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GARY E. GAMEL Attorney at Law, SBN 59387 2995 Woodside Road, Ste. 400 Woodside, CA 94062 (650) 851 1824 Fax (650) 745-2430 Attorney for Plaintiff UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
EXCLUSIVE USA MARKETING CORPORATION and USA PROCESSING, INC.[as to the Third and Fourth Causes of Action Only], Plaintiff(s), vs. USA PROCESSING, INC., ROBERT CUCINOTTA and KARIM MASKATIYA, Defendants.
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Case No.: No. C03 – 05505 HRL COMPLAINT TO SET ASIDE FRAUDULENT TRANSFERS, CONSPIRACY, COMPLAINT AGAINST DIRECTORS APPROVING IMPROPER DISTRIBUTION TO SHAREHOLDERS BY CREDITOR and COMPLAINT AGAINST SHAREHOLDERS FOR RECEIVING IMPROPER DISTRIBUTION BY CREDITOR. .
JURY TRIAL REQUESTED BY PLAINTIFF EXCLUSIVE USA MARKETING CORPORATION
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PARTIES 1. Plaintiff, EXCLUSIVE USA MARKETING CORPORATION (“Exclusive”) is, and at
all relevant times was, a corporation organized and existing under the laws of the State of Nevada. 2. Defendant, USA PROCESSING, INC. (“USAP”), is, and at all times mentioned herein
was, a corporation, organized and existing under the laws of the State of California, with its principal place of business in Santa Clara County, California. 3. Defendant ROBERT CUCINOTTA (“Cucinotta”) is an individual who, together with co-
defendant Karim Maskatiya, formed and owned (through issued and outstanding shares) USA Processing. At all times mentioned herein, Cucinotta lived and worked in Santa Clara County, California. 4. Defendant KARIM MASKATIYA (“Maskatiya”) is an individual who, together with co-
defendant Cucinotta, formed and owned (through issued and outstanding shares) USAP. At all times mentioned herein, Maskatiya lived in San Mateo County, California and worked in Santa Clara, California. 5 At all times mentioned herein, Cucinotta and Maskatiya were the sole officers, directors
and shareholders of USAP. VENUE AND JURISDICTION 6. The individual defendants live and work within the boundaries of the Northern District,
and plaintiff at all relevant times had offices and conducted business within the Northern District. Moreover, many of the illegal acts complained of occurred within the boundaries of the Northern District, and the judgment sued upon was entered within the boundaries of the Northern District. Venue in this Court is therefore proper.
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7.
Jurisdiction in this Court is appropriate because the matter in controversy exceeds the
sum of $75,000.00, exclusive of interest and costs, and is between citizens of different States (28 USC § 1332). GENERAL ALLEGATIONS 8. On or about January 1, 1996, Michael McMackin and David McMackin (collectively, the
“McMackins”) entered into an agreement titled “Net Proceeds Agreement” (“NPA”) with USAP, which agreement was an exclusive marketing agreement with a thirty-year term. 9. Pursuant to the expressed terms of the NPA, the McMackins were required to make
payments totaling $500,000.00 to USAP in order to secure their full and complete rights and the NPA, which payments were made. 10. On or about January 1, 1996, the McMackins were assigned offices within the office
space leased by USAP and the McMackins began performing pursuant to the NPA. 11. Paragraph 38 of the NPA provided, in part, that McMackins shall be permitted to assign
the NPA and all of its rights and obligations to a domestic corporation, which the McMackins did, notifying USAP accordingly. Exclusive is the successor entity to the McMackins, who assigned all of their rights and obligations to pursuant to Paragraph 38 of the NPA. 12. By a letter dated October 18, 1999, USAP notified the McMackins/Exclusive of USAP’s
election to buy out the McMackins/Exclusive’s interest in the NPA. A copy of the October 18, 1999 letter is attached hereto as Exhibit A and incorporated herein as if fully set forth. 13. The McMackins/ Exclusive acknowledged that the October 29, 1999 termination date
ended their/its performance pursuant to the NPA, but the McMackins/Exclusive believed the $1,309,768.01 settlement amount (“Buy Out Amount”) stated in Exhibit A was less than was owed pursuant to the terms of the NPA buy out provisions. 13. Letters and various conversations addressing the buy out amount followed. They
included: (a) Exclusive’s attorney Gamel’s letter dated October 21, 1999 to USAP’s Morrison &
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Foerster attorney Lion; (b) Exclusive’s attorney Gamel’s letter dated October 22, 1999 to USAP’s Morrison & Foerster attorney Lion; (c) USAP’s Morrison & Foerster letter authored by attorney Lion dated October 26, 1999 to Exclusive’s attorney Gamel; (d) Exclusive’s attorney Gamel’s letter dated October 29, 1999 to USAP’s Morrison & Foerster attorney Lion; (e) USAP’s Morrison & Foerster letter authored by attorney Lion, dated October 29, 1999 to Exclusive’s attorney Gamel; (f) Exclusive’s attorney Gamel’s letter dated October 29, 1999 to USAP’s Morrison & Foerster attorney Lion; and (g) Exclusive’s attorney Gamel’s letter dated October 31, 1999 to USAP’s Morrison & Foerster attorney Lion. Copies of these letters are collectively attached hereto as Exhibit B and incorporated herein as if fully set forth. 14. Unable to resolve their differences, on November 1, 1999, Exclusive filed an action
against USAP and other defendants in the Superior Court of the State of California for the County of Santa Clara. 15. On November 16, 1999, USAP and the other defendants removed the case to the United
States Court of the Northern District of California, where the action was assigned Case No. C9921133 JW (the “District Court Action”). 16. On January 7, 2002, Exclusive’s attorney Gamel, wrote USAP’s Morrison & Foerster
attorney Wilson, to confirm the buy out sum of $1,309,768.01 was in Morrison & Foerster’s client’s trust account, a copy of this letter is attached hereto as Exhibit C and incorporated herein as if fully set forth. There was no response to this letter. 17. During the prosecution of the District Court Action, a motion filed by defendants
Cucinotta and Maskatiya was supported by a declaration dated January 19, 2001, from Cucinotta, which declaration included supporting documents including various USAP corporate resolutions. Copies of two of those resolutions are attached hereto as Exhibits D and E, respectfully, each of which are incorporated herein as if fully set forth. Exhibit D is a shareholders’ resolution authorizing USAP’s sale of its Merchant Agreements together with certain related assets (the
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“Merchant Business”) to Nova Information Systems, Inc. Exhibit E is a directors’ resolution authorizing USAP’s sale of its Merchant Agreements together with certain related assets (the “Merchant Business”) to Nova Information Systems, Inc. This resolution also states “WHEREAS, the Corporation is selling substantially all of its assets upon consummation of the Agreement; RESOLVED, that other than its obligations pursuant to the Agreement during the Transition Period defined therein, the Corporation shall generally wind up its affairs as soon as reasonably practical.” 18. Attached hereto as Exhibit F is a copy of a Morrison & Foerster cover letter authored by
attorney McKague, dated April 4, 2002. The McKague authored letter had attached to it documents Bates numbered USA 08200 through 08213, which documents are marked as “Confidential – for Attorneys’ Eyes Only under the protective order.” Included in the attached documents, as documents numbered USA 08200 through 08202, are USAP’s Balance Sheets for the periods ending as of December 1996 through October 31, 1999. These documents need to be reviewed to evaluate USAP’s financial condition at the time the buy out letter issued in October, 1999 and at the time of the offer for judgment that resulted in the Judgment of November 6, 2002, in the District Court Action. These documents will be produced upon receipt of an authorizing court order. 19. The District Court Action Judgment of November 6, 2002, in part, awarded judgment in
favor of EUSA and against USAP in the amount of $1,336,106.58. A true and correct copy of the Judgment is attached hereto as Exhibit G and incorporated herein as if fully set forth. 20. On March 24, 2003, Exclusive filed its Opening Brief in the United States Court of
Appeals for the Ninth Circuit, commencing Appeal No. 02-17395, which appeal requests reversal and remand of the trial court’s ruling on the January 22, 2001 Cucinotta and Maskatiya summary motions. As of the date of the filing of this complaint, ruling on that appeal is still pending.
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FIRST CAUSE OF ACTION SET ASIDE FRAUDULENT TRANSFERS [Cal Civil Code §§ 3439.07(a)(1) and 3439.04(a)] 21. 22. Plaintiff refers to and incorporates herein Paragraphs 1 through 20, inclusive. From October 29, 1999, plaintiff was the holder of a claim of not less than $1,309,768.01
against defendant USAP. This claim is based on the allegations and supporting document set forth in paragraphs 11 and 12 above. 23. Judgment in the District Court Action, was entered on November 6, 2002. The judgment,
in part, awarded judgment in favor of Exclusive and against USAP in the amount of $1,336,106.58. See Exhibit G. The judgment as to USAP is final and the time for appeal has expired. Plaintiff Exclusive is still the owner of the judgment of which no part has been satisfied. 24. Up to and including December 8, 1999, based on information and belief, USAP was the
owner and in possession and control of the Merchant Agreements and Merchant Business which is the subject of the two fully executed USAP Resolutions Exhibits D and E. 25. Exhibit D states: “ACTION BY WRITTEN CONSENT OF THE SHAREHOLDERS OF
USA PROCESSING, INC.”, dated December 8, 1999, the Board of USAP requested and received the Shareholders’ authorization to “…sell and transfer all of its right, title and interest in and to the Merchant Agreements together with certain related assets (the “Merchant Business”), as substantially described in the Merchant Asset Purchase Agreement (the “Agreement”) by and between this Corporation and NOVA Information Systems, Inc., a Georgia Corporation (the “Purchaser”), pursuant to the terms and conditions of the Agreement …” wherein it was “RESOLVED, that this Corporation shall sell and transfer the Merchant Business as substantially described in the Agreement; FURTHER RESOLVED, that the Agreement, in substantially the form presented to and reviewed by the Shareholders, and all the agreements referenced therein,
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attached thereto and contemplated thereby, and the terms and conditions thereof, be and they hereby are, approved.” 26. Exhibit E, with a similar preamble to the Resolution as stated in paragraph 25 above,
goes on to state: “ACTION BY WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF USA PROCESSING,” dated December 8, 1999, was executed where it was “RESOLVED, that this Corporation shall sell and transfer the Merchant Business as substantially described in the Agreement; FURTHER RESOLVED, that the Agreement, in substantially the form presented to and reviewed by the Shareholders, and all the agreements referenced therein, attached thereto and contemplated thereby, and the terms and conditions thereof, be and they hereby are, approved.” 27. Plaintiff is informed and believes and thereon alleges that on December 8, 1999, or
shortly thereafter, defendant USAP concluded the sale described in the Agreement referred to in paragraphs 25 and 26 above for a purchase price of $10,000,000.00 (“Sale Proceeds”), and that USAP caused the Sale Proceeds to be transferred to defendants Cucinotta and Maskatiya. 28. On the date of the aforementioned transfer(s) of Sale Proceeds to defendants Cucinotta
and Maskatiya, no part of the $1,309,768.01 Buy Out Amount had been tendered and the litigation to recover the $1,309,768.01 together with the remainder of money claimed due by the plaintiff was still proceeding. Based on the conduct of Cucinotta and Maskatiya, and the USAP Morrison & Foerster attorney Lion authored letter of October 29, 1999, Exhibit B(e), and the admonishment in that letter that states “…our client (USAP) will not fund your client’s litigation…”, plaintiff is informed and believes and thereon alleges that the transfer(s) of the Sale Proceeds to Cucinotta and Maskatiya was/were made with an actual intent to hinder, delay, or defraud plaintiff in the collection of its claims. 29. Plaintiff is informed and believes and thereon alleges that the above-described transfer(s)
or obfuscation of Sale Proceeds were received by defendants Cucinotta and Maskatiya with
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knowledge that defendant USAP intended to hinder, delay, or defraud the collection of plaintiff’s aforementioned claims. Defendants Cucinotta and Maskatiya had knowledge of USAP’s intent by virtue of the fact that they also are the sole officers, directors and shareholders of USAP. SECOND CAUSE OF ACTION CONSPIRACY [Cal Civil Code §§ 3439.07(a)(1) and 3439.04(a)] 30. 31. Plaintiff refers to and incorporates herein Paragraphs 1 through 29, inclusive. As alleged above, on or about October 29, 1999, defendants Cucinotta and Maskatiya
agreed and knowingly and willfully conspired between themselves and USAP to hinder, delay and defraud plaintiff in the collection of its claims against USAP. 32. Under the conspiracy, the above-named defendants agreed that Cucinotta and Maskatiya
should receive the Sale Proceeds and hold them so as to the Sales Proceeds out of the reach of Exclusive and its claims or judgment. 33. Defendants Cucinotta and Maskatiya did the acts and things herein alleged pursuant to,
and in furtherance of, the conspiracy and agreement alleged above. 34. As a proximate result of the wrongful acts herein alleged, plaintiff has been generally
damaged from its initial Buy Out Amount claim to the sum of the judgment amount of $1,336,106.58, together with accrued interest thereon. 35. At all times mentioned herein, defendants Cucinotta and Maskatiya knew of plaintiff’s
Buy Out Amount claim and subsequent judgment against USAP and knew that plaintiffs claims/judgment could only be satisfied out of the Sale Proceeds received from the sale of the Merchant Business to Nova (See Exhibit E). Notwithstanding this knowledge, defendants Cucinotta and Maskatiya intentionally, willfully, fraudulently, and maliciously did the things herein alleged to defraud and oppress plaintiff. Plaintiff is therefore entitled to exemplary or punitive damages.
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THIRD CAUSE OF ACTION DIRECTORS APPROVING IMPROPER DISTRIBUTION TO SHAREHOLDERS [Cal Corp. Code § 316(a)-(d)] BY CREDITOR [Cal Corp. Code § 506(b)] 36. 37. Plaintiff refers to and incorporates herein Paragraphs 1 through 35, inclusive. For the purpose of this cause of action, Plaintiff USA Processing, Inc. (“USAP”) is a
corporation as alleged in paragraph 2, above. 38. Plaintiff Exclusive is a creditor of USAP resulting from an initial claim in the amount of
$1,309,768.01 arising on October 18, 1999 a Buy Out Amount, which claim was subsequently reduced to a judgment on November 6, 2002, in the principal sum of $1,336,106.58. Exclusive’s claim arose on October 18, 1999, prior to the time of the distribution alleged in paragraph 40 below, and Exclusive did not consent to the distribution. Exclusive brings this action on its own behalf and on behalf of and in the name of USAP. 39. 40. Defendants Cucinotta and Maskatiya, at all time relevant hereto, were directors of USAP. Exclusive is informed and believes, and on that basis alleges, that on or about December
8, 1999, defendants Cucinotta and Maskatiya approved distributions of USAP’s cash to its shareholders as either some form of dividend or unearned compensation in an amount sufficient to consume the Cash Proceeds realized from the sale of the Merchant Business to NOVA (See Exhibit E). 41. Exclusive is informed and believes, and on that basis alleges, that the distribution alleged
in paragraph 40 of this complaint was contrary to law in that USAP was unable to pay the Buy Out Amount as it mature. 42. Exclusive did not consent to the distribution. The liability of USAP to Exclusive at the
time of the distribution was $1,309,768.01. 43. As a result of the unlawful distribution alleged in this complaint, defendant directors
Cucinotta and Maskatiya are jointly and severally liable to USAP for the benefit of
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nonconsenting creditor Exclusive in the amount of $1,309,768.01 plus interest on that amount from the date of the distribution at the legal rate or the judgment (Exhibit G) until paid. FOURTH CAUSE OF ACTION SHAREHOLDERS RECEIVING IMPROPER DISTRIBUTION [Cal Corp. Code § 506(a)] BY CREDITOR [Cal Corp. Code § 506(b)] 44. 45. Plaintiff refers to and incorporates herein Paragraphs 1 through 43, inclusive. For the purpose of this cause of action, Plaintiff USA Processing, Inc. (“USAP”) is a
corporation as alleged in paragraph 2, above. 46. Defendants Cucinotta and Maskatiya were the sole shareholders of USAP at the time of
the distribution alleged in paragraph 47, below. 47. On or about December 8, 1999, USAP made a distribution of its cash to its shareholders
by causing to be transferred the Cash Proceeds received from the sale of the assets to Nova (See Exhibit E) to be transferred to them. 48. Exclusive is informed and believes, and on that basis alleges, that the distribution alleged
in paragraph 47 of this complaint was contrary to law in that USAP is unable to meet its liabilities as they mature. 49. Cucinotta and Maskatiya received the distributions alleged in Paragraph 47 (above) with
full knowledge that USAP would not be able to pay the claims and or/any resulting judgment of Exclusive. 50. Exclusive did not consent to the distribution. The liability of USAP to Exclusive at the
time of the distribution was $1,309,768.01. 51. As a result of the unlawful distribution alleged in this cause of action, defendant
shareholders Cucinotta and Maskatiya are jointly and severally liable to USAP for the benefit of nonconsenting creditor Exclusive in the amount of $1,309, 768.01 plus interest on that amount
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from the date of the distribution at the legal rate on judgments until paid. WHEREFORE, plaintiff prays judgment as follows: On the First Cause of Action: 1. That the transfer from defendant USAP to defendants Cucinotta and Maskatiya be set
aside and declared void as to the plaintiff herein to the extent necessary to satisfy plaintiff’s judgment in the sum of $1,336,106.58 plus interest thereon at the legal rate from November ???, 2002; 2. That the property in the hands of defendants Cucinotta and Maskatiya be attached
according to law; 3. 4. That the judgment herein be declared a lien on the property transferred; That defendants Cucinotta and Maskatiya be required to account to plaintiff for all profits
and proceeds earned from or taken in exchange for the porpert described above; On the Second Cause of Action against defendants, and each of them, as follows: 5. Got general damages in the sum of $1,336,106.58, plus interest thereon pursuant to the
Judgment; 6. For exemplary or punitive damages;
On the Third Cause of Action: 7. For damages in the sum of $1,309,768.01, to be awarded USAP for the benefit of
Exclusive; On the Fourth Cause of Action: 8. For damages in the sum of $1,309,768.01, to be awarded USAP for the benefit of
Exclusive; 9. For interest at the legal rate on the amount of the distribution received by each defendant
from and after October 29, 1999; On all causes of action:
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10. 11.
For costs of suit herein incurred; and For such other and further relief as the court may deem proper. __________________________________ Gary E. Gamel Attorney for Plaintiff Exclusive USA Marketing Corporation
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