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Note 14 - Legal Proceedings | 12 Months Ended
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Dec. 31, 2021
Notes to Financial Statements |
Legal Matters and Contingencies [Text Block] | Note 14. Legal Proceedings Vaden Landers On January 19, 2021, we initiated a lawsuit in Bexar County, Texas against our former Chief Revenue Officer, Vaden Landers. In the lawsuit, which is styled: Usio, Inc. v. Vaden Landers, Cause No. 2021CI01069, 407th Judicial District Court, Bexar County, Texas, we allege that Mr. Landers violated the provisions of his employment agreement dated September 1, 2017 - specifically his non-compete obligations. The state court lawsuit only seeks injunctive relief against Landers. We also instituted an action before the American Arbitration Association on February 2, 2021. Mr. Landers initially refused to participate in the arbitration proceeding. After hearings in Bexar County state court proceeding, all of the parties' claims, excluding Mr. Lander's claims for defamation and tortious interference with contract, were ordered to be heard by the American Arbitration Association. We deny Mr. Landers’ allegations and do not believe that his counterclaims have any merit. On or about April 27, 2021, Mr. Landers filed his answering statement and counterclaim against us in the arbitration proceeding. Therein, Mr. Landers alleged a variety of defenses to our claim that Landers violated the non-compete provisions of his employment agreement. Mr. Landers also asserted a counterclaim for a declaratory judgment finding the non-compete provisions are unenforceable. Mr. Landers further alleged that we breached the terms of his employment agreement because Mr. Landers' resignation was for good reason thus entitling Mr. Landers to deferred compensation. We deny Mr. Landers' allegations. Through our investigation, we have learned that Mr. Landers committed other violations of his employment agreement and we intend to pursue those claims in arbitration. Both the state court litigation and the arbitration are in their initial stages. We have obtained certain documents from Mr. Landers in the state court proceeding. In the arbitration, the parties have both submitted motions to the arbitration panel on the initial legal question of whether the non-compete is enforceable. On September 16, 2021, the arbitration panel ruled the non-competition provisions in Mr. Landers' employment agreement were enforceable. The panel reserved ruling on the scope of the restrictions contained therein pending discovery. The arbitration panel held that the non-compete provisions need to be reformed to more specifically set forth the competition restrictions applicable to Mr. Landers. On February 7, 2022, we and Mr. Landers, resolved the state court litigation pending in San Antonio, Bexar County, Texas and the separate litigation pending before the American Arbitration Association, both of which related to certain conduct by Mr. Landers both prior to and after his resignation. Pursuant to the settlement agreement, Landers paid us $13,742.50, which represents one-half of our costs incurred in the arbitration proceedings. In exchange for this payment, both parties dismissed their respective claims with prejudice without the admission of any liability. KDHM, LLC On September 1, 2021, KDHM, LLC sued PDS Acquisition Corp, now known as Usio Output Solutions, Inc., claiming a breach of the asset purchase agreement executed by the parties on December 14, 2020. The lawsuit alleges that due to a mistake, accident, or inadvertence, certain customer deposits in the amount of $317,000 were improperly transferred to us. We believe that plaintiff's claims in the lawsuit have no merit and contradict the express terms of the asset purchase agreement. As a result of this post sale dispute, we discovered that KDHM, LLC, and its principals, made certain misrepresentations and breached the terms of the asset purchase agreement. On September 28, 2021, we filed an answer generally denying plaintiff’s allegations. On October 5, 2021, we filed a counterclaim and third-party petition. Therein, we allege that neither KDHM nor its principals disclosed that KDHM was not accounting for the customer deposits in accordance with Generally Accepted Accounting Principles. Yet, KDHM, and third-party defendants its principals Henry Minten and Thomas Dowe, affirmatively represented and warranted in section 3.1(e) of the agreement that “[t]Annual Financial Statements and the Interim Financial Statements have been prepared from the books and records of Seller in accordance with GAAP applied on a consistent basis.” We also discovered that KDHM by and through its principals failed to disclose that $305,000 in additional customer deposits existed and these deposits were not conveyed to us as required by the agreement. KDHM, Minten and Dowe provided us with fraudulent and misleading profit and loss statements that did not disclose these additional customer deposits. KDHM and the defendants do not dispute that these additional customer deposits exist and that they were purchased by Usio. However, despite a written representation that these funds would be returned, KDHM and its principal have held these funds hostage. Section 2.1(b)(x) of the agreement provides that the purchased assets includes “All of Seller’s deposits from its customer, including without limitation, those customer deposits listed on Schedule 2.1(b)(xi) of the Disclosure Schedules.” Finally, we discovered that KDHM did not provide us with all customer lists, which are identified as purchased asset under the agreement. We demanded the missing customer lists, but they have yet to be provided to us per the agreement. In our counterclaims and third-party petition, we assert causes of action for fraud, breach of contract and conversion. At this time, the parties are engaging in written discovery and working on scheduling the depositions of the parties. We consider the risk of loss as remote related to this lawsuit. Aside from these proceedings above, the Company may be involved in legal matters arising in the ordinary course of business from time to time. While we believe that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which we are or could become involved in litigation will not have a material adverse effect on our business, financial condition or results of operations.

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