A second lawsuit has been filed in the Chapter 7 cases related to Raving Brands and its owners, officers and affiliated companies. The first adversary proceeding was filed last week in the Chapter 7 case In re Raving Brands, Inc., Ch. 7 Case No. 09-68410. The latest proceeding was filed in the related case, In re The S&Q Shack, LLC, Ch. 7 Case No. 09-67151.
The latest adversary proceeding is Anderson v. H. Martin Sprock III, Daryl Dollinger, MIBI Investment, LLC, Robert Brand, J. Rutherford Seydel II, J. Randall Hollingsworth, Davis, Pickren, Seydel & Sneed, SP Investments, LLC, MSWG, LLC (f/k/a Moe’s Southwest Grll, LLC), P.J.’s Coffee & Tea, Inc.. Planet Smoothie Franchises, LLC, Raving Brands Holdings, Inc., Raving Brands International, LLC, RB Investments, LLC & Shane’s 41, LLC, Adv. Proceeding No. 12-05429 (filed August 24, 2012) (click here for .pdf copy of the complaint).
An involuntary petition was filed against The S&Q Shack, LLC ("S&Q) on August 27, 2010 and an Order for relief was entered on September 15, 2011. H. Martin Sprock, III was the largest shareholder, and he and Shane Thompson were the only directors. Daryl Dollinger was the president.
The Trustee seeks to recover certain payments as fraudulent transfers pursuant to Section 548 of the Bankruptcy Code, and under Georgia law (the Uniform Fraudulent Transfer Act), as well as the return of estate property for wrongful distributions. The Trustee also seeks disallowance of any claims filed by the Defendants.
The allegations of the Complaint include:
- On January 13, 2009 defendant Sprock and Shane Thompson authorized defendant Dollinger to execute and deliver (i) that certain Contribution Agreement, by and among the Company, Shane’s Rib Shack, LLC and RSPS Holdings, LLC, (ii) that certain Unit Purchase Agreement, by and among the Company, Planet Smoothie Franchises, LLC, and Edmonds, and any other documents necessary to consummate the Rib Shack Sale, by which S&Q would sell substantially all its assets to Edmonds Capital Fund I, LLC (the "Rib Shack Sale").
- As a result of the Rib Shack Sale, S&Q received $4.7 million and the following units of RSPS Holdings, LLC ("RSPS Holdings"): (a) 2,221,451 of RSPS Holdings’ Series A-2 Preferred Units, (b) 2,920,887 of RSPS Holdings’ Series B-1 Preferred Units and (c) 2,657,663 of RSPS Holdings’ Series B-2 Preferred Units, which the Trustee has now sold.
- As shown in the Insolvency Analysis attached as Exhibit A, the Debtor was insolvent on December 31, 2008, immediately before the Rib Shack Sale, and had been insolvent for several years. As a result of the Rib Shack Sale, the Debtor became solvent.
- On January 20, 2009, defendant Dollinger instructed defendant Davis Pickren to make the following disbursements of $4.7 million from its escrow account:
Payment Amount Payee Purpose
$ 390,000.00 Davis, Pickren & Seydel, LLP Legal fees
$ 300,000.00 Davis, Pickren & Seydel LLP Escrow until prior check clears
$ 24,079.03 Davis, Pickren & Seydel, LLP Expenses
$4,010,920.97 SP Investments, LLC Disbursement
- After these disbursements were made and the intercompany debt forgiven as shown in paragraph 38 below, the Debtor was left with effectively nothing in its bank account, no current assets, monthly obligations of $ 9,192.43 to BV Retail, Inc. and obligations to other unsecured creditors as shown in Schedule F.
- On January 20, 2009, defendant Davis Pickren transferred $419,504.88 of funds earmarked for the benefit of Planet Smoothie, a Raving Brands affiliate separately sold to the same buyer and on the same date as the Rib Shack Sale, to the account of RB Investments, LLC. On January 27, 2009, Judy Dempsey, S&Q’s Vice President of Finance, directed that $250,000 be transferred to defendant Sprock by wire transfer from the account of RB Investments. On February 2, 2009, Ms. Dempsey directed that $250,000 be transferred from the account of SP Investments to the account of RB Investments to cover $250,000 in dividends prepaid to defendant Sprock.
- On February 2, 2009 Ms. Dempsey directed that $392,501.72 in dividends be transferred from the SP Investments account to defendant Sprock by wire transfer.
(more after the jump).
- On February 5, 2009, an additional $250,000 in dividends was wire transferred to a commercial loan account for the benefit of defendant Sprock from the SP Investments account.
- On March 5, 2009 an additional $200,000 in dividends was wire transferred to a commercial loan account for the benefit of defendant Sprock from the SP Investments account. Defendant Sprock subsequently received a balance of $67,709.04 in dividends.
- Defendant MIBI received two wire transfers for dividends paid from the SP Investments account, one on January 29, 2009 in the amount of $284,079.85 and another on April 3, 2009 in the amount of $118,366.61.
- Defendant Brand received check number 6214 dated February 26, 2009 in the amount of $9,381.77 drawn on the S&Q Shack, LLC account, net of $40,000 owed to defendant Sprock. Defendant Brand also received check number 6248 dated March 9, 2009 drawn on the S&Q Shack, LLC account in the amount of $20,575.74.
- Defendant Seydel received check number 6181 dated January 30, 2009 drawn on the S&Q Shack, LLC account in the amount of $36,093.58 and check number 6250 dated March
9, 2009 drawn on the S&Q Shack, LLC account in the amount of $15,039.00.
- Defendant Hollingsworth received check number 6179 dated January 30, 2009 drawn on the S&Q Shack, LLC account in the amount of $15,263.46 and check number 6246, dated March 9, 2009 drawn on the S&Q Shack, LLC account in the amount of $6,359.77.
- According to the Statement of Financial Affairs filed in this case, defendant Moe’s received a payment/transfer of $838,269.65 (Document 65, page 3 of 26).
- Defendant P.J.’s received wire transfers to the P.J.’s Wholesale bank account paid from the SP Investments account on January 29, 2009 and April 17, 2009 totaling $420,153.76. In addition, P.J.’s received wire transfers into the P.J.’s Operating bank account paid from the SP Investments account on January 29, 2009 totaling $356,764.27.
Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, creditor committees, trustees, court-appointed receivers and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.