Tough ruling in beef jerky family legal dispute
The disgruntled son of a beef jerky pioneer appears to have bitten off more than he could chew when he tried to continue lengthy legal actions against his father and brother.
Jay Link, a Wisconsin resident, had sought to bring an action in Nova Scotia Supreme Court on behalf of Jack Link's Canada Company against his father, John E. Link, and his brother, Troy Link, as well as executive John Hermeier and Link Snacks Inc., a Wisconsin corporation.
“Jay has not satisfied the court, more likely than not, that he is ‘acting in good faith,' or that the proposed derivative action is ‘in the interests of the company,'” says a written decision by Justice Peter P. Rosinski released Tuesday in the matter of Link v. Link, a case heard Sept. 23 in Halifax.
“I deny him leave to proceed with the derivative action on behalf of Link Canada in Nova Scotia.”
Link Snacks Inc., a Wisconsin company founded in 1986 by Jack Link, is a producer and distributor of Jack Link's meat snacks products. Link is described as starting out by selling beef jerky from the back of a pickup truck, and Link Snacks eventually became one of the largest protein snack companies in the world, according to the decision, selling jerky, stick products, steak strips and bars, sausages and lunchbox snacks.
FAMILY BUSINESS
According to the affidavit of director and officer Hermeier, Link Snacks was owned until June 2009 by Jack (55 per cent) and his two sons, Troy (21.5 per cent) and Jay (23.5 per cent), who received their shares as gifts from Jack.
“As Link Snacks grew, Jack and his sons set up several companies that serviced Link Snacks either by producing meat snacks for Link Snacks or distributing its products in markets outside the U.S.A.,” Hermeier said.
These related companies were said to typically be owned by Troy and Jay on a 50-50 basis. One incorporated for international distribution of Jack Link's products was Link Snacks Global Inc., a Wisconsin holding corporation that never conducted any business itself but instead owned several subsidiary companies.
“Jay and Troy each own 50 per cent of the outstanding shares of Link Global (which) owns a corporation known as LSI Canada Holdings Inc., which is also itself a holding corporation. LSI Canada Holdings, in turn, owns 100 per cent of the outstanding shares of Jack Link's Canada Company, a Nova Scotia unlimited liability company incorporated in Nova Scotia on Nov. 8, 2002.”
CANADIAN OPERATIONS
Link Canada's business consisted solely of its distribution of Link Snacks' products, Hermeier stated. It owned no production facilities, recipes or intellectual property rights and at no time had a written or verbal contractual right to distribute Link Snacks products.
“Rather, Link Canada's ongoing ability to serve as a distributor was always and exclusively at the sole discretion of Link Snacks,” said Hermeier in his affidavit.
On Aug. 4, 2005, Jay entered into a departure memorandum under which he agreed, among other things, to be terminated as an employee and officer and to negotiate an amicable buyout of his interests in Link Snacks and related companies.
Hermeier said that before his departure, Jay expressed dissatisfaction with his role as COO and demanded that he be appointed CEO of Link Snacks.
“When members of management expressed their views that Jay was not yet ready or qualified to be CEO, Jay became increasingly hostile. As a result, his ability to work with members of senior management, as part of a cohesive team, became strained. Ultimately, Jay refused to report to his father, Jack, who was the chief executive officer, or consult with other members of Link Snacks management. He failed to communicate about what he was doing for the company and he did not timely perform his responsibilities.”
TROUBLE AHEAD
Hermeier asserted that a plan was disclosed to him.
“Jay stated to me, at or about the time of his departure, that if Jack and Troy did not accept his terms, Jay would make life miserable for (them and) Link Snacks with a bunch of lawsuits which he had ready to file. He threatened that management would be spending all of its time responding to his lawsuits and they would have no time to operate the business. His stated goal was to ‘bring the company to its knees' through the litigation process.”
Jay alleged that between 2009 and 2016, Jack, Troy and Hermeier acted in breach of their fiduciary duties and in bad faith by transferring profits from Link Canada to Link Snacks Inc., terminating Link Canada's distribution of Link Snacks' products in Canada and transferring Link Canada's assets to Link Snacks at undervalued amounts, ultimately making Jay's 50 per cent ownership of Link Global negligible.
Link Global is the subject of a dissolution proceeding in the Wisconsin State Circuit Court, and a receiver has been appointed to liquidate the assets of Link Global and its subsidiaries. According to the decision, as of April 2018, the receiver's authority includes management and control of the affairs of Link Canada.
Until 2016, Link Canada distributed Link Snacks' jerky product in Canada, building a distribution network that reached a range of retail outlets throughout Canada. Link Canada no longer has any employees and no longer conducts business.
LEGAL ACTIONS
Jay is described as having participated in multiple related lawsuits in Wisconsin against Link Snacks, Jack, Troy and Hermeier, starting in 2008.
Initially, Link Snacks, Jack and Troy sued Jay for specific performance of the buy-sell agreement between Link Snacks and its shareholders, which, after the termination of Jay's employment, triggered his obligation to sell his Link Snacks shares back to the corporation. According to a summary in the decision, Jay filed counterclaims against Jack, Troy and Link Snacks, and filed third-party claims against Hermeier, as well as against Link Snacks, three other directors and four other Link companies, including Link Global. A jury found that Jay breached the terms of the departure memorandum, breached his fiduciary duties to Link Snacks and another Link-owned company, and tortiously interfered with Link Snacks' prospective contractual rights with a third party. It also found that Hermeier and the other officers and directors did not breach their fiduciary duties to Jay, Troy technically breached his fiduciary duties to Jay but caused Jay zero dollars in damages, and Jack breached his fiduciary duties to Jay. The jury awarded reciprocal punitive damages awards of $5 million against Jack and Jay.
More suits followed in Wisconsin in 2010 and 2016.
NOVA SCOTIA VENUE
“At its core, Jay seeks to reinvent his unsuccessful Wisconsin litigation ... not by proceeding here in Nova Scotia in his personal name this time, but rather in the name of Link Canada,” Rosinski wrote, referring to what is termed a derivative action.
Jay submitted that he believes “that Jack, Troy, and Hermeier have breached their fiduciary duties to Link Canada by engaging in acts of unlawful corporate misappropriation” and that they “owe compensation to Link Canada for their misconduct.”
He said their alleged misconduct included setting up a new company in Canada and began around 2009, “when they started to operate Link Canada as a subservient subsidiary of Link Snacks, even though Link Canada is a subsidiary of Link Global, an entirely different and separate corporate chain.”
TIMETABLE
Rosinski wrote that, procedurally, the matter before him was the first step in what could be a very lengthy proceeding.
“I acknowledge that I have no proposed statement of claim before me,” he wrote.
“In summary, I am not satisfied that Jay has demonstrated that all the necessary preconditions have been met.”
The justice concluded that Jay was seeking leave before the court “as part of a pattern of vengeful conduct he has unremittingly evinced since at least 2005, as against his father Jack, his brother Troy, and, incidentally, John Hermeier. A review of the extensive evidence of the history of the parties vis-à-vis the various corporations that were part of the Link group of companies, the origins of these disputes reaching back to at least 2005 and the evolution of that dispute suggests there is longstanding enmity by Jay against the individual respondents.”
A legal limitation period was also noted.
“(Jay) decided not to bring an application for leave to file a derivative action in Nova Scotia until 2020,” the decision states.
“His primary motivation for now doing so is for his personal benefit, and because he has been foreclosed from personally benefiting in the Wisconsin proceedings.”