The auction and sale of C.M. Meiers Co. Inc., an out-of-trust Woodland Hills, Calif.-based insurance agency in bankruptcy, is a done deal. But the buyers and former owners are now in a squabble over allegations that the former owners “raided the accounts” of the ailing firm to start anew.
That squabble will be taken to a courtroom on Friday, when a United States Bankruptcy Court Judge in the Central District of California San Fernando Valley Division rules on a temporary restraining order sought by the new owners of C.M. Meiers.
In a complaint filed with the court, Woodland Hills, Calif.-based Liberty Company Insurance Brokers Inc. charges the former agency owners with unfair competition, misappropriation of trade secrets and interference with contractual relations.
Liberty, whose $1.375 million bid for the 76-year-old firm beat out two other bidders, also filed a temporary restraining order against the former owners alleging “wrongful activity,” seeking injunctive relief involving customer lists under the Uniform Trade Secrets Act.
The restraining order seeks to bar the former owners from using or disclosing any confidential or proprietary information, or trade secrets formerly owned by C.M. Meiers. It would also require the defendants to hand over all copied information considered confidential, as well as pricing and quote information, and any information pertaining to clients. Lastly, the order being sought would require the defendants to place in constructive trust all money received on or after Feb. 8 the pertains to policies placed with customers who were former C.M. Meiers customers as of Jan. 9, when the agency filed its Chapter 11 bankruptcy petition.
Liberty is seeking a minimum of $1.75 million in damages in its complaint.
The documents claim that some time at the beginning of March Liberty owner Bill Johnson, who is listed as BTJ in the complaint, received 21 letters from various insurance carriers stating that BTJ’s customers, formerly C.M. Meiers customers, were changing their broker of record to Affinity Global Insurance.
Woodland Hills-based Affinity was the stalking horse bidder for C.M. Meiers, but bowed out of the bidding early. Affinity is owned by Jason Adelman, the brother-in-law of Herb and Eric Rothman, the father and son former owners of C.M. Meiers.
At one point following the financial collapse of C.M. Meiers, Affinity managed the brokerage for a week. Following the filling of the bankruptcy, the agency was put in the hands of trustee Bradley D. Sharp, and was sold during auction on Feb. 3. The sale order was signed by the bankruptcy court on Feb. 8.
The court document filed by BTJ states that 20 of those letters received were dated Feb. 13, and one was dated Feb. 10. These customers held 77 insurance policies that were “wrongfully transferred to Affinity,” the complaint states.
Neither Johnson nor the Rothmans, nor managers for Affinity nor Liberty, could be immediately reached for comment.
The ruling on the restraining order is set to be heard by Federal Bankruptcy Court Judge Maureen Tighe, who presided over the auction in February, at 8 a.m. in Woodland Hills.
The Liberty complaint alleges that a C.M. Meiers employee handed out Affinity business cards following the sale of the agency, proving the former owners still had “employees on the payroll,” giving those employees the opportunity to misappropriate confidential information, namely clientele information, that was rightfully owned by BTJ following its winning bid at the auction. The complaint states that several other C.M. Meiers employees remained with the firm following the sale and then began working for Affinity shortly after their employment with the new C.M. Meiers owners ceased.
“Affinity is essentially re-starting (C.M. Meiers) business by taking clients and business away from Plaintiff, the highest bidder and buyer of (C.M. Meiers) assets, through Defendants’ use of (C.M. Meiers) Confidential Information now owned by Plaintiff,” the complaint states.
In its complaint, BTJ states it is “entitled to equitable relief, including, but not limited to: return from Defendants of all originals and copies of the (C.M Meiers) Confidential Information, whether on paper, computer disks, or in other electronic form; a preliminary and permanent injunction and restraint against Defendants from soliciting Plaintiffs customers, and from engaging in those and other acts of unfair competition in the future; and disgorgement of Defendants’ ill-gotten gains and restitution of the same to Plaintiff.”
In an opposition to the restraining order attorneys for the Rothmans, David Bovino and Marcy Railsback, or Bovino & Associates in Aspen Colo., call the allegations “baseless” and “false.”
“Liberty’s allegations and accusations are false – and Liberty knows they are false,” the opposition states. “Liberty is not entitled to any injunctive relief – and Liberty knows it is not entitled to any such relief – and Liberty knows its (temporary restraining order) is meritless.”
The opposition raises questions as to why C.M. Meiers new owners waited so long to file the restraining order, as well as the complaint.
“Liberty’s officers and representatives have had numerous communications with customers and insurance carriers and knows first-hand that not a single customer of (C.M. Meiers or Liberty) was solicited by the Rothmans and/or asked to transfer business to Affinity,” the opposition states. “Why does it continue to falsely accuse the Rothmans of having done so?”
The opposition to the restraining order raises several questions the defendants want answered, and then offers one possible answer itself: “The answer to these questions is simple: Liberty has brought the (temporary restraining order) as part and parcel of its campaign to destroy the Rothmans and prevent legitimate competition.”
While the sale was finalized a week after the auction, several other hurdles needed to be cleared before the full transfer of C.M. Meiers assets to Liberty could take place. Several C.M. Meiers agents had filed objects against having their books of business transferred in the sale, as did attorneys for certain high-net-worth clients who were seeking to prohibit the transfer of their information to the new owners.
Trustee Sharp said all such issues involving the sale have been dealt with.
“The sale is closed,” Sharp said. “From my perspective, all of those issues have been resolved. For the most part things are going well.”
Sharp, who said he will not be attending the hearing on Friday due to a scheduling conflict, though he will be represented by his attorneys, declined to elaborate on the complaint filed by BTJ or on the temporary restraining order.
“I’m involved in it but I’d rather not comment on it separate and apart from what goes on in court,” he said.
Liberty beat out two other firms at the auction in February during a fast round of bidding that pushed the sale price up to nearly double the opening bid. Aside from Affinity, the other competing bider was Woodland Hills-based Capitol Financial Services, owned by Gensar Saleigh, who sued C.M. Meiers and was awarded nearly $400,000 in damages plus attorneys’ fees by a commercial arbitration tribunal over a breach of contract suit brought by Capital.
Sharp has said the suit was the final blow the brought C.M. Meiers to its financial knees, but others have argued the brokerage was not well managed. That it was out of trust was chief among the evidence they cited in support of their allegations.
In fact, the minimum bid during the auction was set at $750,000, including the assumption of liabilities and replenishing the trust.
It is estimated the agency was out-of-trust by between $400,000 and $1 million.
The brokerage had 50 employees before the financial troubles set in. It is not known how many employees work at the agency presently.