A Houston jury has awarded a take-nothing defense verdict to three brothers who were accused by two of their other siblings of fraud, securities violations and breach of fiduciary duty of their family business.
After a five-week trial in Harris County, jurors ruled on Oct. 4 in an 11-1 verdict that plaintiff brothers David and Bruce Hotze, as well as David’s wife Donna, take nothing. Up to $30 million in damages were at stake for the defendant brothers.
The jury of nine women and three men deliberated for 10 hours over the course of two days before returning their verdict. The jury charge was 65 pages and included 45 questions.
The family’s business is Houston-based Compressor Engineering Corp., which touts itself as the world’s largest independent manufacturer of engine and compressor replacement parts. It was founded in 1964 by the patriarch of the family, Ernest G. Hotze.
The dispute stemmed from 2014, when CECO’s pipeline business began having major financial issues. A fraudulent $6 million invoice got approved in the company’s Ohio and Pennsylvania operations, causing the company to face foreclosure by its lender, Comerica Bank. More than 400 jobs were at stake.
The story of what happened next differed amongst the family. The defendant brothers –Mark, Steven and Richard Hotze – argued to the jury that they put together $2.5 million of their own money to save the company while the plaintiff brothers bowed out after CECO got in financial trouble, saying it was too risky. The plaintiffs claim their estranged brothers booted them out of the company at a board meeting that also elected to recapitalize the company with convertible notes, which diluted their shares.
The plaintiff brothers filed the lawsuit in 2016, naming their three brothers as defendants as well as a series of business entities in which all five siblings owned an equal interest. The plaintiffs wanted to dissolve and liquidate the entities, for the purpose of, as they worded it, ending the business relationship amongst each other so they could work on their personal relationship.
“What’s unfortunate is we were looking for a way to end the business relationship among the family and it appears this verdict is not going to achieve that,” said Houston attorney Jeff Joyce, who represented David and Donna Hotze at trial.
The defendant brothers didn’t see it that way. At trial, they argued the dissolution of the entities would end up doing more harm than good for the family business. They also questioned their brothers’ intentions.
Frisco attorney Collin Kennedy, who represented Mark Hotze at trial, said his side argued the two plaintiff brothers were jealous of the success the defendant brothers enjoyed while turning the company around. He pointed out that under Mark and Richard’s leadership, CECO won the 2016 Turnaround of the Year Award from the Turnaround Management Association’s Chicago/Midwest Chapter.
“The two plaintiff brothers saw that, were envious of it… and it essentially drove them to do the things they have done now,” said Kennedy, who practices at Hanshaw Kennedy.
Despite the business components of the legal arguments, both sides don’t deny that deep down, money is the last thing this case was about.
“I always say all cases go to trial for only one of two reasons: either one or both lawyers grossly overvalue the case, or it’s not about money,” said John Zavitsanos, who represented defendant Dr. Steven Hotze at trial. “And although this case involved a lot of money… it wasn’t about the money. It was really about, ‘I’m gonna get one over on you.’ We were subjected to five weeks [of fighting].
“When families fight it’s a lot more vicious than when strangers fight or when casual friends fight, because families know where all the bodies are buried,” said Zavitsanos, who practices at the AZA firm in Houston.
Currently, Richard Hotze serves as CECO’s president and chief operating officer, while Mark Hotze serves as the president and chief executive officer of the pipeline business, CECO Pipeline Services. Before the family fallout, plaintiffs Bruce and David Hotze had worked at CECO for most of their lives. Bruce previously served as CEO of the company.
Dr. Steven Hotze, a hormonal treatment doctor, is not involved in the company’s leadership, as he runs his own medical clinic in Houston called Hotze Health & Wellness Center. In addition to Zavitsanos, the doctor was also represented by AZA lawyers Jason McManis and DJ Ringquist at trial.
Daivid Hotze’s wife, Donna, was a plaintiff in the lawsuit because her family trust holds partial ownership in the defendant business entities that the plaintiffs sought dissolution of.
Houston attorney Jesse Pierce of Pierce & O’Neill represented Richard Hotze at trial. Houston attorney Andy Taylor represented Bruce Hotze.
The parties have not set a date yet for a final judgment hearing. Harris County District Judge Fredericka Phillips is overseeing the case.