Mike’s Carwash ownership trial gets under way

A trial to determine the proper value of Mike’s Carwash Inc. and how much a former co-owner should have been paid for his share in the local company started Monday morning in Hamilton Superior Court.

The privately held business and principals Bill and Mike Dahm, sons of company founder Joe Dahm, are defendants in the lawsuit brought by Jerry Dahm, a cousin who owned 35 percent of the company until May 2010.

Jerry claims Bill and Mike fired him after 30 years with the company and forced him to sell his shares  at an “unfairly low” valuation after Jerry sought to take out a bank loan using his stake in Mike’s as collateral. Bill and Mike are now the only shareholders.

But an attorney for Bill and Mike painted Jerry as a free spender who owed more than $1 million in taxes and whose own behavior caused his firing.

The profitable and fast-growing business with 37 locations in Indiana and Ohio is valued at $49 million, according to company appraisals.

Jerry, who lives near Fort Wayne, where Mike’s was founded in 1948, is asking for an independent appraisal of the value, along with a lump-sum buyout offer, damages and attorney's fees.

Jerry Dahm’s attorney, Brent Taylor of Faegre Baker & Daniels LLP, likened Bill and Mike's strategy of removing Jerry from the company to a chess game that was played “secretly, dishonestly and unfairly.”

“The chess game started with some personal mistakes by Jerry,” he said “But Jerry’s big mistake was asking his cousins to cooperate as he dealt with this difficult business decision.”
 
The trouble started in February 2009 when Jerry tried to take out a loan to cover “personal financial obligations” and sought permission from Bill and Mike to pledge his shares in the carwash chain as collateral. They said no, citing a ban on such encumbrances in a 1993 shareholder agreement.

The suit alleges that Bill and Mike took advantage of Jerry’s financial difficulties to try to force a sale of his shares.

As it stands, Jerry is set to receive payments totaling $17.1 million for his stake in Mike’s. Of his 210 shares, 128 went to Bill, 80 went to Mike, and two went back to the company. Bill now owns 368 shares and Mike owns 230.

Michael Wukmer of Ice Miller LLP, attorney for Mike and Bill, argued that the valuation of the company is fair and that 2008, the year in which the valuation was based, was difficult on the company because of the souring economy.

“When the economy goes south,” he said, “people don’t need to wash their cars, or they don’t need to wash them as often.”

Wukmer also argued that Jerry’s behavior and spending habits made it impossible for him to remain with Mike’s. The brothers offered to buy Jerry’s shares to pay his $1.5 million Internal Revenue Service debt, and he declined, triggering his termination.

Negotiations toward a potential sale of Jerry’s shares broke down in late 2009. Jerry was fired from Mike’s in early 2010 after refusing to sign what the suit describes as an “overbroad unnecessary confidentiality agreement” relating to the potential sale of his shares.
 
“He’s a big spender,” Wukmer said of Jerry. “He loves to travel; he loves to gamble; he loves to drink fine wine.”

The termination triggered a clause in the shareholder agreement that allows remaining shareholders to buy out a fired shareholder at fair-market value. Jerry did not attend the purported closing, and Bill and Mike had to set up a bank account on his behalf to receive the funds, court documents said.

Jerry still owns a stake in Dahm Property LLC, which owns the real estate where the carwash chain conducts business.

The real estate holdings, which were appraised at $24 million, are part of the dispute as well. The property arm has been reducing the rent it charges Mike’s as leases come up for renewal, effectively boosting the business value and depressing the property value.

The suit calls the rent reductions proof of a “manifest and severe conflict of interest,” while the principals in Mike’s say the reductions are simply a function of declining real estate values.

The trial, which is being heard by Judge William Hughes without a jury, is expected to last seven days.