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Ware Jackson wins take-nothing verdict in family business dispute

Ware Jackson lawyers secured a take-nothing jury verdict for Edward Mattingly, Peter Schwab, and Thomas Blackburn, III who were unjustly accused of fraud, securities violations, and breaching their fiduciary duties involving their roles as outside directors to the well-known Houston based Compressor Engineering Corp. (CECO). CECO is a closely held corporation whose ownership is shared by the family of its founder, Ernest G. Hotze.

The lawsuit was filed by two of Ernest Hotze’s sons who alleged that nearly every transaction of CECO over the past four years had been handled improperly. They claimed that three of their brothers along with the outside directors of CECO had breached their duties when they saved CECO from foreclosure in 2014 and 2015. The trial centered on the question of whether the directors of a closely held corporation breached their corporate duties by approving a conversion of debt to equity.

The jury had a 65-page charge and 45 questions to answer after a five-week trial. With up to $30 million in damages at stake, jurors awarded the plaintiffs nothing.

“The evidence showed that our clients, the outside directors of CECO, in every instance exercised their honest business judgment in the best interest of the company. Working shoulder to shoulder with the owners who were willing to invest to save the company, the outside directors were critically important in saving the business.” said Ware Jackson partner Don Jackson. Jackson added, “As I told the jury in final argument, Ed Mattingly, Pete Schwab, and Tommie Blackburn were three of the finest gentlemen we have ever had the privilege to represent. They never should have been dragged into this family fight. Credit for the victory goes primarily to them.”

The plaintiff brothers left CECO in 2014 when the company was facing foreclosure and the loss of over 400 jobs. Trial evidence showed that the other three brothers with support of the outside directors took over and managed the company through difficult times, earning a “Turnaround of the Year” award in 2016 from the Turnaround Management Association.

Ware Jackson partner Don Jackson served as lead counsel for the trial team, which included partners Paul Smith and Eileen O’Neill. The style of the case is Cause No. 2016-36300, David Hotze v. IN Management, LLC et al., in the 61st Judicial District Court of Harris County, Texas.

Ware, Jackson, Lee, O’Neill, Smith & Barrow, LLP or “Ware Jackson,” is a Houston-based law firm that is home to true trial and appellate lawyers with a 25 year track record in complex commercial litigation, including energy and construction, intellectual property, and business dispute cases. When trials are in your future look to Ware Jackson.

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