The Chapter 7 Trustee of Raving Brands, Inc. filed on August 16, 2012 an adversary proceeding against several former owners, officers and directors of the Debtor, as well as several affiliated companies, alleging, inter alia, that the parties engaged in a widespread effort to deceive the public, its franchisees, the press, courts and its creditors.
The Chapter 7 case is In re Raving Brands, Inc., Ch. 7 Case No. 09-68410 (Order for Relief, August 20, 2010) and the adversary proceeding is Anderson v. Martin Sprock, Darryl Dollinger, Stephen LaMastra, Flying Biscuit Franchising, Inc., Monkey Joes Franchising, LLC, Raving Brands Holdings, Inc., MH Group Holdings, LLC, Doc Green’s Gourmet Salads, Inc., Doc Green’s on Ponce LLC, MSWG, LLC, Moe’s SW Grill LLC, Mama Fu’s Noodle House Inc., Mama Fu’s Peachtree LLC, P.J.’s Coffee & Tea, Inc., Bonehead’s Peachtree, LLC, and Corporate John Does 1-10, Adv. Proceeding No. 12-05417 (Bankr. N.D. Ga. Filed August 16, 2012) (click here for .pdf of Complaint)
Debtor Raving Brands, Inc. was the subject of an involuntary case under Chapter 7 of Title 11 of
the United States Code on April 1, 2009. After a trial an Order for Relief was entered on August 20, 2010. Prior to the filing, Debtor was in the business of developing or purchasing new restaurant concepts, expanding them through store openings and/or franchising, and then seeking to sell the entire concept to other companies or private equity funds. These restaurant concepts included Moe’s Southwestern Grill, PJ’s Coffee, Mama, Fu’s Noodle House, Shane’s Rib Shack, and Planet Smoothie. In addition, various affiliates of the Debtor own, operate or franchise Doc Green’s Gourmet Salads, The Flying Biscuit Café, and Monkey Joe’s Party & Play.
In the Complaint, the Trustee alleges that the operations of each of the affiliated entities were “very complex, owing to the myriad corporate structures, entities, affiliates, holding companies, and investors for each of these entities,” and “[m]any of these structures, entities, affiliates, holding companies, and investors would overlap.” The Trustee further alleged that the Debtor’s corporate web was used to deceive the public, franchisees, courts, the press and creditors into thinking it was a viable enterprise, when in fact it was not.
The Complaint alleges, inter alia, that the individuals or affiliate entities submitted false disclosures to regulators (¶¶ 33-36), violated the automatic stay by exercising ownership or control over the Debtor’s valuable website (¶¶ 37-43), deceived the courts by false representations (¶¶ 44-48), made false representations to the media concerning the concerning the true ownership of the entities (¶¶ 49-52), and deceived creditors (¶¶ 53-75).
The Complaint also alleges that the defendant parties disregarded and abused the corporate form for many years, including the use of two entities named “Raving Brands, Inc.,” “one that was a Florida corporation and another that was a Georgia corporation, both of which were operated by Defendants Sprock, Dollinger and LaMastra.” (¶¶ 76-88).
Eventually, the Trustee alleges, the shell game was revealed and it became evidence that Debtor Raving Brands, Inc. never owned anything but a website (¶¶90-93).
The counts of the Complaint are the following (after the jump):
Count I of the Complaint states a claim against individual defendants Sprock, Dollinger and LaMastra for Corporate Waste, as Ravings Brands should have been compensated for the use of its website, and the defendants improperly obtained a financial benefit that should have gone to the Debtor.
Count II of the Complaint states a claim against the Affiliates for unjust enrichment, as the Affiliates “obtained valuable services and benefits through their use of the Raving Brands website including, but not limited to, advertising, marketing, provision of information about the various restaurant concepts to potential franchisees, and collection of interest and contact information from potential restaurant concept franchisees” and should compensate the estate for such benefits. Count III is a claim for quantum meruit based upon the same general allegations.
Count IV seeks to pierce the corporate veil against Sprock, alleging that he “has used the corporate form to further his fraud on the creditors of the Debtor” and “disregarded the separateness of the Debtor, making the Debtor a mere instrumentality for transaction of his own affairs.”
Count V, against all defendants, states a claim for Alter Ego, alleging that “each Defendant was connected to the Debtor either by direct or indirect ownership, common control, or being members of the same corporate family utilized to benefit “Ravings Brands” and the Individual Defendants,” “the Defendants have, to one degree or another, used the corporate form of the Debtor to further its fraud on the creditors of the Debtor,” “the Defendants have disregarded the separateness of the Debtor, making the Debtor a mere instrumentality for transaction of their own affairs,” “ the Defendants have such unity of interest that they lack separate personalities” and “the Defendants have attempted to route income and opportunities of the Debtor to either themselves or other entities, to avoid having funds at the Debtor’s disposal to pay its liabilities.”
Count VI states a claim against Sprock, Dollinger and Lamastra for breach of fiduciary, alleging that these defendants did not allow the Debtor “to operate freely and collect revenue from its assets, and instead forcing the Debtor to benefit the Raving Brands, Inc. Affiliates, in which these Individual Defendants had various interests.”
Count VII alleges that all defendants violated the automatic stay by attempting “to route income and opportunities of the Debtor to either themselves or other entities, to avoid having funds at the Debtor’s disposal to pay its liabilities.”
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.