Honsador Lumber case goes to trial
Trial over sale of Honsador begins 3 years after the new owner took over
Local building materials wholesaler Honsador Lumber Corp. is at the center of controversy in a Circuit Court trial that started this week.
Plaintiff Richard Foreman, a Houston businessman, says he was the one who structured a $28 million purchase of the company three years ago, bringing in Key Principal Partners of San Francisco as an equity partner.
November 2002: Honsador owner Jim Pappas and Houston businessman Richard Foreman sign letter of intent for a $28 million sale.
February 2003: Key Principal Partners agrees to be Foreman's equity partner in the Honsador purchase.
July 2003: Expected closing of the $28 million sale to Foreman and Key. But Key backs out.
October 2003: Extended closing date for the sale to Foreman, with new investors. But that closing also doesn't happen. Pappas then terminates the deal and breaks off negotiations with Foreman.
November 2004: Pappas sells Honsador to Key Principal Partners and its investors for $50 million. Foreman then files suit.
April 2007: Case goes to trial.
But before the deal closed -- and after signs Hawaii's economy was emerging from its post-9/11 downturn -- Key pulled out and cut a separate deal with then-owner Jim Pappas for a higher price, Foreman says.
Key's attorneys said that Foreman actually had many opportunities to close his deal earlier, but didn't follow through -- and also didn't tell the sellers everything about his own role.
Attorneys delivered opening statements yesterday before Circuit Judge Sabrina McKenna.
Three years after the sale of the Honsador Lumber Corp. to Key Principal Partners LLC, a legal dispute over terms of the sale has gone to trial.
Houston entrepreneur Richard R. Foreman filed suit against Cleveland-based Key in November 2004, alleging that the private investment firm breached fiduciary duties by going behind his back and usurping his opportunity to purchase Honsador Lumber.
What originally would have been a $28 million sale to Foreman, with Key Principal as an equity partner, became a 50 million sale to Key without Foreman. By that time, Hawaii's economy had pulled out of its post-9/11 downturn, substantially improving the company's prospects.
It was a stolen deal, according to Foreman.
Now Foreman is seeking compensatory and punitive damages, including attorneys' fees.
Mark Davis of Davis Levin Livingston Grande, lead attorney for Foreman, said the case is about ethics, community values and fair business practices.
Foreman had resigned from his $500,000-a-year position in Houston, sold his house and moved to Hawaii to take over Honsador. But all his time and efforts went down the drain, he said, when Key stepped in, put together its own groups of investors, and stole the deal.
"This company has lost its moral compass," said Davis. "They did it for greed, and this is the only reason."
Honsador is doing well, according to attorneys on both sides, having pulled in $41 million in profits over the last two years.
The sale included Honsador as well as its affiliates, Ariel Truss (Hawaii) Inc. and Honolulu Wood Treating Company Ltd.
Foreman, 69, is a self-made man who made his riches working for oil companies in South America and other parts of the world, according to his attorney Davis. Davis said Foreman holds $18 million in cash in Brazil, and has many investors worldwide who trust him.
Davis said that when Key agreed to be an equity partner, it spent nearly six months researching Honsador, gaining access to confidential company information, and as a result knew it was a good buy.
But Key suddenly pulled out, Davis told the court, and then secretly negotiated with Honsador's then-owner, Jim Pappas, to purchase the company -- at a substantially higher price.
Though Foreman had new investors to back him up, the suit alleges, Pappas made terms more difficult for Foreman to meet by the mid-October deadline. Then Pappas terminated the deal.
A few days later, Foreman read of Key's purchase in the newspaper.
Scott O'Connell of Boston-based Nixon Peabody LLP, Key's attorney, countered that Foreman had multiple opportunities to purchase Honsador, but was never able to follow through.
O'Connell asked, if Foreman had $18 million in Brazil, why did he need to bring in equity partners? Where was it?
He said Pappas would reveal in his testimony a trail of deceit and broken promises by Foreman. Having built up Honsador himself, Pappas was particular about who he left his legacy to.
But Foreman was dishonest, he said, and didn't disclose, for instance, that he was only putting in $1.5 million of his own money.
Key only stepped in, afterwards, after Pappas was unable to secure other buyers.
"He has no one to blame but himself," said O'Connell of Foreman.