Gordon & Rees LLP San Diego, CA. 92101 Ce ae 10 u 12 13 14 15 16 7 18 19 20 21 22 23 24 25 26 27 28 FILED CIVIL BUSINESS OFFICE 18 M.D. SCULLY (SBN: 135853) CENTRAL DIVISION THOMAS J. STODDARD (SBN: 136299) GORDON & REES LLP 200 APR 10 1213 101 West Broadway, Suite 2000 San Diego, CA 92101 CLERK R cnuRT Telephone: (619) 696-6700 SAN 0: Facsimile: (619) 696-7124 Attomeys for Plaintiff STEPHEN J. MOSELEY SUPERIOR COURT OF CALIFORNIA COUNTY OF SAN DIEGO CASE NO. 37-2010-00084760-CU-BC- CTL FIRST AMENDED COMPLAINT FOR VIOLATION OF BUSINESS AND PROFESSIONS CODE § 17200, ET SEQ.; BREACH OF CONTRACT; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING; UNJUST ENRICHMENT; DECLARATORY RELIEF; and EXPRESS INDEMNITY i: February 2, 2010 STEPHEN J. MOSELEY, Plaintiff, v. PACIFIC CORPORATE GROUP HOLDINGS, LLC, (a limited liability company), CHRISTOPER J. BOWER and Does 1-30, Defendants. Complaint Fil Judge: Hon. JayM. Bloom J) Plaintiff Stephen J. Moseley, by and through his undersigned counsel, alleges as follows: PARTIES AND VENUE 1. Stephen J. Moseley (“Moseley”) is an individual, who at all relevant times ‘mentioned herein was a resident of California, In 2001, Moseley joined Defendant Pacific Corporate Group Holdings, LLC as an officer. Beginning in 2001, Moseley was an officer in Defendant Pacific Corporate Group Holdings, LLC. Between approximately April 2004 and September 2006, Moseley was a member of Defendant Pacific Corporate Group Holdings, LLC. 2. Paeifie Corporate Group Holdings, LLC. (“PCG”) is, and at all relevant times was, a Delaware limited liability company with its principal place of business in La Jolla, “le FIRST AMENDED COMPLAINTGordon & Rees LLP 101 West Broadway Suite 1600 San Diego, CA 92101 eo 10 it 12 B 14 15 16 7 18 19 20 2 22 23 24 25 26 27 28 California. 3. Christopher J. Bower (“Bower”) is, and at all relevant times was, a resident of San Diego County, California, and the CEO and managing member of Defendant Pacific Corporate Group Holdings, LLC, doing business in La Jolla, California. 4, Plaintiffis ignorant of the true names and capacities of the defendants sued herein as DOES 1-30, inclusive, and therefore sues these defendants by such fictitious names. Plaintiff will amend his complaint to allege their true names and capacities when ascertained. In the ‘meantime, Plaintiff is informed and believes that each of the fictitious named defendants is legally responsible in some manner for the occurrences herein alleged, and subject to and liable for the relief prayed for below. 5. Plaintiffs informed and believes that all of the defendants, including those defendants sued in the name of DOE, were agents, servants and employees of theit co- defendants, and in doing the things hereinafter mentioned, were acting within the scope of their authority as such agents, servants and employees with the permission and consent of theit co- defendants. 6. Venue is proper because San Diego County is the residence of Defendants and San Diego County is the place where the transactions and acts complained of occurred. FACTS COMMON TO ALL COUNTS 7. Between approximately April 2004 and September 2006, Moseley was a member of Defendant Pacific Corporate Group Holdings, LLC. Moseley, Bower and others entered into an Amended and Restated Limited Liability Company Agreement dated November 26, 2003, (the “Agreement”, The Agreement provided, inter alia, for the continuation of the business of PCG, and set forth the rights and responsibilities of the members, Moseley was designated as a “Class B Member” of PCG, and Bower was designated as a “Class C” Member” of PCG. 8. The Agreement established certain rights and responsibilities relating to members’ Capital Accounts. Specifically, the Agreement established an obligation on the part of PCG to repurchase a Class B Member's interest in his Capital Account and to make other distributions and payments to the Class B Members, including Moseley, upon the withdrawal or 2 FIRST AMENDED COMPLAINTGordon & Rees LLP 101 West Broadway 1600 Sui San Diego, CA 92101 Scare W 13 14 15 16 7 18 19 20 21 2 23 24 25 26 27 28 removal of the member for any reason. 9. In September 2006, Moseley resigned from PCG for reasons related to disagreements regarding the proper way to govern a service organization, select investments, manage conflicts of interest and support client interests. PCG subsequently confirmed and represented to Moseley on multiple occasions that PCG would meet its obligations to repurchase Moseley’s membership interest; that PCG would deliver the proceeds of certain accounts held in Moseley’s name to Moseley; and that PCG would make other pending distributions to Moseley, as PCG was legally obligated to do. For example, on or about September 4, 2007, PCG sent written correspondence to Moseley which confirmed “the obligation of Pacific Corporate Group Holdings...to repurchase your membership interest. 10. Onor about September 25, 2006, PCG unconditionally and forever agreed to release and discharge Moseley from any and all claims, and/or causes of action of any type or scope, whether at law or at equity, which PCG may have against Moseley relating to any and all existing or contemplated private equity co-investment funds. 11, PCG subsequently made occasional payments to Moseley in partial payment of the amounts which PCG was obligated to pay to Moseley. 12. _ By correspondence dated December 30, 2009, PCG communicated to Moseley that Moseley had engaged in unspecified and unidentified wrongfal activities which had allegedly caused PCG to incur damages. Such allegations by PCG were made only to avoid blame connected with long-standing and documented patterns of institutional conduct at PCG and for the purpose of attempting to avoid PCG’s financial obligations to Moseley. By such correspondence, PCG also communicated to Moseley that PCG will not make any further distributions to Moseley, in contravention of PCG’s legal obligations to do so. 13. Such wrongful conduct by PCG has been directed by Defendant Bower, and reflects a business scheme orchestrated by Bower to deny departing members of PCG the money owed to each of them, including Moseley. Moseley is informed and believes that Defendant Bower employed similar schemes to deny compensation due to former members, including but not limited to, Monte Brem, Scott Vollmer, and Walter Fitzsimmons. Bower's practice and a FIRST AMENDED COMPLAINTGordon & Rees LLP 101 West Broadway Suite 1600 San Diego, CA. 92101 10 ui 12 13 14 15 16 7 18 19 20 2 23 24 25 26 27 28 business model is to falsely accuse departing and departed members of wrongful conduct, in an effort to misappropriate money which PCG is legally obligated to pay. Disclosure issues related to turnover and staffing: 14, Tenure and the consistency of an investment team is an important performance factor; this is particularly true in private equity because of the long-term nature of the assets and strategies. For reasons related to governance and leadership, PCG has been plagued since its founding by personnel turnover. For example, since 2001, when the LLC was first formed and a group of 3-6 partners started managing the firm, more than a dozen partners and many more senior investment professionals have come and gone. Every client management and fund ‘management team has turned over more than once, Turnover drives significant operating risk connected with PCG and, accordingly, is and has always been an issue of central importance to PCG’s clients and investors. 15. Despite this, Defendants Bower and PCG have repeatedly elected to conceal relevant and material facts from investors and potential investors. When concealment or denial has become impossible, Defendants have delayed, then disguised disclosure, in order to induce investments from parties to whom PCG owed duties of care and loyalty. 16. Defendants have engaged in a continuing course of failing to disclose material facts to their clients, When Defendants were obligated to apprise their clients of changes in the named “Key Persons” designated by limited partners or clients as necessary for successful implementation of a particular strategy, Defendants withheld or altered reported facts and timing related to changes in roles and responsibilities. 17. During 2006 the entire group of five remaining B members and other key investment personnel informed Bower of their individual plans to resign. Bower repeatedly assured clients, including CalPERS, that tumover issues were not a continuing issue for Defendants . For example, at a due diligence meeting with CalPERS in Sacramento, Bower told CalPERS! investment staff “that chapter is behind us,” despite the fact that it was clear from discussions only days before that the current organization was not sustainable. When CalPERS ate FIRST AMENDED COMPLAINTGordon & Rees LLP 101 West Broadway Suite 1600 San Diego, CA 92101 Caer aneen 10 ir 12 B 14 15 16 17 18 19 20 a 22 23 25 26 a7 28 was actively considering two separate $500 million commitments to funds managed by PCG and, concurrently, a direct investment in PCG, Bower offered financial incentives to partners to stay through finalization of the CalPERS’ investments saying: "just hold it together until they sign— then you can do what you want”. Bower also insisted that the NY State Common Retirement Fund not be informed of these material facts until after their investment commitment was secured. Conflicts of Interest 18. _ Moreover, Bower repeatedly and systematically undermined the firm’s investment process and clients by seeking to direct client investments in ways that were intended to benefit Bower in unrelated activities. In particular, he was inclined to do all within his power to raise capital for PCG’s Corporate Partners Fund Il, L:P. , in which Bower had a personal economic interest and incentives significantly greater than those connected with other PCG activities. 19, Onmultiple occasions, Bower urged Moseley and the PCG staff to alter or influence the reported valuations of portfolio investments to advance Bowers own interests. In one case, for example, he pushed to raise the reported valuation of Primus Financial Products $0 he could advertise inaccurate interim returns to clients in order to induce additional capital commitments from those clients. In these and other documented cases, Defendants elected to conceal these conflicts of interest from clients. FIRST CAUSE OF ACTION For Violations of Business and Professions Code Section 17200 Et. Seq. (Against all Defendants) 20. Moseley incorporates herein by reference all of the allegations of paragraphs 1 through 19, inclusive, of this Complaint as if fully set forth herein. 21. California Business & Professions Code Section 17200 provides that unfair competition means and includes “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” 22, By and through their conduct, including the conduct detailed above, defendants se FIRST AMENDED COMPLAINTSuite 1600 Gordon & Rees LLP 101 West Broadway San Diego, CA. 92101 aw sen 10 u 12 13, 4 15 16 v7 18 19 20 2 2 23 24 25 26 27 28 have engaged in activities which constitute unlawful, unfair and fraudulent business practices prohibited by Business & Professions Code Section 17200 et seq. 23, Beginning at an exact date unknown as yet and continuing up through the present, defendants have committed acts of unfair competition, including those described above, by engaging in a pattern of “unlawful” business practices within the meaning of Business & Professions Code Section 17200, by, for example, falsely and fraudulently accusing departed members of wrongful conduct, in an effort to avoid required payments to departed members of PCG. Bower’s practice and business model, through PCG, is to falsely accuse departing and departed members of wrongful conduct in an effort to negotiate a settlement in the hopes that the departed member will accept less money than PCG is legally obligated to pay. 24, Beginning at an exact date unknown as yet and continuing up through the present, defendants have committed acts of unfair competition, including those described above, prohibited by Business and Professions Code Section 17200 et seg. by engaging in a pattern of “unfair” business practices that violate the wording and intent of the statutes, by engaging in practices that are immoral, unethical, oppressive or unscrupulous, the utility (if any) of which conduct is far outweighed by the harm done to the public and public policy. 25, Beginning at an exact date unknown as yet and continuing up through the present, defendants have committed acts of unfair competition, including those described above, prohibited by Business & Professions Code Section 17200 et seq., by engaging in a pattern of “fraudulent” business practices. Such fraudulent business practices also include, but are not limited to, the following. Defendants, through Christopher Bower, have engaged in a systematic scheme of hiding and concealing material facts from clients regarding investment opportunities which were sponsored by PCG. Once discovered, Defendants’ conduct contributed to the subsequent resignations of all partners in PCG Asset Management, including Plaintiff. In addition, Defendants, through Bower, have made a practice of misleading key PCG clients regarding staff size and tumover of PCG personnel, all in an effort to influence investment decisions in favor of PCG. Moreover, Defendants, through Bower, have fraudulently concealed Bowers’ interactions and relationships with various placement agents and intermediaries; & FIRST AMENDED COMPLAINT1600 San Diego, CA. 92101 Sui 101 West Broadway Gordon & Rees LLP 10 u 12 13 14 15 16 7 18 19 20 21 22 23 24 25 26 27 28 fraudulently concealed Bowers’ interactions and relationships with current and former CalPERS board members including Alfred J. Villalobos; and denied and/or concealed the existence of material conflicts of interest. Defendants, through Bower, have used such acts to influence investment valuations and investment decisions, in order to advance the personal interests of Bower and certain unregistered placement agents in contravention of PCG’s fiduciary obligations. Defendants have also violated the wording and intent of the statutes, by promulgating statements, receipts and advertising which are unfair, deceptive, untrue and misleading in that members of the public are likely to be deceived. 26. The unlawful, unfair and fraudulent business practices of defendants set forth above present a continuing threat to members of the public in that defendants continue to engage in the conduct described above. 27. Such acts and-omissions are unlawful and/or unfair and/or fraudulent and/or deceptive and/or misleading and/or untrue and constitute a violation of Business & Professions Code Section 17200 et seq. Plaintiff reserves the right to identify additional violations by defendants as may be established through discovery. 28. Asa direct and legal result of defendants’ unlawful, unfair and fraudulent conduct described above, Moseley has been injured, harmed and damaged, and defendants have been and continue to be unjustly enriched with ill-gotten gains. SECOND CAUSE OF ACTION Breach of Contract (Against Defendant PCG and Does 1-10) 29. Moseley incorporates herein by reference all of the allegations of paragraphs 1 through 28, inclusive, of this Complaint as if fully set forth herein, 30. As set forth in more detail above, Moseley and PCG entered into written agreements through which PCG agreed to pay Moseley certain monies upon Moseley’s withdrawal from PCG. Moseley and PCG entered into such agreements in exchange for valuable consideration. Through such agreements PCG agreed to pay Moseley for the repurchase of Moseley’s membership interest in PCG, PCG further agreed to pay and/or release the proceeds an FIRST AMENDED COMPLAINTGordon & Rees LLP 101 West Broadway Suite 1600 San Diego, CA 92101 Secwminneon u 12 13 4 15 16 7 18 19 20 2 2 23 24 25 26 27 28 of certain accounts held in Moseley’s name to Moseley, and that PCG would make other pending distributions to Moseley, among other obligations. 31. Moseley has fully performed all of his obligations to be performed under the terms of the agreements. 32, PCG has materially breached the agreements by failing and refusing to pay Moseley the amounts owed to him relating to Moseley’s Capital account, bank accounts held in Moseley’s name, and the other pending distributions which are owed by PCG to Moseley. 33. As aproximate result of the wrongful conduct alleged above, Moseley has sustained and will continue to sustain damages in an amount in excess of the jurisdiction limit of this Court, and in an amount to be proven at trial. ‘THIRD CAUSE OF ACTION Breach of the Covenant Of Good Faith and Fair Dealing (Against all Defendants) 34. Moseley incorporates herein by reference all of the allegations of paragraphs 1 through 33, inclusive, of this Complaint as if fully set forth herein, 35. There is a covenant of good faith and fair dealing implied into every contract and this implied covenant requires each contracting party to refrain from doing anything to injure the right of the other to receive the benefits of the agreement. 36. Defendants Bower, PCG and Does 1-10 breached the covenant, by falsely promising that Moseley would receive the benefits due him under the agreements and subsequently reneging on such promises in an effort by Defendants, and each of them, to convince Moseley to accept less than the full amount due him under the terms of the agreements, and by engaging in the conduct described above. 37. As aproximate result of the wrongful conduct alleged above, Moseley has sustained and will continue to sustain damages in an amount in excess of the jurisdiction limit of this Court, and in an amount to be proven at trial. J wt e FIRST AMENDED COMPLAINTGordon & Rees LLP 101 West Broadway Suite 1600 ‘San Diego, CA 92101 Soo 10 M1 2 13 14 15 16 7 18 19 20 24 22 23 24 25 26 27 28 FOURTH CAUSE OF ACTION For Unjust Enrichment (Against all Defendants) 38. _ Moseley incorporates herein by reference all of the allegations of paragraphs 1 through 37, inclusive, of this Complaint as if fully set forth herein. 39. Defendants have knowingly withheld and have received the benefit of retaining monies which are due to Moseley, which benefits have been unjustly retained by Defendants. 40. Defendants have engaged in unfair and inequitable acts and practices to Moseley’s detriment and injury. Such acts by Defendants include willful breach of contract, willful breach of the covenant of good faith and fair dealing, and violations of Business & Professions Code Section 17200 et seq., and unfair competition. 41. Defendants have retained the benefits of their unfair conduct, while Moseley has suffered the detriment of Defendants’ acts. It would be unjust for Defendants to retain their profits, and such an outcome would result in Defendants’ being unjustly enriched. Moseley is entitled to restitution, disgorgement of Defendants' profit, and other equitable relief. EIETH CAUSE OF ACTION Declaratory Relief (Against all Defendants) 42. Moseley incorporates herein by reference all of the allegations of paragraphs 1 through 41, inclusive, of this Complaint as if fully set forth herein. 49. A true and genuine dispute has arisen and an actual controversy exists between Moseley and Defendants, and each of them, concerning their respective rights, duties and obligations under the subject agreement or agreements, in that Moseley believes that Defendants have a legal obligation to pay Moseley the amounts owed to him relating to Moseley’s Capital account, bank accounts held in Moseley’s name, and other pending distributions, Defendants claim that no monies are owed to Moseley by them, either at present or in the future, and Moseley claims the opposite. Moseley has further demanded that he be defended and indemnified by Defendants for and against claims asserted by Defendants for disgorgement of FIRST AMENDED COMPLAINTGordon & Rees LLP ‘West Broadway 10 1600 Sui San Diego, CA 92101 Awe wn 10 i 12 13 14 1s 16 7 18. 19 20 20 22 23 24 25 26 27 28 monies received by Moseley since his resignation from PCG, and Defendants have failed and refused to defend and indemnify Moseley pursuant to that demand, 50. Therefore, Moseley herein requests from the Court a declaration of the rights, duties, obligations and liabilities between Moseley and Defendants, and each of them. SIXTH CAUSE OF ACTION Express Indemnity (Against Defendants PCG and Does 1-10) 51. Moseley incorporates herein by reference all of the allegations of paragraphs 1 through 50, inclusive, of this Complaint as if fully set forth herein, 52, The Agreement provided, in pertinent part, that “The Company shall indemnify, defend and hold harmless...each of the Members, Directors and officers (if any) of the Company for any and all liabilities and expenses arising from such Person’s involvement or employment with the Company...” By the terms of the Agreement, Moseley was a Member and Director of the Company. 53. Onor about December 30, 2009, PCG demanded in writing that Moseley disgorge all sums distributed to him by PCG since his resignation from PCG in or about September 2006, and thereby made a claim against Moseley. 54. On or about January 11, 2010, Moseley demanded in writing that Defendants provide a defense and indemnification for and against the claim asserted by PCG on or about December 30, 2009. Defendants have failed and have refused to respond to this tender, and have failed and refused to defend and indemnify Moseley as required by the Agreement. 55. Moseley has duly performed all obligations required of him under the Agreement referred to herein above. 56. Moseley has been required to retain and has retained legal counsel to defend him against the aforementioned claim, and has incurred, and will continue to incur, expenses for investigation, legal costs and legal fees herein, the full amount of which have not yet been ascertained, said costs and fees will have been directly and proximately caused by the conduct of all Defendants and each of them, and Moseley is entitled to reimbursement from Defendants for 10. FIRST AMENDED COMPLAINTGordon & Rees LLP 101 West Broadway Suite 1600 San Diego, CA 92101 Seer aueown ul 13 14 1s 16 7 18 19 20 2 22 23 24 25 26 27 28 all costs and fees in an amount to be ascertained in accordance with proof. PRAYER FOR RELIEF WHEREFORE, Moseley prays for relief and judgment against defendants, and each of them, as follows: 1. For injunctive and declaratory relief declaring that defendants have violated the provisions of California Business & Professions Code Section 17200 et seq. 2. For an Order preliminarily and permanently enjoining defendants, their subsidiaries, affiliates, and their successors, agents, officers, directors, employees, and all [persons, acting in concert with them, directly or indirectly, from engaging in conduct in violation jof Business & Professions Code Section 17200 et seq. 3. For restitution and disgorgement of monies obtained by Defendants; 4, Fora judicial declaration that Defendants have a legal obligation to pay monetary compensation to Moseley pursuant to the terms of the parties’ agreements, and each of them, and further, that Moseley is entitled to be defended and indemnified by Defendants for and against the claim for disgorgement made by Defendant PCG. 5. For monetary damages and remedies based on the Defendants’ breach of contract, land breach of the covenant of good faith and fair dealing, in an amount according to proof; 6. Foradefense and indemnification from and against any and all claims, losses, damages, attorneys’ fees, judgments and settlement expenses incurred or to be incurred by Moseley by reason of the claim or claims asserted by Defendants on or about December 30, 2009; 7. Forcosts and attorneys’ fees incurred herein; We Lue We wt ut ut oe FIRST AMENDED COMPLAINTAus wn 10 uw 12 13 West Broadway 14 Gordon & Rees LLP San Diego, CA 92101 15 16 7 18 19 20 1 2 22 23 24 25 26 27 28 8. For prejudgment interest; and 9. Forsuch other relief as the court deems just and proper. GORDON & REES LLP Dated: April 9, 2010 Attomeys for Plaintiff Stephen Moseley TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: Please take notice that plaintiff Stephen Moseley hereby demands trial by jury in this action, Dated: April 9, 2010 GORDON & REES LLP By: Z ee MI Scully Thomas J. Stoddard Attorneys for Plaintiff Stephen Moseley ars FIRST AMENDED COMPLAINT