Editor’s note: For more read an updated story on this case, “C.M. Meiers Preliminary Injunction Decided, But Far From Over“
Expect the allegation-laden battle between the new and old owners of bankrupt Southern California insurance agency C.M. Meiers to wage on indefinitely.
Defendants in a lawsuit over the purchase of the Woodland Hills, Calif.-based agency have filed a countersuit claiming the new owners set up a “shell corporation” to shield them from wrongful conduct that includes a “scorched earth” attack brought on by buyer’s remorse.
The countersuit filed late last week comes amid a period of silence in a legal battle that has been ongoing on since February, when the sale of the 76-year-old firm in United States Bankruptcy Court in the Central District of California San Fernando Valley Division was finalized following Woodland Hills-based Liberty Company Insurance Brokers Inc.’s successful $1.375 million bid for C.M. Meiers.
Both sides have been awaiting a decision for nearly a month from Maureen Tighe, a United States Bankruptcy Court judge in the Central District of California San Fernando Valley Division. When the parties last met in mid-May it was at the conclusion of a trial over allegations that the old owners of C.M. Meiers “raided the accounts” of the ailing firm to start anew. The allegations also charged the former owners with unfair competition, misappropriation of trade secrets and interference with contractual relations.
Tighe, who had several days’ worth of testimony from myriad witnesses to go through, had said she would try to produce a decision within a week or two at the conclusion of the trial. Tighe though a court clerk has declined to comment, stating it’s her policy not to comment on ongoing cases.
In their complaint the new owners of C.M. Meiers had alleged C.M. Meiers’ former owners left the firm out-of-trust to the tune of roughly $1 million, and that Liberty is now having to pay policy premiums out of its own pocket. Liberty is seeking a minimum of $1.75 million in damages in its complaint.
The trustee in the bankruptcy also alleged C.M. Meiers was out-of-trust and filed a complaint with the court seeking injunctive relief against Jason Adleman and former C.M. Meiers owners Herb and Eric Rothman, alleging breach of fiduciary duty, and seeking recovery of fraudulent conveyance – namely customer information and proprietary business information that was to have been sold at the Feb. 3 auction.
Dragged into the legal affair was Adelman and his Woodland Hills-based Affinity Global Insurance, which was originally a stalking horse bidder for C.M. Meiers. Affinity executives also ran C.M. Meiers for about two weeks before a trustee stepped in, declared bankruptcy and initiated an auction. Involved as well is HCF Insurance, also owned by Adelman. HCF, which specializes in insuring healthcare facilities, is mentioned in several court documents. It shares offices and some personnel with Affinity.
Adelman is an in-law relation to the Rothmans, who also filed a similar countersuit last week. The Rothmans went to work for Affinity as independent contractors after being fired from C.M. Meiers by the trustee.
The countersuit by Affinity owner Adelman alleges that Liberty owner Bill Johnson’s firm, BTJ Insurance Services Inc., which has been referred to interchangeably with Liberty during court proceedings, “is merely a shell corporation set up on or about February 6, 2012 by the remaining Counter-Defendants in order to shield them from liability for their wrongful conduct.”
According to the California Secretary of State’s website BTJ filed with the secretary of state on Feb. 6. However, businesses are not required to file with the Secretary of State.
The countersuit further states:
“Counterclaimants are informed and believe, and based thereon allege, that BTJ (a) was formed solely in connection with, and for the purpose of, the purchase of CMM’s assets by Liberty, and without any intention or expectation that BTJ would conduct business or have any involvement in the assets purchased; (b) does not conduct any business; (c) does most significantly, is not licensed by the Department of Insurance to transact any insurance business.
Adelman’s counterclaim is for: libel; slander; common law unfair competition; statutory unfair competition; and tortious interference with prospective business advantage.
At the center of the libel allegation is a letter sent out by Liberty to several carriers and clients shortly following the bankruptcy stating C.M. Meiers was out-of-trust and was under investigation by the California Department of Insurance. CDI doesn’t comment on ongoing investigations, even to verify whether they are conducting an investigation.
Several emails were sent out by Liberty stating similar allegations and warning clients not to do business with Affinity, according to Sonia Lee, with Raines Feldman LLP in Los Angeles, who represents Adleman and Affinity.
“There were a number of email transmissions in addition to that letter,” she said.
Attorneys for Liberty and Liberty owners were not immediately available for comment.
As a result of those letters, emails and verbal allegations Affinity has been denied appointments with carriers, including Travelers, Chartis, Allied, Hartford, Chubb and Fireman’s Fund, and it has lost producers and customers who would have otherwise come to Affinity, the countersuit states.
The countersuit does not seek a specified monetary amount for damages, and Lee said that number is something that will be arrived at during a jury trial, which is what the counterclaim seeks.
But she did acknowledge “it will be well over a million dollars plus.”
The countersuit filed by the Rothmans claim that Liberty’s actions show the firm is now trying to get out of what turned into a bad business deal for them.
“Liberty is suffering from ‘buyer’s remorse,” the Rothmans’ countersuit states. “It regrets having purchased the assets of C.M. Meiers Company, Inc. (‘CMM’) at a public bankruptcy auction. Its decision to do so was made in haste and without the benefit of any of the information it would have learned had it conducted even minimal due diligence. The deal did not live up to Liberty’s unfounded expectations. Needing someone to blame for its bad decision and lack of business, Liberty homed in on Herb Rothman, Eric Rothman, Affinity Global Insurance Services, Inc. (‘Affinity Global’) and its owner, Jason Adelman (collectively, ‘Affinity’). The Rothmans’ affiliation with CMM, coupled with the fact that they and Affinity were Liberty’s business competitors, made them the perfect scapegoats. And Liberty went on a vendetta, launching a ‘no-holds barred, nothing’s off limits, scorched earth’ attack against them.”
That countersuit is for: libel; slander; trade libel; intentional interference with business relations; intentional interference with prospective economic advantage; and common law unfair competition.
Beside the financial harm, the countersuit states the accusations from Liberty has damaged the Rothmans’ professional reputation. It notes Eric Rothman was a past president on the board of directors and a member of the Independent Brokers and Agents of the San Fernando Valley (IBA SFV) until February, at which time his membership and position on the board were terminated by the organization.
“The Rothmans are informed and believe, and based thereon allege, that Eric Rothman’s membership in, and position on the Board of Directors of, IBA SFV were terminated and revoked by the organization as a result of its officers, directors and/or members being told or otherwise learning of Liberty’s defamatory, derogatory and/or disparaging statements about the Rothmans and Affinity.”
Like Lee, Adelman’s attorney, Marcy Railsback, with Bovino & Associates in Aspen, Colo., the Rothmans’ attorney, also said the monetary amount for damages would be determined during the course of the hearing.
“We anticipate there will be in excess of a million (dollars in damages) at least, probably a lot more than that,” she said.
She said her clients have struggled to do business because of the allegations made by Liberty.
“They are having a very hard time getting business because of what Liberty has done,” she said.
Since the bankruptcy when Liberty and the trustee filed for preliminary injunction barring Affinity and the Rothmans from using what they alleged were stolen – including trade secrets, clientele information, renewal dates on insurance policies, and clients – there have been no shortage of allegations levied between the parties.
Liberty has stated it received 21 letters from various insurance carriers stating customers who were formerly C.M. Meiers customers were changing their broker of record to Affinity Global Insurance, and that data was taken and never returned from C.M. Meiers backup computer harddrive.
Attorneys for the Rothmans have accused Liberty owners of taking out a “vendetta” and using this suit as an occasion to attack a competitor, Affinity.
In the sale Liberty beat out two other firms. Aside from Affinity, the other competing bidder 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 the trustee has said the suit was the final blow the brought C.M. Meiers to its financial knees, although owners of Liberty 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.
Liberty owners say they have been paying premiums where they could, but that they still must conduct a thorough audit of C.M. Meiers to see how far it’s out-of-trust before all the premiums of the agency’s clients are paid.
At one point a C.M. Meiers client became involved in a court hearing in early May and the out-of-trust allegation was again brought up by Liberty attorneys. Health Devices Corp., doing business as Doc Johnson, a North Hollywood based company that sells sex toys and other novelties, appeared in court with an emergency motion asking the judge to instruct the new owners of C.M. Meiers to pay their premiums.
Doc Johnson attorney Richard W. Labowe, with Labowe, Labowe & Hoffman LLP in Los Angeles, filed a motion for an order compelling the payment of insurance premiums held in trust by Liberty, which Labowe alleged is withholding payments as a punitive act against Doc Johnson for dropping C.M. Meiers as its agency and signing a letter of intent with Affinity.
The motion states Doc Johnson’s policies with Lloyd’s of London were set to lapse on May 1, and at the hearing Labowe urged the judge to require Liberty to make the premium payments. But Liberty attorney David Ruben, with Ruben & Sjolaner in Los Angeles, argued that not all premiums can be paid until a thorough audit of C.M. Meiers trust can be conducted.
“There’s simply not enough in the trust accounts to pay all the premiums,” Ruben said.
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