2699 Stirling Road, Suite C401, Ft. Lauderdale, FL 33312 Tel. (954) 920-5355 Fax (954) 920-5371 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA Fort Lauderdale Division www.flsb.uscourts.gov
In re:
SETH FREEDMAN and LAURA FREEDMAN,
Debtors. ____________________________________/ Case No. 08-28599-BKC-RBR
Chapter 7
CRAB KEY HOLDINGS, LLC, a Florida limited liability company,
Plaintiff, vs.
SETH FREEDMAN,
Defendant. ____________________________________/
Adv. Case No.
COMPLAINT OBJECTING TO DISCHARGEABILITY OF DEBT PURSUANT TO 11 U.S.C. 523
Crab Key Holdings, LLC, a Florida limited liability company (CKH or Plaintiff), by counsel, brings this Complaint Objecting to Dischargeability of Debt Pursuant to 11 U.S.C. 523, against Seth Freedman (Freedman or the Debtor), and in support thereof alleges as follows: Jurisdiction and Venue 1. This case was commenced by the filing of a voluntary Chapter 7 petition on December 5, 2008 (the Petition Date). 2. This is an action to determine the dischargeability of a debt, pursuant to 11 U.S.C. 523. 3. This is a core proceeding and this Court has jurisdiction over this action pursuant to 28 U.S.C. 157 and 1334 and Fed. R. Bankr. P. 7001. 4. Venue is proper herein pursuant to 28 U.S.C. 1408 and 1409. Parties 5. Seth Freedman is the debtor of the above-referenced bankruptcy proceeding. Case 09-01254-RBR Doc 1 Filed 03/16/09 Page 1 of 33 Complaint Page 2 of 8
________________________ Leiderman Shelomith, P.A., Attorneys at Law 2699 Stirling Road, Suite C401, Ft. Lauderdale, FL 33312 Tel. (954) 920-5355 Fax (954) 920-5371 6. Crab Key Holdings, LLC is a Florida limited liability company and is a creditor of the Debtor, as more particularly set forth below. General Allegations 7. Pre-petition, the Debtor was an officer and director of Image Marketing Enterprises, Inc. (Image), a Florida corporation. 8. On or about J une 14, 2006, Image entered into a contract (the Contract) with Patrick Nemeth (Nemeth) for the purchase and sale by Image to Nemeth of the assets of the business known as Image Marketing Associates (the Business). A copy of the Contract is attached hereto as Exhibit A and is incorporated herein by reference. 9. On or about J uly 28, 2006, Nemeth assigned to Plaintiff all of his rights and obligations under the Contract. A copy of the Assignment is attached hereto as Exhibit B and incorporated herein by reference. 10. On or about J uly 28, 2006, Plaintiff and Image closed on the Contract. A copy of the closing statement for the purchase and sale of the Business is attached hereto as Exhibit C and incorporated herein by reference. 11. Plaintiff has fully performed its obligations under the Contract. 12. Plaintiff has performed all conditions precedent to the bringing of this action or all such conditions have been waived or otherwise legally excused. 13. The actual gross profits for 2006 of the Business during the time of operation by Plaintiff was $154,820.38. 14. Image has materially breached the Contract existing between the parties. Images material breaches of the Contract include, but are not limited to, the following: a. The supply to Nemeth and Plaintiff through its principal shareholder, officer and director, the Debtor, of false financial information as to the condition and results of operation of the Business in violation of the warranty obligations of Image contained in Section 25 of the Contract; Case 09-01254-RBR Doc 1 Filed 03/16/09 Page 2 of 33 Complaint Page 3 of 8
________________________ Leiderman Shelomith, P.A., Attorneys at Law 2699 Stirling Road, Suite C401, Ft. Lauderdale, FL 33312 Tel. (954) 920-5355 Fax (954) 920-5371 b. Failure to deliver to Plaintiff all customer accounts, records and documents pertinent to operation of the business as required in Section 20 of the Contract; and c. Failure to pay Plaintiff an amount necessary to make the actual 2006 gross profit equal to $600,000.00 as required in the Addendum to the Contract. 15. As a direct and proximate result of the foregoing, Plaintiff has suffered, and will continue to suffer both general and special damages, including, but not limited to, a reduced value of the Business and increased costs associated with maintenance and operation of the Business. 16. Furthermore, the Debtor made false statements and representations concerning material facts to Nemeth and Plaintiff with regard to: a. The financial condition and results of operation of the Business, specifically including but not limited to (1) the then existing status of payment by the Business of vendor accounts and liabilities; (2) the then existing status and value of the Businesss account for services with Naples Community Hospital; and (3) the then existing status and value of the Businesss account for services with J oseph Scott Financial; b. The existence and status of an employment agreement between Image and Phyllis Ershowsky; and c. The existence and status of a phantom stock agreement between Image and Phyllis Ershowsky. 17. Image and the Debtor knew that the above-referenced statements and representations made by themselves with regard to the financial condition and results of operation of the Business, the assets of the Business, the existence of an employment agreement between Image and Phyllis Ershowsky, ownership by the Debtor of Image and Case 09-01254-RBR Doc 1 Filed 03/16/09 Page 3 of 33 Complaint Page 4 of 8
________________________ Leiderman Shelomith, P.A., Attorneys at Law 2699 Stirling Road, Suite C401, Ft. Lauderdale, FL 33312 Tel. (954) 920-5355 Fax (954) 920-5371 its assets and interests, the liabilities of the Business, and the existing client and customer relations of the Business were false inasmuch as: a. The Business was not current on its payment of vendor accounts and liabilities; b. The status and value of the Businesss account for services with Naples Community Hospital was significantly less and more uncertain than had been represented by Image and the Debtor; c. The status and value of the Businesss account for services with J oseph Scott Financial was significantly less and more uncertain than had been represented by Image and the Debtor; d. The purported employment agreement between Image and Phyllis Ershowsky represented by Image and the Debtro to be in existence and valid was not recognized or acknowledged by Phyllis Ershowsky as being duly executed by herself or binding upon her; and e. There existed a phantom stock agreement between Image and Phyllis Ershowsky whose existence was not disclosed by Image or the Debtor to the Plaintiff. 18. Image and the Debtor intended in making the false statements and representations to induce Nemeth to enter into the Contract and Plaintiff to accept assignment of the Contract and close the Contract. 19. Nemeth and the Plaintiff reasonably relied upon the above-referenced statements and representations made by Image and the Debtor with regard to the financial condition and results of operation of the Business, the assets of the Business, the existence of an employment agreement between Image and Phyllis Ershowsky, ownership by the Debtor of Image and its assets and interests, the liabilities of the Business, and the existing client and customer relations of the Business. Case 09-01254-RBR Doc 1 Filed 03/16/09 Page 4 of 33 Complaint Page 5 of 8
________________________ Leiderman Shelomith, P.A., Attorneys at Law 2699 Stirling Road, Suite C401, Ft. Lauderdale, FL 33312 Tel. (954) 920-5355 Fax (954) 920-5371 20. Plaintiff has suffered, and will continue to suffer both general and special damages, including, but not limited to, a reduced value of the Business and increased costs associated with maintenance and operation of the Business as a result of its reasonable reliance on the false statements and representations of Image and the Debtor. 21. As a result of the foregoing, on or around October 30, 2006, the Plaintiff commenced an action against Image and the Debtor in the Lee County Circuit Court, Case No. 06-CA-4883, for damages due to breach of contract and fraud on the part of Image and the Debtor (the State Court Action). A copy of the Second Amended Complaint and Demand for J ury Trial in the State Court Action is attached hereto as Exhibit D (without exhibits) and incorporated herein by reference. 22. The Debtor received notice of the State Court Action and participated in the defense of the State Court Action. 23. On or around October 16, 2007, the Plaintiff, Image and the Debtor entered into a Mediated Settlement Agreement (attached hereto as Exhibit E), whereby Image and the Debtor agreed to pay the Plaintiff $200,000.00, according to the payment schedule set forth therein. 24. The Debtors promise to pay the Plaintiff $200,000.00 induced the Plaintiff into entering into the Mediated Settlement Agreement. 25. Thereafter, Image and the Debtor breached the Mediated Settlement Agreement, by failing to make one or more payments that were due. 26. As a result, the Court in the State Court Action entered a Final J udgment on J une 3, 2008, in favor of the Plaintiff and against Image and the Debtor, for the amount of $239,014.18. A true and correct copy of the Final J udgment is attached hereto as Exhibit F. 27. Based on the entry of the Final J udgment, the allegations of fraud contained in the Second Amended Complaint and Demand for J ury Trial are conclusively proven, and Case 09-01254-RBR Doc 1 Filed 03/16/09 Page 5 of 33 Complaint Page 6 of 8
________________________ Leiderman Shelomith, P.A., Attorneys at Law 2699 Stirling Road, Suite C401, Ft. Lauderdale, FL 33312 Tel. (954) 920-5355 Fax (954) 920-5371 the Debtor is collaterally estopped from disputing them, especially considering the fact that the only count against the Debtor was for fraud. 28. The Contract and the Mediated Settlement Agreement both provide that the prevailing party is entitled to payment of its attorneys fees and costs. 29. The Plaintiff has retained the undersigned attorneys to represent it in this case and is entitled to recover its attorneys fees from the Debtor. Count 1 Non-Dischargeability of Final Judgment (11 U.S.C. 523(a)(2)(A))
30. The Plaintiff re-alleges all of the allegations set forth in each of the paragraphs above. 31. This is an action requesting a determination that the debt owed by the Debtor to the Plaintiff, as reflected in the Final J udgment, is excepted from the Debtors discharge and is not dischargeable, should the Debtor receive a discharge, pursuant to 11 U.S.C. 523(a)(2)(A). 32. The Plaintiff is a creditor of the Debtor. 33. The Debtor incurred the debt to the Plaintiff under false pretenses, false misrepresentations, and/or actual fraud. 34. The Final J udgment precludes the Debtor from arguing that the debt was not incurred due to false pretenses, a false misrepresentations, and/or actual fraud. 35. Alternatively, the Debtor fraudulently induced the Plaintiff into entering into the Mediated Settlement Agreement, and the Debtors representations set forth in the Mediated Settlement Agreement contained false misrepresentations. 36. The debt incurred by the Debtor includes the Plaintiffs attorneys fees in prosecuting this action. WHEREFORE, the Plaintiff respectfully requests that the Court enter a judgment determining that the debt(s) owed to the Plaintiff by the Debtor are non-dischargeable, in Case 09-01254-RBR Doc 1 Filed 03/16/09 Page 6 of 33 Complaint Page 7 of 8
________________________ Leiderman Shelomith, P.A., Attorneys at Law 2699 Stirling Road, Suite C401, Ft. Lauderdale, FL 33312 Tel. (954) 920-5355 Fax (954) 920-5371 the amount of $239,014.18, plus interest, costs and attorneys fees, and for such other and further relief as the Court deems just and proper. Count 2 Non-Dischargeability of Final Judgment (11 U.S.C. 523(a)(2)(B))
37. The Plaintiff re-alleges all of the allegations set forth in each of the paragraphs above. 38. This is an action requesting a determination that the debt owed by the Debtor to the Plaintiff, as reflected in the Final J udgment, is excepted from the Debtors discharge and is not dischargeable, should the Debtor receive a discharge, pursuant to 11 U.S.C. 523(a)(2)(B). 39. The Debtor obtained money, property and/or services from Patrick Nemeth and/or the Plaintiff by use of a statement or statements in writing that were materially false, respecting the Debtors or an insiders financial condition, on which Patrick Nemeth and/or the Plaintiff reasonably relied, and which the Debtor caused to be made or published with intent to deceive. 40. The Final J udgment precludes the Debtor from arguing that he did not obtain money, property and/or services from Patrick Nemeth and/or the Plaintiff by use of a statement or statements in writing that were materially false, respecting the Debtors or an insiders financial condition, on which Patrick Nemeth and/or the Plaintiff reasonably relied, and which the Debtor caused to be made or published with intent to deceive. 41. The debt incurred by the Debtor includes the Plaintiffs attorneys fees in prosecuting this action. WHEREFORE, the Plaintiff respectfully requests that the Court enter a judgment determining that the debt(s) owed to the Plaintiff by the Debtor are non-dischargeable, in the amount of $239,014.18, plus interest, costs and attorneys fees, and for such other and further relief as the Court deems just and proper.
Case 09-01254-RBR Doc 1 Filed 03/16/09 Page 7 of 33 Complaint Page 8 of 8
________________________ Leiderman Shelomith, P.A., Attorneys at Law 2699 Stirling Road, Suite C401, Ft. Lauderdale, FL 33312 Tel. (954) 920-5355 Fax (954) 920-5371 Count 3 Non-Dischargeability of Final Judgment (11 U.S.C. 523(a)(19))
42. The Plaintiff re-alleges all of the allegations set forth in each of the paragraphs above. 43. The Debtor engaged in common law fraud, deceit, and/or manipulation in connection with the sale of a security, with regard to the sale of the Business, which resulted in the Mediated Settlement Agreement and also the Final J udgment. 44. The Final J udgment precludes the Debtor from arguing that he did not engage in common law fraud, deceit, and/or manipulation in connection with the purchase of securities in the sale of the Business. 45. The debt incurred by the Debtor includes the Plaintiffs attorneys fees in prosecuting this action. WHEREFORE, the Plaintiff respectfully requests that the Court enter a judgment determining that the debt(s) owed to the Plaintiff by the Debtor are non-dischargeable, in the amount of $239,014.18, plus interest, costs and attorneys fees, and for such other and further relief as the Court deems just and proper. I HEREBY CERTIFY that I am admitted to the Bar of the United States District Court for the Southern District of Florida and I am in compliance with the additional qualifications to practice in this Court set forth in Local Rule 2090-1(A).
Dated this 16 th day of March, 2009. LEIDERMAN SHELOMITH, P.A. Counsel for the Plaintiffs 2699 Stirling Road, Suite C401 Ft. Lauderdale, Florida 33312 Telephone: (954) 920-5355 Facsimile: (954) 920-5371
By:_________/s/______________ ZACH B. SHELOMITH Florida Bar No. 0122548 zshelomith@lslawfirm.net
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Leo Spear Construction Company, Inc. v. The Fidelity and Casualty Company of New York and Brookfield-Baylor, A Joint Venture, 446 F.2d 439, 2d Cir. (1971)