drew dillworth sues martelly/lamothe/baker's lawyer ricardo bajandas for professional...

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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA

MIAMI DIVISION www.flsb.uscourts.gov

In re: JCT FINANCIAL, LLC, CASE NO. 10-30952 BKC-AJC Debtor. CHAPTER 7 ____________________________/ DREW M. DILLWORTH, as the Chapter 7 Trustee for the estate of JCT FINANCIAL, LLC, Plaintiff, ADV. NO. 12-01803-BKC-AJC vs. JOSEPH A. UMBACH, PAUL CATOGGIO, JCT-GRENADA FUNDING, LLC, GRENADA FUND, LLC, CESAR M. ROMAN, JUAN-RICARDO SCHMIDT, JCT-HOLDINGS, LLC, RICARDO BAJANDAS, and VILLANUEVA & BAJANDAS, LLP a/k/a VILLANUEVA, BAJANDAS & LIEBGOTT, LLP a/k/a VILLANUEVA, BAJANDAS & FITZGERALD, LLC, Defendants. ____________________________/

AMENDED COMPLAINT Plaintiff, Drew M. Dillworth (“Plaintiff” or “Dillworth”) as the duly appointed Chapter 7

Trustee (“Trustee”) of the estate of JCT Financial, LLC (“Debtor” or “JCT”), sues Defendants,

Joseph A. Umbach (“Umbach”), Paul Catoggio (“Catoggio”) JCT-Grenada Funding, LLC

(“Funding”), Grenada Fund, LLC (“GF”), Cesar M. Roman (“Roman”), Juan-Ricardo Schmidt

Case 12-01803-AJC Doc 12 Filed 08/16/12 of 35

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(“Schmidt”), JCT-Holdings, LLC (“JCT-H”), Ricardo Bajandas (“Bajandas”) and Villanueva &

Bajandas, LLP a/k/a Villanueva, Bajandas & Liebgott, LLP a/k/a Villanueva, Bajandas &

Fitzgerald, LLC (“V&B”), and states:

Jurisdiction and Parties

1. This adversary proceeding is brought pursuant to 11 U.S.C. §§ 542, 544(b), 547,

548, and 550, and Fed.R.Bankr.P. 7001, and is a core proceeding under 28 U.S.C. § 157 (b)(2)

(A), (E), (F), (H), and (O), except that Counts 1 through 7, and Counts 24 through 25, are non-

core. This Court has subject matter jurisdiction under 28 U.S.C. §1334(b).

2. Venue is proper pursuant to 28 U.S.C. §1409.

3. An involuntary petition (“Petition”) for relief under Chapter 7 of the United States

Bankruptcy Code was filed against JCT on July 22, 2010.

4. On August 18, 2010, an Order for Relief was entered against JCT.

5. On August 18, 2010, the United States Trustee appointed Plaintiff, Dillworth, as

Chapter 7 Trustee of JCT’s estate.

6. JCT’s financial statements reflect that, at the beginning of 2009, it had assets in

excess of $11 million.

7. JCT’s financial statements further reflect that it was insolvent at all times from at

least December 31, 2007 through the Petition date.

8. JCT’s sworn bankruptcy schedules (ECF No. 10 in the main case) reflect that, on

the Petition date of July 22, 2010, JCT had total assets of $191.39, against liabilities of

$3,813,994.98.


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9. According to the Claims Register, claims filed in this Case to date exceed $12

million.

10. Umbach is a resident of Palm Beach County, Florida. Umbach is the managing

member of Joe’s Financial, LLC n/k/a Umbach Financial Group, LLC (“UFG”), a Florida limited

liability company. Umbach controls 100% of Umbach Enterprises, LLC n/k/a Rockford Financial

Fund, LLC (“RFF”), a Florida limited liability company, by virtue of UFG’s status as RFF’s

managing member. RFF, in turn, owns and controls 100% of defendant Funding, as its managing

member. Accordingly, Umbach indirectly controls Funding through the foregoing chain of

entities in which he holds, directly or indirectly, a 100% controlling interest.

11. Funding is a Delaware limited liability company created by Umbach in 2006 to serve

as a lending vehicle for the Debtor.

12. GF is a Delaware limited liability company whose managing member is UFG. GF is

controlled by Umbach through UFG, and was created by Umbach in 2006 to serve as a 33.33%

owner and managing member of the Debtor.

13. GF originally was intended by Umbach to serve as the lending vehicle for the

Debtor, but was replaced by Funding in practice.

14. Catoggio is a resident of Palm Beach County, Florida. Catoggio is Umbach’s son-

in-law. After 22 years with Ernst & Young, including serving in Ernst & Young’s New York

office as an Executive Director, Catoggio joined Umbach’s operations in October 2007 as a

director of UFG, RFF, Funding, and GF.


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15. Roman is a resident of Miami-Dade County, Florida. Roman is a 50% owner and

managing member of defendant JCT-H, and a manager of the Debtor. Roman also was the

President of the Debtor.

16. Schmidt is a resident of Miami-Dade County, Florida. Schmidt is a 50% owner

and managing member of JCT-H, and a manager of the Debtor. Schmidt also was the Chief

Financial Officer of the Debtor.

17. JCT-H is a Florida limited liability company, and a majority owner and managing

member of the Debtor.

18. Bajandas is a member of the Florida Bar and at all relevant times has been practicing

law in south Florida.

19. V&B was at all relevant times doing business as a south Florida law firm.

20. Bajandas was at all relevant times a member of V&B.

21. Bajandas, through V&B, served as corporate counsel to JCT at all relevant times

from the inception of JCT through the filing of the involuntary petition against JCT.

22. Pursuant to Fed.R.Bankr.P. 7020 and Local Rule 7003-1(D), joinder of

Defendants as parties in this adversary proceeding is appropriate because the acts of Defendants

giving rise to liability under the various counts of this Complaint arise from a common nucleus of

operative facts, and from the same transactions and occurrences, or series of transactions and

occurrences, and present common and related issues of law and fact.

23. All conditions precedent to bringing the causes of action asserted herein have been

performed, have occurred, or have been waived.


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JCT and Its Factoring Business

24. JCT was formed in 2005 by Roman and Schmidt. At JCT’s inception, Roman and

Schmidt were its managing members and, together, owned a majority interest in the company.

25. At all relevant times, JCT engaged in the business of factoring accounts receivable

for foreign commercial clients.

26. JCT’s sources of capital consisted of (i) capital contributions by its owners; (ii)

loans from banks; (iii) a line of credit from Funding; and (iv) loans documented by JCT’s issuance

of promissory notes to mostly foreign miscellaneous individuals and entities whom JCT referred

to as “investors” or “junior investors.” 1

2006: GF Becomes a Member of JCT; GF’s Affiliate, Funding, Becomes its Senior Secured

Lender

27. In or about May 2006, JCT began negotiating with Umbach for a line of credit

and/or equity contribution to be provided by Umbach or an entity controlled by him.

28. Umbach agreed to provide financing for JCT, on the condition that he also acquire

an equity participation in JCT.

29. In September 2006, JCT’s capital structure was reorganized pursuant to an

Amended and Restated Operating Agreement, a copy of which is attached as Exhibit A.

30. Following the reorganization, GF - an “insider” and “affiliate” (as defined in 11

U.S.C. § 101) of Funding - owned a 33.33% equity interest in JCT. Roman’s and Schmidt’s

1 Consistent with the nomenclature used by the parties at all relevant times, this Complaint sometimes will refer to these outside parties as “investors,” although, in fact, they were lenders and creditors of JCT. Investor loans were evidenced by promissory notes supposedly “secured” by endorsements of credit insurance policies.


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interests in JCT were transferred to JCT-H, a new entity created by Roman and Schmidt in which

each of Roman and Schmidt ultimately owned a 50% interest.

31. Roman and Schmidt also were the managing members of JCT-H.

32. Umbach was the sole member of UFG, and UFG, in turn, was the sole member of

GF.

33. Under the Amended and Restated Operating Agreement, GF enjoyed enhanced

protections of its minority equity interest, including provisions requiring “supermajority” approval

of certain transactions.

34. On September 27, 2006, at the same time that GF acquired its equity interest in

JCT, Funding and JCT also entered into a Credit and Security Agreement. An incomplete copy of

the Credit and Security Agreement is attached as Exhibit B. (Plaintiff will seek a complete copy of

the Credit and Security Agreement in discovery.)

35. Under the Credit and Security Agreement, Funding agreed to extend a revolving,

five-million dollar line of credit to JCT, secured by a blanket first interest in all of JCT’s assets,

including all of its accounts receivable and all of its interest in its credit insurance policies

(discussed below).

36. JCT agreed to these terms, notwithstanding the fact that Roman, JCT’s President,

had questioned whether the grant of a senior blanket lien to Funding was fair to JCT’s existing

investors.

37. Moreover, in negotiating the terms of the Credit and Security Agreement, the

parties deleted a provision ---- ¶ 6.30 — that would have required JCT to obtain and purchase


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fidelity insurance. (In order to acquire effective fidelity insurance, it would have been necessary

for JCT to truthfully disclose - contrary to representations it routinely made to its investors – (i)

that the investor loans were not secured, by, or protected by loss payee status under, JCT’s credit

insurance policy and (ii) that, JCT had in fact now pledged all of its interest in the policy and its

proceeds to Funding) .

The Credit Insurance Policies

38. JCT originally obtained its credit insurance from National Union Fire Insurance

Company on the accounts receivable that it was factoring.

39. Commencing in 2007, JCT began purchasing such credit insurance from EULER

Hermes American Credit Indemnity Company (“Euler”).

40. On October 1, 2007, JCT obtained an endorsement on a $4 million Multi-Markets

Business Credit Insurance Policy issued by Euler (Policy No. 41095453) identifying JCT’s Miami

law firm, V&B, as JCT’s “Bank/Lender” and as loss payee on the policy.

41. In fact, V&B never served as a bank or lender to JCT.

42. By 2010, JCT’s Euler coverage had increased to $6 million but, despite obtaining

such expensive credit insurance, and despite suffering extensive credit losses exceeding $4.7

million, as detailed herein, JCT never made any significant claim against Euler under the credit

insurance policies.


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False Representations to Investors

43. Notwithstanding its credit line from Funding, JCT continued to borrow money on

an unsecured basis from numerous investors (including, without, limitation, Thomas Cordero

Araujo and/or Veronica Cordero, Jamie Cordero Arajo and/or Rita Almedia, Oswaldo Munoz

and/or Lopez de Munoz, Fausto H. Sanchez, Emilio Ginatta Higgins, Hector San Andres

Pesantez, Artemio Valencia Delgado, Gilmore Development, Inc., Coysburg Investments, S.A.,

Gemstar International, Inc., Jamie Perez Azua, Kenia Cobe a de Cevallos, and Mauricio Ceballos

or Alicia de Ceballos).

44. JCT falsely represented to investors that the accounts receivable JCT would

purchase with the monies from the investors would be covered by credit insurance, and that the

investors would be named as loss payees as to said receivables.

45. For example, a representative promotional memo from JCT to one investor stated,

in relevant part:

Although we take a reduced risk with the companies that buy our customers’ products, JCT insures that credit risk with an insurance policy issued by Euler Hermes ACI, which is the biggest insurance company in the world (certified with AA, by Standard & Poor’s and by AM Best). All accounts receivable are 100% secured by JCT against bankruptcy, insolvency and default. ... The investor as a warranty receives the endorsement of the insurance policy mentioned before. That policy is expressly identified on a promissory note which is given to the investor as confirmation of this warranty. The promissory note bears an attachment consisting of a certificate from the trustee of the policy, Villanueva, Bajandas & Liebegott, LC [sic], who names the investor as the beneficiary of the trust up to the amount that is owed. ... All JCT’s financial activity is backed up by the insurance mentioned supra.

(Rough translation from Spanish to English).


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46. A representative letter from Bajandas on V&B letterhead, to an investor is

attached as Exhibit C. The letter states, in relevant part:

This letter confirms that of the Policy face amount of $4,000,000.00 the amount of $300,000.00 has, by written instruction of JCT, as long as the Policy remains in effect, been endorsed in favor of you.

47. A representative promissory note from JCT is attached as Exhibit D. The note

states, in relevant part:

This Note ... is secured by Policy of Credit Insurance, Policy No. 4058618 issued by EULER Hermes American Credit Indemnity Co. ... which secures the factoring of accounts receivable of borrower’s clients duly endorsed to the order of Lender as Loss Payee.

48. On October 16, 2008, Bajandas — after months of issuing loss payee confirmation

letters to investors on JCT’s behalf — abruptly requested that, before requesting that V&B issue

any further confirmation letters, JCT furnish him with a “complete AR receivable listing .... to

verify each receivable against the policy .. [as] this may be a bar violation if I don’t get some kind

of due diligence.”

49. At all relevant times beginning no later than 2008, JCT --- with the active

participation, knowledge, and encouragement of Schmidt, Roman, Umbach, and Catoggio ---

was borrowing funds, on an unsecured basis, from various outside investors; (i) without disclosing

that, in many cases, the underlying credit transaction being financed was not covered by credit

insurance, contrary to JCT’s representations; (ii) based on the false representation that the

individual loans obtained from the investors would be “secured” by the Euler credit insurance

policy; (iii) without disclosing that the receivables financed with investor funds would immediately

become subject to Funding’s blanket security interest; (iv) without disclosing that JCT’s interest


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in the Euler credit insurance policy and proceeds was itself subject to Funding’s blanket security

interest; and (v) without disclosing that JCT was encountering operational and cash flow

problems.

50. Indeed, at the very inception of Funding’s lending relationship with JCT, Roman,

Schmidt, and Umbach recognized, and acted on, a need to deceive JCT’s outside investors.

Funding’s original proposed UCC-1 financing statement had included, inter alia, a standard

collateral description including “[a]ll accounts now owned or existing or hereafter acquired.” See

attached Exhibit E. Roman expressly advised Schmidt and Umbach that such a filing would be

unacceptable to “…the rest of our investors” and stated “We cannot give you as collateral

receivables that have been funded by a third party.” See attached Exhibit F.

51. Nonetheless, JCT and Funding proceeded to do just that, although they artfully

redrafted the UCC-1 financing statement to make it appear - falsely - that Funding was obtaining

a security interest only in a discrete pool of receivables that it was itself financing. See attached

Exhibit G.

2008: JCT’s Financial Condition Deteriorates

52. In May 2008, Catoggio confirmed that Funding had increased JCT’s credit line to

$8 million.

53. In August 2008, Robert Tchatal (“Tchatal”), (another UFG employee), expressed

concern that the “recently negotiated 8 million line [had already been] exceeded [by JCT] by

almost $200,000.00.”

54. Shortly thereafter, Catoggio projected that Funding’s exposure on the line was


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approximately $8.9 million.

55. By September 2008, JCT and all of the Defendants knew that JCT was in dire

financial straits, and that its problems included non-payment and probable fraud by three

significant customers — Xynergia, Grupo Buena, and Iacex.

56. JCT’s loss exposure to Xynergia, Grupo Buena, and Iacex exceeded $4.7 million.

However, JCT did not advise the investors of this issue, and continued to borrow money from

outside investors even after JCT learned of this problem.

57. Moreover, the continued unsecured borrowings from outside investors simply

served to enable JCT to purchase new receivables that became part of Funding’s collateral base.

Funding Increases Its Control Over JCT in the Final Months

58. Funding began increasing its pressure on JCT, including a demand for a payment

schedule requiring weekly payments of at least $100,000.

59. On November 14, 2008, Roman advised Funding that all of JCT’s “liquidity” was

being remitted to Funding.

60. By this time, Umbach, Catoggio, and Funding were effectively controlling JCT’s

operations. All disbursements to outside investors had to be approved personally by Umbach,

who, together with Catoggio, received monthly or quarterly reports on the “junior investors” by

name and amount.

61. On July 2, 2009, in response to an e-mail from Catoggio questioning a $500,000

pay-down of JCT “short term investors,” Roman explained, “[W]hen we made demand to Estrada

there were 2 investors that found out and requested payment of their investments. This was done


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prior to our commitment with you, in order to avoid a big problem with the rest, as you know

rumors can damage a company. We WILL NOT redeem any other junior investors as agreed.”

62. On July 7, 2009, JCT entered into a Forbearance Agreement with Funding. An

unsigned copy of this agreement is attached as Exhibit H. Plaintiff will seek a signed copy in

discovery.

63. Just one month earlier, in June 2009, JCT also obtained loans in excess of

$600,000 from a foreign creditor, Westwood Capital Markets (“Westwood”), based upon the

misrepresentation that JCT could, and would, collateralize these obligations. See Westwood

Proof of Claim No. 4-1 (copy attached as Exhibit I).

64. Umbach, exercising his control over JCT, refused to allow JCT to honor its

collateralization commitment to Westwood, or to return Westwood’s $600,000.

65. Indeed, on July 23, 2009, Catoggio complained that JCT was still making interest

payments to investors.

66. Subsequently, on July 29, 2009, Umbach approved JCT’s July interest payments to

investors to keep the investors placated.

67. On August 27, 2009, Catoggio sent an e-mail to Roman suggesting a “servicing

arrangement” under which, inter alia, all of JCT’s bank account balances and client accounts

would be transferred to Funding, and Funding would receive a right of first refusal on any new

business opportunities generated by JCT-H. Catoggio warned that failing a “firm proposal” in

this regard, Funding would require a meeting on September 1 “…to effectuate the transfer of

assets [of JCT] to [Funding].”


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68. Roman advised Westwood, that this August 27, 2009 proposal “…e-mail of

Umbach (Paul Catoggio)” was “fraudulento y descarado” (i.e., “fraudulent and brazen-faced”).

69. On August 28, 2009, Bajandas wrote to Roman and Schmidt anticipating litigation

and warning that investor funds should not be used to support operations.

70. On September 17, 2009, Funding and JCT entered into a “Stipulation Agreement.”

(Plaintiff will seek a copy of this Stipulation Agreement in discovery.)

71. On November 19, 2009, JCT entered into a Second Forbearance Agreement with

Funding, a copy of which is attached as Exhibit J.

72. On November 19, 2009, JCT also entered into a “Peaceful Possession Agreement”

with Funding, a copy of which is attached as Exhibit K.

73. On April 14, 2010, JCT sent an e-mail to its creditors advising them that Funding

“…has taken possession of all assets of the company.”

The Consent Judgment and Consent Receivables Transfer

74. On April 27, 2010, Funding obtained a Consent Final Judgment (the “Consent

Judgment”) in state court against JCT for $4,142,171.84 and for immediate possession of the

“Collateral.” A copy of this judgment is attached as Exhibit L.

75. Pursuant to the Consent Judgment on April 27, 2010, JCT transferred property

(the “Consent Receivables Transfer”) consisting of more than $6.8 million in accounts receivable

and other collateral to Funding. An itemization of the accounts receivable transferred appears on

the attached Exhibit M.


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Roman and Schmidt Covertly Assist Umbach in Depleting JCT’s Assets

76. On information and belief, Roman and Schmidt continued, post-petition, to enjoy a

beneficial financial relationship with Umbach, Catoggio, Funding, and/or one or more entities

controlled by Umbach.

77. By April 2010, JCT was in wind-down mode. By this time, Funding was actively

factoring receivables itself, and soliciting transactions from JCT’s customers, with the active

assistance of Roman and Schmidt.

78. Funding instructed its employees to cease communicating with JCT through

Roman’s and Schmidt’s respective JCT e-mail addresses, and directed Roman and Schmidt to

supply non-JCT related e-mail addresses for future communications with Funding.”

79. Roman and Schmidt attempted to conceal the fact that they were assisting

Funding in undermining JCT, by conducting these activities through a new company, Marcyn

Holdings, LLC, a Florida limited liability company, that had been formed in April, 2010 by their

respective wives — Marcia Roman and Cynthia Constain.

Count 1

(Breach of Fiduciary Duties – Roman and Schmidt)

80. Plaintiff realleges the allegations of paragraphs 1 through 79 and incorporates

those allegations by reference.

81. As officers and managers of JCT, Roman and Schmidt (the “Managers”) owed

fiduciary duties to JCT of loyalty and care, pursuant to § 608.4225(1), Fla. Stat.

82. By their actions and inactions as described herein, the Managers breached their


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duties of loyalty and care to JCT, which required that they, inter alia, conduct JCT's business and

affairs with due care, base material decisions on adequate information and deliberation, place the

interests of JCT, and once insolvent, its creditors, ahead of their own self-interests or personal

considerations, and act in good faith.

83. The Managers breached their fiduciary duties and legal obligations to JCT and,

upon JCT’s insolvency, to JCT's creditors, by, inter alia:

(a) Causing JCT to borrow money from investors under false pretenses, knowing that the proceeds of such loans would increase Funding’s collateral, but would otherwise confer no benefit on JCT or its unsecured creditors;

(b) Allowing Funding, Umbach and Catoggio to dictate operational decisions

of JCT, including which customers’ receivables could be purchased, and how company funds could be spent.

(c) During the one-year period preceding the petition date, as it became clearer

that the Debtor was in dire financial straits, acting in their own personal interests, and contrary to the Debtor’s interests, by cooperating in transactions that favored Funding and Umbach at the expense of other creditors, with the hope and expectation that Umbach would provide them with employment, business, or other financial benefits after the dissolution of the Debtor; and

(d) Failing to assert claims under JCT’s credit insurance policy.

For example, in a March 25, 2010 e-mail, Roman noted to JCT’s attorney that:

I am concerned about the servicing proposal Umbach has sent us, as it may be taken by the investors as part of the agreement that we have with Umbach, as we will continue to work the “good portfolio” in a different company.

84. The Managers’ wrongful conduct constituted a breach of their fiduciary duties of

care, loyalty, and good faith owed to JCT, and when it became insolvent, its creditors.


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85. The Managers’ wrongful conduct exhibited a conscious disregard for the best

interests of JCT, and/or willful misconduct.

86. As a result of the aforementioned breaches of duties, JCT was substantially

damaged.

WHEREFORE, Plaintiff demands judgment in his favor and against Roman and Schmidt,

jointly and severally, for (i) damages, including punitive damages (ii) allowable pre-judgment and

post-judgment interest, (iii) allowable attorneys' fees and costs, and (iv) other and further just and

proper relief.

Count 2

(Aiding and Abetting Roman’s and Schmidt’s Breach of Fiduciary Duty –Umbach)

87. Plaintiff adopts and realleges paragraphs 1 through 79, and 81 through 86, above.

88. Umbach knew of the fiduciary duties that the Managers had to JCT, and knew that

the Managers were breaching their fiduciary duties, as described above.

89. Umbach knowingly, intentionally, and substantially assisted the Managers in their

breach of fiduciary duty, resulting in significant damage to JCT.

WHEREFORE, Plaintiff demands judgment in his favor and against Umbach for (i)

damages, including punitive damages, (ii) allowable pre-judgment and post-judgment interest, (iii)

allowable attorneys' fees and costs, and (iv) other and further just and proper relief.

Count 3

(Aiding and Abetting Roman’s and Schmidt’s Breach of Fiduciary Duty - Catoggio)

90. Plaintiff adopts and realleges paragraphs 1 through 79, and 81 through 86, above.


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91. Catoggio knew of the fiduciary duties the Managers had to JCT, and from on or

about October 2007 forward, knew that the Managers were breaching their fiduciary duties as

described above.

92. Catoggio knowingly, intentionally, and substantially assisted the Managers in their

breach of fiduciary duty, resulting in significant damage to JCT.

WHEREFORE, Plaintiff demands judgment against Catoggio for (i) damages, including

punitive damages, (ii) allowable pre-judgment and post-judgment interest, (iii) allowable

attorneys’ fees and costs, and (iv) other and further just and proper relief.

Count 4

(Breach of Fiduciary Duties – Umbach and Catoggio)



94. At all relevant times, JCT relied upon its special relationship with Funding and its

controlling principals, Umbach and Catoggio, who exercised actual and de facto control and

dominance over JCT, its finances, and its business operations.

95. Accordingly, Umbach and Catoggio owed fiduciary duties to JCT and its

creditors.

96. Umbach and Catoggio breached their fiduciary duties, which required that they,

inter alia, place the interests of JCT, and once insolvent, its creditors, ahead of their own self-

interests or personal considerations, and act in good faith.


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97. Umbach and Catoggio breached their fiduciary duties and legal obligations to

JCT and, upon JCT’s insolvency, to JCT's creditors, by, inter alia:

(a) Permitting JCT to borrow money from investors under false pretenses, knowing that the proceeds of such loans would increase Funding’s collateral, but would otherwise confer no benefit on JCT or its unsecured creditors; and

(b) During the one-year period preceding the petition date, as it became clearer

that JCT was in dire financial straits, acting in their own personal interests, and contrary to JCT’s interests, by cooperating in transactions that favored Funding and Umbach at the expense of other creditors.

98. Umbach’s and Catoggio’s wrongful conduct exhibited a conscious disregard for

the best interests of JCT, and/or willful misconduct.


damaged.

WHEREFORE, Plaintiff demands judgment in his favor and against Umbach and

Catoggio, jointly and severally, for (i) damages, including punitive damages (ii) allowable pre-

judgment and post-judgment interest, (iii) allowable attorneys' fees and costs, and (iv) other and

further just and proper relief.

Count 5

(Breach of Fiduciary Duty – Funding)



101. By virtue of the virtually total control that it exerted over JCT, Funding stood in a

special relationship of confidence and trust with JCT. As such, Funding owed fiduciary duties to


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JCT.

102. Indeed, as stated in an October 29, 2008 e-mail from Catoggio to Roman and

Schmidt, Funding viewed JCT “first and foremost as a partner in this venture and only secondarily

as a lender.”

103. Funding breached its fiduciary duties to JCT and, upon JCT’s insolvency, to JCT's

creditors, by, inter alia:

(a) Causing JCT to borrow money from investors under false pretenses, knowing that the proceeds of such loans would increase Funding’s collateral, but would otherwise confer no benefit on JCT or its unsecured creditors; and

(b) Self-dealing and acting in its own interests, and contrary to the Debtor’s

interests, by cooperating in transactions that favored Funding and Umbach at the expense of other creditors.

104. Funding’s wrongful conduct exhibited a conscious disregard for the best interests

of JCT, and/or willful misconduct.


damaged.

WHEREFORE, Plaintiff demands judgment in his favor and against Funding for (i)

damages, including punitive damages (ii) allowable pre-judgment and post-judgment interest, (iii)


Count 6

(Aiding and Abetting Funding’s Breach of Fiduciary Duty –Umbach)

106. Plaintiff adopts and realleges paragraphs 1 through 79, and 101 through 105,

above.


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107. Umbach knew of the fiduciary duties that Funding had to JCT, and knew that

Funding was breaching its fiduciary duties, as described above.

108. Umbach knowingly, intentionally, and substantially assisted Funding in its breach

of fiduciary duty, resulting in significant damage to JCT.

WHEREFORE, Plaintiff demands judgment in his favor and against Umbach for (i)

damages, including punitive damages, (ii) allowable pre-judgment and post-judgment interest, (iii)


Count 7

(Aiding and Abetting Funding’s Breach of Fiduciary Duty - Catoggio)


above.

110. Catoggio knew of the fiduciary duties that Funding had to JCT, and knew that

Funding was breaching its fiduciary duties, as described above.

111. Catoggio knowingly, intentionally, and substantially assisted Funding in its breach

of fiduciary duty, resulting in significant damage to JCT.

WHEREFORE, Plaintiff demands judgment against Catoggio for (i) damages, including

punitive damages, (ii) allowable pre-judgment and post-judgment interest, (iii) allowable

attorneys’ fees and costs, and (iv) other and further just and proper relief.

Count 8

Avoidance of Fraudulent Transfer – 11 U.S.C. §548(a)(1)(A)

(Consent Receivables Transfer)

112. Plaintiff adopts and realleges paragraphs 1 through 79 above.


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113. JCT made the Consent Receivables Transfer with actual intent to hinder, delay, or

defraud its creditors.

114. Pursuant to 11 U.S.C. § 548(a)(1)(A), Plaintiff is empowered to avoid the Consent

Receivables Transfer.

WHEREFORE, Plaintiff demands entry of judgment avoiding the Consent Receivables

Transfer, together with such other and further relief as this Court shall deem appropriate.

Count 9

Avoidance of Fraudulent Transfer – 11 U.S.C. §548(a)(1)(B)



116. JCT received less than a reasonably equivalent value in exchange for the Consent


117. At the time of the Consent Receivables Transfer, JCT was insolvent, or became

insolvent as a result of the Consent Receivables Transfer.

118. At the time of the Consent Receivables Transfer, JCT was engaged in a business

for which any property remaining with it was an unreasonably small capital.

119. Pursuant to 11 U.S.C. § 548(a)(1)(B), Plaintiff is empowered to avoid the Consent





22

Count 10

Avoidance of Fraudulent Transfer --11 U.S.C. §544(b) and §726.105(1)(a), Fla. Stat.



121. The Consent Receivables Transfer was a “transfer” of property of JCT within the

meaning of §726.102(12), Fla. Stat.

122. JCT made the Consent Receivables Transfer with actual intent to hinder, delay, or


123. The Consent Receivables Transfer is voidable under applicable law by at least one

creditor holding an unsecured claim that is allowable under 11 U.S.C. § 502 or that is not

allowable only under 11 U.S.C. § 502(e).

124. Pursuant to 11 U.S.C. § 544(b) and §726.108(1)(a), Fla. Stat., Plaintiff is

empowered to avoid the Consent Receivables Transfer .



Count 11

Avoidance of Fraudulent Transfer --11 U.S.C. §544(b) and §726.105(1)(b), Fla. Stat.



126. The Consent Receivables Transfer was a “transfer” of property of JCT within the

meaning of §726.102(12), Fla. Stat.

127. JCT did not receive a reasonably equivalent value for the Consent Receivables


23

Transfer.

128. At the time of the Consent Receivables Transfer, JCT (i) was engaged or was

about to engage in a business or a transaction for which its remaining assets were unreasonably

small in relation to the business or transaction; or (ii) intended to incur, or believed or reasonably

should have believed that it would incur, debts beyond its ability to pay as they became due.

129. The Consent Receivables Transfer is voidable under applicable law by at least one

creditor holding an unsecured claim that is allowable under 11 U.S.C. § 502 or that is not



empowered to avoid the Consent Receivables Transfer.


Transfer together with such other and further relief as this Court shall deem appropriate.

Count 12


(Two-Year Dividend Transfers)


132. Within two years of the Petition date, JCT made dividend payments (the “Two-

Year Dividend Transfers”) to JCT-H and GF. The attached Exhibit N identifies the Two-Year

Dividend Transfers.

133. JCT made the Two-Year Dividend Transfers with actual intent to hinder, delay, or


134. Pursuant to 11 U.S.C. § 548(a) (1) (A), Plaintiff is empowered to avoid the Two-


24

Year Dividend Transfers.

WHEREFORE, Plaintiff demands entry of judgment avoiding the Two-Year Dividend

Transfers, together with such other and further relief as this Court shall deem appropriate.

Count 13




above.

136. JCT received less than a reasonably equivalent value in exchange for the Two-Year

Dividend Transfers.

137. At the time of the Two-Year Dividend Transfers, JCT was insolvent, or became

insolvent as a result of the Two-Year Dividend Transfers.

138. At the time of the Two-Year Dividend Transfers, JCT was engaged in a business


139. Pursuant to 11 U.S.C. § 548(a)(1)(B), Plaintiff is empowered to avoid the Two-




Count 14





25

above.

141. Each of the Two-Year Dividend Transfers was a “transfer” of property of JCT

within the meaning of §726.102(12), Fla. Stat.

142. JCT made the Two-Year Dividend Transfers with actual intent to hinder, delay, or


143. The Two-Year Dividend Transfers are voidable under applicable law by at least

one creditor holding an unsecured claim that is allowable under 11 U.S.C. § 502 or that is not



empowered to avoid the Two-Year Dividend Transfers.



Count 15




above.

146. Each of the Two-Year Dividend Transfers was a “transfer” of property of JCT


147. JCT did not receive a reasonably equivalent value for the Two-Year Dividend

Transfers.

148. At the time of the Two-Year Dividend Transfers, JCT (i) was engaged or was


26




149. The Two-Year Dividend Transfers are voidable under applicable law by at least




empowered to avoid the Two-Year Dividend Transfers.


Transfers together with such other and further relief as this Court shall deem appropriate.

Count 16


(Four-Year Dividend Transfers)


152. Within four years of the Petition date, JCT made dividend payments (the “Four-

Year Dividend Transfers”) to JCT-H and GF. The attached Exhibit N identifies the Four-Year

Dividend Transfers.

153. JCT made the Four-Year Dividend Transfers with actual intent to hinder, delay, or


154. Pursuant to 11 U.S.C. § 548(a)(1)(A), Plaintiff is empowered to avoid the Four-


WHEREFORE, Plaintiff demands entry of judgment avoiding the Four-Year Dividend


27

Transfers , together with such other and further relief as this Court shall deem appropriate.

Count 17




above.

156. JCT received less than a reasonably equivalent value in exchange for the Four-


157. At the time of the Four-Year Dividend Transfers, JCT was insolvent, or became

insolvent as a result of the Four-Year Dividend Transfers.

158. At the time of the Four-Year Dividend Transfers, JCT was engaged in a business


159. Pursuant to 11 U.S.C. § 548(a)(1)(B), Plaintiff is empowered to avoid the Four-




Count 18




above.

161. Each of the Four-Year Dividend Transfers was a “transfer” of property of JCT


28


162. JCT made the Four-Year Dividend Transfers with actual intent to hinder, delay, or


163. The Four-Year Dividend Transfers are voidable under applicable law by at least




empowered to avoid the Four-Year Dividend Transfers.



Count 19




above.

166. Each of the Four-Year Dividend Transfers was a “transfer” of property of JCT


167. JCT did not receive a reasonably equivalent value for the Four-Year Dividend

Transfers.

168. At the time of the Four-Year Dividend Transfers, JCT (i) was engaged or was




29


169. The Four-Year Dividend Transfers are voidable under applicable law by at least




empowered to avoid the Four-Year Dividend Transfers.


Transfers together with such other and further relief as this Court shall deem appropriate.

Count 20

Avoidance of Preferential Transfers --11 U.S.C. §547(b)


172. At all relevant times, Funding was an “insider” of the Debtor.

173. Within one year of the petition date, the Debtor purchased new accounts

receivable (with funds borrowed on an unsecured basis from “investors”). Funding’s blanket lien

on the Debtor’s accounts attached to these new accounts and loan proceeds.

174. The attachment of Funding’s security interest to each of the new accounts and loan

proceeds acquired within one year of the petition date was a “transfer” of property of JCT (each a

“One-Year Transfer” and collectively the “One-Year Transfers”) within the meaning of the

Bankruptcy Code.

175. The One-Year Transfers comprise the attachment of Funding’s security interest to

the accounts and loan proceeds identified (in the “AR Invoices” and “AR Payments” columns,


30

respectively) on the attached Exhibit O.

176. The One-Year Transfers were made to or for the benefit of Funding, a creditor.

177. The One-Year Transfers were made on account of an antecedent debt owed by the

Debtor to Funding.

178. The One-Year Transfers were made while the Debtor was insolvent.

179. The One-Year Transfers enabled Funding to receive more than it would have

received in this Chapter 7 case if the transfers had not been made and Funding had received

payment of its antecedent debt to the extent provided by the provisions of Title 11, U.S. Code.

180. The One-Year Transfers, in the aggregate, caused a reduction, as of the date of the

filing of JCT’s petition and to the prejudice of other creditors holding unsecured claims, of the

amount by which the debt secured by Funding’s lien exceed the value of all security interests for

such debt one year before the filing of the petition.

181. Pursuant to 11 U.S.C. § 547(b), Plaintiff is empowered to avoid the One-Year

Transfers.

WHEREFORE, Plaintiff demands entry of judgment avoiding the One-Year Transfers

together with such other and further relief as this Court shall deem appropriate.

Count 21

Avoidance of Insider Preference --11 U.S.C. §544(b) and §726.106(2), Fla. Stat.


above.

183. Funding had reason to believe that the Debtor was insolvent, or was incurring


31

debts beyond its ability to pay as they became due, at the time of each of the One-Year Transfers.

184. JCT has creditors whose claims actually arose prior to the One-Year Transfers.

185. The One-Year Transfers are voidable under applicable law by at least one creditor

holding an unsecured claim that is allowable under 11 U.S.C. § 502 or that is not allowable only

under 11 U.S.C. § 502(e).

186. Pursuant to 11 U.S.C. § 544(b) and §726.106(2), Plaintiff is empowered to avoid

the One-Year Transfers.

WHEREFORE, Plaintiff demands entry of judgment avoiding the One-Year Transfers

together with such other and further relief as this Court shall deem appropriate.

Count 22

Recovery of Avoided Transfers --11 U.S.C. §550(a)


above.

188. Funding was the initial transferee of the Consent Receivables Transfer and of the

One-Year Transfers.

189. GF and JCT-H were initial transferees of the Two-Year Dividend Transfers and

the Four-Year Dividend Transfers.

190. Umbach was a subsequent transferee of the Consent Receivables Transfer, the

One-Year Transfers, the Two-Year Dividend Transfers, and the Four-Year Dividend Transfers.

191. Roman and Schmidt were subsequent transferees of the Two-Year Dividend

Transfers and the Four-Year Dividend Transfers.


32

192. To the extent that this Court avoids the Consent Receivables Transfer, the One-

Year Transfers, the Two-Year Dividend Transfers, and/or the Four-Year Dividend Transfers

(collectively, the “Avoidable Transfers”) pursuant to any or all of Counts 6 through 19 above,

Plaintiff is entitled to recover the value of said transfers, plus interest, from the transferees of

those respective transfers, as identified above, pursuant to 11 U.S.C. §550(a).

WHEREFORE, Plaintiff demands judgment against Defendants in the amount of the

respective Avoidable Transfers received by each, plus interest and costs, together with such other

and further relief as this Court shall deem appropriate.

Count 23

Objection to and/or Equitable Subordination of Claims --11 U.S.C. § 510(c)

193. Plaintiff adopts and realleges paragraphs 1 through 79, 101 through 105, and 188

through 192, above.

194. On January 18, 2011, Funding filed Proof of Claim 17-1, which appears to be

asserted as a secured claim in the amount of $2,907,594.01 (the "Funding Claim").

195. Plaintiff objects to the Funding Claim and/or seeks the equitable subordination of

the Funding Claim based upon the allegations and claims referenced above.

196. Funding engaged in inequitable conduct in assuming effective control of JCT, and

in knowingly allowing JCT to incur unsecured debt that would not be paid (and which Funding

would not allow to be paid) and that would only be used to purchase receivables to be added to,

or otherwise increase, Funding’s collateral pool.


33

197. Funding’s inequitable conduct injured creditors and gave unfair advantage to

Funding.

198. Equitable subordination of Funding’s claim is consistent with the Bankruptcy

Code.

199. In addition, pursuant to 11 U.S.C. § 502(d), no claim by Funding should be

allowed unless and until it has disgorged any transfers avoided herein.

200. Accordingly, the Court should exercise the full extent of its equitable powers to

disallow the Funding Claim, or, to the extent the Funding Claim or any part thereof is allowed, to

equitably subordinate such claim for distribution purposes pursuant to sections 510(c)(1) and

105(a) of the Bankruptcy Code.

WHEREFORE, the Trustee respectfully requests (i) that the Funding be disallowed

and/or, to the extent allowed, be subordinated in full, and (ii) such other and further relief as may

be just and proper.

Count 24

(Successor Liability - Funding)

201. Plaintiff adopts and realleges paragraphs 1 through 79, 101 through 105, and 188

through 192, above.

202. By virtue of the control that it asserted over JCT, and by virtue of the Consent

Receivables Transfer, Funding became a mere continuation of JCT.


34

203. By virtue of the control that it asserted over JCT, and by virtue of the Consent

Receivables Transfer, Funding engaged in a fraudulent effort by Funding to obtain the benefit of

JCT’s assets (including assets purchased with funds provided by JCT’s creditors) and to avoid the

liabilities of JCT.

204. As such, Funding is responsible for all of JCT’s unpaid obligations to its creditors.

WHEREFORE, the Trustee respectfully requests that this Court enter final judgment against

Funding in an amount equal to all outstanding creditor claims against JCT, plus interest, costs,

and attorneys’ fees and that it grant such other and further relief as may be just and proper.

Count 25

(Professional Negligence – Bajandas and V&B)

205. Plaintiff adopts and realleges the allegations of paragraphs 1 through 79, and 81

through 85, and incorporates those allegations by reference.

206. As corporate counsel employed by JCT, Bajandas and V&B owed a duty to JCT

to properly inform JCT of its true relationship with Funding, as well as JCT’s duties to its

creditors, including each of the “junior investors.”

207. Moreover, Bajandas and V&B owed a duty to JCT to properly advise JCT in

respect of the pursuit of credit insurance claims, and the wind-down of JCT’s business.

208. The negligent acts and omissions of Bajandas and V&B served to facilitate

Funding’s take-over of JCT’s business and assets, and was the proximate cause of, or


35

substantially contributed to, JCT’s present liability to the “junior investors” and its other creditors.

WHEREFORE, the Trustee respectfully requests that this Court enter final judgment

against Bajandas and V&B in an amount equal to all outstanding creditor claims against JCT, plus

interest, costs, and attorneys’ fees and that it grant such other and further relief as may be just and

proper.

WE HEREBY RESPECTIVELY CERTIFY that we are admitted to the Bar of the United States District Court for

the Southern District of Florida and are in compliance with the additional qualifications to practice in this court set forth in

Local Rule 2090-1(A). KOZYAK TROPIN & THROCKMORTON, P.A. Co-Counsel for Plaintiff 2525 Ponce de Leon, 9th Floor Coral Gables, Florida 33134 Tel: (305) 372-1800 By: /s/Charles W. Throckmorton Charles W. Throckmorton Florida Bar No. 286192 AND PAUL JOSEPH McMAHON, P.A. Co-Counsel for Plaintiff The Wiseheart Building 2840 S.W. Third Avenue Miami, Florida 33129 Tel: (305) 285-1222

By: /s/Paul J. McMahon Paul J. McMahon Florida Bar No. 204552

340005.1


drew dillworth sues martelly/lamothe/baker's lawyer ricardo bajandas for professional...

Documents

member of jct

umbach umbach

llc debtor

llc jcth

llc funding

llc gf

llc ufg

ricardo bajandas bajandas