$3 Million Verdict for Little Rock Philanthropist

By John Lynch –Arkansas Democrat Gazette

September 19, 2009

LITTLE ROCK — A mixed-bag verdict from a Pulaski County jury Friday night favored Jennings Osborne with a $3 million judgment, but also cleared Warren Stephens’ investment firms from the Little Rock entrepreneur’s accusations of wrongdoing.

The award - half of the $6 million Osborne said he was owed - capped about 2 1 /2 hours of jury deliberations and concluded a four-day trial before Circuit Judge Marion Humphrey that featured testimony from Osborne, his wife Mitzi and Warren Stephens himself. The seven women and five men weren’t required to reach a unanimous verdict, with 10 approving the $3 million judgment that will come from Osborne’s former medical research company.

The jurors by an 11-1 vote did find fault with the management installed at Arkansas Research Medical Testing Center after Osborne sold the company in 2004.

According to testimony Friday, Arkansas Research Medical Testing Center, which Osborne founded about 40 years ago, has lost about 84 percent of its value since the sale.

Stephens wasn’t personally a defendant in the lawsuit by Osborne and his wife. The October 2008 complaint targeted two investment firms Stephens has a personal interest in, Stephens Holding Co., which he owns outright, and Stephens Capital Partners LLC, which represents financial interests of Stephens and some of his family.

Friday morning, the judge sided with defense attorneys and threw out the claims against the holding company, ruling that the Osbornes hadn’t proved wrongdoing by that company. The full jury then rejected a contract breach claim against Capital Partners and spurned a fraud claim against Capital Partners by a 10-member majority.

In closing arguments Friday, Osborne’s attorneys told jurors that Stephens and his executives were liars who duped their client by running his former company into the ground to get out of paying him. Defense attorneys countered that Osborne’s claims were over-heated rhetoric and that Osborne was the only one to make any money off of the sale of Arkansas Research.

Defense attorney Bill Allen denounced Osborne’s accusations as “99 percent righteous indignation” in closing arguments. The worst thing that Osborne could prove is that the company was poorly managed after the sale, he said. The investors all lost money in the deal, he said, pointing to testimony that Stephens’ cousin Witt Stephens headed a group that contributed $4.57 million to the acquisition, but ended up selling their interest for about $761,000.

Osborne was paid $20.3million for the company. Plus he earned another $1 million from consulting and non-compete agreements that were part of the sale. But the purchase agreement gave Osborne the opportunity to reap as much as $3 million annually from the company over the three years after the sale if revenue reached $8.4 million each of those years. Osborne received his first $3 million in the first year, but the company didn’t meet those standards again.

Osborne and wife Mitzi contend the company didn’t live up to its potential only because Stephens installed inexperienced managers who refused to heed Osborne’s advice on running the company. Stephens made only one appearance in the courtroom, and the defense attorneys never mentioned his name.

But Osborne attorney Tre Kitchens repeatedly invoked the millionaire investor’s name and presence, flashing an advertising photograph and reading to jurors from a transcript of 2007 speech that Stephens gave.

“What Warren says out of his mouth ... it doesn’t mean what he says,” Kitchens said, pointing to Stephens’ testimony that he’d called Osborne a “business partner” in Arkansas Research but didn’t mean it as a legally binding description. “He wants you to believe he wasn’t involved.”

Kitchens said the Stephens investors never planned to pay Osborne more than the first of the three $3 million payouts, pointing to the financing arrangement of the sale that showed Osborne’s first and only $3 million payment came out of the money the investor groups borrowed to finalize the sale.

“This was a one-shot deal, and they knew it from the beginning,” he said.

Stephens executives wanted Osborne out because the $3 million payouts were hurting Arkansas Research revenue, which jeopardized the $11 million bank loan the companies obtained to complete the purchase, Kitchens said.