United States District Court, D. Colorado
ORDER GRANTING INTERIM PRELIMINARY INJUNCTIVE RELIEF
AND APPOINTING RYAN SMITH AS INTERIM CUSTODIAN
William J. Martinez United States District Judge
APEG Energy II, LP (“APEG”), sues David Veltri
(“Veltri”), arguing that Veltri, without
authorization, holds himself out to be and acts as president
and CEO of U.S. Energy Corporation (“U.S.
Energy”), a Wyoming corporation headquartered in
Colorado. APEG moved for a temporary restraining order to
enjoin Veltri (ECF No. 5), but the Court denied that specific
relief. It instead construed the motion as one for a
preliminary injunction and ordered Veltri to respond.
(See ECF No. 22.)
April 23, 2019, the Court issued an order describing why the
Court believes APEG is likely to succeed on the merits, but
questioning whether enjoining Veltri from acting as president
and CEO would prevent or cause irreparable harm. (ECF No.
35.) The Court therefore called for further briefing. The
Court received that briefing (ECF Nos. 36, 37), and then set
APEG's motion for an evidentiary hearing on May 24, 2019
(ECF No. 38).
14, 2019, APEG filed an Emergency Renewed Motion for
Temporary Restraining Order (“Emergency Motion”).
(ECF No. 39.) APEG argues that Veltri, along with an ally on
U.S. Energy's board of directors, engineered a
rearrangement of the board's audit committee, prompting a
warning from the NASDAQ stock exchange (where U.S.
Energy's stock trades) that the new audit committee does
not meet NASDAQ guidelines, and that U.S. Energy had a May
23, 2019 deadline to rectify the situation or face de-listing
of U.S. Energy's shares from the exchange. However, the
board is deadlocked 2-2 on the task of re-rearranging the
audit committee, with Veltri and his ally in one corner and
the two directors that Veltri managed to dismiss from the
audit committee in the other corner (these directors are
allied with APEG). APEG requests that the Court enjoin Veltri
from acting as CEO and that the Court further invoke a
Wyoming corporation statute permitting the Court to appoint a
“custodian” who can act as interim CEO-and who,
by operation of U.S. Energy's bylaws regarding the role
of CEO, would also become chairman of the board, meaning the
board would have five members and so could avoid deadlock.
Court ordered Veltri to respond to the Emergency Motion by
10:00 AM yesterday (ECF No. 40), which he did (ECF No. 41).
Because Veltri has responded, APEG's Emergency Motion can
no longer be deemed to be seeking a TRO. See Fed. R.
Civ. P. 65(b). As with the original motion for a TRO, the
Court will now construe the Emergency Motion as one for
preliminary injunctive relief. The parties' briefs show
that the material facts are not in dispute. For the reasons
explained below, the Court grants the Emergency Motion under
The Governance Dispute
Court incorporates Part I of its prior order (ECF No. 35) as
if set forth herein, and presumes familiarity with that
The NASDAQ Dispute
March 28, 2019, Veltri and his ally on the board of
directors, John Hoffman, convened a no-notice telephonic
board meeting consisting of themselves and Weldon Chitwood,
who is allied with APEG. They did not include Javier Pico,
the fourth director, who is also allied with APEG. Veltri or
Hoffman moved to dismiss Chitwood and Pico from the audit
committee, which, at that time, comprised Hoffman, Chitwood,
and Pico. Chitwood did not object to the lack of notice (thus
waiving that objection) and voted against the resolution, but
Hoffman and Veltri voted in favor, so the motion carried.
April 16, 2019, Veltri caused U.S. Energy to file a Form 8-K
with the U.S. Securities & Exchange Commission announcing
that Hoffman was now the audit committee's sole member.
On May 9, 2019, NASDAQ sent a letter to Veltri stating that
the reorganization of the audit committee puts U.S. Energy
out of compliance with NASDAQ's requirement that audit
committees be composed of three independent directors. NASDAQ
imposed a May 23, 2019 deadline for U.S. Energy to propose a
plan to regain compliance, or suffer possible de-listing of
U.S. Energy's shares.
audit committee now has only one member, but Veltri, Hoffman,
Chitwood, and Pico are all still members of the board of
directors, and they are deadlocked regarding how to move
forward. Chitwood and Pico, in particular, have refused
Veltri's proposal to appoint all four directors as audit
committee members. Veltri, of course, does not want to
reconstitute the audit committee as Hoffman, Chitwood, and
Pico, because then Chitwood and Pico would again control the
committee. That committee intervened in a lawsuit that U.S.
Energy brought against APEG in Texas, and the committee's
position as intervenor is opposed to Veltri's interests.
See U.S. Energy Corp., et al., v. APEG Energy II, LP, et
al., Civil Action No. H-19-754 (S.D. Tex.). If Chitwood
and Pico again comprise the majority of the audit committee,
they can continue to steer the committee's litigation
strategy in Texas in a manner that Veltri perceives as
Court incorporates Part II of its prior order (ECF No. 35) as
if set forth herein, and presumes familiarity with the legal
principles and conclusions set forth there.