•

FELDMAN, WALDMAN & KLINE

A Professional t
2 ~ATRICrA S. MAR
L.J. CHRIS MARTIWIAK
2700 Russ Sui
235 Mon street
4 San ~ CA 94104
Tel ne: (415) 981-1300
5
Attorneys for Trustee
6 ick S. Wyle

8 UNITED STATES BANKRUPTCY COURT

9 NORTHERN DISTRICT OF CALIFORNIA
10 In re I BANKRUPTCY NO. 91-31017 LX
}
11 HA."fILTON TAFT & COMPANY I ) Chapter 11
)
12 )

13
----------------------------------))
FREDERICK S. ) Proceedinq
of ) No.
1.4

15
" }
)
Plaintiff, )
16 )
v. )
17 }
COMNIE C. , JR.; )
I8 THE REMINGTON , INC. i }
WINTHROP REALTY ; CCA )
19 HOLDINGS I « ; CORPOR- )
ATION: CHASE DEVELOPMENT CORP.; }
20 CftAYSON MORTGAGE AND INVESTMENT )
..
COMPANy; CAL-PACIFIC MANAGEMENT )
I:;
21 CORP,: C.R. ACQUISITIONS; DEI, }
...
<5
INC.; DRESONER FINANCIAL )
22 MANAGEMENT CORPORATION; DRESDNER
ENTERPRISES, INC.; DRESDNER
)
}
t 1!--.i
~~1 ,
23
21
PETROLEUM, INC.: 'fLT. INTER-
NATIONAL, INC.; SUISSE TEXAS,
INC.:
INC.;
COMPANIES,
KNIGHTSBRIDGE GUkRANTY
}
}
)
I
1 ~

~
,
~

\.
25 COMPANY, ) Q
I Defendants. )
26
I
I,
I
FELDMAN, WALDMAN & KLINE
A Professional corporation
2 PATRICIA S. MAR
L.J. CHRIS MARTINIAK
J 2700 Russ Building
235 Moncgomery street
San Francisco, CA 94104
Telephone: (415) 981-1300
5
Attorneys for Trustee
FredericK s. Wyle

UNITED STATES BANKRUPTCY COURT

9
NORTHERN DISTRICT Of CALIfORNIA

10
In re ) BANKRUPTC~ NO. 91-~1077 LK
)
iI
HAMILTON TAfT & COMPANY, ) Chapter 11
)
Debtor. )
12
----------------------------------------))
1)
FREDERICK S. WYLE, Trustee in ) hdversary Proceeding
Bankruptcy of Hamilton Taft &
9~ ::~INT 81 lK
Iii
Company,
FOa
15
Plaintiff, ) 1. Recovery of Fraudulent
) Transfer Pursu~nt to
16
v. ) 11 U.S.C. § 548 and
) California Civil
17
CONNIE C. ARMSTRONG, JR.; ) Code § J 09
THE REMINGTON COMPANIES, INC.; ) 2. Constructive Trust
\B WINTHROP REALTY COMPANY; CCA _ ) 3. Turnover of Property
)9
HOLDINGS, INC.; CCAJ CORPOR- ) or the Estate Under
ATrONj CKASE DEVELOPMENT CORP.; ) 11 U.S.C. § 542
CHAYSON MORTGAGE AND INVESTMENT ) 4. Injunction
20 COMPANY; CAL-PACIFIC MANAGEMENT ) 5. Conversion
CORP.; C.R. ACQUISITIONS; DEI, ) 6. Breach of fiduciary
'21 INC.; DRESDNER ~INANCIAL } Duties
MANAGEMENT CORPORATION; DRESDNER ) 7. Breach of Contract
ENTERPRISES, INC.: DRESDNER )
PETROLEUM, INC.: H.T. INTER- ) U\ ~J/AQ~d!" ~~
2J NAT10NhL, INC.: SUISSE TEXAS, )
INC.; KNIGHTSBRIDGE COMPANIES, ) C;i) ~N/z.lt.f /~
INC.; and KNIGHTSBRIDGE GUARANT~ )
COMPANY, )
2.5 Defendants. )
26 ----------------------------------)

L. - - -- ---- --
 Plaintiff Frederick S. Wyle, Trustee, alleges as

2 follows:

) THE PARTIES
1. Plaintiff is the duly appointed and acting trustee

5 in this case.
6 2. Hamilton Taft &. company, Inc. (lithe Debtor") is a

7 California corporation with its principal place of business in San

8 Francisco, Californi~.

9 J. Plaintiff is informed and believes and thereon

10 alleges that defendant Connie C. Armstrong, Jr. ("Armstrong Jl ) is

11 the chairman and sole shareholder of the Debtor, and is a resident

12 and citizen of the State of Texas.

13 4 • Plaintiff is informed and believes and thereon

I. alleges that defendant The Remington Companies, Inc. (HRemingtonH)

IS is a Texas corporation with its principal place of business in

16 Dallas, Texas, and is owned or controlled by, and affiliated with,

)7 Armstrong and his affiliated entities.

18 5. Plaintiff is informed and believes and thereon

19 alleges that defendant Winthrop Realty company (UWinthrop") is a

20 Texas corporation with its principal place of business in Dallas,

21 Texas, and is owned or controlled by, and affiliated with,

22 Armstrong and his affiliated entities.

2] 6. Plaintiff is informed and believes and thereon

2A alleges that defendant CCA HOldings, Inc. (nCCA Holdings") is a

25 Texas corporation with its principal place of business in Dallas,

"!

26

C~PLAOH -2-
 Texas, and is owned or controlled by, and affiliated ~ith,

2 Ar~strong and his affiliated entities.

] 7. Plaintiff is informed and believes and thereon

alleges that deEendant CCAJ corporation (#CCAJ U ) is a Texas

5 corporation with its principal place of business in Dallas, TeX3s,

6 and is owned or controlled by, and affiliated with, Armstrong and

7 his affiliated entities.

8
8. Plaintiff i~ informed and believes and thereon

9
alleges' that defendant Chase Development Corp. (HChase

10 Development") is a Texas corporation with its principal place oE

II
business in Dallas, Texas, and is owned or controlled by, and

affiliated with, Armstrong and his affiliated entities.

12
9. Plaintiff is informed and believes and thereon
13
alleges that defendant Cal-Pacific Management Corp. (UCal-
1.:1

Pacific H ) is a Texas corporation with its principal place of

15
business in Dallas, Te~as, and is owned or controlled by, and
16
aff~liated with, Armstrong and his affiliated entities.
17
10. Plaintiff is informed and believes and thereon
18
alleges that defendant Chayson Mortgage and Investment Company
\9
("Chaysonn) is a Texas corporation with its principal place of
20
business in Dallas, Texas, and is owned or controlled by, and
21
affiliated with, Armstrong and his affiliated entities.
22
11. Plaintiff is informed and believes and thereon
2J
alleges that defendant C.R. Acquisitions, Inc. ("C.R.
24
Acquisitions") is a Texas corporation with its principal place of
25

26

CO".PLA1HT -J-
 business in Dallas, Texas, and is owned or controlled by, and

2 affiliated with, Armstrong. and his affiliated entities.

J 12. Plaintiff is informed and believes and thereon

alleges that defendant DEI, Inc. (HOEIH) is a Texas corporation

5 with its principal place of business in Dallas, Texas, and is

owned or controlled by, and affiliated with, Armstrong and his

6

7
affiliated entities.

1J. Plaintif: is informed and believes and thereon

8
alleges that defendant Suisse Texas I Inc. ("Suisse Texas") is a
9
Texas corporation w~th its pr~ncipal place of business in Dallas,
10
Texas, and is owned or controlled by, and affiliated with,
11
Armstrong and his affiliated entities.
12
14. Plaintiff is informed and believes and thereon
13
alleges that defendant H.T. International is an entity owned or
\4
controlled by, and affiliated with, Armstrong and his affiliated
15
entities.
16
15. Plaintiff is informed and believes and thereon
17
alleges that defendants Dresdner Enterprises, Inc., Dresdner
Ie
Petrole~, Inc" and Dresdner Financial Management Corporation
19
(collectively "Dresdner") are Texas corporations with their
20
principal place of business in Dallas, Te~as, and are owned or
21
controlled by, and affiliated with, Armstrong and his affiliated
22
entities.
23
16. Plaintiff is informed and believes and thereon
2.<1.
alleges that defendants Knightsbridge companies, Inc. and
25
Knightsbridge Guaranty Company (collectively "Knightsbridge") are
26

(()jPLAINr -4-
 Texas corporations with their principal place of business in

2 Dallas, Texas, and are owned or controlled by, and affiliated

) with, Armstrong and his affiliated entities.

17. Defendants Remington, Winthrop, CCA Holdings, CCAJ,

5 Chase Development, Cal-Pacific, Chayson, C.R. Acquisitions, DEl,

6 Suisse Texas, H.T. International, Dresdner and Knightsbridge will

7 sometimes-collectively be referred to as the UArmstrong

1J
8 Cornpanie5.

9
JURISOICTION AND VENUE

)0 18. This is an adversary proceeding brought pursuant to

\1
Bankruptcy Rule 7001, 11 U.S.C. §§S41(a) I 542, 544, and 548.

12
19. This Court has jurisdiction of this adversary

13
proceeding pursuant to 28 U.S.C. §§151, 157, and 1334. Venue is

proper pursuant to 2B U.S.C. §1409.

1d
20. This adversary proceeding a core proceeding
15
pursuant to 28 U.S.C. §157 and this Court may enter a final
16
judgment herein.
17
GENERAL ~LLEGATIONS
18
21. Plaintiff is informed and believes and thereon
19
alleges that an involuntary bankruptcy petition was filed against
20
the Debtor on March 20, 1991. Prior to filing the petition, the
'2 \
Debtor operated as a tax deposit and payment service. The

plaintiff, the Chapter 11 Trustee in this case, was appointed on

23
March 26, 1991. The Debtor, by and through the Trustee, continues

to operate a payroll tax deposit and payment service.

25
'I
I

26

CO'1PLAlHT -5-
 22. Plaintiff is informed and believes and the~eo~

"} alleges that Armstrong is an insider of the Debtor. Armstror.g ',,:~.:.

) the sole shareholder and chairman of the Debtor from March ~9a9,

J when he purchased ~he Debtor, until the petition was filed.

5 Armstrong owns or controls all oE the Armstrong companies.

b 23. On various different dates over the period in which

7 Armstrong controlled the Debtor large sums of money belonging to

e the Debtor were transferred directly or indirectly to various of

9 the Armstrong Companies, including without limitation Dresdner,

10 Remington, Knightsbridge, and Winthrop. for example, Debtor's

II bOOKS and records show that (a) in January and February of 1991

12 approximately $11,000,000 was transferred from Debtor directly to

1J
Knightsbridge, (b) Debtor' 5 funds were transferred to an account

1.4
at Merrill Lynch which were then transferred to Bank One in Dallas

15
and then transferred to Knightsbridge, and (c) on numerous dates

in 1990 funds were transferred from Debtor to the Merrill Lynch

account and then II invested / in various of the Armstrong Compan ies

17

such as Dresdner, Remington, Winthrop, and Knightsbridge. Such

I a
transfers--from Debtor -directly or indirectly to Armstrong
19
Companies will be referred to herein as PAffiliate Transfers n •
20
24. All, or virtually all, of the Affiliate Transfers
21
came from funds being held by Debtor for payment of tax
22
~ligations of Debtor's clients.
23
25. In October 1990/ the internally prepared financial
2.4
statements of the Debtor show an intercompany receivable of
25
$68,800 , 000 which evidences that the total Affiliate Transfers
26

CCJoI,PLA!NI -6-
 were at least in that amount. Plaintiff and Plaintiff's

2 accountant have searched the files of Debtor and questioned ~~e

3 relevant staff of Debtor, but have found no collateral, securi~y

4 agreements, notes, or interest payments relating tG these

5 transfers.

6 26. In 1990, Debtorls internally prepared financial

7 documents reflect short term indebtedness owed by Knightsbridge to

8 Debtor in an amount of $B,175,021.55 reflecting apparent transfers

9 in approximately that amount from Debtor to Knightsbridge.

10 Plaintiff and Plaintiff's accoun~ant have searched the files of

II
Debtor and questioned the relevant staff of Debtor, but have found

12
no notes, agreements, interest payments I collateral or security

IJ
relating to such transfers.

14
27. Plaintiff is informed and believes and alleges on

IS that basis that Armstrong caused the Affiliate Transfers to be

made.
16
28. Plaintiff is informed and believes and alleges on
17
that basis that some of the funds comprising the Affiliate
IB
Transfers were fUrther distributed from the initial recipient
19
company to one or more other companies among the Armstrong
20
Companies.
21
29. Plaintiff is informed and believes and alleges on
22
that basis that large sums of money ostensibly advanced by one or
23
more of the Armstrong Companies were used (a) to purchase, rent or

lease real property, goods or services for the personal use a.ndjor
25
enj oyment of Armstrong, (b) "Co make investments or acquisitions
26

C~Pl.ldllf -7-
I

I'
I for the benefit of Armstrong, (c) to make large gifts , c!onatic:-.5,
I

2 or contributions at the direction and for the benefit of

J Annstrong, (d) for a fund to protect against litigation or ci-"il

or criminal liability of Armstrong, or (e) for other pu~~oscs

5 the direc~ of indirect benefit of Armstrong.

30. Plaintiff is informed and believes and alleges on

7 that basis that the Armstrong Companies that advanced large sums

8 of money referred to in subpa~aqraph E immediately above (a) were

9 not sufficiently profitable to generate such sums on their own

10 operations. and (b) were the recipients of large sums of money

II directly or indirectly from Debtor as part of the Affiliate

12 Transfers.

l) J1. Plaintiff has been informed of and believes the

14 following and on that basis alleges:

15 a) Some or all of the Armstrong Companies that

16 received Affiliate Transfers were not profitable and that some of

17 the funds received from Debtor were used to pay operating expenses
IS of the recipient Affiliate Company.

19 b) Upon obtaining control of the Debtor,

20 Armstrong wired approximately ~2 million from the Debtor to the

21 holding company for some of the Armstrong Companies. out of these

12 funds J Armstrong retired a $600 J 000 note ..... hich the pr ior owners of

23 the Debtor had executed to Mr. Stanley Rosenberg and that

2<1 Armstrong had agreed to pay as the "price" for buying the Debtor.

25 c) In July. 1989, Armstrong transferred

26 approximately $3 million of funds belonging to the Debtor to

CCPlPlAllII -8-
 Dresdner Enterprises, Inc., a company which formerly owned th~

Debtor and is currently owned by Armstrong.

d) In August, 1989, Armstrong transferred $7

million af the DebtarJ s money to an account of Dresdner

S Ente~prises, Inc. in order to purchase a shopping center that

6 Armstrong or one of the Armstrong Companies was buyi~g.

.., e) In february, 1990 Armstrong transferred

I

B approximately $10 milli~n of the Debtor's funds to Winthrop for

9 purchase of a showpiece ranch of about 2,000 acre~ for Armstrong's

10 personal residence. A loan in the amount of approximately $6.4

Ir million was booked to Armstrong, who gave a deed of trust on the

12 property to Winthrop. Winthrop in turn assigned the deed of trust

\J
to the Debtor. Portions of the $10 million from the debtor were

\ Ai
also used for improvements on Armstrong's ranch, including abouc

15
$2.4 million spent on a cutting horse arena, and for prepaid

16
interest on Armstrong's note.

f 1 In October 1990, the $68,BOO,OOO intercompany

\7
receivable was divided into two obligations. One obligation is
18
shown an the books of Debtor as a long-term Ubond N in the amount
19

of $57 million. The other obligation is shown on the books of

20
Debtor as "affiliated notes" and a Nlong term debt" of $11,8
1\
million from Winthrop to the, Debtor. No repayment of these

intercompany receivables has been found by Plaintiff to be shown

on Debtor's books.

g) On an unknown date, Armstrong transferred some

25
53 million of the Debtor's funds into one of the Armstrong
26

CCJol~lAIHI -9-
 Cornpanies--Dresdner Petroleum--to purchase oil and gas leases i~

the name of Dresdner Petroleum.

) h) Armstrong personally used funds believed ~o

~ave come from the Debtor for unauthorized purposes. For example,

5 Armstrong purchased a Jaguar automobile for S10S/000, 3nd a Rolls

6 Royce for $lJS,OOO, at charity events. He also purchased a BMW

~ for $36,000 for a vice-president of Debtor, Christine Gre~bling

I

8
using Debtor's funds. He contributed hundreds of thousands of

dollars to political campaigns. He was drawing a salary of some

iO
$21,000 every two weeKS--Dver SSOO,OOO a year--from his various

entities which were, in turn, drawing funds for operating e~penses

)1

from Debtor. He ~ented a suite at the Mark Hopkins Hotel in

12

I)
San Francisco for approximately $160,000 per year. On information

and belief, all the funds for these purchases and expenses were
14
diverted from the Debtor.
!5
i) In December 1988, the Debtor had on its books
16
a series of unsecured illiquid loans to its then sole shareholder,
17
MaxPharma, Inc. o~ affiliates of MaxPharma, Inc. These illiquid
18
affiliate loans amounted to approximately $14 million. Additional
19
affiliate loans were thereafte~ made, increasing that amount. At
20
the time Armstrong purchased the Debtor in March 1989, there were
21
approximately $14-18 million of affiliate loans on the Debtor's
22
books. The purchase by A~mstrong closed on March 29, 1989. On
23
April 10, 1989, an ~rmstrong Affiliate, Dresdner Enterprises,
24
Inc., purchased the $1B.9 million of intercompany receivables for
25
a note which was backed up by approximately $1.5 million worth of
26

COMPLAINT -10-
 collateral. Hence, on behalf of the Debtor, Armstrong appar=~~~:

had a period of time in which it could have sued l1axPharna's

affiliates for this $18.9 million of receivables. Instead, one __

the Armstrong companies at Armstrong's direction, bought out those

5 receivables for notes having questionable value.

6 j) After Armstrong acquired the Debtor, the

7 Debtor became the primary source of fu.nding for all Armstrong's

8 Dallas operations. The Armstrong Companies required some $400,000

9 a month in operating CQsts--almost $5 million a year--apart from

10 any operating costs incurred by the Debtor itself. The funds for

\1
such operating costs were obtained from the Debtor.

12
k) In l-larch 1991 hrrnstrong invested SJ,DOO,OOO to

13
acquire ?arker Automotive.

1) Armstrong caused Debtor's funds to be

l.l
transte~red to the Armstrong companies by various methods,
IS
including the following: One of the Debtor's employees would
16

write checks payable to federal, state or local taxing authorities

\7
on behalf of the Debtorls clients. Those checks would be
\8
processed through the Debtor's computer, and this would
\9
automatically create a ledger entry reflecting that the check had
20
been issued. This ledger entry was necessary so that on the books
2\
of the Debtor and other appropriate financial documents, it ~ould
22
appear as if the check had actually been written. After the check
2)
had been processed in this manner, the Debtor had another employee
24
physically pull such checks before thEy were mailed or deposited
25
in a federal depository bank. Instead of transmitting such checks
26

CCtlPLAIWT -11-
 to the taxing authorities, Debtor would physically hold the C:-.2:::':3

2 Eor an average of three months, until the ne~t quarter. At ~~2

] end of the three-month period, the Debtor would then void the

.J original held-back check. A new Hgood H check would be issued

5 covered by sUfficient new funds. The new funds were obtained

6 through diversion af clients' funds. A new check would be issued

7 to the authorities, and this new check would have to be held, thus

8 repeating the process.

9
m) Arnstrong's Dallas staff prepared a weekly

10
cash summary projecting the Armstrong companies' cash needs for

II
the next several months. If tt= cash flow showed that the

entities would soon ~Un out of funds, Armstrong would transfer the

Debtor's funds to the DalleS office. These funds were then

1J

)~
distributed to whichever Armstrong companies needed them.

COUNT ONE
l5
(Recovery of Fraudulent Transfer Pursuant to § 548
and California Civil Code §§ )4]9.04 and J4]9.05)
10
]:2 . Plaintiff realleges and incorporates by reference
17
Paragraphs 1 through 31.
\B
33. To the extent that the claims herein arise pursuant

to Bankruptcy Code Section S44(b), plaintiff is asserting the

20
rights of all of the unsecured creditors with an unsecured claim
21
allowable in the bankruptcy case, which were creditors at the time
22
of the complained of transac~ions.
23
34. Armstrong has caused current assets of the Debtor

to be transferred to defendants without adequate or fair, and

25

26

COMPLA 1)/1 -12-

 often without any cons ration, while retaining all of t~e

1 liabilities of the

] 35. The transfers of assets :::'0 the

defe ants were made while the Debtor was ins01 and less

5 than areas y lent value.

CI 36. reason of the fo ng, the said transfers are

7 voidable pursuant to § 548(a) (2) of the Bank Code,

B california Civil Code § 3439.05 , and Sa § 544(b).

9
37. transfers of assets (rom the Debtor to the

10 defendants the Debtor to become insolvent and were made for

I! less than a reasonably equivalent value.

12
38. By reason of the foregoi transfers are

!3
voidable pursuant to section 548(a) (2) of Code,

Californ C il Code § 34J9.05, and Code § 544(b).

1.:1

39. The transfers of assets from the Debtor ~o

\5
defendants were made while the Debtor was engaged in business or a
16

transaction for which its remaining property was an unreasonably

17
small capital and were made less than a reasonably ivalent
\a
\9
value.

40. By reason of the fa I the transfers are

10
voi 1e pursuant to § 548(B) (2) of the Bankruptcy e,
21
California Civil Code § 3439.04 and Bankruptcy Code § 5~4(b).
n
41. transfers of assets the Debtor to the
il
defendants were made without rece y lent value
2,.
e for the transfers, and the r i to incur/
25 ,

26

CQIoIPLAlhiT -1)-
 or believed or reasonably d ve believed that it ~culd

2 incur, debts its iIi to y as they became cue.

J 42. By reason of the foregoing, the transfers are

4 vo pursuant to California Civil Code § 34)9.04 and § 544(~)

5 of the Bankruptcy Code.

6 4J. The transfers of assets the Debtor to che

7 defendants were made while Debtor intended to incur debts

B its ili to y as such debts matured and for less an

9 a Ly equivalent value.

10
44. By reason of the foregoing, the transfers are

II
voidable pursuant to § 548(a) (2) of the Code.

45. trans of assets from Debtor to the

12
defendants were made wi actual intent to hinder, delay or
13

14
's cr ors.

46. By reason of the foregoing, the transfers are

IS
voidable pursuant to § 548{a){1) of the Bankruptcy e,
i6

California C i1 Code § 34J9.04 § S44(b) of the Bankruptcy

17
Code.
IB
, plaintiff ys for relief as set forth
\9

hereinbelow.
20

21

22
47. a iff reall es and incorporates by reference
23
1 46, inclusive.
24
48. By vircue of the wrongful acts d above,

defendants have been unjustly enriched and hold the Debtor's

26

CCl'tPlAllH -14-
 •
belonging to the Debtor's estate, and any proceeds of those C~ . . _3.
:2 as well as any assets received from or acquired with ~oney

) re=eived from the Debtor, as constructive trustees for the ccne~~:

4 of the Debtor's estate.

5 WHEREFORE, plaintiff prays for relief as set forth

hereinbelow.

7 COUNT THREE
(Turnover of Property Pursuant to § 542)
B

9 49. Plaintiff realleges and incorporates by reference

10 Paragraphs 1 through 48, inclusive.

tI
50. Prior to the filing of the petition, the Debtor

transferred its property to defendants. Such property consisted

I]
of money and other property which is property of this estate, as

1.1
set forth hereinabove.

51. The property of the estate referred to in the

15

preceding paragraph. or proceeds of such property, is now in the

16

possession of the Defendants. Defendants have failed and refused

17
to surrender such property, or the proceeds thereof to the
18
trustee.
19

WHEREFORE. plaintiff prays for relief as set forth

20
hereinbelow.
21
COUNT FOUR
22 (Injunction)
2)
52. Plaintiff realleges and incorporates by reference

paragraphs 1 through 51, inclusive .

2S

26

C(){Pl" I tiT -15-

 53. aintiff is encitled ~o
•injunctive relief purs~2~:

1 to Ban Rules 7001(7) and 7065 1 Bankru Code § 105 a:1d

J F.R.C.P. § 65} restraini 5 from destroying ot' othe r"',,' is

j disposing Dr altering the of estate, and other

5 documents and in fornat ion in nts' sess , custody or

6 control concerning the use and trans of the tor's funds.

7 Plaintiff is also entitled ~o injunctive relief order

e defendants to iately turn over to plaintiff all Y of

If the estate in defendants' session, custody or control and to

10 refrain from dissipating, transferr! I or encumbering assets or

II funds rece from the Debtor or acquired the Debtor'S

12
assets or

\J
WHEREFORE, plaintiff prays for rei f as set forth

1&
hereinbelow.

15

16

17
54. Pia f f real leges and by reference

paragraphs 1 53, inclusive.

18

19
55. By virtue of the acts set forth in r s 23

through 31 hereinabove, Arrnst has converted assets of the

20
Oebtor and by such conversion has great damaged Debtor.
21
WHEREFORE, plaintiff for relief as set forth
22
herei low.
23

24

26

C~PtAllIl -16-
 •
COUNT SIX
(Breach of Fiduciary Duties)

) 56. iiaintiff ~eallege5 and incorporates by r~feren~~

4 paragraphs 1 through 55, inclusive.

5 57. As chairman of Debtor, Armstrong at all relevant

6 times owed fiduciary duties to Debtor.

7 58. By virtue of the acts and conduct set for~h in

8 paragraphs 23 through )1 hereinabove, Armstrong has breached his

9 fiduciary duties owed to the Debtor in that he haG knowingly

10 entered into numerous conflicts of interest, has engaged in self-

11 dealing to the detriment of the Debtor, has failed to act in the

i2 best interests of the Debeor, has failed to control and manage the

13
assets of Debtor in a prudent manner, and has misappropriated

14
assets of the Debtor, and has by such breaches of fiduciary duty

caused great damage to the Debtor.

15

16
WHEREFORE, plaintiff prays for relief as set forth
hereinbelow.
17
COUNT SEVEN
18
(Breach of contract)
19

59. Plaintiff realleges and incorporates by reference

'20

21
paragraphs 1 through 58, inclusive.
60, According to che bOOKS and records of the Debtor,

the Armstrong Companies have obligations totaling $69.8 million to

the Debtor under junk bonds, p~omissory notes or other

obligations. On informaLion and belief, interest on such notes

25
and obligations due to the Debtor has not been paid by the
26

-17-
'.
•
companies owing such obligations in violation of the terns and

2 conditions thereof and therefore are in breach of such

obligations,

J 61. Debtor has performed all obligations on its par~ :0

5 be performed except those excused by the conduct of defendants or

6 by virtue of other causes,

7 WHEREFORE, plaintiff prays for relief as follows:

8 1. For an injunction restraining defendants from

? dissipating, transferring[ or encumbering assets or funds received

\0
from the Debtor or acquired with the Debtor's assets or funds.

1\
2. For an injunction or order requiring defendants to

surrender the property of the estate, or the proceeds thereof, to

12

1)
the Trustee, and to render an accounting to the Court for the

1J
disposition by defendants of such property.

J. For the imposition of a constructive trust on

!5

plaintiff's funds and any proceeds of those funds in defendants'

\6
possession, custody or control and on any assets in defendants'
\7

possession, custody or control received from or acquired wi~~

18
money received from the Debtor.
19

4. For judgment against defendants for an accounting

20
of all payments and transfers of the Debtor'S property by
21
defendants to the e~tent such transfers were fraudulent.
;2
5. For an order avoiding all transfers to the
2)

defendants to the extent such transfers were fraudulent.

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 6. For a judgment in the total amount avoided, a~=

2 an o~der directing payment of such amount by deEendan~s ~o

) plaintiff, plus interest thereon at the legal rate.

J 7. For compensatory damages according to proof.

5 8. For exemplary damages in a sum sufficient to dete:

6 defendants from similar conduct in the future.

7 9. for such other and further relief as this Court

a deems appropriate.

9 Dated: ~ '2/ /'71/

10
FELDMAN, WA.LDMAN [. KLINE
A Professional Corporation
II
~/~ , ;~- --/../
Byl-~,,~!~
L.~. chris Martiniak
1J
Attorneys for Trustee
Frederick S. Wyle
1.:1.

1.5

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C()IPlA I lIT -19-