Lawsuit filing somewhat of a surprise for TCT CEO

WORLAND — With overwhelming support (80 percent of Tri-County Telephone cooperative members voting in favor of the sale of TCT in December 2014), TCT CEO Chris Davidson was surprised that a suit was filed last year.

Speaking to the Daily News last week regarding the civil lawsuit filed by former board member Joe Campbell and his wife Barbara of Thermopolis, Davidson said, “Leading up to the transaction we were careful in our preparations in case there was legal action. A lot of attorneys reviewed everything to make sure, yes, statutes are being followed; yes, everything is being done correctly.”

He added, “Once the vote actually came in and it was so overwhelming in favor I thought for a brief period of time maybe there wouldn’t be any legal action. There were essentially 30 individuals who voted no.”

The Lawsuit

According to the complaint filed in late December last year, TCT was sold at the end of 2014 for $51 million, less $12 million to retire debt, less $10 million held back for “unforeseen liabilities” leaving $29 million paid to the “owners” or Tri-County Telephone cooperative members.

The suit alleges that TCT held hard assets of over $90 million.

Cooperative members were original Tri-County Telephone customers in Burlington, Otto, Emblem, Ten Sleep, Hyattville and Hamilton Dome.

At the time of the sale at the end of 2014, TCT had about 10,000 total customers. According to its website, “TCT is a broadband company, providing telephone, Internet, television and security services to the Big Horn Basin of Wyoming, including Basin, Burlington, Byron, Cody, Cowley, Deaver, Emblem, Frannie, Greybull, Hamilton Dome, Hyattville, Lovell, Manderson, Meeteetse, Otto, Powell, Ralston, Shell, Ten Sleep and Wapiti.” They also provide services to certain areas of Southeastern Montana and provide some internet services in Worland.

According to the complaint, the “total transaction was not $51 million … the owners did not receive $51 million. The owners were bilked out of tens of millions of dollars of value that they owned in the company.”

Cooperative members voted by mail-in ballot with a meeting on Dec. 20, 2014, to announce the vote. The sale was completed Dec. 31, 2014. According to Elections Committee Chairman Lynn Allen at the time of the Dec. 20 meeting, they received 694 valid votes of 825 eligible cooperative members, 89 percent. There were 652 in favor of the sale, or 79 percent, and 42 opposed. The 652 was 94 percent in favor for those who cast a vote.

The proposed sale, which was announced to members via a letter in September, drew criticism early, with some of the same concerns outlined in the class action lawsuit, centering around the value of the company.

The suit does not seek a specified amount for “damages.”

Responses

As for the filing of the civil lawsuit by a former board member (the cooperative board was disbanded upon completion of the sale), Davidson said, “My personal opinion of ‘Joe the board member,’ who had his computer with all the documents, he was privy to everything and he kept that; he then goes and sues as ‘Joe the personal individual.’”

He added, “There’s no context for what led up to it, what he did as an individual, why he’s suing.”

“He’s suing five other board people, myself the CEO, the CFO, the company attorney and somehow he’s trying to spin it as one big conspiracy theory when everything is out in the public. Everything was given to everyone. That’s why I want to give context.”

Allegations Davidson addressed in his interview include:

—His friendship with Neil Schlenker, who was the buyer along with two other partners as BHT Holdings.

Davidson said he disclosed his friendship with Schlenker to the board during the first offer by Schlenker in 2009. He said he’s known Schlenker since their high school days, Davidson in Burlington, Schlenker in Meeteetse.

He said during the second offer, Schlenker dealt with the board directly. “There was no ability for me to create side deals,” he said.

Davidson showed the Daily News a copy of an agreement that was offered Schlenker in 2009 to pay Schlenker for the time and effort he spent on looking into the purchase of TCT. The agreement also asked Schlenker to not come before the board for at least five years. Schlenker did not sign the agreement, Davidson said.

—One of the allegations in the complaint is that TCT, and specifically Davidson, forced Campbell to sign a non-disclosure agreement. Board minutes for April 19, 2006, show Campbell making a motion to put non-disclosure agreements in board policy.

—According to the complaint, “Davidson disclosed that Defendant Schlenker had discussed Defendant Davidson being given 5 percent of the ownership of the buyer (Defendant Schlenker’s company) if the sale (in 2009) went through. The email disclosing this discussion is attached hereto as Exhibit 1. As a cooperative, one owned by the members and subscribers of the services of the Cooperative, ownership of this magnitude of TCT was prohibited. That Defendant Davidson, while serving as the CEO of TCT had entered into such discussions with a potential buyer came as a shocking revelation to members of the Board of Directors.”

According to the email, dated June 16, 2009, available on Campbells’ website for the lawsuit at tctlitigation.com. Davidson was addressing a question from Campbell and states, “I assumed the other board members would fill you in on the details of Neil’s offer of employment contracts to Steve (Harper, CFO) and me. He offered them approximately a month after he came to the meeting. He offered me 5 percent of the company … I then told him that I could not have any ownership. I do not have a contract with him but expect he will eventually get around to one that includes annual cost of living increase, bonus and perhaps profit share.”

—Another allegation in the complaint is that after the first proposal, “Defendants Chris Davidson, Neil Schlenker, Dalin Winters, and members of the Board made numerous efforts to eliminate any dissent by Board members, including, but not limited to, remove Board members who had been highly vocal in their opposition to the Schlenker first takeover bid. Those efforts included trying to amend the bylaws to do away with Plaintiff Joe Campbell’s Board seat by combining Hamilton Dome and Hyattville areas.”

Davidson denied the allegations but did note that the board publicly censured Campbell in 2013. The censure states, “The Board does hereby censure Director Campbell for disclosing confidential information in a manner that was misleading and that undermined the actions of the Board. Further, the Board does hereby demand that Director Campbell refrain from disclosing confidential Company information and engaging in such improper behavior in the future.”

The censure included a letter to Tri County Telephone Association members, signed by board chairman, J.O. Sutherland on June 20, 2013. The letter states that the censure was presented at the June 15, 2013, annual meeting and was also being provided by mail to all members.

—Davidson said Campbells’ claim that the debt wasn’t retired is false. In the complaint, the Campbells allege “the $12,000,000 figure to ‘retire the current debt’ was a false and fraudulent figure; as such monies were not paid to retire the debt.”

He provided the “full release, satisfaction and discharge of mortgages” from Rural Utilities Service as of Jan. 16, 2015.

Davidson said, “When it was a cooperative we borrowed heavily from (RUS).” He said Union Bank in California is the new bank for TCT and RUS was paid off after the purchase.

—Davidson, in regards to the allegation about voter fraud and Davidson collecting votes, said he did not collect any votes. Schlenker did hire some people to visit members and collect votes.

Davidson admitted he originally proposed having TCT employees collect votes but that proposal was rejected.

In regards to an allegation of Davidson speaking in favor of the sale, Davidson said he only spoke publicly about the sale after being given permission from the board.

“I don’t understand why the accusation of me supporting it publicly is somehow fraudulent or wrong,” he said.

—Davidson said the allegation that BHT Holdings used TCT’s own assets to purchase the company doesn’t make sense. If Schlenker was going to use the company’s own assets, why did he need additional partners to finance the purchase. BHT Holdings is Schlenker, Glen Ishihara and Kelly Fowler, according to information filed with the Wyoming Secretary of State’s Office.

—Breach of fiduciary duties. Davidson said the cooperative members were provided information regarding the sale and how much equity they would receive. “The board sought legal counsel on everything, they hired a financial expert to advise, they met with the proposed buyer as a board, negotiated and then sent the offer to the members to vote. They did everything that they were supposed to for the members. They received an offer that they thought was sufficient that they thought members should vote on. They did all of their diligence,” he said

Davidson admitted that Campbell was opposed to the sale. “I think there was some hope that he would join so it could be unanimous support of it.”

He added, “I don’t think in the beginning any of the members thought Neil would make an offer that was sufficient to buy the company.”

According to a letter of agreement in July 2014, the original proposal was for $40 million and that was negotiated up to $51 million.

“The board had a policy on what to do for offers that came in for purchase and they followed the policy. [The policy was developed after Schlenker’s first offer in 2009.] I think most of them would have been completely happy if we were still just running as a co-op.” He said the offer was sufficient enough per their policy that it cleared the hurdle, meaning it was big enough for them to no longer make the decision but to take it to the cooperative members.

“They did everything they were supposed to do with it,” Davidson said.