To Tim Johnson, Ray Hofman was more than just his boss and the president and founder of Houston-based Peak Completion Technologies – he was a good friend.
When Hofman tragically died in a plane crash in February 2014, Johnson was personally “devastated” at the loss.
“It was a punch in the gut,” Johnson, who is Peak’s general counsel and corporate secretary.
But it was about to get worse. Much worse.
Within a few months, Johnson started reviewing documents which showed that Hofman had been secretly siphoning off millions and millions of dollars of company funds to pay for an ever more extravagant lifestyle, which included buying vintage military airplanes, a $250,000 pirate ship for his backyard and a fleet of Ferraris, Bentleys and Porsches.
“You cannot believe how horrible I felt when I discovered irrefutable evidence that he was stealing substantial sums of money from the company through a fake invoice scheme,” Johnson said.
Over the next year, Johnson conducted a thorough internal investigation which led to a $20 million lawsuit alleging fraud, breach of fiduciary duty and gross negligence against Hofman’s estate and the accounting firms that looked the other way.
“The entire experience had a huge impact on me as a lawyer,” Johnson told The Texas Lawbook in an exclusive interview. “The personal toll was negative, and I would not want to go through that again.”
But Johnson agrees that the challenge taught him many lessons and made him a significantly better lawyer, person and corporate general counsel.
In the two years since that gut-wrenching litigation, Johnson and Peak, a technology-based oil well completion business, have won several major “bet-the-company” lawsuits. He also rewrote and implemented new ethics and corporate compliance guidelines. He’s handled the issuance of nearly 30 patents for Peak. And he’s negotiated and signed dozens of manufacturing, distribution, master service and employment agreements.
The Association of Corporate Counsel’s Houston Chapter and The Texas Lawbook are pleased to announce that Johnson is a finalist for the 2019 Houston Corporate Counsel Award’s General Counsel of the Year for a Small Legal Department.
“Tim is a unicorn due to the combination of his strong instincts, detailed involvement and knowledge of company matters, ability to make informed, logical decisions and his ability to manage various personalities,” Debbie Pacholder and John Zavitsanos, partners at Ahmad Zavitsanos Anaipakos Avali Mensing, wrote in nominating Johnson for the honor.
“In his role as Peak’s general counsel, he applies these strengths, acute business judgment and charismatic people skills to prevent and solve all kinds of issues – legal and otherwise,” Pacholder and Zavitsanos wrote.
Born and raised in Opelousas, Louisiana, Johnson had no lawyers in his family. His
father was a Pentecostal preacher and a butcher in a small grocery store that he owned with his twin brother. His mother was a nurse.
“Going to college was a given in my family,” he said. “As far back as I can remember, my father always stressed that I was going to college. According to him, if I didn’t go to college then I would be digging ditches. Apparently that was the only job available for me if I didn’t go to college.”
Johnson can’t point to a single instance that triggered his decision to become a lawyer, but father repeatedly expressed his concerned about being sued.
“Every time one of us had a fender bender in the car he worried about being sued,” he said. “I can understand that now. Given that he was a small-business owner raising five kids, a lawsuit could have been financially devastating. Thinking back, I saw the law as a way to empower myself, so that I didn’t suffer from that same fear.
“Much of the fear non-lawyers have of lawsuits comes from the lack of understanding of the process and the perceived cost,” he said. “Knowledge goes a long way to minimize the impact of being sued.”
Johnson started college as a mechanical engineering major, but he switched to computer science.
“I have always loved working with computers growing up,” he said. “Around my junior year of college, I began revisiting what I wanted to do with my life and realized that intellectual property law allowed me to combine the law with my love of technology.”
Houston IP lawyer David Fink hired Johnson right out of law school. Fink operated a one-man shop that specialized in representing inventors and patent owners in contingency fee patent litigation.
“David immediately immersed me in the cases he had pending, including an appeal before the Federal Circuit, reviewing potential infringers for existing clients and drafting claims for pending patent applications,” said Johnson, who worked with Fink for nine years.
“David did not believe in form books when it came to litigation, which forced me to learn how to draft pleadings, motions and briefs which were tailored to each particular case instead of following a form,” he said. “David also seemed to understand what motivated people and corporations and how they worked internally. He had worked in large corporations for much of his career and understood the politics.”
For Johnson’s first trial, Fink sent him to Islip, New York, to try an IP case against software giant Computer Associates pending in the Eastern District of New York.
“David told me that he needed me to go to Islip to pick a jury,” he said. “I had no experience picking a jury but what young lawyer wants to say no any assignment? I prepared as best I could, got on a plane and flew to New York without making any reservations for a hotel or rental car. I had never traveled much. Indeed, my first airplane flight was during law school flying to Atlanta for a moot court competition.”
Johnson arrived at the courthouse to find a team of four lawyers representing Computer Associates sitting at opposing counsel’s table.
“I tried to act like I knew what I was doing,” he said. “I decide to pour myself a glass of water, and the lid on the spout of the pitcher didn’t open immediately. But as I tilt the pitcher further it suddenly opened and water poured out all over the table.
“So much for fooling the opposing side,” he said.
Johnson said he made it through jury selection and used his peremptory strikes to pick a good panel of 12 for his client.
“At that point I’m starting to feel a little better and only shaking from the waist down,” he said. “I thought I picked a good jury, but the case settled a week later. This experience may not seem like much now, but it established early in my career the ability to always face any fear of tackling something new, to trust my instincts and understand that every new experience is an opportunity to grow as a lawyer.”
Johnson joined Peak in 2012 and has handled several significant patent infringement cases for the company.
In January 2018, Peak received a notice of patent infringement from a competitor demanding that Peak stop selling one of its new products. Such a suit could have been devastating to the company.
“Tim conducted a thorough review of the asserted patent and its prosecution before the patent office and identified significant issues with the asserted patent, and also identified theories of non-infringement,” AZA’s Pacholder wrote in her nomination letter.
“Tim met several times with the lawyer for the competitor to address the issues raised and to also point out issues that the competitor may have with some of Peak’s patents,” she said. “The competitor did not follow through with the threats and did not file the lawsuit.”
As the Hofman litigation was ongoing, a major raw material supplier that the company had done business with for years sued Peak alleging that Peak had sent them three purchase orders for approximately $12 million in material to be taken over a period of time.
“The issue related to whether the spreadsheets we sent them were future forecasts or purchase orders,” Johnson said. “They showed us documents that they said were purchase orders, and we told them that we never sent those documents, as they differed substantially from the spreadsheets that we had.
“A judgment in this amount would have been devastating to us,” he said.
Johnson spent days sifting through the metadata and documents. He discovered that the company suing had deleted the email account for their salesman who was the key to the whole case.
“We were able to piece together evidence showing that this salesman had altered the documents that he received from us so that a forecast that we sent him for $700,000 was changed into a $2 million purchase order that he sent internally to get material on order,” Johnson said. “He did this twice, and on the third occasion he transformed a forecast that didn’t have a total into a $6 million purchase order that he sent internally.”
During a deposition, opposing counsel showed Peak’s corporate representative two printed emails with time stamps to give the impression that a specific document existed.
“These documents seemed strange to me because I had not noticed those differences in time when reviewing the documents, and I would have seen it,” Johnson said. “Immediately after the depo, I found the original emails but they did not correspond to the documents that were presented to the witness. The time stamps were off by 1 hour. I checked the internal time stamps in the original emails and found that the two emails were only seconds apart – not an hour as the deposition exhibits indicated.”
Johnson presented the evidence to opposing counsel, who settled the litigation soon thereafter.
“The terms are confidential but I can say that we never made a payment to them for anything,” Johnson said. “I learned a lot in that case, including that witnesses lie and will continue to lie even when faced with irrefutable evidence. I also learned that if you keep digging, eventually you will find what your gut and instincts tell you is there.”
But no case was bigger or had a bigger impact than the Hofman litigation.
One of the bigger problems was that Hofman’s widow held 50% of the company’s shares and had the company deadlocked. Informal settlement attempts were fruitless.
Johnson turned to the AZA law firm, which filed a petition for a Rule 202 deposition to find out the extent of Janna Hofman’s involvement in her husband’s schemes.
“While we were preparing for it, Tim sent us memo after memo in real time as he was uncovering and assembling emails, expense reports and other documents – each packaged neatly with an explanatory cover page or two explaining his detailed analysis – tracing numerous instances of Ray Hofman’s fraud,” Pacholder said.
A major break in the Hofman case came when Johnson was reviewing thousands of text messages and came across one that said, “Do you want to do a wire and invoice today?”
“That phrase triggered me, and I then focused around the emails that Mr. Hofman sent and received that day and found the scheme where a vendor would wire money to someone of Mr. Hofman’s choosing, usually an auto dealer for an exotic car, and then submit a false invoice to the company to be paid,” Johnson said.
“The invoice would list out parts that were usually provided to the company,” he said. “Mr. Hofman would then request that it get paid immediately. Now that I understood the scheme better, I went back and reviewed every transaction and correspondence to package it all up for outside counsel.”
“Tim tirelessly reviewed and analyzed several huge, dense boxes of documents over many weeks,” she said. “Hofman’s widow could not refute the conclusions Tim had pieced together. Ultimately, Peak reached a favorable resolution with her for the return of her shares.
Peak also recovered significant sums from the auditing firm.
“The recent cases involving the Hofman estate, the $12 million vendor case and the patent infringement case were each satisfying in that each could have had devastating results for the company,” Johnson said. “Each were complicated in their own right, requiring hard work and long-term, meticulous planning, and the result of each benefited our company substantially.
“While there was nothing really satisfying about the Hofman case, it was satisfying to have successfully navigated through all of the potential hazards of that case while dealing with the grief of losing someone that you considered a friend,” he said.