Several defendants, including one of Richmond’s biggest accounting firms, have shaken loose from a legal battle between Thalhimer and a scorned former employee.
Meanwhile, the remaining defendants have begun to chip away at pieces of the lawsuit filed against the Henrico-based real estate firm’s top executives by Steven Brincefield, the company’s retired longtime head of property management.
At a hearing in Richmond federal court last week, Judge John Gibney Jr. dismissed all counts against four defendants who were added to the case in an amended filing in July.
Most notable among them was accounting firm Cherry Bekaert, which had worked for Thalhimer and its now-defunct general contracting arm MGT Construction since 2014.
Brincefield’s suit, filed originally late last year, seeks to blame Thalhimer’s top brass for depleting the value of its employee stock ownership plan, in part due to the financial troubles at MGT caused by an accounting scheme allegedly carried out by some of the contractor’s former employees.
Cherry Bekaert was added to the case in an attempt to blame it for not catching the fraud at MGT as part of its duties as Thalhimer’s outside accountant.
The other defendants that were dismissed from the case last week were Corporate Capital Resources, a firm that consulted for Thalhimer on management of the ESOP, as well as two consultants from Corporate Capital – W. William Gust and Michael Coffey.
Another defendant that was added in July – Sheldrick, McGehee & Kohler, a Florida-based firm that provided valuation services to the ESOP – was dismissed from the case this month after resolving the claims. The details of that resolution were not specified in court filings.
Each of the defendants filed lengthy arguments for dismissal. One of Cherry Bekaert’s main arguments was that Brincefield’s case contradicted itself by claiming both that Thalhimer knew or should have known about the accounting issues at MGT, and that Cherry Bekaert also was at fault and should have known.
“This is the rare case in which a plaintiff’s own allegations defeat his claims against a defendant,” Cherry Bekaert argued in its motion to dismiss.
That argument was made despite the fact that Thalhimer also is suing Cherry Bekaert for negligence, claiming it should have caught the issues at MGT. That case, which still is pending in Richmond Circuit Court, is not affected by the accounting firm’s dismissal from the Brincefield suit.
The remaining defendants in the case are those who were named in the original complaint: Lee Warfield; former longtime Thalhimer head and Chairman Paul Silver; executive vice president Evan Magrill; CFO David Dustin; Jeff Bisger, former head of what’s now Thalhimer Realty Partners; and Lance Studdard, an ESOP consultant hired by the company.
They too scored a victory from last week’s hearing, as Gibney said he would be tossing out the two conspiracy counts against them.
They still face counts of breach of fiduciary and breach of contract, as well as alleged violations of provisions of ERISA, the federal statute that governs employee stock ownership plans.
In their calls for dismissal, the Thalhimer executive defendants claim Brincefield’s case is fueled by “conspiracy theories and unabashed rage.”
“The amended complaint spins tales of alleged corporate malfeasance leading to the bankruptcy of (MGT Construction),” their dismissal filing states. “For all its drama, the amended complaint pleads dry, technical legal claims; and for dry, technical legal reasons those claims should be dismissed.”
The Thalhimer defendants have acknowledged there was a scheme at MGT and that they were the ones to uncover it. They argue further that they’ve done their best to unwind the situation by ultimately putting MGT into Chapter 7 bankruptcy.
While Brincefield argues the value of the ESOP was depleted, Thalhimer and its attorneys have said the stock plan since has been made whole and that the value of the shares in the ESOP has bounced back in a positive direction since MGT began to be wound down.
Brincefield filed the case on his own behalf but also as a shareholder derivative case on behalf of Thalhimer and the ESOP. The Thalhimer defendants also have called for dismissal of derivative claims, its main argument being that a company’s board of directors has the ultimate say on whether derivative claims should be pursued against the executives on behalf of the company.
They argue that the board of directors ordered an internal investigation of Brincefield’s claims, which was conducted by a so-called independent special litigation committee.
That committee produced a report, which determined that litigation against Thalhimer executives was not warranted.
That report has remained sealed from public view since the lawsuit was filed and remains a focus of the case. Gibney ordered last week it should be unsealed before month’s end, stating ultimately that it is in the public interest to make the report available.
In addition to the expected unsealing, the next steps in the case will include Brincefield’s camp making requests for documents and other information to be used in discovery to further flesh out his allegations ahead of a possible jury trial, which has been set for May 6.