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Published: Thursday, 5/25/2006

Judge Zouhary sued over stock buy; conspiracy alleged to undervalue shares

BY MIKE WILKINSON
BLADE STAFF WRITER

Jill Stephen of Allentown, Pa., claims in her suit that U.S. District Court Judge Jack Zouhary, who was then in private practice as senior vice president, secretary, and general counsel for S.E. Johnson, bought half of her stock for $440 a share just 15 months before an Irish conglomerate bought the Maumee-based company for $1,700 a share.

According to the lawsuit, Mr. Zouhary and Daniel Brown, then company president, did not tell her about internal share valuations that ranged between $696 and $786 a share before they bought her 505 shares.

Ms. Stephen believes the acts cost her $636,000. Her attorney, John J. McHugh III, declined to comment yesterday, citing a confidentiality agreement filed in the case.

The civil suit was originally filed in 2004 in Lucas County Common Pleas Court. The complaint was amended May 1 to add as a defendant Mr. Zouhary, who was nominated by President Bush and sworn in April 5 to a seat on the federal bench for life.

Mr. Zouhary declined comment when contacted yesterday by The Blade and referred questions to John Marsh, a Columbus attorney who said he will file an answer to Ms. Stephen's complaint by the end of the month.

"Obviously we're going to vigorously defend it and Jack didn't do anything wrong here. It's unfortunate, but it's the world we live in," Mr. Marsh said. "Dan didn't do anything wrong either."

Mr. Marsh said Mr. Zouhary disclosed the potential that he could become involved in the case during the vetting process for his federal judicial seat. He did not know if additional questions were asked of Mr. Zouhary by senators or staff.

"My sense is it wasn't an issue," Mr Marsh said. "It was disclosed, and obviously he was appointed."

Mr. Zouhary's nomination was championed by U.S. Sens. Mike DeWine and George Voinovich. He was nominated by President Bush in December and confirmed in March.

In the suit, Ms. Stephen, the granddaughter of Elmer Johnson, who started the company with his brother Sherman, alleges that she asked John Bearss, then CEO and chairman of the board, about selling her shares.

Mr. Bearss, who lives in Perrysburg, allegedly declined to tell Ms. Stephen about internal estimates on the shares' value and did not tell her he was talking with investment bankers about possibly selling the firm.

In November and December, 2001, Mr. Bearss told Ms. Stephen she would have to lower her sale price in order to sell and indicated he would relay her desire to sell her shares to Mr. Zouhary and Mr. Brown, according to the suit.

Attempts to reach Mr. Bearss' Cleveland attorney were unsuccessful.

In January, 2002, Mr. Zouhary negotiated on his and Mr. Brown's behalf to buy the shares. According to the lawsuit, the future judge should have known that the company had estimated the shares were worth between $696 and $786 a share when they bought the shares for roughly $220,000, or $440 a share.

Fifteen months later, in April, 2003, the construction firm founded in 1929 was sold for $217 million to Oldcastle Materials Group, the American division of CRH PLC of Dublin, Ireland. Its price: $1,700 a share, which the lawsuit claims would have yielded Ms. Stephen nearly $860,000 if she had held onto her shares.

Mr. Zouhary, 54, had worked in private practice for two Toledo law firms in addition to S.E. Johnson and had been on Lucas County Common Pleas Court for less than a year before his nomination and appointment to the federal judgeship. He replaced Judge David Katz, who is now on senior judge status.

After losing the election for a seat on the Lucas County bench in 2004 to Judge Thomas Osowik by more than 30,000 votes, Mr. Zouhary was appointed to fill a vacant seat on the court in March, 2005, by Gov. Bob Taft.

Contact Mike Wilkinson at:

mwilkinson@theblade.com

or 419-724-6104.



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