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In re

Mark A. Leonard,

 

Debtor.

Federal Deposit Insurance Corporation as

Receiver for Cowlitz Bank,

 

Plaintiff,

 

v.

Mark A. Leonard, an individual,

 

Defendant.

1.

Bankr. P. 7001 and 28 U.S.C. §§ 157 and 1334.

2.

(b)(2)(J).

Hon. Paul B. Snyder Chapter 7 Location: 500 W. 12th Street, 2nd Floor Vancouver, Washington

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA

Case No. 13-43836-PBS

Adv. Proc.

COMPLAINT TO DETERMINE THE NON-DISCHARGEABILITY OF DEBT AND TO OBJECT TO DISCHARGE

For its Complaint against defendant Mark A. Leonard (“Leonard”), the

Federal Deposit Insurance Corporation, as Receiver for Cowlitz Bank (“FDIC”) alleges:

JURISDICTION AND VENUE

The court has jurisdiction over this adversary proceeding pursuant to Fed. R.

The matters in controversy in this adversary proceeding arises under 11

U.S.C. §§ 523 and 727 and are core proceedings pursuant to 28 U.S.C. §§ 157(b)(2)(H) and

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3. Venue in this district is proper pursuant to 28 U.S.C. § 1409.

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DESCRIPTIONS OF THE PARTIES

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4. The FDIC is an independent agency of the federal government. The FDIC

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was appointed as receiver of Cowlitz Bank on July 20, 2010, after the institution failed and

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was closed by the Washington Department of Financial Institutions.

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5.

Leonard is an individual residing in the State of Washington and the debtor in

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the bankruptcy matter pending in the United States Bankruptcy Court District of Washington,

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Case No. 13-43836-PBS (“Individual Bankruptcy”).

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COMMON FACTUAL ALLEGATIONS

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6.

Cowlitz Bank obtained a judgment against Leonard for breach of obligations

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under certain Commercial Guaranties on June 7, 2010 in Cowlitz County Superior Court,

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Case No. 09-2-02188-1.

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7.

Pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act

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of 1989 (“FIRREA”), the FDIC succeeded to all rights, titles, powers and privileges of

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Cowlitz Bank upon appointment as receiver.

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8.

As of June 7, 2013, the date Leonard filed the Individual Bankruptcy, the

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outstanding balance owed to the FDIC on account of the judgment was $938,670.44, as is

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evidenced by the Proof of Claim on record in Case No. 13-43836-PBS as Claim No.1.

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9.

The Commercial Guaranties relate to a Promissory Note, Business Loan

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Agreement, and Commercial Security Agreements entered into by Cowlitz Bank and Tytan

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International, Inc. (“Tytan Int’l”) on April 10, 2006, subject to subsequent Modifications and

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Extension Agreements.

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10.

At all relevant times, Leonard has acted as the President of Tytan Int’l, which

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imports and sells Chinese tractors and tractor implements.

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11.

Pursuant to the Commercial Security Agreements and related Financing

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Statements, the FDIC has a perfected security interest that extends to all Tytan Int’l’s

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inventory, attachments and accessories, accessions, additions, replacements, substitutions,

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records and proceeds related thereto, whether owned at the time of the grant of the security

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interest or acquired thereafter, in addition to other items specifically set forth in the

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Commercial Security Agreements (“Collateral”).

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12.

Tytan Int’l filed Chapter 7 bankruptcy in the United States Bankruptcy Court

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District of Washington on November 7, 2013, as Case No. 13-46948-BDL (“Tytan

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Bankruptcy”).

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13.

Leonard acted as the individual authorized to file the petition on behalf of

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Tytan Int’l and declared under penalty of perjury that the information contained in the

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petition, schedules and related statement of financial affairs was true and correct.

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14.

In or around June 2009, Leonard formed Tytan Holdings, Inc. (“Tytan

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Holdings”). Tytan Holdings is denominated as a “penny stock” and is in listed on the Over

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The Counter (“OTC”) Bulletin Board under the symbol TYTN PK.

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15.

According to the published OTC Bulletin issued for Tytan Holdings in

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January 2013, Tytan Holdings acts as the holding company for Tytan Int’l, its wholly owned

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subsidiary that generates revenue through the sale of tractors and tractor implements.

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16.

At the time Tytan Holdings acquired Tytan Int’l in or around December 2009,

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Leonard was the sole shareholder of Tytan Int’l.

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17.

Leonard now acts as the controlling stockholder of Tytan Holdings, by virtue

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of his majority ownership (500,000 of the 1,000,000 shares) of the Preferred Series A stock.

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18.

At all relevant times, Leonard has served as Chief Executive Officer and

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Chairman of the Board of Tytan Holdings.

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19. At all relevant times, Tytan Int’l and Tytan Holdings have been headquartered

at 5225 Meeker Drive, Kalama, Washington 98625 (“Commercial Property”).

20. As Chief Executive Officer of Tytan Holdings, Leonard issued Annual

Reports and Consolidated Financial Statements for 2009, 2010, 2011 and 2012.

21. The Consolidated Financial Statement for the year of 2011 included a

statement that Tytan Int’l and/or Tytan Holdings has assets of 1.8 million dollars in inventory

and $230,242 in accounts receivable.

22. As Chief Executive Officer of Tytan Holdings, Leonard executed each

Consolidated Financial Statement and certified that such disclosures did not contain any

untrue statement of material fact or omit to state any material fact.

23. Beginning in February 2011, Tytan Holdings engaged in a series of

exchanges under Rule 504 of Regulation D, as promulgated under the Securities Act of 1933

(“504 Exchanges”) in which Tytan Holdings sold approximately 600,000,000 shares of its

Common Stock to E-Lionheart and Associates, LLC, Fairhills Capital 1 and TJ Management,

LLC.

24. According to the multiple Resolutions to authorize the 504 Exchanges issued

by Leonard as Chief Executive Officer of Tytan Holdings, the funds raised in the 504

Exchanges were to be used for the purpose of enabling Tytan Holdings to develop and

expand its business.

25. The Resolutions to authorize the 504 Exchanges were issued by Leonard

under the pretense of having obtained the unanimous written consent of Tytan Holdings’

Board of Directors.

1 E-Lionheart and Associates, LLC and Fairhills Capital have since been sued by the U.S. Securities and Exchange Commission in the U.S. District Court for the Southern District of New York for violating the registration provisions of the Securities Act of 1933.

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26.

According to Leonard’s sworn testimony at 341(a) hearings conducted in both

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the Individual and Tytan Bankruptcies, as well as a subsequent 2004 Examination conducted

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on December 20, 2013, Tytan Holdings received only $400,000 from the 504 Exchanges.

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27.

According to Leonard’s sworn testimony at the same 341(a) hearings and the

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2004

Examination, the capital generated from the 504 Exchanges was exclusively used to

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pay down corporate debt and purchase new inventory.

7

 

28.

According to the 2011 Annual Report and Consolidated Financial Statement

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filed by Tytan Holdings, it raised over $900,000 from the 504 Exchanges and the funds used

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to purchase new inventory, increasing Tytan Holdings and/or Tytan Int’l’s assets by 27.9%,

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from $1,914,572 in 2011 to $2,447,928.

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29.

According to the Pacific Continental Bank statements subpoenaed by the

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FDIC, approximately $725,000 from the 504 Exchanges was deposited directly into Tytan

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Holding and Tytan Int’l bank accounts in 2011.

According to the same bank statements,

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Leonard used a portion of the funds to fund his personal expenses.

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30.

According to the Pacific Continental Bank statements subpoenaed by the

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FDIC, a large portion of the funds generated from the 504 Exchanges was subsequently

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wired to various manufacturing trading companies in China.

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31.

According to Leonard’s sworn testimony at the 341(a) hearings and the 2004

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Examination, Tytan Int’l stopped operating business on or around November 7, 2013, the

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date it filed bankruptcy.

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32.

According to Leonard’s sworn testimony at the same 341(a) hearings and

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2004

Examination, all remaining assets of Tytan Int’l subject to the FDIC’s security interest

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are properly accounted for on the schedules in the Tytan Bankruptcy and are currently stored

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at the Commercial Property.

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33.

The FDIC conducted an appraisal of the remaining inventory on

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January 4, 2014, which shows a value of only $157,100. Of that value, approximately

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$26,000 of the inventory is subject to a purchase money security interest in favor of GE

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Commercial Distribution Finance Corporation.

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34.

Despite requests, Leonard has failed to provide adequate invoices or receipts

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which evidence the disposition of the FDIC’s Collateral.

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35.

Leonard has failed to sufficiently account for the discrepancy in the amount of

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inventory listed on the schedules in the Tytan Bankruptcy and the Annual Report and

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Consolidated Financial Statements.

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36.

Despite giving sworn testimony to the contrary, Leonard has in fact concealed

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and subsequently transferred a portion of the FDIC’s Collateral to a business located in

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Chehalis, Washington known as Southwest Tractors.

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37.

As recently as November 2013 and January 2014, Leonard has imported

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equipment from China under the name of the Truper Corporation (“Truper Corp.”), an entity

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owned and operated by Leonard, with specific instructions that deliveries be made to

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Southwest Tractors located in Chehalis, Washington.

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38.

According to Leonard’s sworn testimony at the 341(a) hearings and 2004

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Examination, the Truper Corp. has no bank accounts, no assets and does not conduct

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business.

 

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39.

According to documents subpoenaed by the FDIC, Leonard has stated to third

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parties that the Truper Corp actively acts as an agent and importer for tractor dealers,

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including Tytan Int’l and Southwest Tractors.

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40.

At all relevant times, Leonard commingled funds and assets of Tytan

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Holdings and Tytan Int’l with his own affairs and has treated corporate assets as his own,

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including without limitation his personal consumption of funds from the 504 Exchanges.

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41.

At all relevant times, Leonard, as President and Chief Executive Officer of

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Tytan Holdings, has failed to maintain adequate corporate minutes or records for Tytan

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Holdings or Tytan Int’l and has disregarded required corporate formalities.

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42.

At all relevant times, Leonard has further failed to adequately disclose and

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testified falsely as to the current state of assets, liabilities and related business affairs in both

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the Individual and Tytan Bankruptcies, including without limitation, his ownership of a

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house subject to a governmental ground lease near Hermisillo, Mexico, ownership of

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significant antique firearms, financial transactions involving his two daughters, Heather S.

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Jaeger and Holly A. King, and an alleged security interest granted to China National United

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Equipment Co.

 

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43.

Leonard submitted an Affidavit of Financial Condition (“Affidavit”) to the

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FDIC in May 10, 2011, in connection with an attempt to settle litigation in Cowlitz County

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Superior Court involving Tytan Int’l (Case No. 10-2-01361-1) collection of the judgment on

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the Commercial Guaranties.

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44.

The Affidavit contains representations regarding Leonard’s income, assets and

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financial condition which were materially false when made. The Affidavit also includes as

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exhibits the 2009 and 2010 Consolidated Financial Statements for Tytan Holdings which

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further contain materially false information.

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FIRST CLAIM FOR RELIEF

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(Alter Ego)

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45.

The FDIC incorporates the allegations and assertions of fact in paragraphs 1 –

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set forth above, as if fully set forth herein.

5

 

46.

Leonard is the controlling owner of Tytan Holdings, of which Tytan Int’l is a

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wholly owned subsidiary.

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47.

At all relevant times, Leonard has dominated and controlled Tytan Holdings

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and Tytan Int’l for his own personal gain.

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48.

At all relevant times, Leonard has engaged in the unauthorized diversion of

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corporate funds for other than corporate purposes and has abused the protections provided by

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the corporate form.

 

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49.

The corporate entities and Leonard are one and the same so that Leonard’s

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conduct relating to the business operations of Tytan Holdings and/or Tytan Int’l, including

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without limitation the disposition of corporate assets, should be considered one and the same.

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CLAIMS FOR RELIEF RELATED TO OBJECTION TO DISCHARGE

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SECOND CLAIM FOR RELIEF

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11 U.S.C. § 523(a)(2)(A)

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(False Pretense, False Representation, Actual Fraud)

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50.

The FDIC incorporates the allegations and assertions of fact in paragraphs 1 –

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set forth above, as if fully set forth herein.

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51.

Leonard fraudulently omitted and engaged in deceptive conduct when, on

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behalf of Tytan Int’l, he sought credit, renewals, refinancing and forbearance from both

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Cowlitz Bank and the FDIC.

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52. Leonard misrepresented, fraudulently omitted, and engaged in deceptive

conduct when he entered into the Commercial Guaranties and subsequent negotiations with

Cowlitz Bank and the FDIC.

53. Leonard had knowledge of the falsity or deceptiveness of his statements and

conduct. In the alternative, Leonard’s course of conduct demonstrates a reckless indifference

to the truth or falsity of his statements.

54. The totality of the circumstances and conduct of Leonard demonstrate that he

had every intent to deceive Cowlitz Bank and later, the FDIC.

55. Cowlitz Bank and the FDIC justifiably relied on Leonard’s representations.

56. The FDIC has suffered damage as the proximate result of its and Cowlitz

Bank’s reliance on Mr. Leonard’s representations.

THIRD CLAIM FOR RELIEF

11 U.S.C. § 523(a)(2)(B)

(False Financial Statement)

57. The FDIC incorporates the allegations and assertions of fact in paragraphs 1 –

56 set forth above, as if fully set forth herein.

58. The financial statements submitted to Cowlitz Bank by Leonard during its

course of its dealings with Leonard and Tytan Int’l were materially false at the time such

documents were made.

59. The Affidavit Leonard submitted to the FDIC on May 9, 2011 was materially

false at the time it was made.

60. Leonard knew the statements were false at the time he executed the related

statements.

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61. Leonard caused the financial statements and Affidavit to be made with the

intent to deceive Cowlitz Bank and the FDIC.

62. Cowlitz Bank and the FDIC reasonably relied on the financial statements and

Affidavit.

63. The FDIC has suffered damage as the proximate result of its and Cowlitz

Bank’s reliance on false financial statements issued by Leonard.

FOURTH CLAIM FOR RELIEF

11 U.S.C. § 523(a)(6)

(Malicious and Willful Injury)

64. The FDIC incorporates the allegations and assertions of fact in paragraphs 1 –

63 set forth above, as if fully set forth herein.

65. In concealing, transporting and disposing of the FDIC’s Collateral, Leonard

had the specific and deliberate intention of causing harm to the FDIC.

66. Leonard has disposed and concealed the FDIC’s Collateral with the specific

knowledge that the disposition would invariably and indubitably cause harm to the FDIC.

67. Leonard has acted willfully and maliciously with the intent to improperly use

the FDIC’s Collateral and/or its proceeds for purposes other than payment of the debt secured

by the Collateral.

68. Leonard has purposefully inflicted the injury or acted with substantial

certainty that injury would result from his conduct.

69. Leonard’s action are wrongful and without just cause or excuse.

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CLAIMS FOR RELIEF RELATED TO DENIAL OF DISCHARGE

FIFTH CLAIM FOR RELIEF

11 U.S.C. § 727(a)(2)(A)

(Pre-Petition Transfer and Concealment of Assets)

70. The FDIC incorporates the allegations and assertions of fact in paragraphs 1 –

69 set forth above, as if fully set forth herein.

71. Within one year before the date of the filing of the petition in the Individual

Bankruptcy, Leonard, in his capacity as the alter ego of Tytan Holdings and Tytan Int’l, has

with the intent to hinder, delay, or defraud the FDIC transferred, removed, destroyed,

mutilated, or concealed or has permitted to be transferred, removed, destroyed, mutilated or

concealed, property of Tytan Int’l subject to the FDIC’s security interest

72. Within the year prior to filing the Individual Bankruptcy, Leonard has with

the intent to hinder, delay, or defraud his creditors transferred, removed, destroyed,

mutilated, or concealed or has permitted to be transferred removed, destroyed, mutilated or

concealed his property.

SIXTH CLAIM FOR RELIEF

11 U.S.C. § 727(a)(2)(B)

(Post-Petition Transfer and Concealment of Assets)

73. The FDIC incorporates the allegations and assertions of fact in paragraphs 1 –

72 set forth above, as if fully set forth herein.

74. Since the filing of the Individual Bankruptcy, Leonard, in his capacity as the

alter ego of Tytan Holdings and Tytan Int’l, has with the intent to hinder, delay or defraud

the FDIC transferred, removed, destroyed or concealed or has permitted to be transferred,

removed, destroyed or concealed, property of the bankruptcy estate of Tytan Int’l.

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75. Since the filing of the Individual Bankruptcy, Leonard has with the intent to

hinder, delay or defraud his creditors transferred, removed, destroyed, or concealed or has

permitted to be transferred, removed, destroyed or concealed his own property.

SEVENTH CLAIM FOR RELIEF

11 U.S.C. § 727(a)(3)

(Failure to Preserve Records)

76. The FDIC incorporates the allegations and assertions of fact in paragraphs 1 –

75 set forth above, as if fully set forth herein.

77. Leonard, both in his individual capacity and in the capacity as the alter ego of

Tytan Holdings and Tytan Int’l, has concealed, destroyed, mutilated, falsified and failed to

keep and preserve recorded information, including books, documents, records, and papers,

from which to ascertain his, Tytan Int’l’s and Tytan Holdings financial condition and

business transactions without justification.

EIGHT CLAIM FOR RELIEF

11 U.S.C. § 727(a)(4)

(False Oath)

78. The FDIC incorporates the allegations and assertions of fact in paragraphs 1 –

77 set forth above, as if fully set forth herein.

79. Leonard has knowingly and fraudulently, in or in connection with the

Individual Bankruptcy and Tytan Bankruptcy, made false oaths and accounts, including

without limitation his failure to disclose assets and liabilities on bankruptcy schedules signed

under penalty of perjury and false sworn testimony the 341 (a) hearings and 2004

Examination.

80. The oaths relate to a material facts.

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81. The oaths were made knowingly.

82. The oaths were made with the specific purpose of perpetrating a fraud.

NINTH CLAIM FOR RELIEF

11 U.S.C. § 727(a)(5)

(Failure to Explain Loss or Deficiency)

83. The FDIC incorporates the allegations and assertions of fact in paragraphs 1 –

82 set forth above, as if fully set forth herein.

84. According to the Consolidated Financial Statements issued by Leonard on

behalf of Tytan Int’l and Tytan Holdings, there existed $1.8 million in inventory and

$230,242 of accounts receivable at the end of 2011, both subject to the FDIC’s security

interest.

85. Leonard, in the capacity as the alter ego of Tytan Holdings and Tytan Int’l,

has failed to explain satisfactorily the loss and deficiency of the FDIC’s Collateral.

TENTH CLAIM FOR RELIEF

Fed. R. Bankr. P. 7008(b)

(Attorney’s Fees)

86. FDIC incorporates the allegations and assertions of fact in paragraphs 1 – 85

set forth above, as if fully set forth herein.

87. The Promissory Note, Business Loan Agreement, Commercial Security

Agreements and Commercial Guaranties provide for the recovery of attorney’s fees in any

enforcement activity or collection, including bankruptcy proceedings.

88. The FDIC has incurred and continues to incur attorney’s fees and costs with

respect to the enforcement of terms and provision set forth in the Promissory Note, Business

Loan Agreement, Commercial Security Agreements and Commercial Guaranties.

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WHEREFORE, the FDIC prays for the following relief:

 

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A.

Judgment in favor of the FDIC on its claim against Leonard in an amount to

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be determined at trial, but currently estimated to be $938,670.44, plus interest thereon;

 

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B.

Judgment declaring that the claims made by the FDIC against Leonard are

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nondischargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A) and (B) and 523(a)(6);

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C.

Judgment denying Leonard’s discharge pursuant to 11 U.S.C. §§ 727

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(a)(2)(A) and (a)(2)(B), 727(a)(3), 727(a)(4) and 727(a)(5).

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D.

An award of all reasonable collection fees including but not limited to

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attorney’s fees, costs of litigation and all court costs to the extent allowed by law;

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E.

Any other relief deemed just, equitable or appropriate under the

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circumstances.

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DATED this 20 th day of February, 2014.

 

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BLACK HELTERLINE LLP

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By:

/s/ Britta E. Warren

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Britta E. Warren, WSBA No. 43329 bew@bhlaw.com Fax: (503) 224-6148 Of Attorneys for Federal Deposit Insurance Corporation as Receiver for Cowlitz Bank

 

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Page 14 of 14 – COMPLAINT TO DETERMINE THE NON- DISCHARGEABILITY OF DEBT AND TO OBJECT TO DISCHARGE

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Case 13-43836-PBS

Doc 79

Filed 02/20/14

Ent. 02/20/14 18:12:03

BLACK HELTERLINE LLP

805 SW Broadway, Ste. 1900 Portland, OR 97205

Pg. 14 of 14

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