Free Amended Complaint - District Court of Arizona - Arizona

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STEVE BROWN & ASSOCIATES, LLC
1414 EAST INDIAN SCHOOL ROAD, SUITE 200 PHOENIX, A RIZONA 85014 (602) 264-9224

Steven J. Brown (#010792) [email protected] Steven D. Nemecek (#015219) [email protected] Attorneys for Trustee UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA DIANE MANN, Trustee; et al., CIV-02-2099-PHX-RCB Plaintiffs, v. GCTR GOLDER RAUNER, L.L.C., a Delaware limited liability company; et al., Defendants. AMENDED COMPLAINT IN In re: LEAPSOURCE, INC., Debtor. DIANE MANN, Trustee, Plaintiff, CASE NUMBER 02-2325 consolidated with CIV-02-2325-PHX-RCB BK-01-9020-PHX-JMM Adv. No. 02-1202

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v. ICG GROUP, INC., an Arizona corporation; MICHAEL MAKINGS and MARCIA MAKINGS, husband and wife, Defendants.

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Defendants not having yet answered the original Complaint, Plaintiff hereby amends same as follows: JURISDICTION AND VENUE 1. This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§

1334 and 157. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F) and (H). Venue is proper in this Court pursuant to 28 U.S.C. § 1409(a). PARTIES 2. On or about July 11, 2001, Debtor filed a Chapter 7 Petition and commenced this

case. Plaintiff Diane Mann was appointed as Trustee and is authorized by statute to bring this action on behalf of the bankruptcy estate. 3. Defendant ICG Group, Inc. ("ICG Group") is an Arizona corporation. ICG Group was

incorporated on March 16, 2001. 4. Michael Makings ("Makings") is a former Chief Executive Officer of Debtor and upon

information and belief is currently the Chief Executive Officer and majority shareholder of
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Defendant ICG Group. 5. Marcia Makings is named as a defendant herein solely for purposes of binding

Makings' marital community. Michael Makings and Marcia Makings are residents of Maricopa County, Arizona. GENERAL ALLEGATIONS

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6.

Debtor was founded on or about September 15, 1999. Debtor received a venture

capital commitment from a company called GTCR Fund VI LP ("GTCR") for $65 million and began an aggressive expansion strategy that entailed purchasing already-existing businesses.

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7.

Debtor wanted to acquire the assets of an already-existing business called ICG

Consulting, Inc. ("ICG Consulting") in order to acquire the imaging and workflow processes and very valuable intellectual property owned by ICG Consulting. Debtor also wanted to acquire the valuable client relationships ICG had including ongoing relationships with Alliance Foods, Fleming Food and DHL Airways. Makings and John Dilenschneider were the shareholders of ICG Consulting. Makings was the CEO of ICG Consulting. 8. By Asset Purchase Agreement dated January 1, 2000, Debtor purchased

substantially all of the assets of ICG Consulting for a purchase price of $10 million. Debtor paid $5 million in cash at or near closing ($2.5 million to Makings and $2.5 million to Dilenschneider) and delivered $5 million worth of notes ($2.5 million note owed to Makings and $2.5 million note owed to Dilenschneider). 9. Over the next year, Debtor paid the $2.5 million note owed to Dilenschneider but

did not pay the $2.5 million note owed to Makings. 10. Following Debtor's purchase of the assets of ICG Consulting, Debtor treated the

ICG Consulting assets as a division within Debtor that was sometimes referred to as the ICG Division. 11. After the asset purchase, Dilenschneider ceased all involvement with Debtor and

the workflow imaging business formerly operated by ICG Consulting. Makings, on the other hand, was hired as an executive at Debtor, primarily to continue to operate what was the ICG division of Debtor, and to help transition that business into Debtor and Debtor's existing customer relationships.

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12.

Following Debtor's purchase of the assets of ICG Consulting, Makings joined

Debtor as Director of Consulting and Professional Services, and by unanimous consent of the Board of Directors was immediately made Vice President. He also became a Director, the Chief Operating Officer and eventually became Chief Executive Officer. 13. By late 2000 or early 2001, GTCR (the venture capital firm) had taken operating

control of Debtor, terminated its venture capital funding, and caused Debtor to begin liquidating its assets and terminating its various leases of office space in the Phoenix area and Washington, D.C. to prepare for a bankruptcy filing. 14. Makings became Debtor's Chief Executive Officer in or around February 2001

during Debtor's liquidation of assets. 15. 16. On or about March 16, 2001, Makings incorporated a new entity called ICG Group. On or about March 22, 2001, Makings formally resigned as a Director from

Debtor's Board, which resignation was not formally accepted by the Board until March 29, 2001. 17. The very next day after Makings' resignation from the Board, but before his

resignation was technically accepted by the Board, Debtor "sold" its ICG Division to Makings' new entity called ICG Group by Asset Purchase Agreement dated March 23, 2001. The purported consideration for that transfer was Makings' forgiveness of the $2.5 million unsecured note that Debtor owed to Makings and about $40,000 in cash. 18. Debtor filed for Chapter 7 relief on July 11, 2001, and Trustee was appointed. COUNT ONE (11 U.S.C. § 548: Fraudulent Transfer--ICG Group and Makings)

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19. this Count. 20.

The Trustee incorporates and realleges all previous paragraphs as if set forth fully in

Makings and/or ICG Group received a transfer of an interest of Debtor in property,

namely, the ICG Division assets. 21. Makings and/or ICG Group did not provide to Debtor reasonably equivalent value

in exchange for the ICG Division assets. Even though Debtor had originally purchased the ICG Division assets for $10 million on January 1, 2000, Debtor sold those same assets back to Makings and/or ICG Group just a little over 13 months later on March 23, 2001 for only Makings' forgiveness of the $2.5 million unsecured note owed to Makings and about $40,000 in cash. In fact, Debtor transferred to ICG Group even more assets that Debtor originally bought from ICG Consulting, including valuable proprietary software called "CXO Desktop" and possible others. 22. The unsecured note, of course, had little value at the time of the transfer because

Debtor already was planning a Chapter 7 bankruptcy and did not have the ability to pay that note. Makings had also already declared Debtor in default under the note. Thus, less than four months before filing bankruptcy, Debtor transferred a $10 million dollar business to its CEO, Makings, and/or ICG Group and received in return forgiveness of a worthless unsecured note and about $40,000 cash. 23. On information and belief, such transfer was made with actual intent to hinder, delay,

or defraud any entity to which Debtor was or became, on or after the date that such transfer was made, indebted.

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24.

Debtor received less than a reasonably equivalent value in exchange for such transfer;

and (i) was insolvent on the date that such transfer was made, or became insolvent as a result of such transfer; (ii) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with Debtor was an unreasonably small capital; or (iii) intended to incur, or believed that Debtor would incur, debts that would be beyond Debtor's ability to pay as such debts matured. 25. Pursuant to 11 U.S.C. § 548(a), the Trustee may avoid any fraudulent transfers made

within one year before the date of the filing of the petition. 26. Pursuant to 11 U.S.C. § 550(a), the Trustee may recover the property transferred, or, if

the Court orders, the value of such property. WHEREFORE, Trustee demands that the Court enter judgment against Defendants Makings and Defendant ICG Group as follows: A. B. Avoiding the above-described transfer of the ICG Division assets; Ordering Defendants Makings and/or Defendant ICG Group to pay to the Trustee the

value of the assets transferred; and C. For such other and further relief as the Court deems just and proper. COUNT TWO (Aiding and Abetting Fraudulent Transfer--Makings) 27. this Count. 28. As described above, the transfer of the ICG Division assets constituted a fraudulent The Trustee incorporates and realleges all previous paragraphs as if set forth fully in

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transfer that the Trustee is entitled to avoid. 29. To the extent that the transfer was made to ICG Group only and not Makings

personally, Makings still aided and assisted that fraudulent transfer to his entity known as ICG Group. He is therefore liable for that transfer in his individual capacity under an aiding and abetting theory. 30. Makings' actions in aiding and assisting the transfer were willful, showing wanton

disregard for the rights of Debtor and obligations owed by Debtor to its creditors, especially given his position as CEO within Debtor. Moreover, such actions were oppressive, outrageous, willful, malicious, intolerable and performed with an evil mind so as to justify an award of punitive damages. WHEREFORE, Plaintiff demands that the Court enter judgment against Defendants Makings as follows: A. For compensatory, actual and foreseeable damages resulting from Makings'

actions in an amount to be proven at trial; B. C. For punitive damages for Makings' wanton and willful acts; For post-judgment interest on the foregoing sums at the maximum rate allowed

under law; and D. For such other and further relief as the Court deems just and proper. COUNT THREE (Preferential Transfer--ICG Group and Makings) 31. The Trustee incorporates and realleges all previous paragraphs as if set forth fully in

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this Count. 32. The $2.5 million unsecured note that Debtor owed to Makings constituted an

antecedent debt. 33. The consideration under the March 23, 2001 Asset Purchase Agreement between

Debtor and ICG Group was Makings' forgiveness of the $2.5 million unsecured note owed to Makings and about $40,000 in cash. As described above, Debtor in reality forgave a worthless antecedent, unsecured note by giving back to Makings, through his entity ICG Group, the very assets that Makings caused to be sold to Debtor just a little over 13 months earlier for $10 million. 34. Debtor's transfer of the ICG Division assets constitutes a transfer of at least a $2.5

million interest of Debtor in property. 35. The transfer was for or on account of a $2.5 million antecedent debt owed by Debtor

to Makings before such transfer was made.
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36. 37.

The transfer was made while Debtor was insolvent. The transfer was made within one year before the filing of Debtor's Petition to an

insider of Debtor. 38. The transfer enabled Makings, and/or his entity ICG Group, to receive more than he

would receive as a creditor if: (a) the bankruptcy case were a case under Chapter 7 of Title 11, United States Code; (b) the transfer had not been made; and (c) Makings received payment of his unsecured debt to the extent provided by the provisions of said Title 11. 39. 40. Pursuant to 11 U.S.C. § 547(b), the transfer may be avoided by the Trustee. Pursuant to 11 U.S.C. § 550(a), the Trustee may recover the value of the transfers.
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WHEREFORE, the Trustee demands that the Court enter judgment against Defendants Makings and Defendant ICG Group as follows: A. B. Avoiding the above-described transfer; Ordering Defendants Makings and/or Defendant ICG Group to pay to the Trustee the

value of the assets transferred; C. For such other and further relief as the Court deems just and proper.

DATED January 20th, 2006. STEVE BROWN & ASSOCIATES, LLC

By /s/ Steven J. Brown #010792 Steven J. Brown Steven D. Nemecek 1414 East Indian School Road, Suite 200 Phoenix, Arizona 85014 Attorneys for Trustee ORIGINAL of the foregoing filed Via ECF this 20th day of January, 2006.

ONE COPY *hand-delivered this 22nd day of January, 2006. Clerk of the Court

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*The Honorable Robert C. Broomfield U.S. District Court, District of Arizona 401 W. Washington Phoenix, Arizona 85003

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Copies mailed this 22nd day of January, 2006 to: Merrick B. Firestone Veronica L. Manolio RONAN & FIRESTONE, PLC 9300 East Raintree Drive, Suite 120 Scottsdale, AZ 85260 Attorney for Defendants ICG Group, Inc, Michael Makings, and Marcia Makings Kevin A. Russell David S. Foster Patrick E. Gibbs LATHAM & WATKINS, LLP Sears Tower, Suite 5800 Chicago, IL 60606 Attorneys for GCTR Golder Rauner, L.L.C. et al Don P. Martin Edward A. Salanga QUARLES & BRADY STREICH LANG, LLP One Renaissance Square Two North Central Phoenix, AZ 85004-2391 Attorneys for GCTR Golder Rauner, L.L.C. et al Richard A. Halloran Jon Weiss LEWIS & ROCA, LLP 40 North Central Phoenix, AZ 85004-4429 Attorneys for Defendants David Eaton and AEG Partners LLC

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John Bouma James R. Condo Patricia Lee Refo SNELL & WILMER LLP One Arizona Center 400 East Van Buren Phoenix, AZ 85004 Attorneys for Defendant Kirkland & Ellis Leo L. Beus Scot C. Stirling Steven E. Weinberger Kevin Breger BEUS GILBERT PLLC 4800 North Scottsdale Road Suite 6000 Scottsdale, AZ 85251 Attorneys for Individual Plaintiffs and Trustee

__________________ Gina Ortega

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