Jury sides with company forced into bankruptcy, awards $117.9M

A former Kansas City manufacturing company won verdicts totaling nearly $118 million against an Italian businessman on claims that he effectively took over the company before forcing it into bankruptcy.

The trustee overseeing the estate of Xurex Inc. alleged in a federal lawsuit that Jose Di Mase, his son Giacomo Di Mase and other men connected to Di Mase had purchased Xurex’s sole customer, DuraSeal Pipe Coatings Company, then slowly took control of Xurex and its intellectual property in ways that weren’t fair to the company’s other shareholders.

A federal jury found most of the defendants liable for breach of fiduciary duty, awarding $93.5 million in contractual damages against Jose Di Mase and an additional $24.4 million on a separate count against Di Mase, his son and two co-defendants, Leonard Kaiser and Lee Kraus Jr.

According to court records, the jury sided with another defendant, Joe Johnston, who played key roles in the companies in their early years and had sold DuraSeal Pipe to Di Mase in 2010.

Despite the stakes in the case, Di Mase and his co-defendants represented themselves at the two-week trial in federal court in Kansas City. Todd Bartels of Polsinelli, the lead attorney for the Xurex trustee, said it was “highly unusual.”

“I’ve never been involved in a case like it,” he said.

In an interview by phone from his home in Rome, Giacomo Di Mase said he and his father couldn’t afford lawyers at trial and now were trying to determine how to file an appeal. He blamed the outcome on the complexity of the case, his unfamiliarity with the legal system and his inability to introduce key evidence.

“I think this case was absolutely one-sided,” he said. “The whole story was not told.”

Kaiser and Kraus didn’t respond to requests for comment sent in emails to addresses listed for them in court records.

The defendants most recently were represented by attorneys from Rouse Frets White Goss Gentile Rhodes, according to court records. The firm withdrew in July, citing a lack of payment of its legal bills.

Kansas City-based Xurex developed, manufactured and sold anti-corrosion and anti-abrasion chemicals used in the oil and gas industry. DuraSeal Pipe held an exclusive license to use Xurex’s products in exchange for agreeing to make monthly minimum purchases of those products.

The lawsuit, citing findings by a Delaware court from an earlier phase of litigation, described Di Mase as a “Venezuelan-Italian businessman with at least one successful privately held company to his credit and access to well-heeled, high net-worth partners.” He previously had started Piaggio Aero Industries, an aircraft-manufacturing company in Italy.

Along with his purchase of DuraSeal Pipe, Di Mase also purchased 36 percent of Xurex. The suit alleged that Di Mase placed his own people on the Xurex board of directors. In 2012 and 2014, they amended an exclusive license agreement between DuraSeal Pipe and Xurex, resulting in the elimination of the minimum purchase obligations. They also claimed Xurex’s products were DuraSeal Pipe’s intellectual property and took over production. Xurex went into bankruptcy in October 2014.

“At the time of these breaches of fiduciary duties, these directors, officers, and controlling shareholders of Xurex lacked independence, were not disinterested, and had conflicts of interest,” the suit alleged.

In his interview, Giacomo Di Mase said Xurex had come as a “package deal” with DuraSeal Pipe and that his family had poured money into the companies only to find that Xurex’s oil products “didn’t work.” He said the decision to cut the minimum purchase obligations was due to a lack of a market for the product.

“We never did anything wrong,” he said.

In a pre-trial order in September, Judge Ortrie Smith barred the defendants from introducing evidence about the alleged deficiencies of Xurex’s products, holding that the testing reports and alleged customer complaints were hearsay and that the defendants had failed to disclose expert witnesses who could explain them to the jury.

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