Lawsuit aimed at Farmer Bros.
By Muhammed El-Hasan
A finance professor filed a class-action lawsuit against Torrance coffee roaster and distributor Farmer Bros. Co. to prevent the firm’s management from having most voting shares. The lawsuit comes as dissident investors search for ways to defeat a management-sponsored proposal to reincorporate in Delaware, a move that would further strengthen management’s control. Filed late Thursday in U.S. District Court in Los Angeles, the suit seeks to prevent management from voting the shares contained in the employee stock ownership plan — about 8 percent of all company shares. Leonard Rosenthal, a finance professor at Bentley College in Waltham, Mass., purchased eight shares of Farmer Bros. stock in July. “It was bought with the idea of making money on this,” Rosenthal said in a telephone interview. “It was after I bought the stock that I realized there were problems with corporate governance.” Farmer Bros. has made about $35 million in loans to the ESOP, which rewards employees with a stake in the company, but also concentrates a large block of voting shares in management. The lawsuit also seeks to have the company directors personally repay the minority shareholders the amount spent on the ESOP. “The illegal loans to the ESOP have illegitimately created enough management-controlled votes to lock the minority shareholders into permanent minority status,” the lawsuit states. Farmer Bros. treasurer John Simmons said in a statement: “The company hasn’t yet had a chance to thoroughly review and respond to the complaint filed yesterday in the district court. On its face, however, there appears to be no basis for this action.” In October, management submitted a proposal for the Jan. 5 shareholder meeting to reincorporate in Delaware. If approved, the proposal would require an 80 percent super majority to pass any investor-sponsored proposal. The coffee roaster, whose products are used in restaurants, hotels and other commercial outlets, has been fending off dissident investor accusations that management is too secretive about financial information including plans for its cash stockpile of $300 million. Chairman Roy F. Farmer and the rest of the management control 54 percent of stock. If the class-action lawsuit succeeds, company management would no longer control most shares.Last month, Farmer’s sister, Catherine Crowe,and her two children filed a lawsuit to remove him as head of a family trust containing shares owned by the Crowes. If successful, that lawsuit would deny Farmer another 12.5 percent of voting shares for the shareholder meeting. If both lawsuits succeed, management’s voting block would decline to about 33.5 percent of shares. “If you knock off either the 12.5 percent from the Crowe trusts or the 8 percent from the ESOP, management wouldn’t have the votes for the reincorporation,” said Gary Lutin, who runs a Farmer Bros. discussion group funded by one of the dissident investors. “If they win the reincorporation vote, there will be virtually no shareholder rights left. So it’s a survival issue for shareholders. The Farmer Bros. share price rose 5 percent Friday on Nasdaq to close at $315.25. Publish Date:December 8, 2003
© Copyright 2003 Copley Press, Inc.
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