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Investor Seeks DBM Records To Probe Possible
Misconduct
By
Rose Krebs
Law360 (September 14, 2018, 5:15 PM EDT) -- An investor
group asked the Delaware Chancery Court on Thursday for access to
construction company DBM Global Inc.'s book and records to investigate
possible wrongdoing involving a controlling stockholder, including claims
the stockholder borrowed funds for its sole benefit.
Shareholder Fair Value Investments Inc. filed a complaint under Section
220 of Delaware Corporation Law seeking access to the records to
investigate possible mismanagement and breaches of fiduciary duty by the
company's officers relating to financial dealings with controlling
stockholder
HC2 Holdings Inc.
"There is a more than credible basis to infer that the directors of DBM
engaged in possible mismanagement or wrongdoing and/or that they breached
their fiduciary duties by permitting misconduct by DBM's controlling
stockholder to persist," the complaint said.
HC2, which owns 90 percent of the company's stock and has been controlling
stockholder since 2014, has utilized its position to "unilaterally" elect
all board members and act as if it owns 100 percent of the company without
regard to the rights of minority shareholders, the complaints contends.
HC2 has borrowed funds using the "financial strength of DBM" for its sole
benefit, the complaint contends. An indenture HC2 entered into in 2014
with
U.S. Bank NA
includes restrictions on DBM that have impacted the company's ability to
borrow for its own business opportunities, the shareholder claims.
"HC2 has also announced its intention to refinance its existing debt and
presumably will continue to use restrictions on DBM's finances to support
that refinancing," the complaint asserts.
DBM has failed to provide financial statements necessary to determine if
officers violated their fiduciary duty in connection with the indenture
and whether it violates Delaware Corporation Law limiting such
arrangements to subsidiaries completely owned by a parent company, the
complaint said.
The shareholder also called into question a tax sharing agreement between
HC2 and DBM, contending information about the pact has not been provided
such as how much DBM might be saving in taxes.
Information about millions of dollars in cash advancements DBM made to HC2
since 2016 has also not been provided in financial statements or whether
the company was reasonably compensated, including interest, for the
transactions, the complaint contends.
The investor group also claims HC2 employees who sit on the board may have
engaged in a scheme this year to avoid a stockholder meeting in which
questions about the indenture and advancement of funds would be raised.
In an Aug. 27 letter to the company’s general counsel, Fair Value
Investments Chairman Gary Lutin said the refusal previously to provide
some records led to the filing to determine if action should be taken to
recover damages if the officers did not perform their duties.
Under Delaware law, investors can have the Chancery Court compel a company
to release its books and records for inspection if the shareholder can
show a "proper purpose," such as investigating wrongdoing.
Arizona-based DBM Global provides construction services to a portfolio of
companies that includes Schuff Steel Co., a steel fabrication and erection
company, according to its website.
Representatives for DBM and the shareholder's counsel were not immediately
available for comment Friday.
Counsel information for DBM Global Inc. was not immediately available.
Fair Value Investments Inc. is represented by Edward M. McNally and
Kathleen A. Murphy of
Morris James LLP.
The case is Fair Value Investments Inc. v. DBM Global Inc., case number
2018-0677, in the
Court
of Chancery of the State of Delaware.
--Editing by Katherine Rautenberg.
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