Morgan residents have officially filed an answer and counterclaim with 2nd District Court, defending their actions called into question by a lawsuit filed Dec. 31.
Morgan defendants Edward Welsh and Stephen Dredge are asking for the case to be dismissed, as well as their attorney fees to be paid by the plaintiffs, who filed the suit as “intentional interference” of the operation of their business, New Harmony Homes.
The defendants say the plaintiffs falsely asserted misappropriation and misuse of company funds, did not make direct monetary contributions to the New Harmony company, misrepresented the company operating agreement, were terminated with cause, and wrongfully claimed ownership in the company.
In addition, the defendants deny claims that a patent was transferred wrongfully. The defendants say the plaintiffs have been compensated for their past work, which reflected minimal performance; breached their duties of good faith and fair dealings; misrepresented certain business dealings; and have not acted with due diligence during the investigation of facts leading to the filing of the lawsuit.
Plaintiff Kris Thorkelson, of Canada, had business dealings related to a patent for technology used to construct building panels. A Utah corporation, QB Technology International, assumed various patent rights to Thorkelson’s patent. Fox Hollow Investments LLC, which owned QB and New Harmony Homes, is fully owned by defendants Welsh and Dredge.
The technology was to be used to pre-construct motel unit elements In an Ogden plant, then shipped and installed in the oil field of North Dakota, currently experiencing an oil development boom. The defendants claim Thorkelson was not successful at selling the units and was joined in 2011 by Kevin Fleury, a London broker, to sell the units.
The North Dakota project now sits uncompleted while the plaintiffs are seeking court action.
When Thorkelson moved from Canada to Utah, it was “out of economic necessity and that he was homeless and without employment.”
The defendants call Thorkelson an “unreliable business participant” that worked “on an episodic basis” due to his lifestyle.
“Thorkelson during that period of time had a significant drinking problem and was involved in various personal romantic encounters that diverted his attention from the affairs of the business,” according to court documents.
While Welsh and Dredge managed QB Technology of Utah in 2011, “Thorkelson had very little impact or gave little effort due to his ongoing drinking problems and profligate social life.”
Plaintiffs’ role in the company
The defendants claim Thorkelson was not a co-founder of the Canadian corporation but instead had a minority ownership interest after the company’s foundation.
The plaintiffs “could not have been directors and shareholders since a limited liability company in Utah is generally not set up with shareholders or directors and New harmony was not set up with those offices as part of its operating procedures. Defendants did not have a formal contractual relationship with the plaintiffs, but alternatively assert that if such contract existed it was breached by the acts or omissions of plaintiffs.”
The defendants claim Fluery and Thorkelson are “merely independent contractors or agents of the company. Thorkelson was an employee at one time and Fleury was an independent contractor and that they violated terms of such employment or agency agreement.”
While the plaintiffs allegedly asked the defendants for an accounting of the business, the defendants claim, “No one authorized to receive an accounting made a demand. Nevertheless, accounting material was routinely available to plaintiffs.”
The defendants agree that Fleury was involved in direct sales of housing units for oil workers in North Dakota and was responsible for the sale of approximately 200 unites for $8 million to $8.5 million, but did not contribute all of that money from third-party buyers. The defendants claim these were direct purchases of units and not “investor funds.”
“It is not true that Fleury contributed any direct capital into New Harmony by himself or by third party investors,” court documents say. About $5.2 million was received from unit buyers by the end of 2012, funds used to construct 185 units and related costs.
Fleury owed New Harmony $1.3 million to $1.5 million and “began withholding funds, wrongfully promising unit purchases he would complete the units. This withholding is substantially the cause of current cash flow problems and cessation of active operations by New Harmony.”
The defendants agree that the North Dakota housing project in the oil fields has not been completed, mostly because Fleury has withheld funds. Permitting, zoning requirements and other governmental regulations have also delayed the project’s completion.
“Thorkelson has not at any time deposited any amount of money into the First Bank account, nor is Mr. Thorkelson responsible for any sums being transferred from third parties to this account,” according to court documents. “Mr. Thorkelson continued to be an economic impediment to the growth and wealth of the company during this period because he generated cost and expense for the company but did not reliably contribute funds, either his own or from third parties.”
The defendants also claim the plaintiffs abused a company credit card, resulting in damages of $50,000.
Termination of employees
The defendants agreed to terminating Fleury’s services as an employee or agent of the company in July of 2013 because he was wrongfully holding or diverting unit construction funds, making unjustified commission demands, making untrue representations about the sold units, and attempting to gain control of the company.
“Thorkelson was terminated because he had an ongoing alcohol problem which interfered with his abilities and capacities to perform services for New Harmony,” according to court documents. “He was also absent without communication or performance of duties for extended periods, up to months at a time. He lived a dissolute life which resulted in approbation and embarrassment to the company, all of which necessitated his notice of termination.”
These terminations were done “in accordance with proper procedure and by the responsible officers of the company.” The defendants say the cause will “be justified in the course of events of this litigation.”
The defendants say the patent has expired in the United States while Thorkelson’s Canadian corporation had “become non-operational due to the business errors and omissions of Mr. Thorkelson.” The defendants claim that the patent was being exploited by at least two other Canadian companies.
“It was believed the patent rights of the original QB Technology of Canada had expired in the United States and New Harmony had a right to use such technology without further payment to that company and that New Harmony was free to use, and in fact did use, other related technologies in the building of the units,” according to court documents.
Thorkelson actually approved of the transfer of the patent for the assumption of $500,000 in debt from New Harmony Holdings, LLC which QB Technology International had incurred in 2012, according to court documents. “The transfer occurred with the knowledge and acquiescence of the plaintiffs. There was no economic damage done” from the transfer of the patent.
The defendants admitted to setting up subsidiary or affiliated entities of New Harmony Homes in late 2012 “for appropriate tax liability and business purposes and not for any wrongful purpose or act. These entities were active, were run in a regular course of business and were created for administrative, liability avoidance, or tax purposes and did not constitute any wrongful acts either in their creation or in their operation.”
The defendants admit to hiring family members as employees of New Harmony entities, but that they worked “for what could be argued as below market wages and each were held to a high standard of productivity.”
Theft muddies water
Since Thorkelson engaged in theft and burglary in August, 2013, by taking equipment and computers from the Ogden New Harmony premises and Fleury knowingly allowed Thorkelson’s actions, the plaintiffs claim the defendants should be stopped from asserting any claim or cause of action related to the lawsuit.
The value of property stolen is approximately $40,000, the defendants say in court documents. They say it was “an attempt at self-help” to steal computer and other property for “personal monetary and informational gain.”
Defendants claim to be without fault
While Welsh and Dredge admit to being members of the Church of Jesus Christ of Latter-day Saints, they deny using that fact to influence their business dealings.
“There was no wrongful use of funds or monies missing and an accounting will prove such allegations of appropriation and misuse to be knowingly inaccurate,” the defendants said in court documents. “New Harmony is believed to be found without fault or guilt as to any liability and it would be unfair and unreasonable to require dissolution prior to proof.”