Two North Shore businesses battle it out in court
After more than 19 months of litigation between two North Shore businesses, a ruling has been made, leaving one with a hefty bill to pay.
In Feb. 2013, Ledge Rock Management, LLC, and Cove Point Lodge Resort owners Steve Hillestad and Marcia Hillestad Seguin filed a lawsuit in Lake County Sixth District Court against Todd Krynski, owner of Camp 61 in Beaver Bay, for breaching multiple contracts he allegedly signed when he was the general manager of Cove Point Lodge Resort in Beaver Bay.
Krynski was hired as the general manager of Cove Point in 1995 and joined Hillestad and Seguin as a governor on a three-person Board of Governors of Ledge Rock in 2003. Krynski and his wife Carol purchased the Beaver Bay Inn, now called Camp 61, in July 2010. On Jan. 31, 2011, Krynski was terminated by Hillestad and Seguin for his involvement with Camp 61.
According to court documents, Hillestad claimed that Krynski violated an at-will employment agreement, confidentiality and non-competition agreement, and breached a member control agreement by not being honest about his plans for the old Beaver Bay Inn and for opening Camp 61, a competing business, just down the road from Cove Point.
In his Nov. 14, 2013 affidavit, Hillestad testified that Krynski had signed a confidentiality and non-competition agreement and that he was there when Krynski signed the papers. Krynski claimed that he signed no such contract, and Hillestad later relented, admitting during the trial that Krynski had never signed it.
Though Krynski won that battle, he was found by the court to have breached a member control agreement, which he did admit to signing. The agreement does allow any member to engage in or possess an interest in other business ventures even if they are competitive in nature with Cove Point, but it also requires that governors and managers act in the best interests of the company and disclose any plans to own a competitive business.
Hillestad and Seguin both testified that they were aware of Krynski's ambition to purchase the old Beaver Bay Inn, but when asked what he would plan to do with it, Krynski said that he and his wife planning to operate a small coffee or gift shop.
According to court documents, Hillestad said by Nov. 2010, he assumed the Krynskis owned the inn and were aware of the remodeling activities there. In December, Hillestad and Seguin viewed the Camp 61 website and saw its logo reading, "bunkhouse, restaurant, coffee and gifts," and saw banners at the inn stating it would be opening with lodging and a restaurant. But Hillestad didn't take any action to terminate or limit Krynski's authority after gaining this knowledge.
Because Krynski didn't fully disclose his plans for Camp 61, he was found to have breached his statutory fiduciary duty as governor of Ledge Rock Management by the court, but since Cove Point's business grew every year from 2010 to present, that there was no proof of damages caused by Krynski's business venture, and therefore he owed no money to Ledge Rock.
Krynski made a claim against Ledge Rock saying that he was owed money for repayment of his shares in the business. The MCA does require payment to a member upon involuntary separation by determining the higher of either the book value of the member units or three times the three-year average earnings per unit as determined in accordance with general accepted accounting principals. The determined amount was to be paid through 144 monthly installments, plus 6 percent interest.
According to court documents, Krynski was in possession 25,000 member units at the time of his termination and Ledge Rock made 21 monthly payments of $568.44 to repurchase his units from March 2011 through Dec. 2012 for a total payment of $11,937.24. Ledge Rock failed to make any payments from Jan. 2012 to the present.
The court found that Krynski is entitled to $54,147.15 with $3,926.86 of that being interest through Dec. 2014. The final ruling by the court on Oct. 22 of this year, was that Kryniski is still owed $46,136.77 and that he is entitled to ongoing monthly payments of $1,203.27 until it is paid in full. Ledge Rock is also responsible for paying Krynski $14,475.78 for his share of earnings due to Ledge Rock from Cove Point. Finally, he was awarded attorney's fees regarding defending claims related to breach of confidentiality and non-competition agreement because the claims were found to be false.
Ledge Rock Management, LLC and Cove Point Lodge Resort have 30 days to appeal the order.