ST. PAUL — A lawsuit filed against Star Tribune and Timberwolves owner Glen Taylor accuses the billionaire of thwarting the trajectory of a White Bear Lake-based hearing-implant company that garnered celebrity endorsements and media buzz.
Taylor diverted control from shareholders so that he would be better positioned to benefit from its future, according to the lawsuit.
Former Timberwolves coach and general manager Kevin McHale is among the 10 plaintiffs listed in the suit. It was filed in Ramsey County District Court. McHale is a shareholder in the company.
The 36-page civil complaint alleges that the 2012 firing of Taylor’s daughter from the company — Envoy Medical Corp. — by then president Rochelle Amann at least partially triggered Taylor’s move for control. Shortly afterward Taylor — a director of Envoy — pushed Amann, then CEO Patrick Spearman, and the duo’s “successful marketing team” out the door, according to the lawsuit.
The terminations were notable as it was Amann and Spearman’s team that landed the endorsement of former actor and professional bodybuilder, Lou Ferrigno, who touted the “miracle” potential of the company’s Esteem ear-implant technology on the season finale of NBC’s, “The Apprentice.”
They also convinced Rush Limbaugh to advertise the device on his radio show, according to the lawsuit.
It also was under their leadership that viewers across the country observed the device’s potential on a young mother born with a hearing impairment who shared her experience with Esteem on YouTube, according to the lawsuit. The video, viewed more than 27 million times, garnered the attention of major media outlets and landed the mother spots on "The Ellen Degeneres Show" and the "Today" show.
The company’s marketing success under their leadership was mirrored by strong fundraising and sales, with Envoy selling some 600 Esteem devices for $30,000 a pop in a two-year-span, the lawsuit said.
Neither Taylor or his attorney could be immediately reached for comment.
In a statement CEO Bruce Lucas said:
“Envoy Medical is dedicated to improving the lives of individuals with hearing loss — and we will continue on this mission with complete focus. A small number of our investors filed a lawsuit that takes issue with some of the management decisions that the company has made. While we are disappointed that any investor would be unhappy with the operation of the business, the company stands by those decisions. The company strongly disagrees with the allegations in the Complaint, and believes that the claims are merit-less and will ultimately be dismissed. Beyond that, the Company cannot comment on pending litigation.”
After Amann and Spearman were pushed out, Taylor rehired his daughter and created a leadership team that would be loyal to him, the suit alleges.
Then, he abandoned the company’s former marketing plan and “immediately began pushing forward a plan to freeze the company’s progress, position himself to loot its assets, and divest Envoy’s shareholders of their ownership and voting rights,” according to the lawsuit.
Perhaps most notably, Taylor engaged in “self-dealing” by becoming the sole financial backer of the company, the lawsuit said.
In exchange for his multi-million loans, the company granted Taylor the rights to convert their principal and interest into stock-shares, slowly shifting more and more of the voting rights of other shareholders to Taylor, the lawsuit said.
The loan conditions were uniquely favorable to Taylor, the suit says, noting that other shareholders who’d loaned money to the company weren’t offered the same terms.
Envoy also reportedly “pledged all of its assets including its intellectual property” to Taylor as security for his loans.
In the seven months after the leadership change, Envoy pulled in less than $700,000 in new Esteem orders, which amounted to a ten-fold drop from what the previous management team accomplished, the lawsuit said.
The downturn allowed Taylor and his new management team to portray his loans as the life-boat that allowed the now struggling company to stay afloat.
The biggest “betrayal” came in 2015, when Envoy’s shareholders realized Taylor had amassed four million preferred shares of Envoy — giving him total voting control of the company — for some $20 million, even though the company’s estimated value at the time was between $350 million and $1 billion, the lawsuit said.
Taylor and other Envoy directors maneuverings, which shareholders were not given the opportunity “to vote on or prevent … ,” “backed Envoy and its shareholders into a corner,” charges say.
“The company is not generating meaningful revenue after abandoning its previously successful strategy. It cannot effectively raise money from anyone but Taylor himself. Its loans from Taylor are structured to discourage a sale to anyone but Taylor. And if it files for bankruptcy, Taylor will receive all of its assets,” according to the lawsuit.
Taylor and other Envoy leadership’s actions, which were not in “good faith,” and failed to take into account “the best interests of Envoy,” violate common and statutory law regarding shareholder rights and corporate governance, the suit says.
In addition to McHale, other plaintiffs include former CEO Patrick Spearman, Amann and other minority shareholders.
Defendants include Taylor, various Envoy directors, as well as its current CEO.