SEAFOODNEWS.COM By John Sackton — September 30, 2014 — In a very harsh summation of the dispute between John Lees – former owner of Mar-Less Seafood in New Bedford, and Julius Numavicius, the Lithuanian businees man who purchased 80% of the company in 2010 for $22 million, a three judge arbitration panel found for John Lees.
The panel said that while the company was profitable in 2010 and had $5 million in net revenue and $70 million in sales, in 2013, the company lost $5 million and its sales revenue has declined by 20%.
This has happened at a time when scallop prices have been at record levels.
The panel sorted out claims and counter claims by saying that although John Lees did technically violate the terms of an over-broad non-compete clause, he did so in a way that benefitted Mar-Lees and brought them additional business they would not otherwise have had.
The panel said Lees was trying to salvage a $6.2 million additional payment for his remaining 20% stake in the company if Mar-Lees met certain performance goals. But this option now has no value.
The theme running through the legal analysis is that Mar-Lees was successful in a highly competitive business because of the personal relationships developed by John Lees with a number of major customers, such as Aldi and Costco. The new owners objected to the way in which Lee's maintained these and a wider network of relationships.
They fired him, brought him back, hired John Turner as a CEO, fired him, appointed their comptroller CEO, and then hired Zeke Shahin (who had run a company with 3 employees), and fired him in June of 2014.
During all of this time, John Lees attempted to help Mar-Lees with sales, and it was when he was not paid his second bonus despite meeting performance targets that he countersued.
According to the lawyer representing John Lees in the case, John Daukas of Goodwin Proctor in Boston, the panel said Numavicius “drove a highly successful business into the ground” through “gross mismanagement.” The Boston-based arbitration panel consisted of three retired federal and state court judges.
The state court ordered portions of the lawsuit referred to arbitration, and the remainder of the case stayed pending the outcome of arbitration. Despite the stay, in October, 2013, Mar-Lees filed a RICO (“Racketeer Influenced and Corrupt Organizations Act”) lawsuit in federal court against Mr. Lees, his attorneys, and others, wrongfully accusing Mr. Lees of engaging in bribery, kickbacks and racketeering activity with Mar-Lees’ CEO, Zeke Shahin. Mar-Lees falsely claimed Mr. Lees took kickbacks from Mr. Shahin’s company, TAF Enterprises, then a new customer of Mar-Lees. Mr. Lees maintained these transactions were actually innocent loans Mr. Lees personally made to TAF to allow it to continue to do business with Mar-Lees when Mar-Lees itself lacked the resources to do so, and that Mar-Lees profited through his loans.
The panel found that Mr. Lees “worked diligently for Mar-Lees after he sold the company and his efforts benefitted the company even though some of them were in technical violation of his obligation not to assist others. [Mr. Lees] always exceeded his sales targets and earned a bonus for his successful sales efforts.”
Although it found Mr. Lees had “technically” violated his contract with Mar-Lees by making loans to Mar-Lees’ customers and suppliers (as was Mr. Lees’ custom prior to the sale as well), the panel held Mr. Lees’ conduct caused zero damage to Mar-Lees.
To the contrary, after 18 months of litigation, the panel held Mr. Lees’ conduct actually benefitted Mar-Lees rather than cause it any harm. Mr. Lees’ loans to Mar-Lees’ customers (such as TAF) and suppliers allowed them to continue to do business with Mar-Lees and strengthened their business relationships. The panel observed that the contractual restriction on Mr. Lees was “very broad,” prohibiting Mr. Lees from assisting any seafood company even if the seafood company did not compete against Mar-Lees. The Panel found that Mr. Lees acted in good faith as he believed the restrictions “only prohibited him from competing with Mar-Lees,” “devoted his energies to furthering [Mar-Lees’] business objectives” before and after the sale, and did nothing “that in his mind hurt Mar-Lees’ business.” “On the contrary, many of his actions . . . improved Mar-Lees’ business,” the panel ruled.
The panel determined Mar-Lees’ historic success and that of Mr. Lees “was largely the result of his business skills, low prices, quality products delivered on time and the personal relationships he developed with his suppliers, customers and employees.” Such personal relationships were strengthened by Mr. Lees’ assistance to Mar-Lees’ suppliers and customers – ironically the conduct for which Mar-Lees sued.
In contrast, the panel found “that the primary reason for the decline in Mar-Lees’ sales and profits are attributable to the incompetent management team brought in by Mr. Numavicius.” “In addition to having no idea how to run a New Bedford scallop business, [Mr. Numavicius’ team] treated Mar-Lees’ employees shabbily, firing many and causing key employees to leave.”
On the next business morning after the panel released its award, Mar-Lees’ Boston attorneys unilaterally withdrew Mar-Lees’ racketeering lawsuit from federal court, and the case is now dismissed.
Mr. Lees is preparing claims against Mr. Numavicius and others for harming Mar-Lees’ business, non-payment of commissions earned, and harm caused by the frivolous RICO lawsuit.
This story originally appeared on SeafoodNews.com, a subscription site. It has been reprinted with permission.