Beaumont salvage company sues over non-compete agreement

By Kelly Holleran | Mar 15, 2010

A Beaumont company claims one of its co-owners violated a non-compete clause and has refused to repay more than $100,000 worth of borrowed funds used to fund a competing business.

A Beaumont company claims one of its co-owners violated a non-compete clause and has refused to repay more than $100,000 worth of borrowed funds used to fund a competing business.

Salvage Specialist of Southeast Texas filed a lawsuit March 3 in Jefferson County District Court against Kashif Humayun.

Salvage Specialist claims it began as a marine salvage company that sells scrap metal after Humayun approached it about going into business in April 2009.

Salvage Specialist agreed to the deal because Humayun professed to having experience in scrap metal procurement and sales, court papers state.

"The Company was thereafter based in heavy reliance upon the representations of Defendant to the other owners of the Company that Defendant would be responsible for the daily operations of the Company, including all sales and procurement of scrap, and that Defendant would dedicate his best efforts to the success of the Company," the suit states. "In exchange, the other owners agreed to provide the initial financial backing and administrative support for the Company such as financial oversight and accounting."

On April 17, 2009, Salvage Specialist owners and Humayun entered into an operating agreement in which Humayun became owner of 10 percent membership interest in the company, according to the complaint.

At the same time they executed the operating agreement, Salvage Specialist owners and Humayun also entered into a development agreement. Under the development agreement, the company agreed to pay Humayun $75,000 in a series of installments, the complaint states.

Salvage Specialist claims it paid Humayun the first installment of $25,000 at the execution of the development agreement. The owners agreed Humayun could receive the remaining funds from net operating profits each month in an amount not to exceed $25,000 per month.

However, when Salvage Specialist failed to experience net operating profits, owners did not pay Humayun the money as per the development agreement, according to the complaint.

In addition to the operating and development agreements, Salvage Specialist owners entered into a contractor agreement with Humayun. In this agreement, owners agreed to compensate Humayun for managing the day-to-day operations of the company by paying him 50 percent monthly net profits, not to exceed $20,000 per month, the suit states.

In exchange, Humayun signed a non-compete agreement in which he promised not to become an employee or owner of a competing business within 250 miles of Salvage Specialist for five years, the complaint says.

Shortly after the company's start-up, Humayun approached its owners, seeking $15,865. The owners agreed to pay him the money as long as he promised to reimburse them with money out of either the development or contractor agreement. But if Salvage earned no net profits, Humayun agreed to repay the money out of his own pocket, Salvage claims.

Because the company has yet to earn any net profits, it requested Humayun pay it back out of his pocket, but he has failed to do so, according to the complaint.

In addition, Salvage later learned that Humayun borrowed $100,000 from another party to start up a competing scrap project in Lufkin, thus violating his non-compete clause with Salvage. Humayun borrowed the money in his own name and faced an interest rate of $2,000 per week, the suit states.

Unable to pay the loan and desperate for assistance, Humayun approached the owners at Salvage Specialist to request they pay off his loan. In exchange, Humayun promised the owners he would give them all the scrap metal and equipment from his project at Lufkin, which represented a value far in excess of the money Humayun sought, the complaint says.

In addition, Humayun agreed to repay the borrowed funds if his Lufkin project fell through, Salvage Specialist claims.

"In good faith reliance upon Defendant's representations, Plaintiff issued checks in the aggregate amount of $104,558 to pay off Defendant's loan as agreed," the suit states. "Upon information and belief, Defendant fraudulently pocketed funds from this sum in the amount of $12,400."

Since then, Salvage Specialist owners have failed to receive any of the promised scrap metal or equipment. They believe Humayun has sold the materials to another person.

To start the company, Salvage owners paid $334,595 and advanced Humayun $120,423. But because of Humayun's conduct, the company claims it cannot pay fees.

"Without the fraudulent inducement of Defendant's misrepresentations, the other owners of the Company would never have gone into business with Defendant or incurred start up expenses and fees in excess of $334,595," the suit states.

The plaintiffs allege breach of contract, breach of non-competition agreement and common law fraud against Humayun.

They seek a temporary and eventually a permanent injunction prohibiting Humayun from directly or indirectly becoming an employee, joint venture or owner with a company that competes with Salvage Specialist and an injunction prohibiting Humayun from taking any customers from Salvage Specialist .

In addition, the plaintiffs seek an order directing Humayun to return all money he took from Salvage Specialist owners. They seek punitive damages, costs, attorneys' fees and pre- and post-judgment interest at the highest legal rate.

Mary Margaret Parker of Beaumont will be representing them.

The case has been assigned to Judge Bob Wortham, 58th District Court.

Jefferson County District Court case number: A186-161.

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