United States District Court, D. Vermont
CHARLES C. FREIHOFER, III, Plaintiff,
VERMONT COUNTRY FOODS, INC., NEW ENGLAND COUNTRY FOODS, LLC, M. PETER THOMSON, individually and as President and Director of Vermont Country Foods, Inc. and Managing Member of New England Country Foods, LLC, Defendants.
OPINION AND ORDER
William K. Sessions III District Court Judge
Charles Freihofer brings this private federal securities
action against Defendants Vermont Country Foods, Inc.
(“VCF”), New England Country Foods, LLC
(“NECF”), and Defendant Peter Thomson pursuant to
§ 10(b) of the Securities and Exchange Act of 1934
(“Exchange Act”). Freihofer's allegations
essentially consist of two claims: (1) that Defendants
withheld information and made fraudulent misrepresentations
as they transferred all valuable assets from VCF to NECF, and
(2) that Defendants must provide him with certain
documentation and an accounting. Defendants now move for
summary judgment, arguing that Freihofer's fraud claim is
barred by a five-year statue of repose, that his requests for
documents are moot, and that he is not entitled to an
accounting. For the reasons set forth below, the motion for
summary judgment (ECF No. 35) is granted.
April 1995, after discussions with VCF President Peter
Thomson, Freihofer invested $100, 000 in VCF. This initial
investment granted Freihofer 11, 103.22 VCF shares, with $70,
000 of the investment booked as debt owed to him by VCF. Over
the following five years, Freihofer made additional
investments in VCF such that by mid-2000 he owned 34, 346.55
shares and VCF owed him $164, 900.
December 31, 2000, all debt owed to Freihofer was converted
into equity. Freihofer agreed to the conversion in writing.
After the conversion, he owned 96, 787.57 VCF shares.
February 2002, Freihofer loaned VCF and Thomson $25, 000. In
April 2002, after VCF failed to repay the loan, Freihofer
resigned from the company's board of directors. He
alleges that he was compelled to resign not only because of
the unpaid loan, but also because VCF and Thomson
consistently failed to follow VCF's bylaws with respect
to shareholder meetings, votes on resolutions, and
distribution of information to shareholders. Freihofer claims
that after he resigned, VCF stopped sending him information
about the company despite his status as a shareholder.
did not make any further investments or provide any
additional loans to VCF. He did threaten legal action to
enforce his rights under the $25, 000 loan.
early 2005, VCF entered into a workout agreement allegedly to
satisfy claims of creditors. During that same time period,
Thomson and VCF created NECF. VCF product lines and
intellectual property were licensed to NECF, and VCF
shareholders were given ownership interests in NECF.
Freihofer did not authorize or consent to the transfer of his
shares from VCF to NECF.
asserts that beginning in 2006, when he first learned of the
existence of NECF,  to the present day, Defendants have
offered a variety of reasons for the formation of NECF. Those
reasons have included: that NECF was established in order to
comply with a new state law requiring a company using the
word “Vermont” in its corporate name to actually
produce products in Vermont; that VCF was a holding company
for NECF; that NECF was formed to protect VCF from having to
file for Chapter 11 bankruptcy; and that VCF was acting as a
tax shelter due to its operating loss. Freihofer claims that
those stated reasons were false and fraudulent, and that NECF
was in fact established to transfer all value out of VCF into
a single-member managed entity. That single-member entity
allegedly enhanced Thomson's ability to direct and
manipulate the course of the company without interference
communicated VCF's role as a holding company for NECF,
with an exclusive licensing agreement granted to NECF, in a
letter to Freihofer dated February 13, 2009. Freihofer
asserts that Thomson's communications with him ceased
entirely after approximately January 2011. Despite this lack
of communication, Freihofer submits that the scheme to
defraud and misguide him has continued to the present day.
For support, he cites “back room” private
communications among Thomson and NECF's executive
committee members, including Albert Freihofer, David Gibbons,
and James Gibbons.
of such “back room” communications include
communications between Thomson and James Gibbons in the
summer of 2010, in which the two discussed the equity
positions of VCF and NECF. Freihofer contends that in those
communications, Thomson joked about the ease of manipulating
VCF and forming NECF. In a September 2011 email to James
Gibbons, Albert Freihofer, and David Gibbons, Thomson
reportedly discussed the potential for his equity positions.
In March 2014, Thomson emailed James Gibbons to discuss
establishing restricted stock units, which Freihofer
characterizes as an effort “to manipulate the assets
and net operating loss of Defendant VCF.” ECF No. 41-2.
alleges that Defendants' fraudulent scheme is further
evidenced by the distribution of Schedule K-1 Tax forms to
the members of NECF's executive committee, but not to
Freihofer, for the years 2005 through 2011. In 2014, Albert
Freihofer was reportedly unable to obtain additional Schedule
K-1 Tax forms from Thomson. In 2018, Thomson acknowledged to
NECF executive committee members that he had been under audit
by the Internal Revenue Service, and opined that it might be
time to reorganize and restructure VCF.
filed his Complaint in this case on August 7, 2017. In
addition to alleging misrepresentations and omissions, the
Complaint claims that Defendants breached Freihofer's
right under Vermont law to examine the corporate records, and
that he is ...