Minehan; Laif Eric Ringoen; Eric McDowell; and Andrew Lunney. ECF No. 52. On June 24, 2022, the Parties filed Proposed Findings of Fact and Conclusions of Law with supporting briefs on the issue of whether the Court should grant a Preliminary Injunction. ECF Nos. 58-61, 66.

III. Findings of Fact

1. Plaintiff Minehan and Defendants McDowell and Lunney are employees and shareholders of Christi Insurance Group, Inc. (“Christi”), a corporation which sells a variety of insurance policies. ECF No. 50 ¶¶ 1, 2, 4.

2. Minehan owns 43 percent of Christi. ECF No. 50 ¶ 2.

3. McDowell owns 42 percent of Christi. ECF No. 50 ¶ 2.

4. Lunney owns 15 percent of Christi. ECF No. 50 ¶ 2.

5. In 2004, Minehan became Christi's President. ECF No. 59 ¶ 2; ECF No. 61 ¶ 9.

6. Over time Minehan's relationship with McDowell and Lunney deteriorated, and on June 1, 2021, an attorney for McDowell sent Minehan a letter stating:

“Even based on what we know now, we are confident that we can establish that for purposes of purely enriching your personal net worth and assets at the sole expense of Messrs. McDowell and Lunney, you have (1) caused significant damage to the Agency as a going concern; (2) incurred significant corporate waste; (3) taken irresponsible (in fact, dangerously reckless) business decisions, including, but not limited to, failing to pay off the Agency's high balances in its credit line and allowing a negative-balance commission escrow; and (4) treated minority shareholders oppressively by doing all of the above and not properly keeping them informed of major decisions.”

This letter requested that Minehan agree to have the controller “provide copies of all credit card statements paid by the Agency on a monthly basis for each partner to review,” to agree that that “[a]ll checks will be subject to two partner signatures,” and to agree that that “[a]ll expenses above $5,000 will require approval by at least two partners.” ECF No. 52 at 66:7-11; Def. Ex. 2; ECF No. 59 ¶¶ 9-10; ECF No. 61 ¶ 56.

7. On November 17, 2021, Minehan offered McDowell and Lunney the option of selling Christi and splitting the proceeds, having McDowell and Lunney purchase Minehan's shares in the Christi based on a broker's valuation, or having Minehan buy McDowell and Lunney's shares based on the same valuation. ECF No. 1, Ex M; ECF No. 52 at 63:11-16; ECF No. 61 ¶ 64-65.

8. McDowell and Lunney have declined to sell Christi to a third party, sell their shares to Minehan, or buy Minehan's shares. ECF No. 52 at 148:21-22, 152:2-7; ECF No. 61 ¶ 66.

9. On November 23, 2021, the partners held a Special and Annual Meeting of Shareholders. ECF No. 59 ¶ 24; ECF No. 61 ¶ 75.

10. At the meeting, the partners voted to remove Minehan as Director and President of Christi, appoint McDowell in his place, and appoint Lunney as Vice President. ECF No. 59 ¶ 24; ECF No. 61 ¶ 76.

11. Minehan participated in the meeting and had the opportunity to vote. Def. Ex. 1; ECF No. 52 at 65:18-21, 66:4-6; ECF No. 59 ¶ 25.

12. Plaintiffs initiated this litigation on December 3, 2021. ECF No. 1.

A. The Ringoen Report

13. On June 2, 2021, the day after receiving McDowell's letter, Minehan sent a text message to the current controller, Ms. Christine Jardel, which stated:

“Make sure our records are good. Shred any and all unwanted materials. My guess is he will have accountants going thru [sic] all documents. I'm sure he will want to look at credit card bills. Etc Plan for him to be an absolute pain in the ass.”

ECF No. 50 ¶ 43; ECF No. 52 at 66:14-20; Pl. Ex. 18; ECF No. 59 ¶ 11.

14. In June 2021, the shareholders met to discuss expense management and financial issues and agreed to a forensic accounting of Christi. ECF No. 50 ¶ 44; ECF No. 59 ¶ 12; ECF No. 61 ¶ 58-60. 15. Mr. Ringeon, CPA, was hired to perform a forensic audit of Christi. ECF No. 59 ¶¶ 1213; ECF No. 61 ¶ 61.

16. Ringeon was asked to assess Christi's books and records from January 2017 through August 2021, and tasked with evaluating the expenses charged to agency by each partner, reconciling their line of credit from the bank statements to their books and records, and providing his professional opinion on the need for a line of credit at Christi. ECF No. 52 at 84:3-14; ECF No. 59 ¶ 13-14; ECF No. 61 ¶ 86.

17. As part of his audit, Ringeon interviewed all of the partners and Christi's current controller, Ms. Christine Jardel. ECF No. 50 ¶ 45; ECF No. 52 at 85:7-18, 87:8-21; ECF No. 59 ¶ 15.

18. Ringeon met with Minehan for two days to discuss the schedules that Ringoen prepared. ECF No. 52 at 21:20-22:10, 87:17-21; ECF No. 59 ¶ 15.

19. Ringoen determined that Minehan owed the agency $230,000 based on his use of the agency's 224 account, which allows partners to pass personal expenses through the agency to get deducted from their earnings. ECF No. 52 at 89:18-90:12; Def. Ex. 7 at 4.

20. Ringoen calculated that in five years over $1 million in expenses was charged to Minehan's credit card, and this was roughly three times more than the combined expenses on McDowell's and Lunney's credit cards. ECF No. 52 at 91:15-92:1; Def. Ex. 7 at 4.

21. Ringoen also...