Warren Buffett’s Berkshire Hathaway will not be allowed to use allegations that billionaire Jimmy Haslam tried to bribe employees at the Pilot truck stop chain to inflate the company’s value as Berkshire defends itself in a dispute over the company’s accounting practices, a Delaware judge said Wednesday.
The ruling came in a lawsuit in which Pilot Corp. claims that Berkshire Hathaway, which holds 80% of Pilot Travel Centers, has used accounting changes to try to artificially depress the price Berkshire would have to pay for the Haslam family’s remaining 20% stake in the truck-stop chain.
Berkshire responded to the lawsuit by claiming that Jimmy Haslam, the owner of the Cleveland Browns, tried to bribe more than two dozen Pilot employees to get them to inflate the company’s profits this year. Berkshire alleges that Haslam wanted to artificially inflate profits so Berkshire would have to pay more for the remaining stake in Pilot held by the Haslam family, which also includes former Tennessee Gov. Bill Haslam.
Following a hearing Wednesday, Vice Chancellor Morgan Zurn ruled that Berkshire could not use the bribery allegations as part of an “unclean hands” defense at an expedited trial next month. She also said any related depositions would not be allowed, noting that the bribery allegations do not have an “immediate and proper nexus” to Pilot’s underlying claims.
While granting Pilot’s motions to restrict Berkshire’s defenses, Zurn also indicated that she may deny Berkshire’s request to amend its answers and defenses. Among the new information Berkshire wants to use are allegations that Pilot’s controller, David Clothier, used his spouse’s cell phone to secretly communicate with Haslam, was offered an illicit payment by Haslam, and tried to retroactively alter financial statements to change or delete references to the accounting changes.
Meanwhile, an attorney for Pilot told Zurn that federal prosecutors have begun an investigation based on Berkshire’s bribery allegations.
“We have no reason to believe that that investigation is going to impede the progress of this case,” said attorney Bradley Wilson. Wilson noted, however, that Pilot was asked to postpone some depositions in the case in order to allow people to hire lawyers.
Pilot alleges that, after taking control of the company, Berkshire adopted “pushdown accounting,” which forced Pilot to take on higher depreciation and amortization costs and resulted in lower net income. Pilot claims that a 2017 LLC agreement prevents Berkshire from making such an accounting change without Pilot’s consent.
In an effort to resolve the dispute Jimmy Haslam and his father, Pilot founder Jim Haslam, presented a resolution to the board in August but were outvoted by the five Berkshire members of the board.
Berkshire bought 38.6% of Pilot in 2017 for $2.76 billion before more than doubling that to 80% this year for an additional $8.2 billion.
Under an investor rights agreement with Berkshire, the Haslams have an annual option, starting Jan. 1, 2024, to sell their remaining 20% interest in Pilot to Berkshire. The agreement gives the Haslams 60 days from the start of each year to make that decision, meaning they must decide by Feb. 29 whether to exercise the option.
Pilot argues that with the first opportunity to exercise the sell option just weeks away, Berkshire has used accounting changes to try to lower the price it would have to pay for the Haslams’ remaining stake.
Besides the truck stops, Berkshire owns dozens of other businesses including Geico insurance, BNSF railroad and several major utilities along with an assortment of smaller manufacturing and retail businesses. It also holds a sizeable stock portfolio with big stakes in Apple, Coca-Cola, American Express and Bank of America among other holdings.