The two-and-a-half-year-old struggle between Navellier Investment Management of Reno, Nev. and two former independent fund directors is once again heating up with lawsuits being filed by both sides. Navellier has filed a new lawsuit against one former fund trustee who has reciprocated with his own lawsuit. A second former trustee is contemplating filing a similar lawsuit.

The most recent round of lawsuits began on Sept. 17 when Navellier Management and Louis Navellier, the firm's founder, filed a lawsuit against former Navellier fund independent trustee Kenneth Sletten. The suit was filed in California superior court in San Mateo county. This is the second lawsuit Navellier has filed in two years naming Sletten, a resident of Woodside, Calif., as a defendant.

The recent lawsuit alleges that Sletten committed fraud and breached his July 1997 agreement to release Navellier and his firm from all current and future claims. It also alleges that Sletten was secretly not in accord with the agreement and misrepresented who his attorney was. The suit seeks $1 million in punitive damages. Navellier's attorney was not available for comment.

The agreement to hold both Navellier and its founder harmless from all claims was made when Navellier was reappointed as adviser to the Navellier Series Trust Aggressive Small Cap Fund in July 1997, four months after the fund's management agreement was allowed to expire by the fund's independent trustees. According to the lawsuit, the agreement was conditional upon the return of Navellier Investment Management as the adviser to the fund and offered by the independent trustees as an inducement.

In March 1997, Sletten along with Don Simon and another independent trustee, voted to allow the advisory contract between Navellier and the fund to lapse on the grounds that Navellier had repeatedly refused to provide them with information necessary for carrying out their jobs as independent fund trustees.

One month later, Navellier filed suit against the independent trustees. Navellier alleged breach of contract and economic hardship to fund investors as a result of what Navellier believed was a wrongful termination. That lawsuit was decided in favor of the trustees in July in a landmark decision that added support to independent directors' rights to stand up to management.

At the time, the fund's trustees hired MFS of Boston to replace Navellier and assume the advisory role for the fund. But fund shareholders subsequently voted against the appointment of MFS as the successor and the trustees rehired Navellier on July 14, 1997 to manage the fund.

On Nov. 10, in response to Navellier's suit, Sletten filed a suit in U.S. District Court for the Northern District of California. The lawsuit names the $33 million Navellier Performance Fund's Aggressive Small Cap Portfolio, the fund into which the original Navellier small cap fund was merged in June 1998. The suit demands that the successor fund's indemnification provision, which normally protects a mutual fund's officers, employees, agents and trustees, be applied to Sletten's performance as a fund trustee between May 15, 1993 and July 14, 1997, even though he actually served as trustee of the former fund.

But that indemnification protection has been a bone of contention between the two camps. Navellier has maintained that the fund into which the original fund was merged bears no responsibility for indemnifying any of the former trustees, including Sletten.

"Under most fund charters, there are provisions for indemnification," said David Sturms, partner with Vedder, Price, Kaufman & Kammholz in Chicago. That indemnification provides for the payment of claims against the fund. It also exists to protect directors, assuming they do not engage in any disabling actions. But this fund was reorganized, said Sturms. "(Navellier) will argue that this is a liability of the old fund."

Sletten's November lawsuit was filed only after a letter, dated Aug. 23, demanding payment, was sent to Navellier's attorney, Sam Kornhauser of San Francisco, Calif. The letter, filed by Sletten's attorney, Ralph Alldredge of Legal Strategies Group in Emeryville, Calif., demanded reimbursement from the successor Navellier fund of nearly $1.3 million. That amount represented the legal fees already incurred by Sletten in defending himself in the original lawsuit brought by Navellier.

The letter also demanded payment of at least an additional $200,000 in legal fees Sletten is likely to incur in the future in conjunction with Navellier's filing of an appeal of the July 1999 court decision. According to Sletten's account, in April 1997, the fund had promised to make advance payments to him for attorneys fees and the costs incurred in his defense. But, Navellier had not followed through with the agreed to reimbursement, according to the complaint.

Also on Nov. 10, Gregory Lippetz, attorney at Brobeck Phleger & Harrison in San Francisco, sent a similar letter to the Navellier Performance Fund's Aggressive Small Cap Portfolio on behalf of Don Simon. Simon is the other independent trustee who prevailed in Navellier's breach of contract lawsuit.

Simon is requesting reimbursement of $2.5 million, an amount that represents the legal fees he incurred in defending himself against the Navellier suit. Simon is also demanding an advance for the fees likely to be incurred with Navellier's appeal of the July court's decision. That appeal could, however, spell a reversal of fortunes for the former trustees. If Navellier is successful in his appeal, the trustees would be required to repay all of the legal fees for which they are now seeking recovery.

A decision whether to follow the Simon demand letter with a lawsuit similar to Sletten's is forthcoming, said Lippetz.

"The independent directors may have won, but it cost them a lot along the way," said Alldredge, Sletten's attorney.

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