state of michigan grand traverse county circuit …

STATE OF MICHIGAN GRAND TRAVERSE COUNTY CIRCUIT COURT JEFFERY L. HUGHES,

Plaintiff/Counter-Defendant, v BROWNWOOD INVESTORS, LLC, a Missouri limited liability company, CAROL H. VITTERT, Trustee of the Amendment and Restatement dated August 6, 2009 (as amended from time to time) to the Indenture of Trust dated April 19, 1991, as previously amended by Carol H. Vittert, as sole member, B-WOOD FARMS, LLC, a Michigan limited liability company, MARK B. VITTERT, LELAND VITTERT, and JOHN DOE,

Defendants/Counter-Plaintiffs.

Case No. 2016-031779-CB Hon. Thomas G. Power

Jon M. Bylsma (P48790) Varnum LLP Co-Counsel for Plaintiff 333 Bridge Street, N.W. Suite 1700 Grand Rapids, MI 49504 (616) 336-6000 Email: [email protected]

Scott W. Howard (P52028) Michael Hayes Dettmer (P12709) OLSON, BZDOK & HOWARD, P.C. Attorneys for Defendants 420 East Front Street Traverse City, MI 49686 Telephone: (231) 946-0044 Email: [email protected] [email protected]

Grant Parsons (P38214) PARSONS LAW FIRM PLC Co- Counsel for Plaintiff 520 S. Union Street Traverse City, MI 49684 (231) 929-3113 [email protected]

DEFENDANTS’ ANSWER TO PLAINTIFF’S COMPLAINT AND COUNTER CLAIMS

mailto:[email protected]




2

Defendants/Counter-Plaintiffs, BROWNWOOD INVESTORS, LLC, CAROL H.

VITTERT, B-WOOD FARMS, LLC, MARK B. VITTERT and LELAND VITTERT, through

their attorneys, OLSON, BZDOK & HOWARD, PC, submits the following Answer to Plaintiff’s

Complaint and Counter-Claims against Plaintiff:

1. This is a member oppression action, in part, in connection with a Michigan

limited liability company, B-Wood Farms, LLC, by its 25% member, Jeffery Hughes, against the majority member, Brownwood Investors, LLC, a Missouri limited liability company owned solely by the Amendment and Restatement Dated August 6, 2009 (as amended from time to time) to the Indenture of Trust dated April 19, 1991, as previously amended by Carol H. Vittert (the “Trust”) and its Trustee, Carol H. Vittert, which purports to own 75% interest in Brownwood Farms. This claim also states claims for tortious interference of business expectancy against her husband and son, Mark and Leland Vittert, respectively, and an unknown co-conspirator who, as detailed below, purported to be an FBI agent at a surprise interrogation in which Mark and Leland Vittert, who are not shareholders or having any John Doe position with the company other than being the husband and son of Carol Vittert, and confronted, browbeat, scared, threatened, cajoled, and otherwise coerced Plaintiff out of operational control of Brownwood Farms and essentially out of the company. The individual Defendants’ acts of tortious interference of his business expectancy forms the basis for the separate and independent theory of relief against those individuals.

Answer: Admitted as to ownership interests of the parties; denied as untrue as to the other

allegations contained in the paragraph. Defendants further state that there was no “surprise

interrogation,” but there was a meeting with Jeff Hughes to discuss the financial situation of the

company attended by the bookkeeper for Brownwood Farms, Mark Vittert (a co-trustee of the

Carol H. Vittert Trust), Leland Vittert and a forensic accounting expert named Elliot Leary. Mr.

Leary was clearly and expressly introduced as a consultant and a former FBI agent. At the

meeting there were no threats, browbeating, coercion, or attempts to force Mr. Hughes out of the

company. However, when confronted with financial improprieties at the meeting Mr. Hughes

told the other participants that he had used company funds for personal purposes, including but

not limited to paying for duct cleaning at Mr. Hughes’ personal residence, purchasing a new

3

truck with the title in his own name, writing checks to himself in excess of his salary and using

the company credit card for personal purposes without reimbursing the company for those

charges. These charges included a flight to visit his daughter, sporting event tickets, country club

charges, food and dining for his family while on vacation, and purchases at a local charity

auction. At the meeting he admitted to over $6,000 worth of personal credit card charges and

also stated that the amount would increase if more credit card invoices were reviewed. (Ex 1,

Leary Report). Mr. Hughes did not reimburse any of his personal expenses, did not notify

Defendants of his personal expenses and actively attempted to conceal his personal expenses

paid with company funds from Defendants. Mr. Hughes’ actions were not authorized by the

operating agreement for the company or any other formal or informal actions of the shareholders.

Further investigation found that Mr. Hughes had also used company funds to pay cell phone bills

for his family, pay for additional country club bills and shipping personal items to his family all

around the country. The total amount of personal expenses is currently in excess of $25,000, and

does not include $72,000 of inventory that disappeared during Mr. Hughes’ operation of the

company. Furthermore Mr. Hughes routinely concealed the financial health of the company to

conceal his personal expenses and mismanagement. His mismanagement of the company left it

unable to pay its bills and insolvent. These actions, among other things, form the basis for

Defendants’ counter-claims for breach of the operating agreement, fraud, conversion, breach of

fiduciary duty and mismanagement of company finances.

2. Jeffery Hughes is a lifelong resident of Grand Traverse County and the founder and one of the original members of Brownwood Farms. He was up until the time of the incident described below, the manager of Brownwood Farms and the person responsible for its day-to-day operations.

4

Answer: Admit that Jeffery Hughes was the manager and responsible for day-to-day operations

of Brownwood Farms, subject to his fiduciary duties set forth in Section 5.4 of the Operating

Agreement. Defendants neither admit nor deny the remainder of the allegations in this paragraph

because they lack sufficient knowledge or information to form a belief concerning the truth of

the allegations.

3. Nominal defendant, B-Wood Farms, LLC, hereafter “Brownwood Farms,” is a Michigan limited liability company with its principal place of business in Grand Traverse County and a registered address at 600 East Front Street, Suite 102, Traverse City, Michigan 49686.

Answer: Admitted.

4. The Trust is, upon information and belief, a trust established under the laws’ of the State of Missouri. The Trust owns 100% of Brownwood Investors, LLC, a Missouri limited liability company that owns a 75% membership interest in Brownwood Farms. Carol Vittert is the Trustee of the Trust, and as such is the person embodying the now majority (75% ownership) interest in Brownwood Farms through Brownwood Investors, LLC. Carol Vittert resides at 3656 North Manitou Trail, Leland, Michigan 49654.

Answer: Admitted. Defendants further state that Mark B. Vittert and Carol H. Vittert are

co-trustees of Carol Vittert Trust and able to act independently.

5. Defendant Mark B Vittert is Carol Vittert’s husband Mr. Vittert, upon information and relief, resides with his wife at 3656 North Manitou Trail, Leland Michigan 49654.

Answer: Admitted.

6. Leland Vittert is the adult son of Mark and Carol Vittert. Upon information and belief he is also a resident of Leelanau County and of Washington, D.C.

Answer: Admitted.

5

7. Defendant John Doe is a person who accompanied Mark and Leland Vittert to a meeting at Brownwood Farms with Jeffery Hughes, who, on or about June 21, 2016 confronted and interrogated Mr. Hughes at the Brownwood Farms offices under the alleged authority of an FBI agent. His name is currently unknown to Plaintiff.

Answer: Admitted that John Doe attended a meeting at Brownwood Farms with Jeffery Hughes

but denied as to the characterization of the meeting or that John Doe was acting under the alleged

authority of an FBI agent. Defendants further state that John Doe is Elliott Leary of Virginia. Mr.

Leary is a retired supervisory special agent of the FBI with over 30 years of White Collar Crime

Investigation. (See Ex 2 resume from LinkedIn and Ex 1, Leary Report). He nor anyone else

ever identified himself as an “FBI agent” but rather "”a retired agent and consultant.” Mr. Leary

has not yet been served with the Complaint and Defendants are not answering the Complaint on

his behalf.

GENERAL ALLEGATIONS

8. Brownwood Farms, a nominal Defendant in this action, was formed in 2002

by Jeffery Hughes and three other investors to make sauces, mustards, preserves, and other condiments and toppings.

Answer: Defendants neither admit nor deny the allegations in this paragraph because they lack

sufficient knowledge or information to form a belief concerning the truth of the allegations.

Defendants further state that, on information and belief Jeffery Hughes was not a founder but

rather a sweat equity partner of the DeTar family, and given part of Brownwood Farms after his

last business venture went bankrupt.

9. Since its inception, Jeffery Hughes was the shareholder who developed recipes, operated the business, made product, and was a one man marketing director attempting to develop a market for the Brownwood Farms product line.

6



Defendants further state that, on information and belief, all of the previous partners of

Brownwood Farms participated in the efforts described in this paragraph and it was not Jeffery

Hughes alone.

10. For 14 years, Mr. Hughes has slowly grown the business to the point where now sales revenues exceeded one million dollars per year.

Answer: Admitted that sales revenues exceed one million dollars per year but the remainder of

the paragraph is denied as untrue. Defendants further state that sales revenues alone do not

reflect the economic harm that Mr. Hughes did to the company.

11. Due to the brand recognition and distribution channels developed by Mr. Hughes, and his constant re-investment of company profits, the company is poised for growth throughout the country.

Answer: Denied as untrue. Defendants further state that there have been insignificant to no

company profits since at least 2012. At numerous times during Mr. Hughes’ leadership of

Brownwood Farms the company was insolvent to the point of requiring substantial cash

infusions by Defendants. By June of 2016 Defendants had either loaned or contributed over

$500,000 to Brownwood Farms in order to keep the company from closing. On information and

belief, Mr. Hughes had similarly mismanaged the company and paid for personal expenses with

company funds prior to 2007, which ultimately lead to the departure of previous partners and

investors in the business.

12. In 2007 Mr. Hughes bought out the three other original shareholders in an amicable separation.

7

Answer: Admitted that Mr. Hughes was transferred all shares of Brownwood Farms in 2007.

Defendants neither admit nor deny the remainder of the allegations in this paragraph because

they lack sufficient knowledge or information to form a belief concerning the truth of the

allegations. However, on information and belief, the transfer of the company was a result of Mr.

Hughes using company funds for personal purposes in a similar way as alleged in Defendants’

Counter-Complaint, including vacations, home remodels and other personal expenses. Mr.

Hughes’ prior partners were unwilling to continue a partnership with someone stealing from the

company, so Mr. Hughes was transferred the entire interest in the Company for a nominal

amount.

13. In 2012, Defendant Mark Vittert contacted Mr. Hughes and represented himself as someone who was from the St. Louis area, but with a recent, permanent residence in Leelanau, Michigan, had become aware of the Brownwood Farms products and wanted to become involved in the business.

Answer: Admitted.

14. Mr. Vittert purported to have a long and successful business history as the owner of Hobie Cat, and as someone who had been an investor in many other successful ventures.

Answer: Admitted that Mr. Vittert has a long and successful business history, including his

ownership interest in Hobie Cat and many other successful ventures.

15. In November of 2012, Mr. Vittert proposed loaning money to Brownwood Farms for a few months to see how it worked out before any more formal arrangement would be entered into.

Answer: Admitted.

8

16. In February of 2013, the Vittert investment into Brownwood Farms became more formal, and shifted to Ms. Vittert’s ownership of 50% of the membership interest of B-Wood Farms through the Trust and Brownwood Investors, and entry into an Operating Agreement regarding the LLC.

Answer: Admitted as to the change in ownership. Defendants further state that both Carol and

Mark Vittert are co-trustees of the Trust.

17. Pursuant to the terms and conditions of the Operating Agreement, Brownwood Farms is a manager-managed LLC, and no member, except the member who might also be the manager, had any participation in or control of the company’s day-to-day business or any authority to act for or bind the company.

Answer: Neither admitted nor denied, as the operating agreement speaks for itself.

18. The Manager appointed pursuant to the terms and conditions of that Operating Agreement was Plaintiff Jeffery Hughes.

Answer: Admitted.

19. The Manager can be removed, pursuant to the terms and conditions of the Operating Agreement, in writing signed by a super-majority in interests of the member and only for fraud, gross negligence, malfeasance or misappropriation.

Answer: Neither admitted nor denied, as the operating agreement speaks for itself. Defendants

further state that removal for fraud, gross negligence, malfeasance or misappropriation does not

require a super majority pursuant to the terms of the operating agreement.

20. A super-majority in the interest of the members means more than 75% of the members of the LLC.

Answer: Neither admitted nor denied, as the operating agreement speaks for itself.

21. After the initial investment, Mark and/or Carol Vittert embarked on a scheme to increase the Trust’s membership stake in Brownwood Farms.

9

Answer: Denied as untrue. Defendants further state that the Trust was provided with an

increased membership stake due to the significant capital contributions that were required in

order to keep the company in business.

22. At the time of the renewal of the company’s standard loan Mark Vittert refused to disclose for the bank his personal financial information, which impaired the company’s ability to renew its financing.

Answer: The allegation of a “standard loan” is neither admitted nor denied as Defendants are not

clear what Plaintiff is referring to. Admitted that the bank, due to the poor credit and financial

situation of Brownwood Farms under Mr. Hughes’ leadership, was going to require a personal

guarantee from Mr. Vittert of any loan to Brownwood Farms. Further admitted that Mr. Vittert

decided that it would be better to loan the money itself to the company if he was going to be

personally liable for any loan anyway. Defendants’ loan to Brownwood Farms relieved Mr.

Hughes of any personal guarantee to bank, and Mr. Hughes was emotionally thankful to the

Vitterts upon hearing he was no longer personally responsible for repaying any loan for

Brownwood Farms.

23. As a result, the Vitterts had to become “the bank” and take over the bank’s

position as lender. Answer: See response to Paragraph 22, above.

24. As a further result, the Trust increased its membership percentage to 75% in exchange for debt forgiveness which was not necessary financially but, Mr. Hughes presumed, simply harmless assistance by his silent partner.


sufficient knowledge or information to form a belief concerning the truth of the allegations about

10

Mr. Hughes’ presumptions. Defendants further state that the Trust increased its membership

percentage over time in consideration for debt forgiveness and significant financial contributions

to the company in order to keep the company operating under Mr. Hughes’ management.

25. Between the original equity purchase in February of 2013 of 50% of the membership interest of Brownwood farms, and the present date, Carol Vittert increased her membership interest in Brownwood Farms to the point where today she, as Trustee of the Trust, through Brownwood Investors, controls 75% of the membership interest of B-Wood Farms.

Answer: Admitted; Defendants further state that Mark Vittert is a co-trustee of the Trust.

26. During this time, Mr. Hughes continued manage, market, and develop the business:

a. Mr. Hughes’s efforts to increase and diversify distribution channels resulted

in an increasing presence outside of Michigan and in major retail outlets, like Whole Foods, east coast based Market Basket, west coast based Albertsons, and Texas based HEB.

Answer: Admitted that Brownwood has increased its presence outside of Michigan, but denied

as to any implication that this was a result of solely Mr. Hughes’ efforts. Defendants further state

that much of increased distribution for Brownwood Farms came from the Vitterts’ personal

connections.

b. Sales passed the one million dollar mark.

Answer: Admitted that sales passed the one million dollar mark, but denied as to any implication

that this was solely a result of Mr. Hughes’ efforts. Defendants further state that much of

Brownwood Farm's growth was due to Defendants’ continued and constant involvement in

business, from hosting meetings and establishing connections to Leland Vittert’s redesign and

remaking of the Company’s website.

11

c. In the spring of 2016, Mark Vittert suggested the company was poised for a sale in the 5 to 6 million-dollar range and sought Mr. Hughes’ approval to pursue such a sale. Mr. Hughes declined.

Answer: Denied as untrue. No such conversation about a sale ever took place. Nor would that

amount be a realistic value in light of Plaintiff’s mismanagement and misappropriation of funds,

which has rendered the company with a significant negative net worth.

27. On or about June 21, 2016, Jeffery Hughes was confronted at the offices of Brownwood Farms by Defendant Mark Vitteft, Leland Vittert, and John Doe.

Answer: Plaintiff’s characterization of a “confrontation” is denied as untrue. Admitted that

Defendants scheduled a meeting with Mr. Hughes at the offices of Brownwood Farms upon

being informed by the company’s bookkeeper about what appeared to be numerous cases of theft

or misappropriation by Mr. Hughes from the company.

28. Mark and Leland Vittert identified John Doe as an agent of the FBI who they had flown in from Washington D.C. for this “investigation.”

Answer: Denied as untrue. Defendants further state that Elliott Leary was never identified as an

“FBI Agent” but rather “a retired agent and consultant.”

29. The alleged FBI agent confronted Mr. Hughes about an inventory valuation issue which had been raised several months previously when the company switched accounting firms and accounting systems. As a result of that switch, $75,000 worth of inventory was unaccounted for.

Answer: Denied as to the characterization of Mr. Leary as an “alleged FBI agent” and to the

characterization of a “confrontation.” Admitted that there was discussion of missing inventory that

was valued at over $75,000, but neither admitted nor denied as to the reasons for the missing

inventory as that is still being investigated by the Company.

12

30. Prior to the surprise June 21 meeting, however, it had been determined by the new accountants that there was no actual loss of an inventory, but instead, the previous accounting system had been erroneously carrying $75,000 worth of inventory that simply did not exist.



Defendants further state that the investigation into the inventory loss is still ongoing.

31. Mark and Leland Vittert, and the purported FBI agent, further confronted Mr. Hughes about items in the bank statement in the amount of $8,800 and $2,500 they claimed were improper. Mr. Hughes informed them the former was an equipment purchase, and the latter was a routine inventory purchase.

Answer: Defendants neither admit nor deny the allegations in this paragraph because the parties

to the meeting discussed a number of different charges on company credit cards and company

checks and it is unclear what charges this paragraph refers to. Defendants further state that some

expenses paid for were legitimately related to Brownwood Farms business, but a number of

charges were unauthorized personal expenses paid for by Mr. Hughes with company funds and

never reimbursed or disclosed as personal expenditures on the company credit card.

32. Defendants then allege [sic] claims that Mr. Hughes had been using company money surreptitiously to pay certain cell phone bills, club memberships, routine travel and entertainment expenses, and for the company truck.

Answer: Admitted that Mr. Hughes told the participants of the meeting that he had been using

company money surreptitiously to pay his family’s cell phone bills, personal club memberships,

personal travel and entertainment expenses, other personal expenses and for the company truck

which he put title in his own name and did not transfer title to the company despite assurances

that he would do so. Further admitted that some legitimate business expenses were discussed at

the meeting, but also that Mr. Hughes expressly acknowledged to the participants that he had

13

taken over $6,000 from the company to pay for unauthorized personal expenses and that the

amount would only increase upon further investigation. See Ex 1, Leary Report.

33. These allegations were absolutely true. Since 2002 Mr. Hughes had accounted clearly for all such expenditures.

Answer: Admitted that the allegations of fraud, misappropriation and mismanagement by Mr.

Hughes are true. Denied as untrue that Mr. Hughes had accounted clearly for all such

expenditures. Defendants further state that Mr. Hughes routinely did not account for his

expenditures and the company bookkeeper routinely had to ask Mr. Hughes to tell her about

company checks he was writing and provide her with information about expenses that would

appear on the company credit card. Mr. Hughes also misrepresented the purpose of certain

expenditures to the bookkeeper and Defendants presumably in order to conceal Plaintiff’s

misappropriation of company funds. The failure to regularly account for expenditures to the

bookkeeper resulted in significant over-draft penalties and further pushed Brownwood Farms

into financial distress.

34. Perhaps more importantly, Mr. Hughes routine and appropriate accounting for these expenses was known to Mark Vittert when Mark Vittert wanted to become involved with the company.

Answer: Denied as untrue. Mark Vittert was never informed of Plaintiff’s use of company funds

for private reasons, including but not limited to paying for the cell phone bills of Plaintiff’s wife

and children without reimbursement, Plaintiff’s personal charges at Traverse City Country Club,

Plaintiff’s personal purchases at charity auctions, Plaintiff’s purchase of airline tickets to visit his

children Plaintiff’s use of the company credit card to pay for expenses while on vacation with his

family, and Plaintiff’s personal UPS charges to send packages across the country to family and

14

friends. Defendants further state that Mark Vittert routinely spoke to Mr. Hughes about the need

for scrupulous accounting at Brownwood Farms and Mr. Vittert insisted on accounting and

paying for any products or services provided to the Vittert family by the company.

35. Ironically, Mark Vittert encouraged Mr. Hughes to get a new company truck in November of 2014.

Answer: Admitted that Mark Vittert encouraged Hughes to obtain a new company truck for

safety. Defendants further state that Mr. Hughes put truck title in his name rather than that of the

company, yet used company funds to pay for the truck and its insurance. Mr. Hughes also used

the trade in equity from the former truck owned by Brownwood Farms as the down payment for

the new truck that was put in his name.

36. At the July 21, 2016 confrontation, Leland Vittert and John Doe interrogated Mr. Hughes, speaking in terms of fraud, theft, and criminal wrongdoing.

Answer: Denied as to the characterization of the meeting as a “confrontation” and

“interrogation.” Admitted that Mr. Hughes told the participants of the meeting that he committed

fraud and said he himself should be fired. See Ex 1, Leary Report.

37. Both Leland Vittert and the purported FBI agent informed Mr. Hughes during his interrogation that he could not leave, make any phone calls, text or e-mail anyone, or go back to the production area to speak to any other employees.

15

Answer: Denied as untrue. Defendants further state that Mr. Hughes was never detained, nor did

he ask to leave during the meeting. At one point Mr. Hughes asked for a glass of water (which he

was provided) and did leave the room and returned at least twice.

38. The June 21 interrogation lasted 3 hours. Answer: Denied as to the characterization of the meeting as an “interrogation.” Neither admitted

nor denied as to the actual length of the meeting, but Defendants affirmatively state that Mr.

Hughes repeatedly asked to continue conversation and asked for an additional paycheck before

leaving the premises voluntarily.

39 After over 3 hours of being intimidated and coerced by Mark and Leland Vittert and the purported FBI agent, Mr. Hughes turned over his office keys and his truck keys and left the premises.

Answer: Denied as untrue that Mr. Leary was a purported FBI agent and that Mr. Hughes was

coerced or intimidated. Admitted that, at the end of the meeting, Mr. Hughes voluntarily turned

over his keys and left the premises. Defendants further state that, during the meeting, Mr.

Hughes volunteered that he “should be fired” for his misappropriation of company money. (See

Ex 1, Leary Report) He stated that he was broke and agreed to turn over his stock in the company

as a token for his remorse in exchange for repayment of the money that he took from the

Company.

40. Mr. Hughes was instructed he could not return to the company for any reason, even to pick up his personal things.

16

Answer: Admitted that Mr. Hughes was requested not to return to the company premises due to

his misappropriation of company funds, and his personal belongings were returned to him by the

Brownwood Farms corporate attorney.

41. Someone purporting to act on behalf of Brownwood Farms shortly thereafter sent out an email to customers, employees, and other stakeholders of Brownwood Farms, even people from Mr. Hughes’s personal contact list, to inform that Mr. Hughes was no longer with the company.

Answer: Admitted that, in the course of Brownwood Farms operations, the company sent an

email to customers, suppliers and employees indicating Mr. Hughes was no longer actively

managing company. Neither admitted nor denied as to whether the message went to other

“stakeholders” or “personal contracts,” however Plaintiff’s brother, John Hughes, did reply to the

email telling employees of Brownwood Farms to “watch your backs!”(Ex 3, John Hughes email)

42. A few weeks later, an attorney purporting to represent the company presented documents for Mr. Hughes to sign in an attempt to get Mr. Hughes to resign immediately and to sell his interests in the company for $10,000.

Answer: Admitted that Mr. Hughes was offered a payment of $10,000 for his shares of the

Company as a good faith gesture by Defendants, even though Defendants believe the value of the

company due to Mr. Hughes’ mismanagement would not support such a high value for his shares.

Mr. Hughes was also provided with a separation agreement and documents for the transfer of

interest in the company. Mr. Hughes declined Defendants’ offer.

43. Since that time, Mr. Hughes has engaged counsel, but the company will not respond with an attorney who can discuss outstanding issues, including Mr. Hughes’ compensation, his personal belongings, or providing any explanation of the allegations against him or a resolution of those allegations.

Answer: Denied as untrue. The undersigned counsel has met with Plaintiff’s counsel to discuss the

issues contained in this paragraph prior to filing this Answer and Counter-Claims. Mr. Hughes also

17

scheduled and then cancelled multiple meetings with Brownwood’s corporate attorney to discuss

his separation from the company.

44. Moreover, the employees of Brownwood Farms have been instructed not to speak with Mr. Hughes and informed that he is not allowed in his own company.

Answer: Admitted that employees have been instructed not to talk to Mr. Hughes about

company business in light of the circumstances of his departure and this litigation, but at no time

have employees been told who they can speak with personally. Further admitted that, in light of

the present dispute and the reasons Mr. Hughes is no longer with the Company, Mr. Hughes is

not welcome at Brownwood Farms.

45. Mr. Hughes is unclear whether an FBI investigation based on the false allegations is pending against him at the present.

Answer: Defendants deny the characterization of “false allegations” in the paragraph.

Defendants neither admit nor deny the remainder of the allegations in this paragraph because

they lack sufficient knowledge or information to form a belief concerning the truth of the

allegations. Defendants further state that Plaintiff’s counsel has been provided with copies of Mr.

Leary’s report and credentials.

COUNT I

Membership Oppression

46. Plaintiff restates the allegations set forth in paragraphs 1 through 45 as if

set forth fully herein. Answer: Defendants restate their answers stated in the preceding paragraphs.

47. Plaintiff Hughes is a 25% member of Brownwood Farms which is a limited liability company pursuant to Michigan law.

18

Answer: Admitted.

48. Brownwood Farms’ principal place of business and registered office are located in Grand Traverse County.

Answer: Admitted.

49. On or about June 21, 2016 the majority shareholder, Brownwood Investors, through its purported agents Mark Vittert, Leland Vittert, and John Doe, took physical control over Brownwood Farms’ facilities and illegally, fraudulently and unfairly forced Jeffery Hughes from his position as manager of the company. from his employment with Brownwood Farms, and from all rights and interests he had as a member, including the rights that were granted to him pursuant to the terms and conditions of the Operating Agreement, which provided that he would be the manager of Brownwood Farms.

Answer: Denied as untrue. Defendants further state that the Operating Agreement provides that

“the Manager may be removed at any time…for fraud, gross negligence, malfeasance, or

misappropriation….”

50. Upon information and belief, John Doe, represented by the Vitterts and by John Doe to be an agent of the FBI from Washington DC to investigate this matter, was not an FBI agent and not authorized under the cloak of some authority to investigate or bring charges or claims against Mr. Hughes.

Answer: Denied as untrue. Defendants further state that Mr. Leary was never represented to be

an active FBI agent with the authority to bring charges against Mr. Hughes.

51. Moreover, there has been no membership vote, nor a determination by more than 75% of the members that Jeffery Hughes should not be the manager of Brownwood Farms.



Defendants further stated that it is unclear as the purpose of the allegation where the Operating

19

Agreement states that “the Manager may be removed at any time…for fraud, gross negligence,

malfeasance, or misappropriation….”

52. Jeffery Hughes has been deprived since that day of his right to be the manager and employee or enjoy the benefits of being a member of Brownwood farms LLC and they have advised the public that Mr. Hughes is no longer a part of the company.

Answer: Denied as untrue.

53. These acts in the name of the Trust are illegal, fraudulent, and constitute willfully unfair and oppressive conduct toward Jeffery Hughes.

Answer: Denied as untrue. WHEREFORE, Defendants respectfully request that this Court deny Plaintiff’s requested relief

and instead enter Judgment in Defendants’ favor, awarding Defendants all relief this Court

deems just and proper, including but not limited to an award of damages in an amount this Court

deems just and property for having to respond to these claims wrongfully brought against

Defendants, plus costs, attorneys’ fees and any other relief required by justice.

COUNT II

Tortious Interference As To Mark Vittert, Leland Vittert, And John Doe

54. Plaintiff restates the allegations set forth in paragraphs 1 through 53 as if

set forth fully herein. Answer: Defendants restate their answers stated in the preceding paragraphs.

55. Defendants Mark Vittert, Leland Vittert, and John Doe, are not members of Brownwood farms.

20

Answer: Admitted that none of the three listed personally own shares of B-Wood Farms LLC;

however Mark Vittert is a “co-trustee” of the Carol H. Vittert Trust, and Leland Vittert and Elliot

Leary were authorized by the Trust to act as its agent.

56. On or about June 21, 2016 they “confronted” Jeffery Hughes, the founder

and 25% member of Brownwood Farms, with purported evidence with an alleged FBI agent who had flown in from Washington D.C. to investigate this alleged wrongdoing.

Answer: Admitted that a meeting took place on June 21, 2016 to discuss financial issues with

the company that was attended by Mark and Leland Vittert, Elliot Leary and Libby Schulz. See

answer to Paragraph 1 describing that meeting, which is incorporated by reference. Denied that

Mr. Leary was ever represented to be a FBI agent. Neither admitted nor denied as to any other

allegation in this paragraph.

57. Upon information and belief, the John Doe was not an FBI agent, and the

alleged fraudulent activity were payments for automobiles, gasoline, club memberships, and cell phones that had been a part of Hughes’ well-documented routine business practice at Brownwood Farms since 2002. Moreover, these expenses and the reimbursement of these expenses were well known by all the Defendants for years.

Answer: Admitted that Elliot Leary is not an active FBI agent and nor was he ever represented

to be one. Admitted that the fraud, mismanagement, misappropriation and malfeasance includes,

but is not limited to, paying for duct cleaning at Mr. Hughes’ personal residence, purchasing a

truck with the title in his own name, writing checks to himself in excess of his salary, using the

company credit card for personal purposes without reimbursing the company for those charges

and using the company shipping account for personal purposes without reimbursing the company

for those charges. At the meeting he admitted to taking over $6,000 worth of personal funds from

the company through credit card charges and also stated that the amount would increase if more

credit card invoices were reviewed. Neither admitted nor denied as to whether these were “well

21

documented routine business practices at Brownwood Farm since 2002,” but denied as untrue

that “these expenses and the reimbursement of these expenses were well known by all the

Defendants for years.” Defendants further state that Mr. Hughes’ actions were not authorized by

the operating agreement for the company or any other formal or informal actions of the

shareholders. These actions, among other things, form the basis for Defendants’ counter-claims

for fraud, conversion, breach of fiduciary duty and mismanagement of company finances.

Hughes theft was well documented but was not known or authorized by Vittert. Mark Vittert

routinely spoke to Mr. Hughes about the need for scrupulous accounting at Brownwood Farms

and Mr. Vittert insisted on accounting and paying for any products or services provided to the

Vittert family by the company. Moreover, Section 5.3(e) of the operating agreement expressly

prohibits the manager from paying any amount to himself except for his annual salary.

58. Mark Vittert, Leland Vittert, and John Doe were aware of Mr. Hughes’ expectations as a member and employee of Brownwood Farms and intentionally interfered with Hughes’s expectations and rights.


59. Mark Vittert, Leland Vittert, and John Doe wrongfully, unfairly, and illegally, harassed, lied to, interrogated, and coerced Mr. Hughes to give up his keys to the Brownwood Farms facilities, and his keys to his vehicle, and walk away, in every sense, from Brownwood Farms, in order to deprive him of his expectation and interest as a member, founder, and employee of Brownwood Farms.


60. The use of lies, threats, and coercion constituted illegal, wrongful and unfair conduct which deprived Plaintiff of his business expectancy as an employee, founder, and member of the company and caused financial loss and non-economic damages.


22

61. Mr. Hughes, since that time has been under enormous stress dealing with the loss of the company he founded in 2002, causing sleeplessness and non-economic damages.

Answer: Denied as untrue. WHEREFORE, Defendants respectfully request that this Court deny Plaintiff’s requested relief

and instead enter Judgment in Defendants’ favor, awarding Defendants all relief this Court

deems just and proper, including but not limited to an award of damages in an amount this Court

deems just and property for having to respond to these claims wrongfully brought against

Defendants, plus costs, attorneys’ fees and any other relief required by justice.

23

COUNTER-COMPLAINT

Counter-Plaintiffs, BROWNWOOD INVESTORS, LLC, CAROL H. VITTERT,

B-WOOD FARMS, LLC, MARK B. VITTERT and LELAND VITTERT, through their

attorneys, OLSON, BZDOK & HOWARD, PC, states their Counter-Complaint for equitable and

monetary relief as follows:

1. This Counter-Complaint states claims for Breach of the Operating Agreement and

Fiduciary Duties for Fraud, Gross Negligence, Malfeasance or Misappropriation. It also states

claims for Illegal, Fraudulent, Willfully Unfair and Oppressive Conduct by the Manager, and

common law counts of Fraud and Conversion. These claims are based on Jeffery Hughes’ use of

company funds for his own personal purposes. Mr. Hughes wrote himself checks, bought plane

tickets to visit family members, paid for sporting event tickets, paid for significant charges at the

local country club, paid for his family’s meals on vacation, had the ducts cleaned at his home,

used company funds to purchase a new car that was titled in his name, paid for his wife and

children’s cell phone bills, and shipped personal packages all over the country to and from

family members all with company funds. The amount inappropriately taken from the Company is

in excess of $25,000 and is likely to grow with further investigation. Not only did Mr. Hughes

breach his fiduciary obligations to Brownwood Farms and its investors by making these

unauthorized and illegal expenditures, he also made false statements and attempted to cover up

his misdeeds. This Counter-Complaint seeks monetary damages at law and equitable relief

against Mr. Hughes as a result of his unlawful an unethical conduct.

24

GENERAL ALLEGATIONS

2. In the fall of 2012, Mark Vittert contacted Brownwood Farms about potentially investing

in the company. Mr. Vittert was intrigued by the company after trying some of its products,

visited the company and spoke with Jeffery Hughes about the business.

3. The timing of Mr. Vittert’s visit and interest in the Company was fortuitous for

Brownwood Farms, as the Company was faced with the prospect of closing unless it was able to

obtain additional investments or capital.

4. During the initial discussions of the potential Vittert involvement of the company, Mark

Vittert asked Jeffery Hughes whether the taxes for the business were paid and current. Mr.

Hughes told Mark Vittert that all the Company’s tax obligations had been paid.

5. Mr. Hughes’ statement was not true, as the Company had a tax lien levied against it for

failure to pay payroll taxes. The Vitterts did not learn of the tax lien and this misrepresentation

by Mr. Hughes until recently.

6. On or about November 20, 2012, the Vitterts loaned Brownwood Farms a total of

$50,000 in the form of two promissory notes.

7. On information and belief, the loans from the Vitterts were used in part to pay the

outstanding IRS tax lien.

8. On or about November 20, 2012, Counter-Plaintiffs Carol and Mark Vittert and

Counter-Defendant Jeffery Hughes, as the sole member of B-Wood Farms, LLC, also entered

into a written option to purchase 50% of the shares of B-Wood Farms, LLC.

9. The option to purchase and potential transaction required, among other things, that

B-Wood Farms, LLC adopt a new Operating Agreement for the Company.

25

10. The new Operating Agreement was to replace the previous operating agreement dated

November 16, 2007 and which was an operating agreement for a single member LLC owned and

operated exclusively by Mr. Hughes.

11. Counter-Plaintiffs exercised their option to purchase a 50% interest in the Company, and

that transaction closed on or about February 11, 2013.

12. The new Operating Agreement was adopted on February 11, 2013 and is attached as Ex

4.

13. Mr. Hughes became the Manager under the new Operating Agreement.

14. The new Operating Agreement contains, among other things, restrictions on the authority

of the Manager in Section 5.3. Those restrictions require consent of a super majority in interest

for the following:

a. Subparagraph (e) states “Pay any compensation, management fee or any other payment to the Manager or to any person or entity affiliated therewith, except for the annual salary of $70,000.00 payable to Jeffery Hughes;” Mr. Hughes was given annual raises as agreed upon, for a total of salary of $80,000 in 2015 and $82,000 in 2016.

b. Subparagraph (j) states “Make any non-cash distributions of Company property to the

Members.”

15. Section 5.4 of the Operating Agreement contains duties and obligations of the Manager.

Those include the following (among other things):

a. Subparagraph (c) states “The Manager shall be under a fiduciary duty to conduct the affairs of the Company in the best interest of the Company and of the Members, including the safekeeping and use of all of the Property and the use thereof for the exclusive benefit of the Company.”

b. Subparagraph (f) states “Notwithstanding any contrary provision of this Agreement, the

Manager shall in performing his/its duties as Manager under this Agreement and in conducting his/its businesses and affairs outside the scope of this Agreement: (i) deal fairly, honestly and in the best interests of the Company, consistent with the standard of the highest fiduciary duties to the Company; (ii) refrain from taking any action or engaging in any activities, businesses or conduct, which would or could reasonably compete with, interfere with, or be detrimental to the business or interests of the Company; (iii) avoid any conduct and/or situations which would or could reasonably

26

result in a conflict of interest with the Company; and (iv) refrain from taking any personal gain in connection with the use of the Company business, property, information or position.”

16. Over the course of the next three years, Counter-Plaintiffs contributed hundreds of

thousands of dollars to the Company in order to keep the Company operating. The current total

contribution by Counter-Plaintiffs to Brownwood Farms is approximately $850,000 in loans or

capital contributions.

17. Counter-Plaintiffs’ additional contributions were necessary to pay vendors, suppliers and

other parties essential to the operation of the business. Without these contributions, Brownwood

Farms would have gone out of business.

18. Counter-Plaintiffs also purchased an additional 25% of the Company during this time in

light of these contributions and for consideration of $100 paid to Mr. Hughes.

19. During this period of time and up until June of 2016, Counter-Plaintiffs relied on

Counter-Defendant Hughes to run the day to day operations of the Company.

20. As part of the normal operation of the Brownwood Farms, the Company bookkeeper was

to write checks for Brownwood, including checks paying Mr. Hughes’ salary or reimbursement

for expenses.

21. This arrangement was in place when the Counter-Plaintiffs became involved in the

company and the bookkeeper continued to write Company checks until the end of 2015. At that

time Mr. Hughes began writing and signing his own checks without providing notice of this

change to Counter-Plaintiffs and attempted to conceal this change.

22. On several occasions Mr. Hughes would not report the checks that he wrote to the

bookkeeper and would cause the Company bank account to become overdrawn. On at least two

occasions the bookkeeper emailed Mr. Hughes to request that he stop writing checks without

informing her. See Ex 5, Emails with L. Schulz.

27

23. Mr. Hughes routinely wrote checks in excess of the amounts contained in banking

accounts for Brownwood Farms, racking up thousands of dollars in overdraft fees. See Ex 6,

Bank Statements.

24. In spring of 2016, there was a meeting at the accounting firm of Dennis, Gartland

&Niergarth (DGN). The purpose of the meeting was to discuss the financial situation of the

company and also over $72,000 worth of missing inventory.

25. Prior to that meeting, Counter-Defendant Hughes had specifically requested that the

Company bookkeeper, Libby Schulz, not disclose to the Vitterts the fact that Mr. Hughes had

been writing himself checks from the Company bank account. The topic of writing checks never

came up at the meeting so it was not discussed.

26. Upon information and belief, the new accounting firm had been selected by Mr. Hughes

as he had a personal relationship with one of the principles of the accounting firm.

27. At the meeting with the accountants, the discrepancy in inventory was attributed to a

change in accounting systems. This seemed curious to Counter-Plaintiffs, and they decided to

continue to investigate the missing inventory.

28. At the meeting with the accountants, Mr. Hughes was specifically asked if there was

anything else in the Company’s finances that the Counter-Defendants should know about. Mr.

Hughes assured the Counter-Defendants there was not.

29. A short time after the first meeting with DGN, it was discovered that Mr. Hughes had

over-paid himself by writing company checks to himself in excess of the amount of salary that he

was owed.

30. A second meeting was held at DGN to discuss the overpayment to Mr. Hughes and the

company’s finances/insolvency.

28

31. At that meeting Mr. Hughes acknowledged he had written himself checks for more than

he was entitled to and agreed to reimburse the Company through future reductions in the amount

he would be paid on his salary.

32. It was also determined that the company was insolvent, requiring the Vitterts to provide

an immediate cash infusion of $35,000.

33. Mr. Hughes was asked directly if there was anything else that the Counter-Plaintiffs

should know about the Company’s finances and his actions. He said that there was nothing else

they should be aware of.

34. At that meeting Carol Vittert also asked Mr. Hughes if he thought anyone could be

stealing from the company, which might explain the Company’s financial troubles. Mr. Hughes

said that he was certain that nobody was stealing from the Company.

35. A short time after the second DGN meeting, the Company’s bookkeeper contacted Mark

Vittert to inform him that she believed Mr. Hughes was using company funds for personal

purposes.

36. One of the concerns Ms. Schulz identified was that Mr. Hughes had paid for air duct

cleaning with a company check. When she asked Mr. Hughes about the expense, he represented

to her that it was for cleaning air ducts in the back of the Brownwood Farms production area.

37. Ms. Schulz asked Brownwood employees if there were ducts in the Brownwood facility

that had been cleaned. She was informed that there were no ducts in the area identified by Mr.

Hughes and there had been no duct cleaning that took place at the facility.

38. Ms. Schulz asked Mr. Hughes to produce the invoice for the duct cleaning. See Ex 7,

Email from L. Schulz. When Mr. Hughes produced the invoice, it indicated that the duct

cleaning was at Mr. Hughes’ personal residence and not a Brownwood Farms. See Ex 8, Duct

Cleaning Invoice.

29

39. Counter-Plaintiffs hired Elliot Leary, a former FBI agent specializing in white color

crime and independent consultant in order to assist Counter-Plaintiffs with any necessary

investigation and forensic accounting if there was theft from the Company.

40. Counter-Plaintiffs set up a meeting with Mr. Hughes to discuss financial matters for the

Company on June 21, 2016 at the Brownwood Farms office.

41. Prior to meeting with Mr. Hughes, Mr. Leary and Counter-Plaintiffs met with the

Company Bookkeeper to review documents and evidence of potential misappropriation from the

company. Ex 1, Leary Report.

42. Counter-Plaintiffs, Elliot Leary and Libby Schulz then all met with Jeffery Hughes at the

Brownwood Farms offices.

43. At the meeting Mr. Hughes agreed there were numerous personal charges on company

credit cards and he had written company checks to himself beyond his agreed salary. Ex 9.

44. Mr. Hughes was also shown a company check bearing his signature for air duct cleaning

at his personal home. Ex 10. Mr. Hughes stated that paying for the cleaning of his air ducts at

home with a company check was “very wrong” and that he was “broke” so he could not pay back

company funds.

45. Mr. Hughes reviewed credit card records at the meeting indicating in writing next to

charges he said were “personal and not business expenses.” Ex 11. None of these expenses had

been reimbursed to the Company by Mr. Hughes; nor were any of these personal expenses

authorized under the Operating Agreement or previously disclosed.

46. As indicated in Mr. Leary’s report, the amount of Mr. Hughes’ personal expenses paid

for with company funds was in excess of $6,000.

30

47. The participants of the meeting also discussed the company truck. Mr. Hughes had put

title to the truck in his personal name rather than that of the Company, despite the company

paying the down payment and making all loan and insurance payments for the truck.

48. Mark Vittert had encouraged Mr. Hughes to purchase a new company truck for safety

reasons in November of 2014.

49. Mr. Hughes traded in the old company truck, titled in Brownwood Farms, for a new truck

titled in Mr. Hughes’ own name. The new truck was purchased on or about December 9, 2014

using funds from Brownwood Farms and for the next 18 months Brownwood Farms continued to

make the payments.

50. At the time Mr. Hughes told Mr. Vittert that it was easier to put the truck in his own

name at the time of purchase and that he would transfer title of the truck to the company right

away. Mr. Vittert agreed to this upon the representation of immediate transfer.

51. On more than one occasion Mark Vittert notice that the truck was not added to the

Company balance sheet and financials. He asked Mr. Hughes to put the truck on the balance

sheet on more than one occasion.

52. During at least one of these conversations, Mark Vittert asked Jeff Hughes to confirm

that he had transferred title to the truck into the company’s name, as he had promised at the time

of purchase. Mr. Hughes told Mark Vittert that title to the truck had been transferred to the

company, when in fact it had not.

53. At the June 21, 2016 meeting, Mr. Hughes was again asked to confirm that he had placed

title to the truck in the company name, as he had promised. Mr. Hughes told the participants that

he had not transferred title into Brownwood Farms name, and that the truck was still titled in his

own name, despite being paid for by Brownwood Farms funds.

54. Title to the truck was not transferred to Brownwood Farms name until August 1, 2016.

31

55. As a result of the meeting, Mr. Hughes was suspended from his position without pay

indefinitely.

56. After the June 21, 2016 meeting, further personal expenses by Mr. Hughes were

discovered, including cell phone charges for his wife and two children that he had paid for

through the company since at least 2013, as well as shipping charges for packages sent to and by

Mr. Hughes’ family members. None of these charges were known of, or authorized by,

Defendants.

57. As of the date that Mr. Hughes left the company, vendors for products had not been paid

for over 90 days and vendors had refused to send products so that the Company was days away

from shutting down. The Vitterts were required to provide thousands of dollars in immediate

cash infusions so that Brownwood Farms could continue to make products.

58. In hindsight, Counter-Plaintiffs realize that the mismanagement and misappropriation by

Mr. Hughes undermined the viability of the Company and, on at least three separate occasions,

the company would have been insolvent were it not for immediate cash infusions by the Vitterts.

59. In August of 2016, Counter-Plaintiffs learned that Mr. Hughes was attempting to start a

new company, The Glen Haven Canning Co., in order to “recreate Brownwood farms.” Ex 12.

60. The Glen Haven Canning Co. was an idea that originated with Brownwood Farms, and

rightfully belongs to Brownwood Farms.

61. Mr. Hughes has sought to partner on this project with the same design and marketing

firm, “Driven” that serves as a design and marketing firm for Brownwood Farms.

62. Mr. Hughes is aware of product recipes and formulas, as well as potential proprietary

information of Brownwood Farms. In seeking to “recreate Brownwood Farms,” it is likely that

Mr. Hughes will be relying on Brownwood Farms’ proprietary information.

32

Count I Breach of Operating Agreement, Breach of Fiduciary Duty and removal

based on Fraud, Gross Negligence, Malfeasance or Misappropriation

63. Counter-Plaintiffs reallege the proceeding paragraphs.

64. The Operating Agreement Section 5.3(e) states that the Manager may not “Pay any

compensation, management fee or any other payment to the Manager or to any person or entity

affiliated therewith, except for the annual salary of $70,000.00 payable to Jeffery Hughes.” 5.3(j)

further states that the Manager may not “Make any non-cash distributions of Company property

to the Members.”

65. Mr. Hughes violated the terms of the Operating Agreement by paying himself more than

the Operating Agreement allowed without authorization. Mr. Hughes’ unlawful and unauthorized

expenditures include, but are not limited to, the following:

a. Writing himself checks from the company account in excess of in excess of $1,500.00 more than he was entitled to under the Operating Agreement, and not providing the bookkeeper with check stubs or receipts for those payments in a timely fashion. See Ex 5.

b. Using company funds to pay for the phone bills of Dessie Hughes, Mac Hughes and Melissa Hughes, none of whom were employees of Brownwood Farms and all of whom are family members of Jeffery Hughes. Phone bills for three years equates to approximately $9,000.00 worth of company funds to pay for cell phone bills of Mr. Hughes’ family. See Ex 13.

c. Writing a check for $495.00 from Brownwood Farms to pay a bill for air duct cleaning

at Mr. Hughes’ residence. See Ex 10.

d. Mr. Hughes purchased a new GMC Sierra truck in December 2014 ostensibly for the company, but put the truck in his own name. The purchase price for the truck, less the $6,500 trade in for the old Brownwood Farms truck, was $33,150.03. Despite the fact that the truck was in Mr. Hughes’ name, Brownwood Farms made all loan payments and insurance payments for the vehicle. See Ex 14.

e. Mr. Hughes identified approximately $6,000 worth of personal expenditures for himself

and his family charged on the company credit card for 2016. These charges included a flight to visit his daughter, sporting event tickets, country club charges, food and dining for his family while on vacation, and purchases at a local charity auction. See Ex 11. Mr.

33

Hughes also indicated that there would be more personal charges if additional bills were reviewed. See Ex 1, Leary Report.

f. Mr. Hughes used the company UPS account to send non-business related personal

packages to his family and friends around the country that were not business related. The total for these shipping costs is approximately $1,000. See Ex 15.

66. On information and belief, Mr. Hughes has not claimed any of the above amounts as

taxable income from the Company.

67. None of the payments or non-cash distributions to Mr. Hughes were authorized by a

super majority of members in direct contravention of Sections 5.3(e) and (j) of the Operating

Agreement.

68. Counter-Plaintiff Mark Vittert routinely spoke to Mr. Hughes about the need for

scrupulous accounting at Brownwood Farms and Mr. Vittert insisted on accounting and paying

for any products or services provided to the Vittert family by the company as an example of the

expected scrupulous accounting.

69. None of the expenditures listed above were previously known to Counter-Plaintiffs, and,

in fact, Mr. Hughes actively concealed the expenditures from Counter-Plaintiffs.

70. Mr. Hughes’ material misrepresentations concerning these payments include the

following:

a. When confronted with the payment made to the air duct cleaning company, Mr. Hughes told Libby Schulz that the bill was for air duct cleaning in the back of the Brownwood Farms facilities. Mr. Hughes made this statement in order to cover-up the fact that he had improperly paid for a private service to his home with company funds. Mr. Hughes later admitted that the expense was for his own home, and that his actions were “very wrong.”

b. Mr. Hughes told Mark Vittert that putting the new company truck in his own name was

“more convenient” than putting it in the company name. He then misrepresented that he was putting the title in the company name “right away” and also told Mark Vittert on at least one other occasion that he had transferred title to the new truck into Brownwood Farms’ name. None of these representations were true.

34

c. Mr. Hughes requested that the bookkeeper actively conceal the fact that he was writing checks to himself from the Vittert family members. He was aware that they did not know of his check writing and made efforts to actively conceal his activities.

d. Mr. Hughes was directly asked by Counter-Plaintiffs at the meeting concerning Mr.

Hughes’ overpayment to himself whether there were other items that Counter-Plaintiffs should be aware of. Despite being aware of other personal expenditures made with company money, Mr. Hughes assured Counter-Plaintiffs that there was nothing else that they should know about actively concealing his misuse of company funds.

71. Section 5.4(c) of the Operating Agreement states “The Manager shall be under a

fiduciary duty to conduct the affairs of the Company in the best interest of the Company and of

the Members, including the safekeeping and use of all of the Property and the use thereof for the

exclusive benefit of the Company.”

72. Section 5.4(f) of the Operating Agreement states “Notwithstanding any contrary

provision of this Agreement, the Manager shall in performing his/its duties as Manager under

this Agreement and in conducting his/its businesses and affairs outside the scope of this

Agreement: (i) deal fairly, honestly and in the best interests of the Company, consistent with the

standard of the highest fiduciary duties to the Company; (ii) refrain from taking any action or

engaging in any activities, businesses or conduct, which would or could reasonably compete

with, interfere with, or be detrimental to the business or interests of the Company; (iii) avoid any

conduct and/or situations which would or could reasonably result in a conflict of interest with the

Company; and (iv) refrain from taking any personal gain in connection with the use of the

Company business, property, information or position.”

73. Section 6.3 of the Operating Agreement states that Jeffery Hughes may be removed as

Manager of the Company for “fraud, gross negligence, malfeasance or misappropriation.”

74. Mr. Hughes’ conduct in this matter is a clear breach of the fiduciary duties in Section 5.4

of the Operating Agreement.

35

75. Mr. Hughes’ conduct in this matter is a clear violation of the terms of Section 5.3 of the

Operating Agreement.

76. Mr. Hughes’ conduct in this matter constitutes fraud, gross negligence, malfeasance or

misappropriation under the terms of the Section 6.3 of the Operating Agreement.

WHEREFORE, Counter-Plaintiffs respectfully request that this Court enter Judgment in their

favor, awarding Counter-Plaintiff all relief this Court deems just and proper, including but not

limited to an award of damages in an amount exceeding $25,000 for 1) the breaches of the

Operating Agreement and 2) Counter-Defendant’s breaches of his fiduciary duties to the

company and the other members; also that this Court declare and affirm that Counter-Defendant

has committed fraud, gross negligence, malfeasance or misappropriation under the terms of the

Operating Agreement subjecting him to removal as Manager; and all other relief this Court

deems just and property including costs, attorneys’ fees and any other relief required by justice.

Count II

Illegal, Fraudulent, Willfully Unfair and Oppressive Conduct By the Manager


78. MCL 450.4515 provides that “A member of a limited liability company may bring an

action in the circuit court of the county in which the limited liability company's principal place of

business or registered office is located to establish that acts of the managers or members in

control of the limited liability company are illegal or fraudulent or constitute willfully unfair and

oppressive conduct toward the limited liability company or the member.”

79. The actions of Mr. Hughes described above are in violation of the express terms of the

Operating Agreement, are illegal or fraudulent or constitute willfully unfair and oppressive

36

conduct toward the limited liability company and Counter-Plaintiffs, and have significantly

damaged the limited liability company and Counter-Plaintiffs.

80. This Court has the equitable authority to modify the Operating Agreement.

81. In light of the circumstances outlined in the proceeding paragraphs of this

Counter-Complaint, and in particular the allegations in Paragraphs 64 through 76 above, this

Court should exercise its equitable powers to modify the existing Operating Agreement in order

to do the following:

a. Remove Jeffery Hughes as a member of the Corporate entity;

b. Revise the “Super-Majority” definition in the Operating Agreement so that a Super-Majority constitutes 75% or more of Membership interest in the Corporation;

c. Alternatively eliminate the Super Majority requirement for replacing the Manager and

also for amending the Operating Agreement. WHEREFORE, Counter-Plaintiffs respectfully request that this Court enter Judgment in their


limited to a declaration that Counter-Defendant’s activities are illegal or fraudulent or constitute

willfully unfair and oppressive conduct toward the limited liability company and

Counter-Plaintiffs; award damages in an amount exceeding $25,000 for Counter-Defendant’s

conduct that is illegal or fraudulent or constitute willfully unfair and oppressive conduct toward

the limited liability company and Counter-Plaintiffs; and award all other relief this Court deems

just and property including costs, attorneys’ fees and any other relief required by justice.

37

Count III Common Law Fraud and Conversion


83. Mr. Hughes violated the terms of the Operating Agreement by paying himself more than

the Operating Agreement allowed without authorization. Mr. Hughes’ unlawful and unauthorized

expenditures as listed in Paragraph 56, above.

84. Mr. Hughes made material misrepresentations concerning these payments as provided in

Paragraph 60, above.

85. Mr. Hughes knew these statements were false when he made them.

86. Mr. Hughes intended that Counter-Plaintiffs rely on the misstatements, which they did.

87. Plaintiffs were harmed through Mr. Hughes’ activities through the unlawful payment and

conversion of funds to Mr. Hughes, especially in light of Counter-Plaintiffs’ significant financial

contribution to Brownwood Farms.



limited to a an award of damages in an amount exceeding $25,000 for Counter-Defendant’s

fraud and conversion, and award all other relief this Court deems just and property including

costs, attorneys’ fees and any other relief required by justice.

Count IV

Breach of Stock Purchase Agreement


89. The purchase Agreement for Brownwood Farms contains certain representations and

warranties on behalf of the Company. See Ex 16, Purchase Agreement.

38

90. Specifically, Section 2, Paragraph 2.2 states “[t]hat all assets, liabilities and operations of

the Company are fully and fairly reflected on (a) the financial statements for the current year and

the prior two years, copies of which were previously delivered to Purchaser and (b) any monthly

statements which are to be delivered to Purchaser in accordance with the provisions of the 2012

Promissory Note.”

91. Mr. Hughes personally represented and warranted the truthfulness of these statements at

closing through an Affidavit dated February 11, 2013. Ex 17.

92. The Company’s financial statements did not fully and fairly set forth the operations of the

Company, and specifically Mr. Hughes’ use of company funds for private purposes.

93. Mr. Hughes did not disclose potential claims against himself for previous or ongoing use

of company funds for private purposes.

94. The failure to do so constitutes a breach of the Purchase Agreement.



limited to a an award of damages in an amount exceeding $25,000 for Counter-Defendant’s

breach, and award all other relief this Court deems just and property including costs, attorneys’

fees and any other relief required by justice.

OLSON, BZDOK & HOWARD, P.C. Attorneys for Defendants/Counter-Plaintiffs /s/ Scott W. Howard Date: October 12, 2016 By:____________________________ Scott W. Howard (P52028)

state of michigan grand traverse county circuit …

Documents