Facts

Plaintiffs identified a lucrative business opportunity to purchase a gypsum mining operation near Bakersfield called H. M. Holloway, and to re-utilize the property as an environmental services business for storing and recycling biosolids from the Los Angeles area. Plaintiffs worked together with defendants who agreed to provide funding and assistance to purchase the business. Holloway Environmental was formed and became the controlling shareholder of H.M Holloway Inc. California Bank & Trust was the lender that provided additional funding for the subsequent buyout of a minority shareholder of Holloway. In 2014, Terry Arca was terminated from his position as CEO of H.M. Holloway and was removed as a director, and Dan Arca's position with H.M. Holloway was eliminated.

Plaintiffs sued H.M. Holloway and Holloway Environmental and its officers and directors. Plaintiffs also sued California Bank & Trust, the lender, for its alleged role in plaintiffs' termination.

The Holloway defendants cross-complained against plaintiffs.

PLAINTIFFS' CONTENTIONS:
Plaintiffs contended that after a period of successful operations and growth as an environmental services business under Chief Executive Officer Terry Arca, and following the buyout of the minority shareholder, the company learned that its gypsum reserves were significantly more valuable than previously estimated. Soon after learning this, Arca's partners hired away the company's loan officer from California Bank & Trust to conduct a pretextual "audit" of company finances. The motive was to set up plaintiffs for termination and removal from the board of directors. California Bank & Trust ultimately endorsed and facilitated the termination, which resulted in a wrongful squeeze-out designed to gain control of plaintiffs' valuable stock.

Plaintiffs sued H.M. Holloway, Holloway Environmental and their officers and directors for wrongful termination, defamation, breach of fiduciary duty, and other causes of action.

DEFENDANT CONTENTIONS:
The Holloway defendants contended that Terry Arca breached his fiduciary duties by engaging in significant conflict of interest transactions with the two Holloway companies, including thefts of over half a million dollars disguised as sham "personal loans," unauthorized purchases of millions of dollars in life insurance, and abuses of company health insurance, vehicles and credit cards. The Holloway defendants further contended that after this self-dealing was discovered, Terry Arca rejected any limitations on his authority. Defendants contended this left the companies no choice but to terminate him. California Bank & Trust denied any wrongdoing.

The Holloway defendants cross-complained against plaintiffs for fraud, conversion, breach of fiduciary duty, unjust enrichment, and other causes of action.

Result

The parties settled by agreeing that the plaintiffs' interest in Holloway Environmental would be redeemed in exchange for $2.7 million in cash and approximately $500,000 in personal loan forgiveness. California Bank & Trust's contribution to the settlement was payment of $150,000 cash to the plaintiffs, which was immediately repaid, along with all of its attorney fees and costs by the Holloway parties.

Other Information

FILING DATE: Sept. 4, 2014.