Fraud claim dropped against widow

Lawsuit seeks to force new valuation for People’s Trust buyout

People’s Trust Insurance President and CEO George Schaeffer is no longer accusing the wife of his dead partner of fraudulently inducing him to pay too much for her half of the company in 2014.

Schaeffer omitted the allegation from a revised version of his suit against Eileen Gold, wife of Schaeffer’s late partner and People’s Trust co-founder Mike Gold, filed last week in Palm Beach County Circuit Court.

Schaeffer is seeking to force Eileen Gold to return $4 million he says he overpaid, and release him from a contractual obligation to pay her an additional $9 million and a percentage of the net proceeds if the Deerfield Beachbased company is sold by 2024.

Schaeffer’s original suit, filed in December, included two competing claims. One was that he and Eileen Gold “mistakenly and through no fault of their own” believed in the accuracy of a 2014 valuation by Chicago-based Dowling Hales Inc. that became the basis of their sale negotiation. The firm estimated People’s Trust was worth $88 million, but Schaeffer said he later hired an analyst who estimated it was worth $34 million in 2014.

“Alternatively,” the suit said, “Eileen Gold and her representatives fraudulently misrepresented the value” of the company, “knew of the misrepresentations,” and “intended these misrepresentations to induce [Schaeffer] to overpay for her share of the Company.”

In the 2014 negotiation, Schaeffer and Eileen Gold agreed to value the company at $60 million, and Schaffer agreed to buy out the widow’s share for $30 million. Now, his lawsuit says he shouldn’t have paid more than $17 million.

According to a transcript of an April 26 court hearing, Schaeffer’s attorney, James N. Robinson II, of White & Case LLP, Miami, said Schaeffer’s team “just found this all out” that Eileen Gold and her “allies” were communicating with Dowling Hales as the valuation was ongoing “and telling them information that wasn’t correct asking them to keep it from my guy, keep it from George. We just discovered emails.”

But in the hearing, Circuit Judge Joseph Marx pressed Robinson on Schaeffer’s contradictory

claims. “I mean, you’re making a factual allegation here on the one hand saying, “it was an accident, she was mistaken, through no fault,’ and then later on you go, ‘she is fraudulent.’ ”

Robinson said the plaintiff’s team was “pleading in the alternative” — a legal strategy in which a party makes multiple claims or defenses so that if one is ruled invalid or insufficient, the others would still have to be answered.

But standing before the judge, he quickly abandoned the strategy. “If you’re saying that we can’t plead facts in the alternative, maybe the order is we have to pick one; that’s what I would suggest to you,” Robinson said to Marx, who then ordered “One or the other has got to go.”

In an interview on Tuesday, Eileen Gold’s attorney, Etan Mark of Mark Migdal & Hayden of Miami, said he doubts Schaeffer actually has proof of fraud. “Although there were a lot of insinuations and suggestions about fraud by Ms. Gold at the hearing, there was not one whiff in the [revised] complaint,” he said.

Asked for a comment about the ruling, and about Schaeffer’s separate suit accusing Dowling Hales of negligence and fraud, Robinson responded by email:

“As the court papers make clear, Mr. Schaeffer wants only what is fair. Based on information now available to him, Mr. Schaeffer believes the valuation he and Mrs. Gold relied upon was grossly inaccurate. Mr. Schaeffer’s recent court filings seek to hold accountable those who created the inaccurate valuation, as well as those who benefited improperly from the inflated numbers contained within the inaccurate valuation,” Robinson said.

Schaeffer, who owned a nail polish company, OPI Products, before selling it to Coty Inc. for about $1 billion in 2010, is accusing Eileen Gold of benefiting from “unjust enrichment.”

In a memo written to Eileen Gold in December to convince her to revise the purchase agreement, Schaeffer said People’s Trust was in “financial shambles” and lost $42 million in 2016. (The company actually reported a net underwriting loss of $47.2 million and a net loss of $26.8 million in 2016 according to state insurance regulators). Schaeffer’s memo accused Mike Gold of “mismanaging the company very badly” and hiding it, using company cash to go to a massage parlor and casino every day, and engaging in “criminal activity ... including the borrowing of funds” from the company.

Schaeffer told Eileen Gold that the “unfair” purchase agreement could be revised “the easy way” or “the hard way.” Under the the easy way, the widow would simply allow Schaeffer to walk away from his commitment to pay her anything further.

Under the hard way, Schaeffer would not only file suit — “costing you close to $10 million” — but also “share publicly information about Mike that will be embarrassing.”

Eileen Gold chose the hard way, including suing Schaeffer — a day before he filed suit against her — to force him to pay the remaining $9 million he owes under the original contract. That came due when Schaeffer failed to make an annual $1 million payment on the final $9 million as called for in the contract.

On April 26, Judge Marx denied Eileen Gold’s request to order Schaeffer to deposit the entire $9 million into a court registry pending resolution of the claim.

Meanwhile, a spokeswoman for the Florida Office of Insurance Regulation said People’s Trust has been directed to include an analysis of Schaeffer’s allegations of wrongdoing by Mike Gold in its next independent external audit.