Court of Common Pleas...STEPHEN MAIDEN CV 20 932207 Judge: DEENAR. CALABRESE Pages Filed: 15 Electronically Filed 04/29/2020 18:19 // CV 20 932207 / Confirmation Nbr. 1991418 / CLDLJ

NAILAH K. BYRD

CUYAHOGA COUNTY CLERK OF COURTS

1200 Ontario Street

Cleveland, Ohio 44113

Court of Common Pleas

New Case Electronically Filed: COMPLAINT

April 29,2020 18:19

By: JAMES B. NIEHAUS 0020128

Confirmation Nbr. 1991418

FAIRGRAVE OMLIE, LLC, FT AL

vs.

STEPHEN MAIDEN

CV 20 932207

Judge: DEENAR. CALABRESE

Pages Filed: 15

Electronically Filed 04/29/2020 18:19 // CV 20 932207 / Confirmation Nbr. 1991418 / CLDLJ

COURT OF COMMON PLEAS

CUYAHOGA COUNTY, OHIO

FAIRGRAVE OMLIE, LLC, )

355 Richmond Road, )

Cleveland, OH 44143, )

) Case No.

CONSTANT AVIATION, LLC, )

18601 Cleveland Parkway, ) Judge


)

)

)

)

and

NEXTANT AEROSPACE, LLC,

18601 Cleveland Parkway, )


)

)

)

)

)

Plaintiffs,

v.

STEPHEN MAIDEN, )

28915 Addison Court, )

Pepper Pike, OH 44124, )

) COMPLAINT (with Jury Demand)

Defendant. )

For their Complaint against Defendant Stephen Maiden (“Maiden”), plaintiffs Fairgrave

Omlie, LLC (“Fairgrave”), Constant Aviation, LLC (“Constant”) and Nextant Aerospace, LLC

(“Nextant”) allege as follows:

COUNT I

Breach of Fiduciary Duty

1. Fairgrave is an Ohio limited liability company with its principal place of business

at 355 Richmond Road, Cleveland, Ohio 44143. Fairgrave is a privately-owned holding

Electronically Filed 04/29/2020 18:19 / / CV 20 932207 / Confirmation Nbr. 1991418 / CLDLJ

company in the business of owning and operating various subsidiaries that are engaged in a

variety of aviation related activities, including providing service and parts to maintain, repair and

overhaul business and general aviation aircraft and engines.

2. Constant is a Delaware limited liability company with its principal place of

business at 18601 Cleveland Parkway, Cleveland, Ohio 44135. Constant is in the business of,

among other things, providing service and parts to maintain, repair and overhaul business and

general aviation aircraft and engines. Constant is wholly owned by Fairgrave.

3. Nextant is an Ohio limited liability company that was formed to operate a

business for the remanufacture of aircraft in the business jet marketplace. Through its

remanufacturing process, which included airframe enhancements, avionics and engine upgrades,

Nextant would effectively transform used business aircraft into new, zero-hour airframes at a

substantial cost savings. For example, the Nextant 400XTi is a completely rebuilt Beechjet

400A/XP with Williams FJ44-3AP engines and the Rockwell Collins Pro Line 21 integrated

avionics suite. It also has major aerodynamic enhancements and an improved engine mounting

configuration with redesigned nacelles and pylons. Nextant is an indirect wholly owned

subsidiary of Fairgrave.

4. In 2014, Nextant sold certain of the assets used in its remanufacturing business to

Constant, and entered into a subcontractor agreement with Constant pursuant to which Constant

would, as a subcontractor to Nextant, perform all of the conversion work contracted for by

Nextant with its customers to convert Beechjet aircraft to Nextant 400XTi aircraft.

5. Maiden is an individual who resides at 28915 Addison Court, Pepper Pike, Ohio

44124. Maiden was employed as the Chief Executive Officer of Fairgrave from at least February

2016, as the President and Chief Executive Officer of Constant from September 2007 and as the


president of Nextant from at least 2014, until December 27, 2019, when he was fired from

Fairgrave, Constant and Nextant for cause. Prior to serving as President and Chief Executive

Officer of Constant, Maiden was the Vice President of Operations for Constant from November

2006 until September 2007.

6. As CEO of both Constant and Fairgrave, and as president of Nextant, Maiden was

responsible for each company’s financial performance. On a regular basis, Maiden was

obligated to report on each company’s financial performance to the Board of Fairgrave. At the

end of 2017, Fairgrave had a net loss of over $3.4 million (on a consolidated basis). At a Board

meeting in June 2018, Maiden discussed financial performance and assured the Board that the

financial performance for 2018 would be much better.

7. In addition to being responsible to the Board for the financial performance of

Fairgrave, Constant and Nextant, Maiden was also aware that Fairgrave had to provide financial

reports to its primary lender and had to achieve certain financial performance metrics to avoid

violating its loan covenants with its primary lender. Maiden was aware that violating the loan

covenants or otherwise poor financial performance jeopardized his prospects of remaining

employed by Fairgrave, Constant and Nextant.

8. Although Maiden had promised the Board improved financial performance in

2018, and notwithstanding generally favorable market conditions for the business and general

aviation aircraft industry, Maiden was unable to deliver improved financial results in 2018.

9. To avoid defaulting on the loan covenants, subsequent criticism from the Board

and possible job loss, Maiden undertook a variety of wrongful actions to artificially inflate

earnings for 2018.


10. In March 2018, Maiden instructed a Nextant employee to execute a purchase

agreement with N125DJ, LLC, a California limited liability company, by which Nextant agreed

to sell and N125DJ, LLC agreed to purchase a Nextant 400XTi. Prior to signing the purchase

agreement with the customer, the Nextant employee expressed concern with the terms of the

agreement because it called for a delivery of the aircraft by September 2018. The employee was

concerned because the lead time for new Williams engines was usually eight to ten months, and

Nextant, at that time, was on credit hold with Williams. Maiden assured the employee that he

would arrange with Williams to obtain the engines in time and instructed the employee to

provide those assurances to the customer to induce the customer to sign the purchase agreement

and, more importantly, begin making progress payments towards the $4.9 Million purchase

price. At the time Maiden instructed the employee to tell the customer that the engines would be

available, Maiden knew that the engines would not be available. Maiden intended that the

customer would rely on his assurances in deciding to sign the purchase agreement and make the

payments to Nextant.

11. The N125DJ, LLC aircraft was not ready for delivery in September. Maiden

instructed a Nextant employee to tell the customer that the delay was caused by a problem at the

Williams factory that caused a delay in the receipt of the engines.

12. In November 2018, Maiden instructed a Nextant employee to tell the purchaser

that Williams had once again delayed the delivery of the engines, but that Nextant would loan

some used engines to the purchaser so that the purchaser could begin to utilize its aircraft.

Maiden instructed the employee to tell the purchaser that the aircraft could be delivered in

January 2019 with the loaner engines, that the purchaser would not be required to make its final

progress payment for the aircraft until the new engines were installed, and that the new engines


would be available in March 2019. Maiden knew at the time he instructed the employee to make

those representations to the purchaser that the Williams engines would not be available in March

2019 because Nextant was still on credit hold, the engines had not and could not be ordered, and

even if the order was placed and accepted in November, Williams would not have sufficient time

to manufacture the engines for delivery in March. Maiden instructed the Nextant employee to

make these representations with the intent that the purchaser rely on them and induce the

purchaser to enter into the agreement by which Nextant would loan the used engines to the

purchaser.

13. In reliance on Maiden’s assurances, the purchaser took delivery of the aircraft

with the used engines, but the purchaser thereafter repeatedly inquired about the status of the

delivery of the new engines. After receiving repeated estimates of when the engines would be

available from a lower level employee that proved to be false, the purchaser insisted on receiving

assurances directly from Maiden. Maiden sent an email providing those assurances that was then

forwarded to the customer. At the time Maiden provided those assurances, he knew them to be

false.

14. By selling a 400XTi to N125DJ, LLC at a time when Maiden knew that Nextant

would not be able to deliver the aircraft with new engines, Maiden was artificially inflating

Nextant’s earnings because it would recognize the income from the sale, but would not incur the

cost of new engines (over $1 Million). Instead, Nextant would use used engines on the aircraft

from an aircraft it already owned, and thereby substantially reduce the cost. While this artifice

would give the impression of a better financial performance in 2018, it obviously exposed

Nextant to significant potential future liability. In fact, N125DJ, LLC has now made a demand


on Nextant for delivery of the engines (which will not be possible) or a refund of the $4.3

Million portion of the purchase price paid by N125DJ, LLC.

15. As another part of his scheme to artificially inflate earnings for 2018 and 2019,

Maiden manipulated Constant’s financial records to artificially inflate earnings through use of

unjustified work-in-process (“WIP”) accruals. By overstating the WIP accruals, Maiden was

able to overstate revenue in 2018 and 2019.

16. Fairgrave and its subsidiaries recognize revenue as the related services are

performed and as parts are sold. Unbilled revenue represents work in process, i.e., in-process

work orders which are incomplete at year end. Accounts receivable represents billed work

orders that have been completed by year end.

17. As an example of the manipulation of the WIP accruals, in February 2019, before

the books had been closed for 2018, Maiden sent an email to various individuals in Constant’s

accounting department instructing them to make certain round number adjustments to WIP

accruals for year-end 2018. Those WIP accruals totaled over $1.5 million.

18. Constant uses an aviation-specific enterprise software application developed for

the aviation service business known as “Corridor” to help manage its operations. As a general

practice, technicians working on a specific work order would use Corridor to track the amount of

time the technicians had spent on a project and the parts used for a project. On the basis of the

number of hours input, and the value of the parts consumed, the Corridor software would

estimate the progress of the work order (e.g., 30% complete or 90% complete).

19. When Maiden assumed responsibility for managing Constant, Constant did not

have a full time Chief Financial Officer. Maiden effectively acted as the CFO and initiated a

practice of reviewing work orders at the end of each month to determine whether the Corridor


estimate of accrued revenue was accurate based on Maiden’s own estimate of how much revenue

should be accrued.

20. As Constant grew, and added Vice Presidents to manage specific business units,

who would then report to Maiden, Maiden would train these individuals to follow the same

process he utilized, i.e., at the end of each month, the Vice President for each of the business

units would review the actual progress of a work order and make an adjustment in Corridor

based on the Vice President’s estimate of the actual progress of a work order versus the estimate

generated by default in the Corridor software. Although adjustment might decrease the accrual if

the project’s progress was less than the estimate in Corridor, the adjustment would usually

increase the accrual on the assumption that the project was more advanced than estimated in

Corridor.

21. These WIP accruals had the impact of overstating earnings on the financial

records. If a work order was completed on time and within budget, any prior overstatement

would be effectively washed out, and the only harm would be the distortion of the financial

records related to the time of when earnings were recognized. However, if, as was frequently the

case, the work order was not finished on time or within budget, or if some reduction to the work

order price was necessary, or if a customer did not pay the full amount of the work order price,

then the WIP accruals would result in a significant and very misleading distortion to the financial

records.

22. In 2015, the Fairgrave Board appointed a full-time CFO for Fairgrave and its

subsidiaries. The CFO questioned Maiden about the practice of using WIP accruals and urged

Maiden to stop the practice and instead, if really appropriate, modify the Corridor software to


more accurately estimate the accrued margin on a work order. Maiden dismissed the CFO’s

concerns.

23. Beginning in 2018, the CFO grew concerned at how aggressively Maiden was

accruing WIP. The CFO warned Maiden that he could not continue to make the WIP accruals at

the rate he was making them because eventually those accruals would become too large. In

addition, the WIP accruals were making Constant and Fairgrave appear more profitable than they

were. The WIP accruals would also make it appear as if Constant would have a greater cash

flow than it actually would. This cash flow distortion had an adverse impact on Constant

because it suggested that it would have the cash necessary to purchase parts that were needed in

the normal course. In fact, however, Constant was cash starved and was not able to purchase

parts when needed. The delays in the purchase of parts led to delays in the completion of work

orders which led to further concessions to customers which exacerbated the distortions caused by

the WIP accruals. Once again, however, Maiden dismissed the CFO’s concerns.

24. At the time they received the instructions from Maiden regarding the 2018 year-

end adjustments, the accounting staff reasonably assumed that Maiden would provide the

supporting documentation for each such adjustment in due course.

25. When they did not receive the supporting documentation, the staff repeatedly

requested it from Maiden, who offered nothing but excuses as to why he could not provide the

supporting documentation.

26. Shortly before he was fired at the end of 2019, Maiden finally provided a list of

work orders that he claimed supported the 2018 year-end accruals. A review of those work

orders, however, demonstrated that they did not support the 2018 year-end WIP accruals.


Consequently, by wrongfully instructing the accounting staff to record the 2018 year-end WIP

accruals, Maiden had overstated earnings by over $1.5 million through just this one adjustment.

27. Maiden actively supervised the individuals who were making the monthly accrual

adjustments, including the Vice President of Interiors and Completions. That Vice President had

been instructed by Maiden as to how and when he should make the adjustments to the WIP

accruals, and Maiden reviewed his adjustments on a monthly basis. Maiden was aware that the

Vice President was erroneously cumulating the accruals, which once again had the effect of

overstating revenue. Maiden allowed these errors to accumulate because they made his

performance look better than it actually was.

28. In addition to the WIP accruals, Maiden also manipulated the financial records

through his practice of not writing off aged accounts receivables. Fairgrave, Constant and

Nextant are supposed to record an allowance for doubtful accounts based on their best estimates

of the amount of credit losses in their existing accounts receivable inventory. Fairgrave,

Constant and Nextant are then supposed to charge off account balances against the allowance

after all means of collection have been exhausted and the potential for recovery is considered

remote.

29. Maiden, however, retained on the books certain aged accounts receivables long

after all means of collection had been exhausted and the potential for recovery was remote. In so

doing, Maiden was able to reduce the expense in 2018 for the allowance for doubtful accounts,

which had the effect of increasing earnings. He also instructed employees to continue to do

business with customers who had defaulted on their payments in the past. This yet again

artificially increased earnings.


30. Other employees of Fairgrave eventually discovered the manipulation of the

books and records. Outside accountants, in a forensic review, later confirmed the improper WIP

accruals and aged accounts receivable entries.

31. As a result of the overstatements on the financial statements, Fairgrave’s Board

made decisions regarding capital expenditures and other expenditures to fuel growth that would

not have been made had the Board known the true status of the financial situation. As a result of

the overstatements on the financial statements, Fairgrave, Constant and Nextant incurred

additional debt and additional expenses that they would not otherwise have incurred. As a result

of the overstatements on the financial statements, Fairgrave, Constant and Nextant were

damaged.

32. Maiden owed fiduciary duties of loyalty and care to Fairgrave and Nextant under

Ohio law.

33. Maiden owed fiduciary duties of loyalty and care to Constant under Delaware

law.

34. By intentionally manipulating the books and records of Fairgrave, Constant and

Nextant, Maiden breached his fiduciary duties.

35. By allowing Fairgrave, Constant and Nextant to accumulate more debt when they

otherwise would not have, Maiden breached his fiduciary duties.

36. At a minimum, Maiden was grossly negligent in how he handled, and allowed

others to handle, the WIP accruals and accounts receivable. Maiden acted in bad faith, his

actions were not reasonably within the scope of his authority, and he could not reasonably

believe his actions were in the best interest of Fairgrave, Constant and Nextant. Accordingly,

Maiden breached his fiduciary duties.


37. By depriving the Board of accurate and honest financial information about

Fairgrave, Constant and Nextant, Maiden damaged Fairgrave, Constant and Nextant in an

amount not presently known but believed to exceed $25,000.

38. Due to the willful, wanton, and malicious nature of Maiden’s conduct, Fairgrave,

Constant and Nextant are entitled to punitive damages and attorneys’ fees.

COUNT II

Breach of Duty of Loyalty/Faithless Servant

39. Fairgrave, Constant and Nextant incorporate by reference the allegations in

paragraphs 1 through 38 of this Complaint.

40. As an employee of Fairgrave, Constant and Nextant, Maiden owed each of them a

common law duty of loyalty to act in their best interests and not to act in his own personal

interest to his employers’ detriment.

41. While employed by Fairgrave, Constant and Nextant, Maiden wrongfully

manipulated their financial records to make it appear that his performance as CEO or President

was not as bad as it actually was. In so doing, Maiden breached his common law duty of loyalty

to his employers.

42. To remedy his breach of loyalty, Maiden should be required to forfeit his

compensation and other benefits paid to him during his period of disloyalty.

43. Due to the willful, wanton, and malicious nature of Maiden’s conduct, Fairgrave,

Constant and Nextant are entitled to punitive damages and attorneys’ fees.

COUNT III

Indemnification

44. Nextant incorporates by reference the allegations in paragraphs 1 through 43 of

this Complaint.


45. Under Ohio law, an employee implicitly agrees to indemnify his employer against

loss caused by the employee.

46. As a result of his conduct, Maiden has exposed Nextant to substantial liability to

N125DJ, LLC.

47. Nextant is entitled to a declaration that to the extent Nextant is held liable to

N125DJ, LLC for any loss or damage, Maiden is obligated to indemnify Nextant for that loss or

damage, including any legal fees incurred by Nextant in the resolution of the pending claim or

the defense of any litigation filed by N125DJ, LLC.

COUNT IV

Fraud

48. Fairgrave, Constant and Nextant incorporate by reference the allegations of

paragraphs 1 through 47 of the Complaint.

49. Maiden affirmatively misrepresented the financial condition of Fairgrave,

Constant and Nextant through his manipulation of the WIP accruals and account receivable

entries and the N125DJ, LLC transaction.

50. Maiden also concealed and failed to disclose the true financial condition of

Fairgrave, Constant and Nextant when he had a duty to do so because of his status as an

employee and CEO.

51. Fairgrave, Constant and Nextant reasonably relied on Maiden’s

misrepresentations and failures to disclose in making decisions about their operations that they

would not have made if they had known their true financial condition.


52. Fairgrave, Constant and Nextant suffered damages as a proximate result of their

reasonable reliance on Maiden’s fraudulent misrepresentations and omissions in an amount in

excess of $25,000 to be proven at trial.

53. Maiden’s fraudulent misrepresentation and concealments were willful, wanton,

and malicious and constitute aggravated and egregious fraud entitling Fairgrave, Constant and

Nextant to punitive damages.

WHEREFORE, Fairgrave, Constant and Nextant pray for relief as follows:

A. For judgment in their favor and against Maiden in an amount equal to their actual

damages as shown at trial;

B. For an award of punitive damages in an amount sufficient to punish Maiden and

to deter future conduct of the nature described above;

C. For a declaration that Maiden is obligated to indemnify Nextant for any loss or

damages for which it may be liable to N125DJ, LLC;

D. For an award of their attorneys’ fees incurred in this matter;

E. For such other and further relief as this Court deems just.

/s/ James B. Niehaus______________

James B. Niehaus, Esq. (0020128)

Gregory R. Farkas, Esq. (0069109)

FRANTZ WARD LLP

200 Public Square, Suite 3000

Cleveland, Ohio 44114

216-515-1660 - Telephone

216-515-1650 - Facsimile

[email protected]

[email protected]

Attorneys for Plaintiffs Fairgrave Omlie, LLC and

Constant Aviation, LLC


mailto:jniehaus%40frantzward.com

mailto:gfarkas%40frantzward.com

JURY DEMAND

Plaintiffs demand a trial by jury.

/s/ James B. Niehaus

Attorney for Plaintiffs


Common Pleas Court of Cuyahoga County, Ohio

DESIGNATION FORM TO BE USED TO INDICATE THE CLASSIFICATION OF THE CAUSE

Fairgrave Omlie, LLC et al.

Plaintiff

Vs.

Stephen Maiden

Defendant

Case Number:

Date: April 29,2020

Has this case been previously filed and dismissed? YesO No B

Case #: Judge:

Is this case related to any new cases now pending or previously filed? Yes No B

Case #: Judge:

CIVIL CLASSIFICATIONS: Place an (X) In ONE Classification Only.

Professional Torts:

1311 Medical Malpractice

Id 1315 Dental Malpractice

1316 Optometric Malpractice

1317 Chiropractic Malpractice

1312 Legal Malpractice

1313 Other Malpractice

Product Liability:

1330 Product Liability

Other Torts:

d 1310 Motor Vehicle Accident

d 1314 Consumer Action

d 1350 Misc. Tort

Workers Compensation:

d 1550 Workers Compensation

d 1531 Workers Comp. Asbestos

-----------------------------1Amount of Controversy:

d None Stated I

d Less than $25,000

d Prayer Amount In excess of$25,000

Foreclosures:

Utilize Separate Foreclosure Designation Form

Commercial Docket:

d 1386 Commercial Docket

d 1387 Commercial Docket with Foreclosure

Administrative Appeals:

d 1540 Employment Services

d 1551 Other

Other Civil:

d 1500 Replevin/Attachment

■ 1382 Business Contract

d 1384 Real Estate Contract

d 1388 Consumer Debt

d 1390 Cognovit

d 1391 Other Contacts

d 1490 Foreign Judgment

d 1491 Stalking Civil Protection Order

d 1501 Misc. Other

d 1502 Petition to Contest Adam Walsh Act

d 1503 Certificate of Qualification for Employment

-------------------------- 1Parties have previously attempted one of the

following prior to filing:

d Arbitration I

d Early Neutral Evaluation

d Mediation I

■ None

I certify that to the best of my knowledge the within case is not related to any now pending or previously filed, expect as noted above.

F ra ntz Wa rd L L P J a m es B . N ie h a u s

Firm Name (Print or type)

200 P u b lic Sq ua re

Address

S u ite 3000, C leve lan d , O h io 441 44

Address

2 1 6-5 1 5-1 660

Phone

Attorney of Record (Print or Type)

0020128

Supreme Court #

jn i eh a u s@fra ntzwa rd .co m

Email Address

/s/ J a mes B . N ie h a u s

Signature


Documents

Court of Common Pleas...STEPHEN MAIDEN CV 20 932207 Judge: DEENAR. CALABRESE Pages Filed: 15 Electronically Filed 04/29/2020 18:19 // CV 20 932207 / Confirmation Nbr. 1991418 / CLDLJ