19910402a In Re Hamilton Taft - Adversary Proceeding

• FELDMAN, WALDMAN & KLINE A Professional t 2

~ATRICrA

S. MAR

L.J. CHRIS MARTIWIAK 2700 Russ Sui street 235 Mon San ~ CA 94104 ne: (415) 981-1300 Tel

4

5

Attorneys for Trustee ick S. Wyle

6 7

8

UNITED STATES BANKRUPTCY COURT

9

NORTHERN DISTRICT OF CALIFORNIA

10

I

In re

BANKRUPTCY NO. 91-31017 LX

}

11

HA."fILTON TAFT

&

COMPANY I

)

Chapter 11

)

12

)

13

----------------------------------))

1.4

FREDERICK S. of

)

"

15

Plaintiff, 16

v.

) } ) ) ) )

}

17

COMNIE C.

, JR.;

)

}

20

REMINGTON , INC. i WINTHROP REALTY ; CCA HOLDINGS I CORPORATION: CHASE DEVELOPMENT CORP.; CftAYSON MORTGAGE AND INVESTMENT

21

COMPANy; CAL-PACIFIC MANAGEMENT CORP,: C.R. ACQUISITIONS; DEI,

) } ) ) }

I8

THE

19

« ;

INC.; DRESONER FINANCIAL MANAGEMENT CORPORATION; DRESDNER ENTERPRISES, INC.; DRESDNER PETROLEUM, INC.: 'fLT. INTERNATIONAL, INC.; SUISSE TEXAS, INC.: COMPANIES, INC.; KNIGHTSBRIDGE GUkRANTY

22 23 21 25

COMPANY, I

26

Proceedinq

No.

)

) }

)

} }

)

I )

Defendants.

)

.. I:;

<5

t

...

1!--.i ~~1

1

~

I

~

Q

, ~

, \.

I

I, I FELDMAN, WALDMAN & KLINE A Professional corporation 2 J

5

PATRICIA S. MAR L.J. CHRIS MARTINIAK 2700 Russ Building 235 Moncgomery street San Francisco, CA 94104 Telephone: (415) 981-1300 Attorneys for Trustee FredericK s. Wyle

7

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT Of CALIfORNIA

9

10 iI

12 1)

Iii

In re HAMILTON TAfT & COMPANY, Debtor.

17

\B )9

20

FREDERICK S. WYLE, Trustee in Bankruptcy of Hamilton Taft & Company,

NO.

91-~1077

LK

Chapter 11

)

)

v.

) )

CONNIE C. ARMSTRONG, JR.;

)

THE REMINGTON COMPANIES, INC.; WINTHROP REALTY COMPANY; CCA HOLDINGS, INC.; CCAJ CORPORATrONj CKASE DEVELOPMENT CORP.; CHAYSON MORTGAGE AND INVESTMENT COMPANY; CAL-PACIFIC MANAGEMENT

) _ ) )

) )

)

26

----------------------------------)

- - -- ---- --

hdversary Proceeding

9~ ::~INT

2.5

2J

L.

Plaintiff,

)

CORP.; C.R. ACQUISITIONS; DEI, INC.; DRESDNER ~INANCIAL MANAGEMENT CORPORATION; DRESDNER ENTERPRISES, INC.: DRESDNER PETROLEUM, INC.: H.T. INTERNAT10NhL, INC.: SUISSE TEXAS, INC.; KNIGHTSBRIDGE COMPANIES, INC.; and KNIGHTSBRIDGE GUARANT~ COMPANY, Defendants.

'21

BANKRUPTC~

----------------------------------------))

15 16

) ) ) ) )

) } ) ) ) ) ) ) ) )

81 lK

FOa 1. Recovery of Fraudulent Transfer Pursu~nt to 11 U.S.C. § 548 and

California Civil Code § J 09 2. Constructive Trust 3. Turnover of Property or the Estate Under 11 U.S.C. § 542 4. Injunction 5. Conversion 6. Breach of fiduciary Duties 7. Breach of Contract U\

~J/AQ~d!" ~~

C;i) ~N/z.lt.f /~

Plaintiff Frederick S. Wyle, Trustee, alleges as follows:

2

)

THE PARTIES 1.

Plaintiff is the duly appointed and acting trustee

in this case.

5

2.

6

Hamilton Taft

&.

company, Inc.

(lithe Debtor")

is a

7

California corporation with its principal place of business in San

8

Francisco,

Californi~.

J.

9

Plaintiff is informed and believes and thereon

10

alleges that defendant Connie C. Armstrong, Jr.

11

the chairman and sole shareholder of the Debtor, and is a resident

12

and citizen of the State of Texas.

13

4 •

("Armstrong Jl )

is

Plaintiff is informed and believes and thereon

I.

alleges that defendant The Remington Companies, Inc.

IS

is a Texas corporation with its principal place of business in

16

Dallas, Texas, and is owned or controlled by, and affiliated with,

)7

Armstrong and his affiliated entities. 5.

18

(HRemingtonH)

Plaintiff is informed and believes and thereon

19

alleges that defendant Winthrop Realty company (UWinthrop")

20

Texas corporation with its principal place of business in Dallas,

21

Texas, and is owned or controlled by, and affiliated with,

22

Armstrong and his affiliated entities. 6.

2]

25

Plaintiff is informed and believes and thereon

alleges that defendant CCA HOldings, Inc.

2A "!

is a

(nCCA Holdings")

is a

Texas corporation with its principal place of business in Dallas,

26

C~PLAOH

-2-

~ith,

Texas, and is owned or controlled by, and affiliated 2

Ar~strong

and his affiliated entities. Plaintiff is informed and believes and thereon

7.

]

alleges that deEendant CCAJ corporation (#CCAJ U )

is a Texas

5

corporation with its principal place of business in Dallas, TeX3s,

6

and is owned or controlled by, and affiliated with, Armstrong and

7

his affiliated entities.

9

Plaintiff

8.

8

i~

informed and believes and thereon

alleges' that defendant Chase Development Corp.

(HChase

is a Texas corporation with its principal place oE

10

Development")

II

business in Dallas, Texas, and is owned or controlled by, and

12

affiliated with, Armstrong and his affiliated entities. 9.

13 1.:1

15 16

17

alleges that defendant Cal-Pacific Management Corp. Pacific H

20 21

22

25

(UCal-

is a Texas corporation with its principal place of

aff~liated

Te~as,

and is owned or controlled by,

and

with, Armstrong and his affiliated entities.

10.

Plaintiff is informed and believes and thereon

alleges that defendant Chayson Mortgage and Investment Company ("Chaysonn)

is a Texas corporation with its principal place of

business in Dallas, Texas, and is owned or controlled by, and

affiliated with, Armstrong and his affiliated entities. 11.

2J 24

)

business in Dallas,

18 \9

Plaintiff is informed and believes and thereon

Plaintiff is informed and believes and thereon

alleges that defendant C.R. Acquisitions, Inc. Acquisitions")

is a Texas corporation with its principal place of

26

CO".PLA1HT

("C.R.

-J-

business in Dallas, Texas, and is owned or controlled by, 2

affiliated with, Armstrong. and his affiliated entities. 12.

J

Plaintiff is informed and believes and thereon

alleges that defendant DEI, 5 6 7

10

11 12

owned or controlled by,

15 16

1J.

19

20 21

22

is a Texas corporation and is

and affiliated with, Armstrong and his

Plaintif: is informed and believes and thereon

alleges that defendant Suisse Texas I Texas corporation

w~th

its

pr~ncipal

Inc.

("Suisse Texas")

is a

place of business in Dallas,

Texas, and is owned or controlled by, and affiliated with, Armstrong and his affiliated entities.

14.

Plaintiff is informed and believes and thereon

alleges that defendant H.T.

International is an entity owned or

controlled by, and affiliated with, Armstrong and his affiliated entities. 15.

17

Ie

(HOEIH)

affiliated entities.

13 \4

Inc.

with its principal place of business in Dallas, Texas,

8 9

and

Plaintiff is informed and believes and thereon

alleges that defendants Dresdner Enterprises, Petrole~,

Inc"

Inc.,

Dresdner

and Dresdner Financial Management Corporation

(collectively "Dresdner") are Texas corporations with their principal place of business in Dallas, controlled by,

Te~as,

and are owned or

and affiliated with, Armstrong and his affiliated

entities. 23

16.

Plaintiff is informed and believes and thereon

2.<1.

25 26

alleges that defendants Knightsbridge companies,

Inc. and

Knightsbridge Guaranty Company (collectively "Knightsbridge") are

(()jPLAINr

-4-

Texas corporations with their principal place of business in

2

Dallas, Texas, and are owned or controlled by, and affiliated

)

with, Armstrong and his affiliated entities. 17.

Defendants Remington, Winthrop, CCA Holdings, CCAJ,

5

Chase Development, Cal-Pacific, Chayson, C.R. Acquisitions, DEl,

6

Suisse Texas, H.T.

7

sometimes-collectively be referred to as the UArmstrong

8

Cornpanie5.

International, Dresdner and Knightsbridge will

1J

JURISOICTION AND VENUE

9

18.

)0

This is an adversary proceeding brought pursuant to

Bankruptcy Rule 7001,

\1

19.

12

11 U.S.C.

§§S41(a)

I

542,

544,

and 548.

This Court has jurisdiction of this adversary

proceeding pursuant to 28 U.S.C. §§151, 157, and 1334.

13

proper pursuant to 2B U.S.C.

1d

20.

15

§1409.

This adversary proceeding

a core proceeding

pursuant to 28 U.S.C. §157 and this Court may enter a final

16

judgment herein.

17

GENERAL

18

21.

19

~LLEGATIONS

Plaintiff is informed and believes and thereon

alleges that an involuntary bankruptcy petition was filed against

20

the Debtor on March 20, 1991.

'2 \

Prior to filing the petition, the

Debtor operated as a tax deposit and payment service.

The

plaintiff, the Chapter 11 Trustee in this case, was appointed on

23

March 26, 1991.

25

Venue is

The Debtor, by and through the Trustee, continues

to operate a payroll tax deposit and payment service. 'I

I

26 CO'1PLAlHT

-5-

22.

Plaintiff is informed and believes and

the~eo~

"}

alleges that Armstrong is an insider of the Debtor.

)

the sole shareholder and chairman of the Debtor from March

J

when he purchased

5

Armstrong owns or controls all oE the Armstrong companies. 23.

b

~he

Armstror.g

',,:~.:.

~9a9,

Debtor, until the petition was filed.

On various different dates over the period in which

7

Armstrong controlled the Debtor large sums of money belonging to

e

the Debtor were transferred directly or indirectly to various of

9

the Armstrong Companies,

including without limitation Dresdner,

10

Remington, Knightsbridge, and Winthrop.

II

bOOKS

12 1J 1.4

15

and records show that (a)

for example,

Debtor's

in January and February of 1991

approximately $11,000,000 was transferred from Debtor directly to Knightsbridge,

(b)

Debtor'

5

funds were transferred to an account

at Merrill Lynch which were then transferred to Bank One in Dallas and then transferred to Knightsbridge, and (c) on numerous dates in 1990 funds were transferred from Debtor to the Merrill Lynch

17 I

a

19 20

account and then

23

26

in various of the Armstrong Compan ies

transfers--from Debtor -directly or indirectly to Armstrong

Companies will be referred to herein as PAffiliate Transfers n 24.

•

All, or virtually all, of the Affiliate Transfers

came from funds being held by Debtor for payment of tax ~ligations

of Debtor's clients.

25.

2.4

25

invested /

such as Dresdner, Remington, Winthrop, and Knightsbridge. Such

21

22

II

In October 1990/ the internally prepared financial

statements of the Debtor show an intercompany receivable of $68,800 , 000 which evidences that the total Affiliate Transfers

CCJoI,PLA!NI

-6-

were at least in that amount.

Plaintiff and Plaintiff's

2

accountant have searched the files of Debtor and questioned

3

relevant staff of Debtor, but have found no collateral,

4

agreements, notes, or interest payments relating tG these

5

transfers.

26.

6

~~e

securi~y

In 1990, Debtorls internally prepared financial

7

documents reflect short term indebtedness owed by Knightsbridge to

8

Debtor in an amount of $B,175,021.55 reflecting apparent transfers

9

in approximately that amount from Debtor to Knightsbridge. accoun~ant

have searched the files of

10

Plaintiff and Plaintiff's

II

Debtor and questioned the relevant staff of Debtor, but have found

12 IJ

no notes, agreements,

16

27.

19

20 21

made. 28.

Plaintiff is informed and believes and alleges on

that basis that some of the funds comprising the Affiliate Transfers were fUrther distributed from the initial recipient company to one or more other companies among the Armstrong Companies. 29.

22

23

Plaintiff is informed and believes and alleges on

that basis that Armstrong caused the Affiliate Transfers to be

17

IB

collateral or security

relating to such transfers.

14

IS

interest payments I

Plaintiff is informed and believes and alleges on

that basis that large sums of money ostensibly advanced by one or

more of the Armstrong Companies were used (a) to purchase, rent or

25 26

lease real property, goods or services for the personal use a.ndjor enj oyment of Armstrong,

C~Pl.ldllf

(b) "Co make investments or acquisitions

-7-

I

I'

I

for the benefit of Armstrong,

I

(c)

to make large gifts , c!onatic:-.5,

2

or contributions at the direction and for the benefit of

J

Annstrong,

(d)

for a fund to protect against litigation or ci-"il

or criminal liability of Armstrong,

5

the

or (e)

for other

pu~~oscs

of indirect benefit of Armstrong.

direc~

30.

Plaintiff is informed and believes and alleges on

7

that basis that the Armstrong Companies that advanced large sums

8

of money referred to in

9

not sufficiently profitable to generate such sums on their own

subpa~aqraph

E immediately above (a) were

10

operations.

II

directly or indirectly from Debtor as part of the Affiliate

12

Transfers. J1.

l)

14

and (b) were the recipients of large sums of money

Plaintiff has been informed of and believes the

following and on that basis alleges: a)

15

Some or all of the Armstrong Companies that

16

received Affiliate Transfers were not profitable and that some of

17

the funds received from Debtor were used to pay operating expenses

IS

of the recipient Affiliate Company. b)

19

Upon obtaining control of the Debtor, ~2

20

Armstrong wired approximately

21

holding company for some of the Armstrong Companies.

12

funds

23

the Debtor had executed to Mr. Stanley Rosenberg and that

2<1

Armstrong had agreed to pay as the "price" for buying the Debtor.

J

26

out of these

Armstrong retired a $600 J 000 note ..... hich the pr ior owners of

c)

25

million from the Debtor to the

In July. 1989, Armstrong transferred

approximately $3 million of funds belonging to the Debtor to

CCPlPlAllII

-8-

Dresdner Enterprises,

Inc., a company which formerly owned

th~

Debtor and is currently owned by Armstrong.

d)

In August, 1989, Armstrong transferred $7

million af the DebtarJ s money to an account of Dresdner S

Ente~prises,

6

Armstrong or one of the Armstrong Companies was

in order to purchase a shopping center that

Inc.

..,

In february,

e)

I

milli~n

buyi~g.

1990 Armstrong transferred

of the Debtor's funds to Winthrop for

B

approximately $10

9

purchase of a showpiece ranch of about 2,000

acre~

for Armstrong's

A loan in the amount of approximately $6.4

10

personal residence.

Ir

million was booked to Armstrong, who gave a deed of trust on the

12

property to Winthrop.

\J

to the Debtor.

\ Ai

15 16

19

20 1\

Portions of the $10 million from the debtor were

also used for improvements on Armstrong's ranch,

including abouc

$2.4 million spent on a cutting horse arena, and for prepaid interest on Armstrong's note. f 1

\7 18

Winthrop in turn assigned the deed of trust

In October 1990, the $68,BOO,OOO intercompany

receivable was divided into two obligations.

One obligation is

shown an the books of Debtor as a long-term Ubond N in the amount The other obligation is shown on the books of

of $57 million.

Debtor as "affiliated notes" and a Nlong term debt" of $11,8

million from Winthrop to the, Debtor.

No repayment of these

intercompany receivables has been found by Plaintiff to be shown

on Debtor's books. g)

25 26

On an unknown date,

Armstrong transferred some

53 million of the Debtor's funds into one of the Armstrong

CCJol~lAIHI

-9-

i~

Cornpanies--Dresdner Petroleum--to purchase oil and gas leases

the name of Dresdner Petroleum.

h)

) ~ave

Armstrong personally used funds believed

come from the Debtor for unauthorized purposes.

For example,

5

Armstrong purchased a Jaguar automobile for S10S/000,

6

Royce for $lJS,OOO, at charity events.

~

I

8

)1

12 I)

14

!5

18

19

20 21

22 23 24 25 26

Gre~bling

He contributed hundreds of thousands of

using Debtor's funds.

He was drawing a salary of some

$21,000 every two weeKS--Dver SSOO,OOO a year--from his various

entities which were, from Debtor.

He

in turn, drawing funds for operating

~ented

e~penses

a suite at the Mark Hopkins Hotel in

San Francisco for approximately $160,000 per year.

On information

and belief, all the funds for these purchases and expenses were diverted from the Debtor. In December 1988, the Debtor had on its books

i)

16 17

3nd a Rolls

He also purchased a BMW

for $36,000 for a vice-president of Debtor, Christine

dollars to political campaigns. iO

~o

a series of unsecured illiquid loans to its then sole shareholder,

MaxPharma, Inc.

o~

affiliates of MaxPharma, Inc.

These illiquid

affiliate loans amounted to approximately $14 million. affiliate loans were

thereafte~

Additional At

made, increasing that amount.

the time Armstrong purchased the Debtor in March 1989, there were approximately $14-18 million of affiliate loans on the Debtor's books.

The purchase by

A~mstrong

closed on March 29, 1989.

April 10, 1989, an ~rmstrong Affiliate,

On

Dresdner Enterprises,

Inc., purchased the $1B.9 million of intercompany receivables for a note which was backed up by approximately $1.5 million worth of

COMPLAINT

-10-

collateral.

Hence,

on behalf of the Debtor, Armstrong

appar=~~~:

had a period of time in which it could have sued l1axPharna's

affiliates for this $18.9 million of receivables.

Instead, one __

the Armstrong companies at Armstrong's direction, bought out those 5

receivables for notes having questionable value. j)

6

After Armstrong acquired the Debtor,

the

7

Debtor became the primary source of fu.nding for all Armstrong's

8

Dallas operations.

9

The Armstrong Companies required some $400,000

a month in operating CQsts--almost $5 million a year--apart from

10

any operating costs incurred by the Debtor itself.

\1

such operating costs were obtained from the Debtor.

k)

12

13

16

\7

\8 \9

20 2\

22 2)

24 25 26

In l-larch 1991 hrrnstrong invested SJ,DOO,OOO to

acquire ?arker Automotive. 1)

l.l IS

The funds for

transte~red

Armstrong caused Debtor's funds to be

to the Armstrong companies by various methods,

including the following:

One of the Debtor's employees would

write checks payable to federal, state or local taxing authorities on behalf of the Debtorls clients.

Those checks would be

processed through the Debtor's computer, and this would automatically create a ledger entry reflecting that the check had been issued.

This ledger entry was necessary so that on the books

of the Debtor and other appropriate financial documents, it appear as if the check had actually been written. had been processed in this manner,

~ould

After the check

the Debtor had another employee

physically pull such checks before thEy were mailed or deposited in a federal depository bank.

Instead of transmitting such checks

CCtlPLAIWT

-11-

to the taxing authorities,

Debtor would physically hold the C:-.2:::':3

2

Eor an average of three months,

]

end of the three-month period, the Debtor would then void the

.J

original held-back check.

5

covered by sUfficient new funds.

6

through diversion af clients' funds.

7

to the authorities, and this new check would have to be held, thus

8

repeating the process.

m)

9

10 II

)~

23

]:2 .

A new check would be issued

~Un

If tt= cash flow showed that the out of funds,

Armstrong would transfer the These funds were then

Plaintiff realleges and incorporates by reference

Paragraphs 1 through 31. To the extent that the claims herein arise pursuant

to Bankruptcy Code Section S44(b), plaintiff is asserting the

rights of all of the unsecured creditors with an unsecured claim allowable in the bankruptcy case, which were creditors at the time of the complained of 34.

25

The new funds were obtained

COUNT ONE (Recovery of Fraudulent Transfer Pursuant to § 548 and California Civil Code §§ )4]9.04 and J4]9.05)

33.

22

~~2

distributed to whichever Armstrong companies needed them.

17

21

At

A new Hgood H check would be issued

Debtor's funds to the DalleS office.

10

20

quarter.

Arnstrong's Dallas staff prepared a weekly

the next several months.

l5

\B

ne~t

cash summary projecting the Armstrong companies' cash needs for

entities would soon 1J

until the

transac~ions.

Armstrong has caused current assets of the Debtor

to be transferred to defendants without adequate or fair,

26 COMPLA 1)/1

-12-

and

ration,

often without any cons 1

liabilities of the

]

35. defe

5

B

The transfers of assets

:::'0

ants were made while the Debtor was ins01

than areas

reason of the fo

ng,

37.

less than a reasonably equivalent value. 38.

17

\a \9

Californ

n

By reason of the foregoi

transfers are

il Code

§

Code,

and

34J9.05,

Code § 544(b).

The transfers of assets from the Debtor

~o

defendants were made while the Debtor was engaged in business or a transaction for which its remaining property was an unreasonably small capital and were made

less than a reasonably

ivalent

value.

40. voi

By reason of the fa

I

the transfers are

1e pursuant to § 548(B) (2) of the Bankruptcy

California Civil Code § 3439.04 and Bankruptcy Code § 41.

il 2,.

C 39.

10 21

544(b).

voidable pursuant to section 548(a) (2) of

\5 16

§

the Debtor to become insolvent and were made for

I!

1.:1

Code,

transfers of assets (rom the Debtor to the

defendants

12

less

the said transfers are

california Civil Code § 3439.05 , and Sa

10

!3

and

voidable pursuant to § 548(a) (2) of the Bank

9

the

lent value.

y

36.

CI

7

t~e

while retaining all of

transfers of assets

e for the transfers, and the

26

CQIoIPLAlhiT

-1)-

5~4(b).

the Debtor to the

y

defendants were made without rece

25 ,

e,

r i

lent value to incur/

or believed or reasonably

2

incur, debts 42.

J

vo

5

of the Bankruptcy Code.

6

4J.

9

13

IB

trans

defendants were made wi

's cr 46.

voidable pursuant to California C

Code.

of assets from

Debtor to the

actual intent to hinder, delay or ors.

By reason of the foregoing, the transfers are §

548{a){1) of the Bankruptcy

i1 Code § 34J9.04

§ S44(b)

e,

of the Bankruptcy

Code. , plaintiff

\9

20

an

By reason of the foregoing, the transfers are

45.

IS

17

Debtor intended to incur debts

y as such debts matured and for less

to

14

i6

the Debtor to che

voidable pursuant to § 548(a) (2) of the

12

544(~)

Ly equivalent value. 44.

10 II

The transfers of assets

ili

its

a

the transfers are

pursuant to California Civil Code § 34)9.04 and §

defendants were made while

B

~culd

y as they became cue.

to

By reason of the foregoing,

4

7

iIi

its

ve believed that it

d

ys for relief as set forth

hereinbelow.

21

22

47.

23

1

24

48.

26

a

iff reall

es and incorporates by reference

46, inclusive. By vircue of the wrongful acts d

above,

defendants have been unjustly enriched and hold the Debtor's

CCl'tPlAllH

-14-

• C~ . .

belonging to the Debtor's estate, and any proceeds of those

_3.

~oney

:2

as well as any assets received from or acquired with

)

re=eived from the Debtor, as constructive trustees for the

4

of the Debtor's estate.

ccne~~:

WHEREFORE, plaintiff prays for relief as set forth

5

hereinbelow. COUNT THREE (Turnover of Property Pursuant to §

7

542)

B

Plaintiff realleges and incorporates by reference

9

49.

10

Paragraphs 1 through 48,

tI

50.

inclusive.

Prior to the filing of the petition, the Debtor

transferred its property to defendants. I]

1.1

of money and other property which is property of this estate, as set forth hereinabove. 51.

15

16

17

18 19

The property of the estate referred to in the

preceding paragraph. or proceeds of such property, is now in the possession of the Defendants.

Defendants have failed and refused

to surrender such property, or the proceeds thereof to the trustee.

WHEREFORE. plaintiff prays for relief as set forth

20

21

Such property consisted

hereinbelow. COUNT FOUR (Injunction)

22 2)

52. 2S

Plaintiff realleges and incorporates by reference

paragraphs 1 through 51,

inclusive .

26

C(){Pl" I tiT

-15-

• 53. to Ban

J

F.R.C.P.

j

disposing Dr altering the

5

documents and in fornat ion in

6

control concerning the use and trans

7

Plaintiff is also entitled

e

defendants to

If

the estate in defendants'

10

refrain from dissipating,

II

funds rece

§ 65}

restraini

Code § 105 a:1d

from destroying

5

othe r"',,' is

ot'

estate, and other

of

, custody or

sess

nts'

~o

purs~2~:

of the

tor's funds.

injunctive relief order

iately turn over to plaintiff all

Y of

session, custody or control and to transferr!

I

or encumbering assets or

from the Debtor or acquired

the Debtor'S

assets or

WHEREFORE, plaintiff prays for rei

\J 1&

injunctive relief

Rules 7001(7) and 7065 1 Bankru

1

12

~o

aintiff is encitled

f

as set forth

hereinbelow.

15 16

54.

17

18

paragraphs 1

55.

19

20 21

Oebtor and

by

53,

inclusive.

By virtue of the acts set forth in

such conversion has great

s 23

damaged Debtor.

for relief as set forth

low.

24

26 C~PtAllIl

r

has converted assets of the

WHEREFORE, plaintiff herei

by reference

f f real leges and

through 31 hereinabove, Arrnst

22 23

Pia

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• COUNT SIX (Breach of Fiduciary Duties)

) 4

5 6

7

56.

iiaintiff ~eallege5 and incorporates by r~feren~~

paragraphs 1 through 55, 57.

inclusive.

As chairman of Debtor, Armstrong at all relevant

times owed fiduciary duties to Debtor. 58.

By virtue of the acts and conduct set

for~h

in

8

paragraphs 23 through )1 hereinabove, Armstrong has breached his

9

fiduciary duties owed to the Debtor in that he haG knowingly

in self-

10

entered into numerous conflicts of interest, has engaged

11

dealing to the detriment of the Debtor, has failed to act in the

i2

best interests of the Debeor, has failed to control and manage the

13

assets of Debtor in a prudent manner,

14

assets of the Debtor, and has by such breaches of fiduciary duty

15 16

17

and has misappropriated

caused great damage to the Debtor.

WHEREFORE, plaintiff prays for relief as set forth hereinbelow. COUNT SEVEN (Breach of contract)

18 19

'20 21

59.

Plaintiff realleges and incorporates by reference

paragraphs 1 through 58, inclusive. 60,

According to che bOOKS and records of the Debtor,

the Armstrong Companies have obligations totaling $69.8 million to the Debtor under junk bonds, 25 26

obligations.

p~omissory

notes or other

On informaLion and belief, interest on such notes

and obligations due to the Debtor has not been paid by the

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•

'.

companies owing such obligations in violation of the terns and 2

conditions thereof and therefore are in breach of such obligations,

J

61.

Debtor has performed all obligations on its

par~

:0

5

be performed except those excused by the conduct of defendants or

6

by virtue of other causes,

7

WHEREFORE,

8

1.

?

\0 1\

12 1) 1J !5

\6 \7

18 19

20 21

;2 2)

24

plaintiff prays for relief as follows:

For an injunction restraining defendants from

dissipating, transferring[

or encumbering assets or funds received

from the Debtor or acquired with the Debtor's assets or funds. 2.

For an injunction or order requiring defendants to

surrender the property of the estate, or the proceeds thereof, to the Trustee, and to render an accounting to the Court for the disposition by defendants of such property.

J.

For the imposition of a constructive trust on

plaintiff's funds and any proceeds of those funds in defendants' possession, custody or control and on any assets in defendants' possession, custody or control received from or acquired

wi~~

money received from the Debtor. 4.

For judgment against defendants for an accounting

of all payments and transfers of the Debtor'S property by defendants to the 5.

e~tent

such transfers were fraudulent.

For an order avoiding all transfers to the

defendants to the extent such transfers were fraudulent.

25 '16

-18-

6. o~der

2

an

)

plaintiff,

For a judgment in the total amount avoided,

directing payment of such amount by

deEendan~s

a~=

~o

plus interest thereon at the legal rate.

J

7.

For compensatory damages according to proof.

5

8.

For exemplary damages in a sum sufficient to dete:

6

defendants from similar conduct in the future. 9.

7

for such other and further relief as this Court

a

deems appropriate.

9

Dated:

~ '2/ /'71/ FELDMAN, WA.LDMAN [. KLINE

10

A Professional Corporation

II

~/~

, ;~-

--/../

Byl-~,,~!~

L.~. chris Martiniak Attorneys for Trustee Frederick S. Wyle

1J 1.:1.

1.5 16

17

l8 19

20 21

25

26 C()IPlA I lIT

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