Griffin v. Jones

170 F. Supp. 3d 956, 2016 WL 1092879, 2016 U.S. Dist. LEXIS 35997
CourtDistrict Court, W.D. Kentucky
DecidedMarch 21, 2016
DocketCIVIL ACTION NO. 5:12-CV-00163-TBR
StatusPublished
Cited by17 cases

This text of 170 F. Supp. 3d 956 (Griffin v. Jones) is published on Counsel Stack Legal Research, covering District Court, W.D. Kentucky primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Griffin v. Jones, 170 F. Supp. 3d 956, 2016 WL 1092879, 2016 U.S. Dist. LEXIS 35997 (W.D. Ky. 2016).

Opinion

MEMORANDUM OPINION AND ORDER

Thomas B. Russell, Senior Judge, United States District Court

This matter is before the Court on competing motions for summary judgment. Plaintiff David Griffin has filed a motion for summary judgment on all of Defendant Charles Jones’s remaining counterclaims. (DN 154). Jones has also filed a motion for summary judgment on these counterclaims. (DN 161). The parties have completed briefing. (DN 168,170,172). For the following reasons, Griffin’s motion for summary judgment (DN 154) will be GRANTED and Jones’s motion for summary judgment (DN 161) will be DENIED.

BACKGROUND

This action arises from a soured business relationsljip /between Charles Jones and David Griffin/ As with most failed relationships the parties have differing views as to who is at fault. The task for this Court is to decide whether, as a matter of law, Jones’s counterclaims may proceed to trial.

Jones is a businessman from Murray, Kentucky who has spent his career in the education market. Jones founded his first business, Integrated Computer Solutions, Inc. (“ICS”) in 1993. ICS sold computers and information technology services to schools. (DN 161).

In February, 2008, Jones met David Griffin, a wealthy cotton farmer, at the Peabody Hotel in Memphis, Tennessee. (DN 149). The pair discussed several business ideas, ultimately agreeing to start a venture to buy and sell college textbooks. (DN 160). Jones would provide day-to-day management. Griffin would supply financing, initially investing $100,000.1 (DN 18). [961]*961They formed a new entity, Blackrock Investments, LLC (“Blackrock”), in March, 2008. Jones and Griffin each owned 50% of Blackrock.

Blackrock created a subsidiary, SE Book Company, LLC (“SE Book”)2 which was used to purchase a “long-standing textbook wholesaler based in Murray with established customer relationships and distribution channels” and “established sources for textbooks, including bi-annual book buybacks from college students.” (DN 160). Among SE Book’s customers were companies which rented, rather than sold, textbooks to college students. These companies were tapping a new market: college students shopping online. Jones observed that these companies “enjoyed substantial demand” but “faced difficulties obtaining supply.” (DN 160). “Textbook publishers guarded their distribution channels” and were reluctant to sell to rental companies, who they viewed as competitors. (DN 160). Jones recognized that SE Book had a “competitive advantage” over these companies because it had an established supply source for textbooks. Jones approached Griffin about moving into the textbook rental market. In March, 2009, the pair formed College Book Rental Company, LLC (“College Book Rental”).3 Also in 2009, Griffin purchased a 50% share of ICS from a third party for $2 million. (DN 18, 160).

Shortly after both SE Book and College Book Rental were formed they signed a management agreement with CA Jones Management. (DN 160-4). CA Jones Management provided “accounting, banking, human resources, computer and legal services” for the companies. All employees who worked at SE Book and College Book Rental were actually employed by CA Jones Management and “leased” to SE Book and College Book Rental. (DN 160). CA Jones Management charged SE Book and College Book Rental a monthly management fee for its services. While Griffin and Jones co-owned SE Book and College Book Rental, Jones was thé sole owner of CA Jones Management.

College Book Rental was “very successful in a short period of time,” with gross profit of $6.3 million in 2010 and $19.4 million in 2011. (DN 160). In September, 2011, John Farris of Commonwealth Economics prepared a valuation of SE Book and College Book Rental that valued the companies between $191 million and $319 million. (DN 160).

Despite this apparent success, Griffin and Jones had an escalating dispute over the health and management of the businesses. Griffin claims that Jones regularly informed him that the companies would soon be profitable but needed immediate financing to pay operating expenses and purchase inventory. From 2009 to 2011 Griffin made over 100 transfers of money totaling over $28 million dollars. (DN 18). Griffin alleges that, unbeknownst to him, Jones was using the management agreement between CA Jones Management and the co-owned companies to siphon money out of the co-owned companies. When Jones presented profit forecasts for the companies, he did not include the management fees that CA Jones Management intended to charge. When Commonwealth Economics evaluated the companies, Jones limited the financial information available to them. When Commonwealth Economics made recommendations for reducing operating expenses, Jones instead increased management expenses. For instance, in [962]*9622009 SE Book paid approximately $2.4 million in management fees to CA Jones Management, “which exceeded SEB’s net earnings before interest and tax.” (DN 18). In 2010, SE Book paid $4.3 million in management fees, again in excess of SE Book’s net income. Similarly, College Book Rental and ICS paid management fees to CA Jones Management that exceeded net income. Griffin claims he invested approximately $28 million in reliance upon Jones’s representations that the companies would become profitable. Griffin also guaranteed various bank loans, later paying $19.5 million to satisfy these debts. Griffin also paid $20 million to settle a claim from a vendor, Baker & Taylor. (DN 18). In total, Griffin claims he has lost approximately $75 million ás a result of his business relationship with Jones; (DN 145).

Conversely, Jones alleges that beginning in 2010 “Griffin began demanding that he be given an increased ownership interest” in SE Book and College Book Rental because of his additional investments. (DN 160). “In response, I reminded him of our agreement, reached years earlier, that I was responsible for operating the businesses and he was responsible for providing the necessary financial support to operate the businesses.” (DN 160). Jones alleges that Griffin demanded and received $1.7 million in September 2011 and $1.07 million in December, 2011. Transferring this money to Griffin “substantially impaired operations and expansion efforts.” (DN 160). Jones also claims Griffin “forced Jones to agree to give up half of his interest in CBR for no consideration” but later revoked this agreement. (DN 44). Jones further contends that in July 2012, Griffin persuaded Security Bank to declare its loan to CBR in default, with Griffin paying the loan personally in exchange for the Bank’s cooperation in urging Jones to resign his management position with CBR. (DN 44). Griffin also allegedly convinced Planters Bank to withdraw from an agreement restructuring SE Book’s loans to pressure the company into bankruptcy. (DN 44). Jones claims SE Book and College Book Rental would have been worth $1 billion were.in not for Griffin’s actions.

In February, 2012, Griffin filed a lawsuit against Jones in this Court seeking the appointment of a receiver for the companies. In August, 2012, the parties agreed upon the appointment of Myles MacDonald of KraftCPAs Turnaround & Restructuring Group, PLLC. Griffin then dismissed that lawsuit without prejudice. Griffin v. Jones, 5:12-CV-00033 (W.D. Ky. 2012). Griffin alleges that MacDonald immediately “discovered substantial, unjustified transfers of funds” among the companies and to entities solely owned by Jones.

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170 F. Supp. 3d 956, 2016 WL 1092879, 2016 U.S. Dist. LEXIS 35997, Counsel Stack Legal Research, https://law.counselstack.com/opinion/griffin-v-jones-kywd-2016.