Jury Awards $36 Million After Private Equity Firm Cut Partner Out of Honsador Lumber Deal

Richard Foreman had identified Honsador Lumber Corp. as a target years before the deal fell apart. The Houston businessman signed a letter of intent with Honsador's owner, Jim Pappas, in November 2002 at a price of $28 million. Honsador was Hawaii's largest building-materials supplier. Foreman relocated from Texas to Honolulu in anticipation of closing the acquisition, leaving behind a position that paid roughly $500,000 a year.

To finance the deal, Foreman brought in Key Principal Partners LLC, the private equity arm of Cleveland-based KeyCorp, as his equity partner. The two parties formalized the arrangement in early 2003. Key then spent months inside the transaction, conducting due diligence on Honsador's operations, contracts, and competitive position.

Key withdrew from the partnership in July 2003. Foreman's alternative financing collapsed three months later, and Pappas ended negotiations. Fourteen months after that, Key and a fresh group of investors bought Honsador for themselves, paying $50 million. That was 79 percent more than the original agreed price. Foreman alleged Key had used the confidential information gathered as his partner to pursue Honsador independently, and had deliberately excluded him from the closing.

Foreman sued Key Principal Partners and parent company KeyCorp in Honolulu Circuit Court. His claims included breach of fiduciary duty, intentional interference with business relationships, and violation of Hawaii's unfair competition statute. The defense, led by Scott O'Connell of Nixon Peabody LLP, argued Foreman had failed to perform on multiple occasions and had concealed how little of his own capital was at stake, approximately $1.5 million out of a $28 million transaction.

Judge Sabrina McKenna presided over a five-week trial. In May 2007, the jury found for Foreman, awarding $12.1 million in compensatory damages and $13.6 million in punitive damages. Hawaii's unfair trade practices statute allows trebling of compensatory damages, and the court applied that multiplier, producing a post-trebling total of roughly $36 million. Mark Davis of Davis Levin Livingston Grande served as lead trial counsel for Foreman.

Key Principal Partners announced plans to appeal, citing what it called substantial grounds based on the trial court's rulings and jury instructions. No public record of a reduction in the award has been found.