Firstline Security Lawsuit Against Pinnacle Security. $450 Million at stake!!!

I must to say, every now and then you get shocked by some of the happenings in the Summer Alarm Sales business. That is what I thought as I read a 50 page court document filed by Wright Thurston and Trevor Keyes, the owners of the almost defunct Firstline Security. It really goes into detail and explains the run-up to their bankruptcy and why and how it happened. The complaint has some very strong allegations against Pinnacle Security.

Personally, I thought it was The Prodigy that brought Firstline to it's knees, but after reading this, anyone can see that it had other problems.

To give you a rundown, if you don't have an hour or so to read the whole document, it starts with Chad Christofferson, one of the original owners of Pinnacle, and Wright Thurston, one of the owners of Firstline. They were both neighbors in Highland, UT and were in fact Young Men's leaders together for a period of time. They became good friends and frequently discussed business. As it happens, they start doing some business together to get better deals on equipment, apartment rentals, and things like that. At that time, in the fall of 2007 Firstline started working on some financing to grow their business. Many other companies were in the same process. APX got Jupiter, Pinnacle has recently got Golden Gate, and Firstline was looking into the same type of financing to keep their business going big. Well, as Firstline was in talks with these companies, Chad Christofferson mentioned that they should look at joining forces. Things go good, talks go good, Firstline is looking at getting acquired by Pinnacle. Trevor Keyes and Wright Thurston would get a 32% ownership in Pinnacle.

However, there is one hang up. Firstline has some debts, Pinnacle said they would take care of them for Firstline, but they didn't want the acquisition to officially go through because that would put the debts in Pinnacle's name. So, they would do what needed to be done to consolidate sales and support forces, but would remain seperate companies until things got worked out. It even came to the point where Christofferson personally funneled money to Thurston to keep them going. They were neighbors, you do things for friends, right? Besides, how could someone get screwed when they are members of the same church?

So, after all the unofficial merging took place, top Division Managers at Firstline got wind of the merger and went to speak with Thurston and Keyes. They confirmed the fact that it was going through. In the ensuing days, there was a meeting of the top salesman and techs at Firstline letting them know and that they had a choice, but they should flow into Pinnacle. Some liked it, some didn't. Some division managers even met with Pinnacle ownership to get it figured out. I'm not sure how many went with them, but I do know some trickled into Elite Security. Needless to say, this threw the sales force of Firstline into the blender. They passed the point of no return.

Now, the Firstline sales force is either going to go with Pinnacle, or take the other option and go elsewhere. Firstline and Pinnacle have their deal worked out, though nothing finalized and signed, but Thurston and Keyes start recruiting pretty heavily for Pinnacle. During that time, a few weeks after the talks go down, Firstline files for Chapter 11 protection. I assume they did that because Firstline was going to be turning into Pinnacle anyhow, so they probably thought that was the best way to go about it. Get a little relief from the courts so as to curb GE, Alarm.com, and ADT from going after them to get their money. They would wait till they made that money during the summer then pay them back. Pinnacle also stepped in to help out, in paying the backends of any sales and tech people that went with them. That's a good thing Pinnacle did. It should also be noted, that during all of this, Pinnacle was allegedly telling Thurston and Keyes that they would be owners, but they were telling the sales people to the contrary. Thurston and Keyes were repeatedly assured they would be owners, though nothing had been finalized.

Well, after all of that went down, recruiting heated up, things were rolling and almost 2 months later, Trevor Keyes decides it is time they should probably formalize something. You think? So, Keyes and Christofferson get into touch, Christofferson agrees that something should happen, but mentions nothing. (typical alarm industry blow off). Nothing happens, that is, until the next day.

At this point, I can see what Pinnacle may have been thinking. They had been working with Firstline, got what they had been wanting, Sales reps. They probably realized the condition Firstline was in, with all the complaints, the recent Prodigy not panning out, huge debts piled up, etc. and after realizing that, they saw that it may not have been as rosy as they thought. If they really wanted to include them in ownership, it would have happened ASAP at the time. Two months passed, how urgent is that? How serious would that be? Well, then Mr. Chad Christofferson contacted his neighbor, I don't imagine they went and chatted over the fence, and he said it would be somehow "illegal" for Pinnacle to compensate Thurston and Keyes for the work they did in recruiting people to Pinnacle. Not sure how that would be illegal, but, it was cold none-the-less.

Now, Thurston and Keyes are requesting $450 million total for the amount they would have made if this had not happened. Wow! That's a few coins. If that was held up, Pinnacle would sink. They have some money, but not that much. It says in there they make after everything is paid off, about $20 million per year. They have lines of credit amounting to $100 million or so. But this is asking for more.

Now, I imagine Pinnacle is not this dirty, and this lawsuit is coming from Thurston and Keyes, but you never know. If you want one fact from the Alarm Industry, here it is: everything is not as it seems on the surface. If this is true, Pinnacle did a number on Firstline. They pulled the chair out from underneath them. Promised them ownership, promised to pay their bills, took all of their sales reps and put them in a blender, etc. Now, after that went down and it obviously never got finalized, what is left of Firstline? No sales reps, lots of bills. That is a good recipe for bankruptcy.

That was a merger that could have been.

Here are a few random thoughts I have about this:

1. This is obviously from Firstline's point of view.
   
2. Why does Firstline have all of this debt? In this industry, you only pay for what gets done. 95% of all costs in the alarm industry are variable costs. I realize ADT messed with them a little, maybe that had something to do with it, but as far as equipment goes, you put it in and you get paid. You need to pay for it. You only get paid for what you do, and you only pay for work that is done. That is the alarm industry. No need for all the unnecessary debt.
3. What's up with email Christofferson sent to Thurston. I don't really want to read into it to much, you can see why. It is #246c on the document. Here it is: "We are so excited about this. I cant wait until we can make everything public. I would say that I am excited to have you as a partner, but it seems like the last few years we have already been partners." That is wacky. Not sure if "partner" was the best choice of word in this context. If I was Chad Christofferson, and most would agree, I would have stopped everything after the last comma. If he wanted to get the point across, say something about being neighbors, but to say "it seems like the last few years we have already been partners"? That's weird. I bet he never thought that would go public.
   
4. Speaking of neighbors, I doubt that relationship was smooth and happy over the past few months. Things like this don't just rebound overnight. Besides, what is a $450 million lawsuit between friends, neighbors, and church members? However, It looks like Thurston's home is now up for sale for $850k. Keyes home is not.
   
5. It's also nice when Firstline says, "Do not let the decisions that a few companies made to force Firstline into chapter 11 control your happiness. You control your own destiny!!" How thoughtful. I'm sure it wasn't the destiny or goal of the people working there to not get their backend checks. I'm sure they worked really hard for those, and thought they were in control. Take ownership Firstline.
   
6. IF the lawsuit is successful, I think it should be enough to get them out of bankruptcy.
   
7. Maybe this is Karma coming back for a visit from all of the homeowners that got hoodwinked into contracts and couldn't get out. Who knows?
   

Good times for Firstline and Pinnacle. If that would have gone through, they could have been a powerhouse together. Couldn't close the deal though. Good luck next time.



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If you have an hour, read the whole lawsuit/complaint here.

Firstline vs Pinnacle - Upload a Document to Scribd

Read this document on Scribd: Firstline vs Pinnacle

Here is the letter from Firstline Security to it's contractors.

Firstline -- Letter To Contractors - Upload a Document to Scribd

Read this document on Scribd: Firstline -- Letter To Contractors