Jury imposes minimal damages against ex-CEO

A fired Spokane tech executive sued by his former employer has to pay a token $1 in damages to the startup company he once ran, a Spokane jury said Tuesday.

Jim Hereford, who until summer 2007 was the chief executive of Spokane-based NextSentry, argued during a three-week trial his actions as CEO did not have a significant impact on the finances of the startup firm.

A 12-person Spokane County Superior Court jury agreed.

While the jury agreed with NextSentry attorneys that Hereford had failed his fiduciary duties and committed constructive fraud as CEO, it found no direct cause between his actions and any losses the company incurred.

“The jury found (damages or financial losses) can be expected with a startup company,” said Michael Patterson, the attorney representing NextSentry.

Patterson asked the jury to provide up to $10 million in damages to NextSentry.

The company sued Hereford in late 2007, stating it suffered significant financial harm due to his actions and misleading deceptive statements made by him to the firm’s board of directors.

In early 2006 Hereford was an executive with Spokane tech firm Next IT when its CEO, Fred Brown, spun off NextSentry as a distinct tech startup.

Hereford was paid $140,000 at first; that was later increased to $180,000.

In early 2007 Hereford reported sales of software to an Oregon bank and a Newport hospital. The sales totaling $375,000 never happened, and company officials fired Hereford in mid-2007.

During the trial company officials said the result was “irreparable financial harm to the company’s reputation and ability to raise capital for future operations.”

NextSentry is still in business and is largely funded by its corporate parent, Next IT.

NextSentry makes software tools to protect companies from losing sensitive information to intruders or employees

Patterson said the victory for the company was the jury’s finding of fraud and breach of fiduciary duty. He said the next step will be filing additional legal motions against Hereford to recover legal fees and expenses incurred during the case, plus $400,000 that NextSentry returned to investors after Hereford’s dismissal.

“Our side’s costs for legal fees and expenses will be well above $1 million, and we will be able to convince the judge we should receive them,” Patterson said after the verdict.

Hereford’s defense was that his actions and mistakes did not have a significant impact on the company’s bottom line. His attorneys also argued that the suit filed by NextSentry was part of an effort to force him to sell his stock in Next IT to other shareholders.

NextSentry also argued during the trial that Hereford misrepresented his personal worth in 2007 when he obtained a $250,000 loan for NextSentry from the Bank of Whitman. Hereford was the personal guarantor of that loan.

The jury ruled that NextSentry must compensate Hereford nearly $25,000 in interest payments he made to the bank after NextSentry stopped repaying the loan.

Bank of Whitman still has an active lawsuit against NextSentry and Hereford after the company stopped paying off that loan.

Hereford’s attorney, Laurel Siddoway, said Hereford is pleased with the verdict.

“My client’s mistakes were made in a good faith effort,” she said.

“There were only a couple of errors, made in an effort to advance the company and not to harm the company at all.”

Hereford now works in a family-owned company that installs telecommunications equipment.