The North Carolina Antitrust Case
The first case is an antitrust case filed by Frisby (now called Triumph Actuation Systems) in North Carolina on February 1. Here is the Complaint in that case. NMC has a nice analysis of the Complaint here.
This is a well written complaint. It should come with a box of popcorn. It ties together the facts of the entire Eaton v. Frisby saga from Eaton paying a former Frisby employee to rat on Frisby to the Peters-DeLaughter saga. The Complaint seeks treble [triple] damages and attorney’s fees.
The Complaint names Ed Peters, Jackson lawyer Mike Allred and the Quarles & Brady law firm out of Milwaukee as co-conspirators in the Eaton scheme to covertly influence DeLaughter. According to the Complaint, Allred and Peters had a contingency interest in the proceeds of Eaton’s lawsuit against Frisby. That would explain some things. Think about it.
Allred and Peters have both been out of the case for years, but the Quarles & Brady firm remains the apparent driving force behind Eaton’s litigation in Mississippi. I have always found that amazing. If I’m Eaton, I have to have completely new counsel to trust the advice that I’m getting. It’s my understanding that Eaton only replaced its lawyers in Mississippi.
One theory I heard about Eaton not replacing Quarles & Brady was that the firm has close personal ties to Eaton CEO Sandy Cutler. One person told me that Cutler’s father was a longtime senior partner in the firm. I located a Richard Cutler on the firm’s website, but have not been able to verify the relationship. If the Frisby-Triumph allegations are true, then Eaton did not replace Quarles & Brady because the firm was conspiring with Eaton.
In any event, I don’t see how Eaton can continue to have the firm work on the Frisby-Triumph litigation due to the lawsuit’s allegations. But what do I know? I can’t see how the firm is still in the case now.
The Ohio Shareholder Derivative Case
The second lawsuit is a shareholder derivative case filed against Eaton directors and employees on February 11 in state court in Ohio. Here is the Complaint in that case.
The Complaint alleges that Eaton directors and employees knew or should have known about the improper conduct by Eaton’s lawyers in Mississippi, but did not stop it. The Complaint alleges that the dismissal of the Mississippi lawsuit cost Eaton the proceeds of the lawsuit, which were valued as high as $1 billion.
Eaton CEO’s Sale of $26 Million in Company Stock
or not, Eaton CEO Sandy Cutler sold over $26 million in Eaton shares on February 11, according to the February 19 issue of the Wall Street Journal. It was the 13th largest insider sale of stock in a publicly traded company for the week. The timing of the sale was "interesting."
Chronology of Interesting Events
That leads to the following interesting timeline:
- December 22, 2010: Hinds Circuit Judge Swan Yerger dismissed Eaton’s case against Frisby based on finding that Eaton knowingly hired Ed Peters to improperly influence Judge Bobby DeLaughter
- January 28, 2011: Eaton CEO Sandy Cutler appears on the Jim Cramer Mad Money show talking about Eaton’s blowout quarter and expectations of further growth in the company’s business.
- February 1, 2011: Frisby/ Triumph file North Carolina antitrust case alleging that the Peters-DeLaughter connection was only one component of a multi-faceted scheme by Eaton to prevent Frisby from competing against Eaton.
- February 9, 2011: Cutler sells $26 million in Eaton stock less than two weeks after touting the company on Cramer.
- February 11, 2011: Eaton shareholders file derivative action against Cutler and other Eaton employees and directors.
It’s amazing how Eaton continues to paint itself into a corner and make itself look bad. In 2009, I noted in this post that Eaton’s spokesperson Don McGrath repeatedly stuck his foot in his mouth when commenting on the Frisby litigation. At the time, I just thought that Eaton’s public relations department issued statements without much thought.
Now, the situation looks deeper than a poor PR campaign. Eaton’s repeated missteps and bizarre conduct suggest top-down leadership issues. Cutler selling a boat load of Eaton stock right after Frisby filed its case and just before the filing of the shareholder case makes both Cutler and Eaton look bad.
Another possibility is that Eaton is getting completely out-lawyered by Frisby-Triumph. That’s possible. But that also falls on the company’s leadership who continues to use a firm that helped get the company into this mess.
Finally, the shareholder action raises interesting questions: why is the Eaton board of directors allowing Eaton to continue down this path? Does Eaton have an independent and active board of directors? Or is it a bunch of sheep in the Enron board mold?