BEHRAM TAVADIA AND TAVADIA ENTERPRISES, INC. APPELLANTS
SHERI A. MITCHELL APPELLEE
FROM JEFFERSON CIRCUIT COURT HONORABLE MARY M. SHAW, JUDGE
ACTION NO. 15-CI-005387
FOR APPELLANT: Scott P. Zoppoth Louisville, Kentucky
BRIEF FILED FOR APPELLEE
BEFORE: COMBS, DIXON AND MAZE, JUDGES.
Behram Tavadia and Tavadia Enterprises, Inc. (collectively
"Tavadia"), appeal from an opinion and order of the
Jefferson Circuit Court, following a bench trial finding in
favor of Appellee, Sheri Mitchell, and dismissing
Tavadia's claims of breach of fiduciary duty,
misappropriation and conversion of company assets, forgery,
April 2013, Mitchell started One Sustainable Method
Recycling, LLC ("OSM"), a company that contracted
with healthcare providers to assist in the recycling of
healthcare waste, such as plastics and sharp metal objects.
OSM accepted the materials from the healthcare facilities at
its Louisville warehouse and prepared them for recycling.
Initially, Mitchell was a 99% owner of OSM and was the acting
CEO. Ahmet Mehta held the other 1% ownership interest.
Shortly after OSM's start-up, Mitchell approached
Tavadia,  who lived in Florida, about investing in
2013, OSM and Tavadia Enterprises, Inc, a Florida corporation
owned solely by Tavadia, entered into a loan agreement
wherein Tavadia loaned OSM $40, 000 with interest accruing at
a rate of 6% per year. The agreement provided that OSM would
repay Tavadia $1, 000 per month and further that Tavadia
would acquire a 5% interest in OSM's yearly profits.
Mitchell did not execute a personal guaranty for the loan.
After securing the loan from Tavadia, OSM received an
additional $150, 000 loan from Louisville's Metropolitan
Business Development Corporation ("METCO"). Tavadia
assisted OSM in securing that loan by signing a
"Security Agreement and Pledge of Bonds," as well
as agreeing to act as a personal guarantor for the METCO loan
beginning of 2015, OSM had not made any payments on the loan
agreement with Tavadia nor paid any profits, as the company
had yet to realize such. However, instead of invoking the
loan agreement's acceleration clause and demanding
payment of the outstanding balance, Tavadia agreed to delay
repayment of the loan based upon Mitchell's
representations that OSM was making money but that all funds
were going to pay expenses. Subsequently, in February 2015,
OSM and Tavadia entered into a second loan agreement, which
incorporated the first $40, 000 loan. The second loan
agreement provided OSM with an additional $250, 000 for
equipment that Mitchell had represented to Tavadia the
company needed to purchase. In addition, the second agreement
acknowledged that Tavadia had secured the METCO loan in the
amount of $150, 000, and also memorialized an additional $12,
000 loan that Tavadia had made to OSM in the fall of 2014.
Finally, the second loan agreement provided that Tavadia
would receive a 25% ownership interest in OSM and 25% of net
monthly profits. Again, Mitchell did not execute a personal
guaranty for the second loan.
the second loan between OSM and Tavadia, OSM's financial
situation continued to deteriorate. Between April 2014 and
September 2015, OSM incurred $14, 540 in overdraft charges.
In August 2015, OSM obtained a $20, 000 loan from Fundworks,
LLC. Mitchell signed the loan in both her and Tavadia's
name on behalf of OSM, as well as signed a personal guaranty
in her name and Tavadia's name. The loan carried an
interest rate of 15% and required daily payments of $277.78.
October 2015, OSM had ceased operations and Mitchell sold
some of the equipment for a total of $46, 899. Of that, $24,
929 went into Mitchell's personal bank account and $21,
970 went into OSM's account. OSM also ceased making loan
payments to Tavadia. It was around this time that Tavadia first
learned of the Fundworks loan when a representative called
demanding payment. Further, OSM defaulted on the METCO loan,
and METCO contacted Tavadia stating its intent to sell or
redeem the bonds he pledged.
October 21, 2015, Tavadia filed an action in the Jefferson
Circuit Court against OSM and Mitchell, individually,
asserting claims for breach of contract, breach of fiduciary
duty, misappropriation and conversion of company assets, and
failure to allow access to company records in violation of
KRS275.185. Tavadia subsequently amended his
complaint to add claims for fraud, relating to bank records
indicating Mitchell had paid for personal expenses out of
OSM's bank account, as well as forgery and fraud relating
to Mitchell's signing of Tavadia's name on the
record indicates that Mitchell proceeded without counsel and
attempted to represent both her individual interests and
OSM's interests. However, the trial court informed her
that although she could personally proceed pro se as
to the causes of action against her individually, she could
not represent OSM, as she was not an attorney. Counsel was
never retained to represent OSM and, on August 12, 2016, the
trial court entered a default judgment against OSM in the
amount of $302, 000.
trial was conducted on May 26, 2017, on the claims against
Mitchell and whether she could be held personally liable for
OSM's debts to Tavadia. On August 4, 2017, the trial
court entered an opinion and order dismissing all claims
against Mitchell. Citing to the factors set forth in
Inter-Tel Technologies, Inc. v. Linn Station
Properties, LLC, 360 S.W.3d 152 (Ky. 2012), the trial
court concluded that the evidence did not support piercing
OSM's corporate veil to hold Mitchell personally liable
for OSM's debts to Tavadia. Further, with respect to the
claims related to the Fundworks loan, the trial court
The Court concludes that Ms. Mitchell signed Mr.
Tavadia's name to the loan application and guaranty
without Mr. Tavadia's permission. This could open Ms.
Mitchell to personal liability under a breach of fiduciary
duty, but Mr. Tavadia has not proven that he has suffered any
damages. He had paid nothing to fundworks, LLC relating to
this loan at the time of trial, and he has an excellent
defense in the event fundworks, LLC files suit against him
because Ms. Mitchell acknowledged that she signed his name to
the documents. She has nothing supporting her contention that
she had his ...