Biote Shareholder Achieves $60 Million Settlement of Breach of Fiduciary Duty Claims
July 3, 2024 – Brewer, Attorneys & Counselors announced today that its client, Marci Donovitz, reached a $60 million settlement with the company. The settlement resolves a lawsuit alleging that Biote executives breached their fiduciary duties by channeling the hormone therapy company into a speculative transaction with a special purpose acquisition company (“SPAC”) which provided almost no cash for the merger.
The lawsuit was filed by Ms. Donovitz on June 5, 2024, against defendants Biote CEO Teresa “Terry” Weber, Biote Executive Chairman Marc Beer, Biote General Counsel Mary Elizabeth Conlon, Haymaker Sponsor III LLC, Steven J. Heyer, and Cooley LLP. Haymaker was the SPAC sponsor for the transaction and Cooley advised those involved with the deal. Ms. Donovitz is the trustee of the Donovitz Family Irrevocable Trust and a BioTE Holdings, LLC shareholder.
The lawsuit alleged that “Defendants knew for months that astronomical redemptions would eviscerate almost all the cash raised by the SPAC and would cause the transaction to be destructive of value. Nonetheless, Defendants proceeded with their scheme to enrich themselves.” The lawsuit further alleged that as part of the transaction, defendants improperly diverted $70 million from the deal to Biote executives and $135 million in cash and stock in total to all defendants.
“This settlement validates our client’s claim that the transaction was a scheme to enrich a few company ‘insiders’ – and reward them with financial and managerial benefits to which they were not entitled,” says William A. Brewer III, partner at Brewer and counsel to Ms. Donovitz. “Our client hopes this outcome lights a path for those victimized by similar deals. This case underscores the rights of those too often viewed as pawns in these speculative pursuits.”
As explained in the underlying lawsuit, filed in The Court of Chancery of The State of Delaware, a SPAC – also known as a “blank check company” – is a shell company set up by a sponsor that goes public without an operating business to raise funds, but with a plan to find a target private company with an operating business with which it would merge within a fixed period, usually two years.
Ms. Donovitz is the ex-wife of Biote founder Dr. Gary Donovitz, who the lawsuit contends was tricked into waiving a minimum cash closing condition just days before the SPAC deal was completed on May 26, 2022.
As has been publicly reported, Biote was a defendant in a separate lawsuit filed by Dr. Donovitz regarding the SPAC deal. As reported, in February 2024, Biote disclosed it agreed to buy back nearly $77 million of Dr. Donovitz’s stock to settle the matter.
In addition to breaches of fiduciary duties, the lawsuit by Ms. Donovitz also alleged that defendant Biote executives negligently “misled Plaintiff’s trustee regarding the likely impact of this Merger on the value of her shares, failed to disclose material information regarding the risks of this SPAC transaction (including the possibility that it would provide virtually no cash), and failed to disclose that these risks had materialized.”
Under the terms of the settlement with Ms. Donovitz, Biote will repurchase all of the approximately 8.3 million shares she owns. At an average of $7.23 per share, the payout will occur over a three-year schedule: approximately 4.1 million shares valued at $30 million immediately, followed by 1.4 million shares valued at $10 million for each of the next three years.
Bloomberg Law, Law 360 Report on Lawsuit Against Cooley LLP and Biote Insiders
June 6, 2024 – Bloomberg Law and Law360 report on a lawsuit brought by Brewer, Attorneys & Counselors on behalf of Marci Donovitz against Cooley LLP and Biote company insiders concerning a special purpose acquisition company (SPAC) merger with the hormone therapy company Biote .
The lawsuit filed in Delaware Chancery Court concerned the 2022 merger of Biote with Haymaker Acquisition Corp. III, a SPAC company. The reporting noted that the defendants — including Cooley lawyers, SPAC founders and company insiders – failed to disclose material aspects of the deal as it deteriorated.
Bloomberg Law notes that the family trust , the Donovitz Family Irrevocable Trust, says its holdings were diluted in favor of the corporate insiders. Law360 writes that the lawsuit contends that the insider defendants conspired to close the merger for their own benefit.
In a statement, William A. Brewer III of Brewer, Attorneys & Counselors, counsel for the trust and its trustee Marci Donovitz, said: "The lawsuit reveals the inner workings of a scheme to enrich a few — at the expense of the owner who built the company. Our client believes a handful of insiders conspired to secure lucrative benefits to which they were not entitled."
Bloomberg Law noted that the SPAC market has “all but evaporated” as a growing number of deals resulted in litigation that alleged they benefitted insiders rather than helping companies grow.
Read the Bloomberg Law article here.
Read the Law360 article here.
Lawsuit Claims Biote CEO, Chairman Conspired to Direct BioTE Holdings, LLC into SPAC Transaction to Enrich Themselves
June 6, 2024 – A lawsuit filed on behalf of Brewer, Attorneys & Counselors client Marci Donovitz alleges that the chief executive officer and chairman of Irving-based Biote Corp. breached their duties to plaintiff and others by channeling the hormone therapy company into a value-destructive special purpose acquisition company (“SPAC”) transaction.
The lawsuit was filed by Ms. Donovitz, the trustee of the Donovitz Family Irrevocable Trust and a BioTE Holdings, LLC shareholder, on June 5 in the Court of Chancery of the State of Delaware.
The suit was filed against Biote CEO Teresa “Terry” Weber, Executive Chairman Marc Beer, Mary Elizabeth Conlon, Haymaker Sponsor III LLC, Steven J. Heyer, and Cooley LLP. Haymaker was the SPAC company that acted as the sponsor of the transaction.
“The lawsuit reveals the inner workings of a scheme to enrich a few – at the expense of the owner who built the company,” says William A. Brewer III, partner at Brewer, Attorneys & Counselors, and counsel to Ms. Donovitz. “Our client believes a handful of insiders conspired to secure lucrative benefits to which they were not entitled.”
As explained in the filing, a SPAC – also known as a “blank check company”—is a shell company set up by a sponsor that goes public without an operating business to raise funds, but with a plan to find a target private company with an operating business with which it would merge within a fixed period, usually two years.
Ms. Donovitz is the ex-wife of Biote founder Dr. Gary Donovitz, who the lawsuit contends was tricked into waiving a minimum cash closing condition just days before the SPAC deal was completed on May 26, 2022.
As has been publicly reported, Biote was a recent defendant in a separate lawsuit filed by Dr. Donovitz by Brewer regarding the SPAC deal. As reported, in February 2024, Biote disclosed it agreed to buy back nearly $77 million of Dr. Donovitz’s stock to settle the matter.
The lawsuit alleges that “Defendants knew for months that astronomical redemptions would eviscerate almost all the cash raised by the SPAC and would cause the transaction to be destructive of value. Nonetheless, Defendants proceeded with their scheme to enrich themselves.”
The lawsuit alleges that BioTE Holdings, LLC was channeled into the SPAC transaction that improperly diverted $70 million from the deal to Biote executives for their own enrichment and $135 million in cash and stock to the defendants. Plaintiff alleges that their actions resulted in her suffering hundreds of millions of dollars in damages and the dilution of her equity and voting power.
In addition to breaches of fiduciary duties, the lawsuit also alleges that defendant Biote executives negligently “misled Plaintiff’s trustee regarding the likely impact of this Merger on the value of her shares, failed to disclose material information regarding the risks of this SPAC transaction (including the possibility that it would provide virtually no cash), and failed to disclose that these risks had materialized.” The lawsuit also alleges that the Defendants were unjustly enriched.
Ms. Donovitz requests that the court order relief including the disgorgement of profits and forfeiture of ill-gotten gains, including the forfeiture of cash or equity obtained in the merger. The lawsuit also requests monetary damages.
Bloomberg Law Reports on Brewer Advocacy, Retention of NYU Law Professor
June 4, 2024 – Bloomberg Law reported today on the Brewer firm’s representation of the NRA against the New York Attorney General. The article notes that the NRA has added New York University law professor Samuel Estreicher to its legal team.
As reported, The NRA has asked a judge to throw out a recent jury verdict, ordering former chief executive Wayne LaPierre and another official to repay more than $6 million to the organization. The court will consider whether to also require independent monitoring in a second phase of the trial that’s set to start July 15.
Estreicher is working closely on this motion to set aside the verdict, according to William A. Brewer III, the NRA’s lead outside attorney. Estreicher joins a legal team led by Brewer and other lawyers from his New York litigation boutique, Brewer Attorneys & Counselors. Partners Svetlana M. Eisenberg, Sarah B. Rogers, and Noah Peters have also worked on the case.
“He appreciates that the NYAG is pursuing many novel legal theories in support of the jury’s verdict, and that the NYAG’s pursuit of the NRA raises grave constitutional questions under the First Amendment,” Brewer said in a statement. “In particular, we have worked closely with Professor Estreicher on the pending motion to set aside the verdict.”
Read more here.
Law 360 Reports on NRA Reaction to NYAG Filing
May 8, 2024 – Law360 reports that Brewer client the National Rifle Association of America (NRA) responded to a filing by the New York Attorney General (NYAG) in which she asked a New York judge not to "reverse" a Manhattan jury's verdict. The jury verdict was entered in the NYAG vs. NRA lawsuit on February 23, 2024.
NRA lawyer William A. Brewer III told the publication, "In her response to the NRA's motion for judgement post-trial, the NYAG advances a number of novel legal theories to save the claims she presented at trial ... The NYAG's theories have no grounding in existing law. We look forward to responding."
The report states, "In February, jurors found that [former NRA Executive Vice President Wayne] LaPierre, who resigned on the eve of trial, as well as general counsel John Frazer and retired Chief Financial Officer Wilson 'Woody' Phillips, breached their fiduciary duties. Frazer was additionally held responsible for the false filings and Phillips for the related-party transactions. The verdict requires LaPierre to repay $4.4 million in ill-gotten funds to the NRA for his breaches, while Phillips must pay back $2 million."
A second phase of the proceedings is scheduled to begin in July – a bench trial before Justice Joel M. Cohen, in which the judge is expected to rule on any final remedies against defendants. In the final analysis, individual defendants could face financial awards payable to the NRA. No money damages will be awarded against the Association.
Read the report here.
The Reload: NRA Foundation Settles DC Lawsuit
April 18, 2024 – Reload editor and CNN contributor Stephen Gutowski today reported on the consent agreement between Brewer client the National Rifle Association of America (NRA), the NRA Foundation, and the District of Columbia Attorney General (DCAG).
According to the report, per terms of the consent order, the NRA Foundation will "adopt a conflict-of-interest policy, a board and officer compliance training program, and new standards for lending money or doing business with other NRA entities. It also agreed to limit loans to the NRA’s other operations to only charitable purposes in line with the group’s educational mission. However, it admitted no wrongdoing and avoided the more severe sanctions the AG initially sought to impose."
Gutowski wrote that the NRA disputes claims made by DCAG Brian Schwalb after the order was signed and "demanded he retract them in a letter to his office that was obtained by The Reload. It noted the lawsuit initially asked the court to appoint an overseer for the Foundation, a condition not included in the deal, and the Foundation didn’t admit to any wrongdoing in the settlement. It also asserted the NRA had agreed to pay back the Foundation for an outstanding loan before DC filed its lawsuit."
“The DCAG’ spins’ today’s settlement in avoidance of the facts: the DCAG long ago abandoned any claims of wrongdoing against the NRA,” William Brewer, the NRA’s outside counsel, said in a statement. “Even by DC standards, this is rank political gamesmanship – an after-the-fact justification for a failed lawsuit by these officials.”
The Hill Reports on NRA Settlement with DCAG
April 17, 2024 – The Hill reported today on a settlement agreement between Brewer client the National Rifle Association of America (NRA), the NRA Foundation, and the District of Columbia Attorney General (DCAG). The reporting includes comments from firm partner William Brewer, who responded to statements from DCAG Brian Schwalb as “distorted and untruthful.”
As stated by the NRA, “On April 16, 2024, the NRA and NRA Foundation entered into a consent order [resolving an August 2020 lawsuit], whereby the DCAG dismisses all claims against the NRA. The order contains no adverse finding against the NRA and no allegations regarding the use of funds of the NRA Foundation. There are no fines or penalties whatsoever against the NRA. DCAG Schwalb described the settlement differently.”
As reported by The Hill, the NRA also fought back against Schwalb’s characterization of the settlement in a statement to The Hill, with NRA counsel William Brewer calling it “distorted and untruthful.”
“The DCAG ‘spins’ today’s settlement in avoidance of the facts: the DCAG long ago abandoned any claims of wrongdoing against the NRA,” Brewer wrote. “Even by DC standards, this is rank political gamesmanship — an after-the-fact justification for a failed lawsuit by these officials.”
Brewer continued, claiming that many of the claims Schwalb alleged against the NRA Foundation were unfounded, specifically noting that the settlement agreement includes no accusations or implications of wrongdoing by the organization.
“In the face of these facts, the DCAG settled its lawsuit — abandoning all claims against the NRA and NRA Foundation,” he wrote.
Read more here.
Law360: NRA, LaPierre, Execs Seek to Ax Verdict
April 8, 2024 – Law360 reports that Brewer client the National Rifle Association of America (NRA) is asking a New York judge to "throw out a Manhattan jury's verdict." A jury verdict was entered in the NYAG vs. NRA lawsuit on February 23, 2024.
According to the report, in its "motion for judgment notwithstanding the verdict, the NRA argued that prosecutors did not prove that the organization itself failed to protect its charitable assets. The group said there was no proof at trial that its charitable assets, as opposed to noncharitable assets, were improperly administered, nor was there proof of a 'sustained or systematic failure of the board to exercise oversight.'"
"The trial record clearly demonstrates that the NRA was the victim of hidden arrangements and control overrides orchestrated by former insiders working with a handful of their favorite vendors," NRA attorney William A. Brewer III told Law360. "The record also demonstrates the NRA Board took swift, decisive action when it became aware of such conduct."
"The Board's commitment to good governance was on full display during the jury trial," he added. "The NRA appreciates the service of the jury, but believes it improperly attributed individual misconduct to the NRA. As such, the Association seeks judgment in its favor on all remaining counts."
Read the Law360 report (subscription required).