Item 3. Legal Proceedings
Item 3. LEGAL PROCEEDINGS
The following are material pending legal proceedings in which we or any of our subsidiaries is a party or in which any of our or their property is the subject.
Trade Secret Lawsuit
On November 7, 2018, Citizens, CICA International and CICA (defined as "we", "us", "our" or "Plaintiffs" in this Item 3) filed a lawsuit in the District Court of Travis County, Texas (the “District Court”) against (i) Randall Riley (“Riley”), a former Citizens executive and son of Citizens’ founder Harold E. Riley, (ii) CALI, copycat companies formed by Riley and (iii) Alexis Enrique Delgado, Carlos Nalsen Landa, Enrique Pinzon Ruiz, Johan Emilio Mikuski Silva and Esperanza Peralta de Delgado, former independent consultants of Citizens (collectively, the “Los Raudales Defendants,” and together with Riley and CALI, collectively the “Original Defendants”).
On September 10, 2019, we filed an amended complaint and added additional defendants to the lawsuit (with the Original Defendants, collectively, "Defendants"), including (i) Michael P. Buchweitz (a former underwriter for Citizens), Jonathan M. Pollio (a former actuary for Citizens), Jeffrey J. Wood (a former Chief Financial Officer and the current Chief Financial Officer of First Trinity) and Steven A. Rekedal (former marketing officer), (ii) First Trinity Financial Corporation, and Trinity American, Inc. (collectively, “First Trinity”) and International Marketing Group S.A., LLC, entities that have founded a business on the exploitation of Citizens’ trade secrets and goodwill, and (iii) Gregg E. Zahn, the CEO of First Trinity. Our lawsuit claims that:
• Riley and First Trinity tortiously interfered with Citizens’ contracts with its agents and former employees and that they “willfully and intentionally” induced the Los Raudales Defendants and other agents and former employees to breach those contracts by disclosing Citizens’ confidential information;
• The Los Raudales Defendants were properly terminated for cause under their independent consultant contracts and thus not entitled to additional commissions under such contracts;
• Defendants stole Citizens’ information in order to unfairly compete with us;
• Defendants wrongfully secured benefits from Citizens and thus Citizens is entitled to those benefits (unjust enrichment); and
• Defendants conspired to achieve the theft of Citizens’ trade secrets, including by using a confusingly similar name and logo.
In addition to the trial in the lawsuit being delayed several times due to the COVID-19 pandemic, key developments in the lawsuit have been as follows:
• January 2019 - the Original Defendants filed a motion to dismiss certain claims alleged in the suit, which the District Court denied in its entirety.
• May 2019 - we filed a motion for a preliminary injunction to bar the Original Defendants from continuing to engage in unfair competition and misappropriation of our trade secrets and tortious interference with our existing contracts with our independent consultants. The District Court denied the application for a temporary injunction and in August 2020, the Third Court of Appeals in Austin, Texas affirmed the District Court’s decision.
• June 2021 - Defendants filed a traditional and no evidence Motion for Partial Summary Judgment (the “Motion”), which was denied in its entirety by the District Court. Defendants’ Motion claimed that we should not be able to proceed with our claims against them for unfair competition, tortious interference with contract, conspiracy and unjust enrichment, because we “have no evidence to support these theories.” By denying Defendants’ Motion in its entirety, we can proceed to trial with all of the claims described above.
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• September 2021 - the District Court denied the requests of Alexis Enrique Delgado, Enrique Pinzon Ruiz, and Esperanza Peralta de Delgado to be dismissed from the lawsuit and denied Michael Buchweitz’s and Jonathan Pollio’s requests that the claim against each of them for breach of his confidentiality agreement be dismissed. While the District Court allowed the CEO (Zahn) and CFO (Wood) of First Trinity to be dismissed individually from the lawsuit, the ruling does not affect Citizens’ claims against First Trinity described above.
• October 2022 -
◦ The District Court denied Jonathan Pollio's request for a continuance of the trial and we subsequently entered into a settlement agreement with him.
◦ After the denial of the continuance and six days prior to the start of the trial, Defendant Randall Riley died in a single vehicle automobile accident and all parties agreed to delay the trial.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II