Gardner v. Larkin

District Court, D. Rhode Island·Decided November 27, 2019·No. 1:19-cv-00139·Unknown

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND JOHN GARDNER, IV,and : DAVID GARDNER, : Plaintiffs/Counter Defendants, : : v. : C.A. No. 19-139JJM : JAMES R. LARKIN, individually and as : the Managing Member of BluShield : Window Systems, LLC, and BLUSHIELD : WINDOW SYSTEMS, LLC, : Defendants/Third-Party Plaintiffs/ : Counter Claimants, : : v. : : CUSTOM BUILT WINDOWS : MANUFACTURING, LLC, : CUSTOM BUILT, INC., and : JOHN E. GARDNER, III, : Third-Party Defendants. : REPORT AND RECOMMENDATION PATRICIA A. SULLIVAN, United States Magistrate Judge. This case arises from a struggle over ownership and control of affiliated business entities –Custom Built, Inc. (“CBI”),andCustom Built Windows Manufacturing, LLC (“CBWM”), (“the Companies”) –pitting an outsider from Connecticut (James R. Larkin, “Mr. Larkin”) against the Rhode Island Gardner family that had owned and operated the Companies’ predecessor for decades and came to regret their decision to open their ranks to an outsider. Since October 2017, Mr. Larkin has been the 50% owner ofboth Companies. The Gardners1 own the other 50%. Beginning prior to becoming an owner and continuously until he was fired 1As used in this report and recommendation, the “Gardners” refers to the three Gardner family members who are the owners of the Companies and the parties in this case (John Gardner, IV, David Gardner and John E. Gardner, III). and completely frozen out by the Gardners,Mr.Larkin was employed by the Companies and was actively involved in working, particularly to build upCBI’s business for the benefit of both CBI and CBWM. Both Companies are now deadlocked. Currently pending before the Court is Mr.Larkin’s emergency motion asking the Court to appoint a temporary receiver pendente lite and to enter a preliminary injunction,inter alia,

reinstating Mr.Larkin as an employee andrestoring his salary and health benefits. ECF No. 18 (“the Emergency Motion”). Because of the deadlock, the Companies have been unable to engage legal counsel; therefore, the Court appointed a Special Master to report regarding certain ofthe matters placed in issue by the Emergency Motion. ECF No. 26. TheSpecialMaster’s extensive, factually-denseand extremely helpfulreport was timely filed on June 14, 2019. ECF No. 60. In June and July 2019, an evidentiary hearing was held on the Emergency Motion, following which the parties made post-hearing filings. ECF Nos. 96,97, 99, 101. On September 27, 2019, a hearing was held at which I advised the parties on the record of my proposed findings. ECF No. 109(Transcript). During this hearing, Ialso informed them that, as to certain

issues related to the interests of the Companies (particularly the impact on the Companies ofMr. Larkin’s reinstatement and the restoration of his salary and ofhealth benefits), the Court needed additional information but also was concerned about the need to forfend irretrievable alterations to the status quo during the resulting delay. Toaddress these matters, on October 31, 2019, the Court issued its Order Appointing Interim Receiver Pendente Lite and Adding to Duties of Special Master. ECF No. 114. As relevant to this decision, this order authorizes Theodore Orson, in his capacity as the Special Master, to investigate, make recommendations and advise the Court regarding the impact of reinstating a salary and health benefits for Mr.Larkin in connection with his status as an employee, shareholder, manager or member of either or both of the Companies; a well-qualified financial consultant was appointed to assist and advise him. Id.¶¶14-15. This order also directed Mr. Orson, in his capacity as Receiver to report to the Court whether the assigned duties need to be expanded, altered, or reduced and to take such other actions consistent with these powers as he deems appropriate to maintain the status quo with respect to the matters in issue

until final decision on the Emergency Motion. Id. ¶¶ 9, 11.2 This final report is due in mid- December, following which the parties have the right to respond. Therefore, my report and recommendation on the merits of the Emergency Motion will not issue until late December at the earliest. On November 20, 2019, the Receiver/Special Master filed an interim report and petitioned3 the Court for interim instructions. ECF No. 117 (the “Petition”). The parties filed responses, ECF Nos. 119, 120, and the Court held an expedited hearing on November 25, 2019. The Petition brought disturbing new factual information to the attention of the Court: after firing and freezing out Mr. Larkin, the Gardners embarked on a major restructuring of CBI without

informing, consulting or conferring with Mr. Larkin, despite his status as the owner of 50% of the CBI’s shares and despite the reality that CBI had been built up as a result of Mr. Larkin’s efforts.4 The Petition also advised the Court of the recommendations of the Receiver/Special

2In this report and recommendation, Mr. Orson is referred to as “Receiver” or “Special Master,” depending on the capacity in which he is acting. 3The Petition was referred to me for determination. 28 U.S.C. § 636(b)(1)(A). 4Through counsel, the Gardenersacknowledgedthat they had restructured CBIby terminating approximately twenty employees, but arguedthat it was done for the benefit of CBI and not to manipulate its value for litigation purposes. The Court makes no finding regarding whether the restructuring was done in accordance withthe appropriate exercise of business judgmentor for a more nefarious purpose. Rather, the focus of the Receiver and of the Court is onthe very troubling undisputed realitythat, while these proceedings have been ongoing(but before September 27, 2019), the Gardners have continued to act as if Mr. Larkin is not an owner of 50% of the Companies. This conduct evinces a disturbing tone-deafness to the fiduciary obligationsthat theyowe to their equal co-owner andcompels the conclusion that a more aggressive intervention is needed to preserve the status quoduring this period before the Court receives that report of the Special Master and issues its final report and recommendation Master’s financial consultant, endorsed by the report of the Receiver/Special Master, that Mr. Larkin should be provided with health insurance for himself and his family, as well as that, as an owner of the Companies, he should be paid $10005 per week. ECF No. 117 ¶ 9. Following a hearing on November 25, 2019, based on presentations of the Receiver and the parties, the Court granted the Petition to the extent that it asked the Court to require that all owners of the

Companies and the Receiver/Special Master attend weekly meetings6 to discuss all material business matters expected to occur during the following week, with Mr. Larkin to be reimbursed for his expenses associated with attending such meetings. ECF No. 121. As to the Petition’s requests that Mr. Larkin should be provided with health insurance for himself and his family, as well as that he should be paid $1000 per week as a co-owner, I deemed theseto be in the nature of injunctive relief pursuant to Fed. R. Civ. P. 65, which 28 U.S.C. § 636(b)(1)(B) requires must be addressed in a report and recommendation. Accordingly, I am issuing this report and recommendation for the limited purpose of addressing only the interim issues of health insurance for Mr. Larkin and his familyand of prospective payment to

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