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Case 3:16-cv-02167-AJB-BGS Document 1 Filed 08/26/16 Page 1 of 21

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LAW OFFICES OF JOSEPH M. HOATS


JOSEPH M. HOATS (STATE BAR NO. 141599)
12672 LIMONITE AVENUE, STE 3E #345
CORONA, CA 92880
TELEPHONE: (310) 920-5806
FACSIMILE: (626) 529-0834
EMAIL: JOSEPHHOATS.HOATSLAW@GMAIL.COM

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Attorney for Plaintiff(s)


LOCATI GLOBAL HOLDINGS, LLC

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IN THE UNITED STATES DISTRICT COURT


FOR THE SOUTHERN DISTRICT OF CALIFORNIA
SAN DIEGO, CALIFORNIA
LOCATI GLOBAL HOLDINGS, LLC,
individually

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Plaintiff(s),
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vs.
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PACIFIC IMPERIAL RAILROAD, INC., and )
DOES 1 through 50, inclusive,
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Defendant(s).
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_____________________________________ )

Case No. '16CV2167 AJB BGS


COMPLAINT FOR DAMAGES:
Jury Trial Waived
1)
2)
3)
4)

Fraud;
Breach of Fiduciary Duty
Breach of Contract;
Breach of Implied Covenant of Good Faith
and Fair Dealing;
5) Unjust Enrichment;
6) Conversion;
7) Corporate Nonfeasance;

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COMES NOW, Plaintiff LOCATI GLOBAL HOLDINGS, LLC, individually by and

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through undersigned counsel (hereinafter LOCATI or PLAINTIFF(s)) files this

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COMPLAINT FOR DAMAGES (hereinafter Complaint), against Defendant PACIFIC

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IMPERIAL RAILROAD, INC., (hereinafter PIR or RAILROAD) and DOES 1 through 50,

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inclusive, and each of them (hereinafter Defendants), and in support thereof, avers where

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Jurisdiction is proper in this complaint and WHO COMPLAIN AND ALLEGE AS FOLLOWS:
LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.
COMPLAINT FOR DAMAGES
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I.
GENERAL ALLEGATIONS JURISDICTION

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1. That Plaintiff LOCATI GLOBAL HOLDINGS, LLC is a Nevada Limited Liability

Company, having an address at 10120 South Eastern Ave, Suite 200, Henderson, Nevada

89052, at all relevant times;

2. The injuries alleged in this Complaint occurred within the City of SAN DIEGO, County of
SAN DIEGO, State of CALIFORNIA;

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3. Plaintiff (s) are informed and believe and on that basis allege that defendant PACIFIC
IMPERIAL RAILROAD is a Delaware corporation duly organized and existing under the

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laws of a state of the United States, or of another country, but doing business in and

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availing themselves of the laws of the State of California, County of San Diego in business

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directly related to the exact mechanism of injury alleged in this lawsuit;

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4. Plaintiff (s) are informed and believe and on that basis allege that defendant ARTURO

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ALEMANY is an active Chief Executive Officer and President of PIR whose business was

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in San Diego, California at the time of the filing of this complaint;

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5. Plaintiff (s) are informed and believe and on that basis allege that defendant ARTURO
ALEMANY, is an individual currently residing in the County of SAN DIEGO, California;

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6. The CONVERTIBLE SECURED PROMISSORY NOTE AND SECURITY

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AGREEMENT in an amount of $1,863,382.82 (hereinafter NOTE) (Attached hereto as

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Exhibit A) was signed in the County of SAN DIEGO, California directly related to the

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exact mechanism of injury alleged in this lawsuit;

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7. The Plaintiffs are informed and believe, and thereon allege, that all Defendant(s) sued

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herein as DOES 1 through 50 are in some manner responsible for the acts herein alleged

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and reserve the right to amend such complaint to name said Defendant(s), and each of

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them, when it becomes necessary or their true identity revealed;

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The Plaintiff are informed and believe, and thereon allege, that Defendant(s), and each of

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them, were and are the agents, servants, representatives, and/or employees of each of the

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other Defendant(s) herein, and were at all times acting within the course and scope of such

LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.


COMPLAINT FOR DAMAGES
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Case 3:16-cv-02167-AJB-BGS Document 1 Filed 08/26/16 Page 3 of 21

agency, representation and employment and with the permission and consent of each of

said Defendant(s);

9. The Plaintiffs are informed and believe, and thereon allege, wherever appearing in this

complaint, each and every reference to Defendant(s) and to any of them, is intended to be

and shall be a reference to all Defendant(s) hereto, and to each of them, named and

unnamed, including all fictitiously named Defendant(s), unless said reference is otherwise

specifically qualified;

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10. The Plaintiffs are informed and believe, and thereon allege, that each of the DOE
Defendant(s) is, in some manner, responsible for the events and happenings herein set forth

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and proximately caused injury and damages to The PLAINTIFFS as herein alleged;

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11. The Plaintiffs are informed and believe, and thereon allege, that the true names and

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capacities, whether individual, corporate, associate or otherwise of Defendants named

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herein as DOES 1 through 50, inclusive, are unknown to Plaintiffs who, therefore, sues said

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Defendants by such fictitious names, and Plaintiffs will ask leave of Court to amend this

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Complaint when their true names and capacities have been ascertained. Plaintiffs are

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informed and believe and thereon allege, that each of the Defendant(s) designated as a

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DOE is responsible, negligently, or in some actionable manner for the events, and

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happenings herein referred to and caused the injuries and damages proximately thereby to

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Plaintiffs as herein allege either through Defendants own negligent conduct or through the

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conduct of its agents, servants, and/or employees, or, through the ownership, lease, sale of

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the instrumentality causing the injury or in some other actionable manner;

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12. The Plaintiffs are informed and believe, and thereon allege, that each of the defendants

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designated herein as a DOE is in some way negligently and/or otherwise legally

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responsible for the events and happenings herein referred to, and negligently and/or

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otherwise illegally caused damages proximately thereby to Plaintiffs as herein alleged;

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ALTER-EGO ALLEGATIONS
LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.
COMPLAINT FOR DAMAGES
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13. On information and belief Plaintiff is/are informed and believe and thereon allege that
some of the corporations, limited liability companies, and entities named as Defendant(s),
and each of them, herein, including but not limited to PACIFIC IMPERIAL RAILROAD,
INC.; and DOES 1 through 50, (hereinafter occasionally collectively referred to as the
ALTER EGO CORPORATIONS) and each of them were at all times relevant to the alter
ego corporations of individual Defendant(s), and each of them, ALEMANY and DOES 1

through 50, and by reason of the following:


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a. Plaintiff(s) are informed and believe and thereon allege that said individual
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Defendant(s), and each of them, at all times herein mentioned, dominated,


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influenced and controlled each of the ALTER EGO CORPORATIONS and


the officers thereof as well as the business, property, and affairs of each of
said corporations.
b. Plaintiff(s) are informed and believe and thereon allege that, at all times
herein mentioned, there existed and now exists a unity of interest and

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ownership between said individual Defendant(s), and each of them, and each

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of the ALTER EGO CORPORATIONS, the individuality and separateness of

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said individual Defendant(s), and each of them, and each of the ALTER EGO

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CORPORATIONS has ceased.

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c. Plaintiff(s) are informed and believe and thereon allege that, at all times since

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the incorporation of each, each ALTER EGO CORPORATION has been and

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now is a mere shell and naked framework which said individual Defendant(s),

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and each of them, used as a conduit for the conduct of their personal business,

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property and affairs.

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d. Plaintiff(s) are informed and believe and thereon allege that, at all times
herein mentioned, each of the ALTER EGO CORPORATIONS was created
and continued pursuant to a fraudulent plan, scheme and device conceived and
operated by said individual Defendant(s), and each of them, ALEMANY and
LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.
COMPLAINT FOR DAMAGES
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DOES 1 through 50, whereby the income, revenue and profits of each of the

ALTER EGO CORPORATIONS were diverted by said individual Cross-

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Defendants to themselves.
e. Plaintiff(s) are informed and believe and thereon allege that, at all times
herein mentioned, each of the ALTER EGO CORPORATIONS was
organized by Defendant(s), and each of them, as a device to avoid individual

liability and for the purpose of substituting financially irresponsible


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corporations in the place and stead of said individual Defendant(s), and each
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of them, and accordingly, each ALTER EGO CORPORATION was formed


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with capitalization totally inadequate for the business in which said


corporation was engaged.
f. Plaintiff(s) are informed and believe and thereon allege that each ALTER
EGO CORPORATION is insolvent.
g. By virtue of the foregoing, adherence to the fiction of the separate corporate

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existence of each of the ALTER EGO CORPORATIONS would, under the

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circumstances, sanction a fraud and promote injustice in that Plaintiff(s)

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would be unable to realize upon any judgment in their favor.

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14. The Plaintiff(s) is/are informed and believe(s), and thereon allege(s), that Defendant(s), and

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each of them, were and are the agents, servants, representatives, and/or employees of each

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of the other Defendant(s) herein, and were at all times acting within the course and scope of

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such agency, representation and employment and with the permission and consent of each

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of said Defendant(s);

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15. All Defendant(s), and each of them, conducted Business within the State of California,

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County of SAN DIEGO and/or benefited from the sale of their products for profit within

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the State of California, County of SAN DIEGO;

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LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.


COMPLAINT FOR DAMAGES
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II.

VENUE

16. Plaintiffs hereby incorporate in the preceding paragraphs by this reference information

contained and the allegations contained in Paragraphs 1 through 15 as though set forth fully

at this point, and each and every part thereof with the same force and effect as if set forth

herein at length;

17. Venue is proper under 28 U.S.C. 1391 because a substantial part of the events or property

giving rise to the claim occurred in this judicial District, and has caused damages to

Plaintiffs in this District;

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18. The contract specifically chooses Venue in the State of California, under California Laws
in either State or Federal Courts;

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19. The Parties are Residents of Nevada, California and Delaware;

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20. The CONVERTIBLE SECURED PROMISSORY NOTE AND SECURITY

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AGREEMENT was signed in SAN DIEGO, County of SAN DIEGO, California by the

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Defendant(s) and said CONVERTIBLE SECURED PROMISSORY NOTE AND

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SECURITY AGREEMENT in an amount of $1,863,382.82 was delivered to the Plaintiff(s)

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in SAN DIEGO, County of SAN DIEGO, California, by the Defendant(s) and each of

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them;

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21. This Court has diversity jurisdiction over the claims in this complaint because the amount

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in controversy exceeds the sum of $75,000.00 and is between citizens of different states. 28

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U.S.C. 1332(a)(1);

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22. Venue is appropriate pursuant to California CODE OF CIVIL PROCEDURE 392-403;

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23. This Court has Jurisdiction over all the Defendant(s), and each of them pursuant to: Hess v.

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Pawlowski (1927), 274 U.S. 352, 47 S. Ct. 632, 71 L. Ed. 1091 (minimum contacts within

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the state);

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LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.


COMPLAINT FOR DAMAGES
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III.

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BACKGROUND FACTS AND INFORMATION


24. Plaintiffs hereby incorporate in the preceding paragraphs by this reference information

contained and the allegations contained in Paragraphs 1 through 23 as though set forth fully

at this point, and each and every part thereof with the same force and effect as if set forth

herein at length;

25. Plaintiff(s) are informed and believe that the CONVERTIBLE SECURED PROMISSORY

NOTE AND SECURITY AGREEMENT was signed on or about July 2, 2015 by the

Defendant(s) and each of them;

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26. Plaintiff(s) are informed and believe that the CONVERTIBLE SECURED PROMISSORY

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NOTE AND SECURITY AGREEMENT in an amount of $1,863,382.82 was for an

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amount of One Million Eight Hundred Sixty-Three Thousand Three Hundred and Eighty-

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Three USD and Eighty-Two Cents ($1,863,382.82);

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27. Plaintiff(s) are informed and believe that the CONVERTIBLE SECURED PROMISSORY

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NOTE AND SECURITY AGREEMENT contains a typographical error in that the NOTE

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is for $63,828,383.62 USD and that this complaint is NOT for that amount listed in said

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note;

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28. Plaintiff(s) are informed and believe that the CONVERTIBLE SECURED PROMISSORY

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NOTE AND SECURITY AGREEMENT in an amount of $1,863,382.82 required the

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Defendant(s) and each of them to make monthly payments in the amount of Three

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Thousand Five Hundred Dollars (USD) $3,500.00 at an interest rate of six percent (6%) per

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annum commencing June 30, 2015;

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29. Plaintiff(s) are informed and believe that the Defendant(s), and each of them, made the

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monthly payments are required for the month(s) of July, August, September, October,

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November and December in the year of 2015 as required by the NOTE;

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30. Plaintiff(s) are informed and believe that the CONVERTIBLE SECURED PROMISSORY

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NOTE AND SECURITY AGREEMENT in an amount of $1,863,382.82 had a provision

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for payment in full on the date of January 2, 2016;


LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.
COMPLAINT FOR DAMAGES
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31. DEMAND was made to PIR for the payment on the NOTE in January, April and June of
2016 (copies of the DEMAND are attached hereto as Exhibit B);
32. Plaintiff(s) are informed and believe that an agreement had been reached to pay for the

reconstruction and operation of the 70-mile Desert Line railway in southeastern San Diego

County that connects Mexico maquiladoras to rail shipping in the United States. The

landmark agreement between Pacific Imperial Railroad (PIR) and Baja California Railroad

(hereinafter Baja Rail) provided for economic payments directly to PIR in the amounts of

One Million USD ($1,000,000.00) for three months starting July 2016 and ending in

September 2016;

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33. Plaintiff(s) are informed and believe that the investment from Baja Rail was so that PIR

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could make lease payments to the San Diego Metropolitan Transit System (hereinafter

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MTS) and improvements to the actual rail line;

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34. Plaintiff(s) are informed and believe that the President and CEO of PIR, Arturo Alemany,

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knew of the default on the NOTE when he entered into negotiations with Baja Rail knowing

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that the payments were due;

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35. Plaintiff(s) are informed and believe that the President and CEO of PIR, Arturo Alemany,

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defrauded Baja Rail with its request for the investment(s), knowing that PIR would not use

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the funds as required to pay back the defaulted NOTE;

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36. Plaintiff(s) are informed and believe that the President and CEO of PIR, Arturo Alemany,

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has redirected the investment from Baja Rail to better his personal financial position and not

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pay the debts of PIR, specifically, to the Plaintiff(s) in this action;

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LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.


COMPLAINT FOR DAMAGES
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IV.

CAUSES OF ACTION

FIRST CAUSE OF ACTION

FRAUD

(Plaintiff(s) against all Defendant(s), and DOES 1 through 50, inclusive)

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37. Plaintiff hereby incorporates in the preceding paragraphs by this reference information

contained and the allegations contained in Paragraphs 1 through 35 as though set forth

fully at this point, and each and every part thereof with the same force and effect as if set

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forth herein at length;


38. Plaintiff made a good faith effort to resolve the monies lent to the Defendant(s), and each
of them, by providing the NOTE for payment, to be paid in a reasonable time, to which
the Defendant(s), and each of them have failed to pay;

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39. In reliance on the above representations, Plaintiff agreed to assist the Defendants with
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their efforts to expand and obtain outside financing from Baja Rail;
40. In furtherance of Plaintiff(s) faith and trust in Defendant(s), and each of them, Plaintiff
agreed to seek to secure funding for the Defendants, to arrange for loans of money to

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benefit the individual Defendants, and to take a passive role in the activities of Pacific

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Imperial Railroad and to otherwise act in the best interests in the Defendant(s), and each

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of them;

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41. At the time of the misrepresentations and omissions referenced herein, Defendants were

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aware that such misrepresentations and omissions were taking place, and allowed them to

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take place because they were co-founders, directors, officers and alter egos of PACIFIC

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IMPERIAL RAILROAD, and benefited from the misrepresentations and omissions set

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forth herein.
42. Plaintiff(s) are informed and believe that Defendant Alemany negotiated a sublease

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with Baja Rail with a cash infusion of $3,000,000 US into the operations account of PIR.
LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.
COMPLAINT FOR DAMAGES
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The money was supposed to go to existing lease payments to the MTS and the balance to
the LOCATI NOTE. In reliance on this, LOCATI withheld its demand and process of
litigation until such time LOCATI learned that Alemany has diverted the funds for other
uses not in compliance with the disclosures made;

43. By reason of said misrepresentations and fraudulent concealment as alleged herein,


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Plaintiffs have been damaged in an amount presently unascertained, but within the
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jurisdiction of this Court. Plaintiffs will seek leave of this Court to amend this Complaint
when the sum has been ascertained;

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44. In doing the acts herein alleged, Defendant(s), and each of their conduct was willful and

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intentional, and done in reckless disregard of the possible results. Defendant(s) conduct

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evidenced a conscious disregard of the Plaintiff(s) rights, and exhibited a particularly

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malicious intent in light of the Defendant(s) knowledge of Plaintiff(s) financial status,

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activities, and efforts. By reason thereof, Plaintiffs are entitled to exemplary and punitive

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damages against Defendants, and each of them.

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SECOND CAUSE OF ACTION

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BREACH OF FIDUCIARY DUTY


(Plaintiff(s) against all Defendant(s), and DOES 1 through 50, inclusive)

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45. Plaintiff hereby incorporates in the preceding paragraphs by this reference information

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contained and the allegations contained in Paragraphs 1 through 44 as though set forth

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fully at this point, and each and every part thereof with the same force and effect as if set

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forth herein at length;


46. Plaintiff and Defendant share a relationship whereby:

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a. Plaintiff reposes trust and confidence in Defendant, and


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b. Defendant undertakes such trust and assumes a duty to advise, counsel


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and/or protect Plaintiff


LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.
COMPLAINT FOR DAMAGES
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47. California Civil Code section 3333 provides that [f]or the breach of an obligation not
arising from contract, the measure of damages, . . . is the amount which will compensate
for all the detriment proximately caused thereby, whether it could have been anticipated
or not.

48. Defendants breached their fiduciary duty to Plaintiff by unlawfully retaining the funds
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they agreed to pay to Plaintiff. The Agreement implied an agency-type relationship in


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that Defendants were to act in good faith when dealing with third party debtors to further
the PIRs goal of paying back initial investors, specifically, LOCATI. A fiduciary

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relationship is any relation existing between parties to a transaction wherein one of the

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parties is in duty bound to act with the utmost good faith for the benefit of the other party.

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Such a relation ordinarily arises where a confidence is reposed by one person in the

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integrity of another, and in such a relation the party in whom the confidence is reposed, if

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he voluntarily accepts or assumes to accept the confidence, can take no advantage from

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his acts relating to the interest of the other party without the latters knowledge or

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consent. Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 29;

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49. Defendants implicitly agreed to act in good faith when Defendants received from
debtors the funds that were received from Baja Rail and other investors because the
Defendant(s), and each of them, have no current income from operations and have been

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working on investor original funding;


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50. Defendants repeated failure to timely respond to the Plaintiffs repeated requests for
Reports, funds, and other materials under the Agreement and rightfully the property of the
Plaintiff constitutes a breach of fiduciary duty;
51. Defendants breach of fiduciary duty caused damages to Plaintiff in that Plaintiff has

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been deprived their funds that have been mishandled by Defendant(s), and each of them;

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52. Defendants breach caused Plaintiff to be deprived of the opportunity to convert the debt

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into shares of stock for value and deprived the Plaintiff from the use of the funds.

LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.


COMPLAINT FOR DAMAGES
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Furthermore, Defendants breach caused harm to numerous investors in that they could

not receive the funds they were owed under separate agreements that made part of the

total investment into PIR. The damages amounted to a sum of at least One Million Eight

Hundred Sixty-Three Thousand Three Hundred and Eighty-Three USD and Eighty-Two

Cents ($1,863,382.82);
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53. Defendant(s), and each of them, used the debt owed to the Plaintiffs as a bargaining tool
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for obtaining funding from Baja Rail and to obtain a secret profit by unlawfully detaining

the funds it received from Baja Rail. Defendants retention of secret profits damaged

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Plaintiff in the total sum of at least One Million Eight Hundred Sixty-Three Thousand

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Three Hundred and Eighty-Three USD and Eighty-Two Cents ($1,863,382.82).

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54.

Plaintiff(s) are able and demand Punitive Damages which may be recovered for an

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intentional breach of fiduciary duty under California Civil Code Section 3333 and

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California Civil Code Section 3294;

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THIRD CAUSE OF ACTION FOR BREACH OF CONTRACT

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(Plaintiff(s) against all Defendant(s), and DOES 1 through 50, inclusive)

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55. Plaintiffs hereby incorporate in the preceding paragraphs by this reference information

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contained and the allegations contained in Paragraphs 1 through 54 as though set forth fully

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at this point, and each and every part thereof with the same force and effect as if set forth

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herein at length;

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56. California Civil Code Section 1550 provides that [i]t is essential to the existence of a

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contract that there should be: 1) Parties capable of contracting; 2) Their consent; 3) A

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lawful object; and, 4) A sufficient cause or consideration.

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57. At all relevant times, Plaintiff has performed all conditions, covenants, obligations and
promises required by their part to be performed in accordance with the terms and
conditions under the NOTE;
LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.
COMPLAINT FOR DAMAGES
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58. On January 3, 2016, Defendant(s), and each of them failed to make the payment of One
Million Eight Hundred Sixty-Three Thousand Three Hundred and Eighty-Three USD and
Eighty-Two Cents ($1,863,382.82), plus interest less credits for the payments made;
59. The NOTE has a definition of Events of Default, whereby in section 8. Events of

Default: (c) the failure of the Company to pay to the Holder any of the monthly payments
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when due, or pay on the Maturity Date, any and all amounts due and owing under the
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Note;
60. In the Event of a Default, which has occurred in this matter, the NOTE carries an interest
rate of ten percent (10%) per annum;
61. Defendant(s) and each of them have failed to pay the amount owed on the NOTE when it
matured or after any of the three (3) notices of default;

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62. By reason of Defendant(s) and each of them, breach of said NOTE as herein alleged, the

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Plaintiff(s) have suffered damages in the sum of One Million Eight Hundred Sixty-Three

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Thousand Three Hundred and Eighty-Three USD and Eighty-Two Cents ($1,863,382.82)

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plus interest of ten percent (10%) for a total amount to be determined at trial;

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63. As a direct and proximate result of Defendant(s), and each of them, breach of the NOTE,
Plaintiff has suffered contractual damages under the terms and conditions of the NOTE
that will continue, plus interest and other incidental damages and out-of-pocket expenses,

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all in the sum to be determined according to proof at the time of trial;


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64. By the terms of said written agreement, the Plaintiff(s) is entitled to recover reasonable
attorney fees incurred in the enforcement of the provisions of the agreement. By reason of
the aforementioned breach of the Defendant(s), and each of them, the Plaintiff(s) has been

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forced to secure the services of the legal firm of THE LAW OFFICES OF JOSEPH M.

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HOATS to prosecute this lawsuit;

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LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.


COMPLAINT FOR DAMAGES
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FOURTH CAUSE OF ACTION FOR BREACH OF THE IMPLIED COVENANT

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OF GOOD FAITH AND FAIR DEALING


(Plaintiff(s) against all Defendant(s), and DOES 1 through 50, inclusive)

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65. Plaintiff hereby incorporates in the preceding paragraphs by this reference information
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contained and the allegations contained in Paragraphs 1 through 64 as though set forth
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fully at this point, and each and every part thereof with the same force and effect as if set
forth herein at length;
66. As a result of the contractual relationships (detailed in the first cause of action) which existed

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between Plaintiff(s) and the Defendant(s), and each of them, respectively, on the one hand,

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and Defendants, on the other hand, the expressed and implied promises made in connection

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with those relationships, and the acts, conduct, and communications resulting in these implied

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promises, Defendants promised to act in good faith toward and deal fairly with Plaintiffs

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LOCATI which requires, among other things:

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a. Each party in the relationship must act with good faith toward the other
concerning all matters related to the agreements described herein;
b. Each party in the relationship must act with fairness toward the other concerning
all matters related to their agreements;

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c. Neither party would take any action to unfairly prevent the other from obtaining
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the benefits of their agreements;


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d. Defendant(s), and each of them, specifically, PACIFIC IMPERIAL RAILROAD


and ALEMANY would comply with their own representations in dealing with
Plaintiff LOCATI under their contractual agreements, as set forth in the first
cause of action;

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e. Defendants PACIFIC IMPERIAL RAILROAD and ALEMANY would not

28

disregard the NOTE signed in favor of Plaintiff LOCATI without a fair and
honest cause, regulated by good faith on Defendant(s), and each of them, part;
LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.
COMPLAINT FOR DAMAGES
14

Case 3:16-cv-02167-AJB-BGS Document 1 Filed 08/26/16 Page 15 of 21

1
2
3
4
5

f. Defendants PACIFIC IMPERIAL RAILROAD and ALEMANY would not


disregard the NOTE signed in favor of Plaintiff LOCATI in an unfair manner;
and
g. Defendants PACIFIC IMPERIAL RAILROAD and ALEMANY would give
Plaintiffs interests as much consideration as they gave their own interests;

67. Defendant(s), and each of them, breaches of each of their written contracts with Plaintiffs were
7
8
9
10
11
12

wrongful, in bad faith, and unfair, and therefore a violation of Defendants(s), and each of them,
legal duties. Plaintiffs further allege that Defendants breached the covenant of good faith and
fair dealings when they:
a. Repeatedly refused to abide by their own promises when dealing with Plaintiff
LOCATI

13

b. Repeatedly denied the existence of their contracts with Plaintiff LOCATI;

14

c. Unfairly prevented Plaintiff LOCATI from obtaining the benefits of his

15
16
17
18
19

relationship with the defendants;


d. Disregard the NOTE signed in favor of Plaintiff LOCATIs affiliation with
Defendant(s) for invalid reasons and in a manner that was inconsistent with
Defendants(s), and each of their legal obligations;
e. Refused to comply with the payment obligations to Plaintiff, and;

20

f. Failed and refused to repay money advanced to the Company for the benefit of
21

the Defendant(s), and each of them, which money was advanced by Plaintiff, and
22
23
24
25

due to Plaintiff, solely upon Plaintiff(s) reasonable reliance on the false


representations of the Defendant(s), and each of them;
68. Defendant(s), and each of them, breach of the covenant of good faith and fair dealing was a

26

substantial factor in causing damage and injury to Plaintiffs. As a direct and proximate result of

27

Defendant(s), and each of them, wrongful conduct alleged in this Complaint, Plaintiff LOCATI

28

has lost substantial benefits with Defendants, including compensation and potential ownership
rights, and other benefits in an amount in excess of the jurisdiction of this Courts jurisdictional
LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.
COMPLAINT FOR DAMAGES
15

Case 3:16-cv-02167-AJB-BGS Document 1 Filed 08/26/16 Page 16 of 21

1
2
3
4

minimum, the precise amount of which will be proven at trial. Plaintiff(s) has further been
deprived of the repayment of the NOTES attached hereto as Exhibit A, and of other benefits
associated with these written contracts, and has further been subjected to the delays, expenses,
and opportunity costs associated with such breaches;

69. As a result of the contractual relationships which existed between Plaintiffs LOCATI and
6

Defendants, on the other hand, the expressed and implied promises made in connection
7
8
9
10

with those relationships, and the acts, conduct, and communications has been breached;
70. Defendant(s), and each of them, has breached its duty of good faith and fair dealing owed
to Plaintiff in the following respects:
(a)

11
12

Unreasonably withholding payment to Plaintiff in bad faith at a time

when PIR and ALEMANY knew Plaintiff was entitled to payment under the NOTE;
(b)

13

Unreasonably and in bad faith failing to provide a prompt and reasonable

14

explanation of the basis relied on under the terms of the NOTE, in relation to the

15

applicable facts and NOTE provisions, for the denial of Plaintiffs claim for payment

16

owed;

17
18
19

(c)

Unreasonably delaying payments to Plaintiff in bad faith knowing

Plaintiffs claim for breach was valid;


(d)

Unreasonably failing to properly pay Plaintiffs claim;

(e)

Intentionally and unreasonably denying the payment on the NOTE for

20
21
22
23
24

the Defendant(s), and each of them financial exposure and contractual obligations and to
maximize its own profits;
(f)

Unreasonably compelling Plaintiff to institute litigation to recover

25

amounts due under the Promissory Note in an effort to further discourage Plaintiff from

26

pursuing monies loaned;

27
28

LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.


COMPLAINT FOR DAMAGES
16

Case 3:16-cv-02167-AJB-BGS Document 1 Filed 08/26/16 Page 17 of 21

1
2
3
4

71. Plaintiff is informed and believes and thereon alleges that the Defendant(s), and each of
them, had no intention of paying the NOTE to the Plaintiff by evidence of its action in not
disclosing to Baja Rail, the existence of the NOTE when they sought investment into PIR;
72. Plaintiff is informed and believes and thereon alleges that the Defendant(s), and each of

them, has breached its duties of good faith and fair dealing owed to Plaintiff by other acts
6

or omissions of which Plaintiff is presently unaware. Plaintiff will amend this Complaint
7
8
9

at such time as Plaintiff discovers these other acts or omissions;


73. As a proximate result of the aforementioned wrongful conduct of the Defendant(s), and

10

each of them, Plaintiff has suffered, and will continue to suffer in the future, damages

11

under the Breach of Contract, plus interest, for a total amount to be shown at the time of

12

trial;

13

74. As a further proximate result of the aforementioned wrongful conduct of the

14

Defendant(s), and each of them, Plaintiff has suffered anxiety, worry, and other incidental

15

damages and out-of-pocket expenses, all to Plaintiffs general damage in a sum to be

16

determined at the time of trial;

17
18
19
20

75. As a further proximate result of the aforementioned wrongful conduct of the


Defendant(s), and each of them, Plaintiff was compelled to retain legal counsel to obtain
the payment due under the NOTE. Therefore, the Defendant(s), and each of them is liable
to Plaintiff for those attorneys fees reasonably necessary and incurred by Plaintiff to

21
22
23
24

obtain payment on the NOTE in a sum to be determined at the time of trial;


76. the Defendant(s), and each of their conduct described herein was intended by the
Defendant(s), and each of them to cause injury to Plaintiff, was despicable conduct

25

carried on by the Defendant(s), and each of them with a willful and conscious disregard

26

of the rights of Plaintiff, subjected Plaintiff to cruel and unjust hardship in conscious

27

disregard of their rights, and was an intentional misrepresentation, deceit, and

28

concealment of material facts known to the Defendant(s), and each of them with intention

LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.


COMPLAINT FOR DAMAGES
17

Case 3:16-cv-02167-AJB-BGS Document 1 Filed 08/26/16 Page 18 of 21

1
2
3
4

to deprive Plaintiff of property and/or legal rights or to otherwise cause injury, such as to
constitute malice, oppression, or fraud under California Civil Code 3294, thereby
entitling Plaintiff to punitive damages in an amount appropriate to punish or set an
example of the Defendant(s), and each of their behavior;

5
6

FIFTH CAUSE OF ACTION


7

UNJUST ENRICHMENT
8

(Plaintiff(s) against all Defendant(s), and DOES 1 through 50, inclusive)

9
10
11

77. Plaintiff hereby incorporates in the preceding paragraphs by this reference information
contained and the allegations contained in Paragraphs 1 through 76 as though set forth

12

fully at this point, and each and every part thereof with the same force and effect as if set
13
14
15
16
17
18

forth herein at length;


78. Defendant has not repaid the loan to Plaintiff, and yet has had use of the proceeds;
79. The use of the proceeds without payment to Plaintiff constitutes an unjust enrichment of
Defendant at Plaintiff's expense;
80. As a result of the unjust enrichment of Defendant, Plaintiff has been damaged in an

19

amount in excess of One Million Eight Hundred Sixty-Three Thousand Three Hundred

20

and Eighty-Three USD and Eighty-Two Cents ($1,863,382.82);

21
22

SIXTH CAUSE OF ACTION

23

CONVERSION

24

(Plaintiff(s) against all Defendant(s), and DOES 1 through 50, inclusive)

25
26

81. Plaintiff hereby incorporates in the preceding paragraphs by this reference information

27

contained and the allegations contained in Paragraphs 1 through 78 as though set forth

28

fully at this point, and each and every part thereof with the same force and effect as if set
forth herein at length;
LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.
COMPLAINT FOR DAMAGES
18

Case 3:16-cv-02167-AJB-BGS Document 1 Filed 08/26/16 Page 19 of 21

1
2
3
4

82. Defendant has taken funds which were due to Plaintiff as a result of the loan.
83. By taking money due to Plaintiff, and not remitting that money to Plaintiff on demand,
Defendant acted inconsistently with Plaintiff's ownership of the funds.
84. By acting so inconsistently with Plaintiff's ownership of the funds, Defendant has

converted the property of Plaintiff.


6

85. Defendants actions have caused Plaintiff damage in an amount to be determined at trial,
7
8
9

but in excess of One Million Eight Hundred Sixty-Three Thousand Three Hundred and
Eighty-Three USD and Eighty-Two Cents ($1,863,382.82);

10

SEVENTH CAUSE OF ACTION

11

CORPORATE NONFEASANCE

12

(Plaintiff(s) against all Defendant(s), and DOES 1 through 50, inclusive)

13
14

86. Plaintiff hereby incorporates in the preceding paragraphs by this reference information

15

contained and the allegations contained in Paragraphs 1 through 84 as though set forth

16

fully at this point, and each and every part thereof with the same force and effect as if set

17

forth herein at length;

18

87. Plaintiff(s) are informed and believe at the time of the making of the Note by the

19

Defendant(s), and each of them, the Corporation did not have an intention to pay the

20

Note;

21
22
23

88. The Defendant(s), knew, or should have known, that setting the terms of the Note was not
in the best interest of the Lender and the other debtors of PIR;
89. The Plaintiff(s) are informed and believe that the Defendant(s), and each of them, were

24

acting in a fashion as to not benefit the Debt Holders of the Corporation and the intent
25

was not to pay the Note;


26
27
28

90. By acting so inconsistently with Plaintiff's ownership of the funds, Defendant has
converted the property of Plaintiff.

LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.


COMPLAINT FOR DAMAGES
19

Case 3:16-cv-02167-AJB-BGS Document 1 Filed 08/26/16 Page 20 of 21

1
2
3
4

91. Defendants actions have caused Plaintiff damage in an amount to be determined at trial,
but in excess of One Million Eight Hundred Sixty-Three Thousand Three Hundred and
Eighty-Three USD and Eighty-Two Cents ($1,863,382.82);
92. The Plaintiff(s) have a right to go after the Personal Assets of Arturo Alemany and as his

role in the Corporate Nonfeasors;


6

/
7
8
9

/
/

10

11

12

13

14

15

16

17
18
19

/
/
/

20

/
21
22
23
24

/
/
/

25

26

27

28

LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.


COMPLAINT FOR DAMAGES
20

Case 3:16-cv-02167-AJB-BGS Document 1 Filed 08/26/16 Page 21 of 21

1
2

V.

PRAYER FOR RELIEF

WHEREFORE Plaintiff prays for judgment against the Defendant(s), and each of them as
5

follows:
6

1.

Damages for failure to pay the full amount of the NOTE to LOCATI and in an

amount to be determined at the time of trial but in excess of One Million Eight Hundred Sixty8

Three Thousand Three Hundred and Eighty-Three USD and Eighty-Two Cents ($1,863,382.82)
9

plus interest, including prejudgment interest, in a sum to be determined at the time of trial;
10

2.

General damages and other incidental damages in the sum of $1,000,000.00;

3.

Punitive and exemplary damages in excess of $5,000,000.00;

4.

Attorneys fees reasonably incurred to obtain the Policy benefits in a sum to be

11
12
13
14

determined at the time of trial;

15

5.

For costs of suit incurred herein;

16

6.

For such other and further relief as the Court deems just and proper.

17
18
19
20

DATED: August 21, 2016

BY:

21

/s/ Joseph M. Hoats


Joseph M. Hoats
Attorney for Plaintiff(s)

22
23
24
25
26
27
28

LOCATI v. PACIFIC IMPERIAL RAILROAD, et. al.


COMPLAINT FOR DAMAGES
21

Case 3:16-cv-02167-AJB-BGS Document 1-1 Filed 08/26/16 Page 1 of 2

-6 5HY

CIVIL COVER SHEET

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I. (a) PLAINTIFFS

DEFENDANTS

Locati Global Holdings, LLC.

Pacific Imperial Railroad, Inc.


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JOSEPH M. HOATS (STATE BAR NO. 141599)
12672 LIMONITE AVENUE, STE 3E #345
CORONA, CA 92880

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Case 3:16-cv-02167-AJB-BGS Document 1-1 Filed 08/26/16 Page 2 of 2

INSTRUCTIONS FOR ATTORNEYS COMPLETING CIVIL COVER SHEET FORM JS 44


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Date and Attorney Signature.'DWHDQGVLJQWKHFLYLOFRYHUVKHHW

Case 3:16-cv-02167-AJB-BGS Document 1-2 Filed 08/26/16 Page 1 of 10

EXHIBIT A
Locati Note

Case 3:16-cv-02167-AJB-BGS Document 1-2 Filed 08/26/16 Page 2 of 10

THIS CONVERTIBLE SECURED PROMISSORY NOTE AND SECURITY AGREEMENT HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. IT MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, OR HYPOTHECATED EXCEPT RELATED TO AN OPINION OF COUNSEL FOR THE HOLDER,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
PACIFIC IMPERIAL RAILROAD, INC.
6% CONVERTIBLE SECURED PROMISSORY NOTE AND SECURITY AGREEMENT

$1,863,383.82 USD

July 2,2015

FOR VALUE RECEIVED, the undersigned, PACIFIC IMPERIAL RAILROAD, INC., a Delaware
corporation (the "Company" and "Maker"), having an address 401 West A Street, Suite 1150, San Diego,
CA 92101, promises to pay to the order of LOCATI GLOBAL HOLDINGS, LLC, a Nevada limited liability
company ("Locati" or the "Holder")' having an address at 10120 South Eastern Avenue, Suite 200
Henderson, Nevada 89052, on the Maturity Date (as defined below), unless sooner paid or converted as
provided below, the principal sum of One Million Eight Hundred Sixty-Three Thousand Three Hundred
and Eighty Three USD and Eighty Two Cents 63,828,383.82 USD). The principal and accrued interest of
this Note shall be due and payable on June 30, 2016 (the "Maturity Date") to the Holder.

1.

Interest Rate. The outstanding principal balance of this Note shall be payable at $3,500.00 per
month, with the unpaid interest accruing at a fixed rate equal to six percent (6%) per annum
commencing June 30, 2015.

2.

Maturity Date. The date that this Note shall mature, and the principal amount outstanding
hereunder, plus accrued unpaid interest thereon and any charges pertaining thereto, shall
become due and payable on January 2, 2016.

3.

Prepayments. The Company may voluntarily prepay this Note either in whole or in part without
penalty or premium.

4.

Conversion.
(a)
Conversion Rate. The outstanding principal balance and unpaid accrued interest
on this Note shall, at the Holder's sole option, convert into equity of the Company at the
Conversion Price, at any time before the Maturity Date by providing five (5) days notice to the
Company. The "Conversion Price" shall be $0.89 per share of common stock of the Company.
(b)
Manner of Conversion. The Holder shall be deemed to be the holder of the
common stock into which this Note converts as of the date of the conversion described above,
and shall have all of the rights to which the Holder is entitled as holder of common stock. To
receive a certificate representing the common stock, the Holder shall surrender this Note to the
Company. As soon as practicable after the surrender of this Note, the Company shall (i) issue
and deliver to the Holder a certificate for the number of common stock issuable upon
conversion, (ii) pay to the Holder cash as provided in Section 4(d) below for any fractional shares
which would otherwise be issuable upon conversion, and (iii) if less than the entire amount
owing under the Note is being converted, a new promissory note in substantially the same form

Initial

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Case 3:16-cv-02167-AJB-BGS Document 1-2 Filed 08/26/16 Page 3 of 10

as this Note in a principal amount equal to the amount due and owing and unconverted
hereunder.
(c)
Conversion Adjustment. If, at any time until this Note is paid in full, the
Company issues a Conversion price to any other lender that is less than the Conversion price
included herein, the Conversion price as described above, shall be adjusted to be equal to the
lower Conversion price offered to any other lender.
(d)
Fractional Shares. No fractional shares shall be issued upon conversion of this
Note. In place of a fractional share, the Company shall pay the Holder an amount equal to the
product obtained by multiplying the fractional share by the Conversion Price per share for the
applicable common stock.
5.

Representation and Warranties. To induce the Holder to make each Advance under this Note,
the Company represents and warrants as follows (which representations and warranties shall be
deemed to be repeated on the date of each Advance made under this Note after the date
hereof): (i) the Company is duly organized, validly existing and in good standing under the laws
of the State of Delaware; (ii) the Company has full power and legal right to execute and deliver,
and to perform and observe the provisions of this Note; (iii) the execution, delivery and
performance by the Company of this Note have been duly authorized by all necessary action,
and do not contravene any law or contractual restriction binding on or affecting the Company or
any of the Company's property; (iv) no authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body or other person is
required for the due execution, delivery and performance by the Company of this Note (except
for those authorizations or approvals that have already been obtained); (v) this Note is the legal,
valid and binding obligations of the Company enforceable against the Company in accordance
with its terms; (vi) except as disclosed in writing to the Holder prior to the date hereof, there is
no (A) existing judgment against the Company, (8) pending tax assessment against the
Company, (C) lien, including without limitation, tax lien, against any property of the Company or
(D) pending or, to the Company's knowledge, threatened investigation, litigation or proceeding
affecting the Company that (1) could be reasonably likely to have a material adverse effect on
the Company or its ability to perform its obligations under this Note, or (2) purports to affect the
legality, validity or enforceability of this Note; and (vii) since the date of the most recent
financial statements of the Company furnished to the Holder, no event has occurred that could
be reasonably likely to have a material adverse effect on the Company or its ability to perform
its obligations under this Note.

6.

Covenants. So long as any obligations shall remain outstanding and unpaid under this Note, the
Company will, unless the Holder shall otherwise consent in writing:
(a)
Comply in all material respects with all applicable laws, rules, regulations and
orders, such compliance to include, without limitation, paying before the same become
delinquent all taxes, assessments and governmental charges imposed upon the Company or the
Company's property, except to the extent contested in good faith and by appropriate
proceedings;
(b)
(i) Preserve, renew and maintain in full force and effect its legal existence and
good standing under the applicable law of the jurisdiction of its formation, (ii) take all

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Case 3:16-cv-02167-AJB-BGS Document 1-2 Filed 08/26/16 Page 4 of 10

reasonable action to obtain, preserve, renew, extend, maintain and keep in full force and effect
all rights, privileges, permits, licenses, authorizations and franchises necessary or desirable in
the normal conduct of its business, except for any such actions which, if not taken, could not
reasonably be expected, individually or in the aggregate, to have a material adverse effect on
the Company or its ability to perform its obligations under this Note and (iii) qualify and remain
qualified as a foreign corporation in each jurisdiction in which qualification is necessary in view
of its business and operations or the ownership of its properties to the extent the failure to
qualify could reasonably be expected to have a material adverse effect on the Company or its
ability to perform its obligations under this Note.
(c) Not create or suffer to exist any lien on or with respect to any of its properties,
whether now owned or hereafter acquired, or assign any right to receive income, other than: (i)
liens created in favor of the Holder, (ii) purchase money or mortgage liens upon or in any real or
personal property or equipment acquired or held by the Company in the ordinary course of
business to secure the purchase price of such real or personal property or equipment or to
secure debt incurred solely for the purpose of financing the acquisition of such real or personal
property or equipment, or liens existing on such property or equipment at the time of its
acquisition, or extensions, renewals, refinancings or replacements of any of the foregoing
securing the same or a lesser amount; provided, however, that no such lien shall extend to or
cover any property of any character other than the real property, equipment or personal
property being acquired, and no such extension, renewal, refinancing or replacement thereof
shall extend to or cover any property not theretofore subject to the lien being extended,
renewed, refinanced or replaced, and provided further that the aggregate prinCipal amount of
the indebtedness secured by the liens referred to in this clause (ii) shall not exceed the amount
specified therefor in Section 6(d)(ii) hereof, (iii) liens for taxes, assessments or governmental
charges or claims the payment of which are not yet delinquent or are being contested in good
faith and for which the Company has allocated appropriate reserves in accordance with
customary accounting rules, consistently applied, (iv) any attachment or judgment lien either in
existence less than thirty (30) calendar days after the entry thereof, or with respect to which
execution has been stayed, or with respect to which payment in full above any applicable
deductible is covered by insurance, and liens incurred to secure any surety bonds, appeal bonds,
supersedeas bonds, or other instruments serving similar purposes in connection with the appeal
of any such judgment, (v) bankers' liens in the nature of rights of set-off arising in the ordinary
course of business, (vi) liens and deposits in connection with workers' compensation,
unemployment insurance, social security and other legislation affecting the Company, and (vii)
liens ariSing by operation of law in favor of carriers, warehousemen, landlords, mechaniCS,
materialmen, laborers or employees for sums that are not yet delinquent or are being contested
in good faith and for which the Company has allocated appropriate reserves in accordance with
customary accounting rules, consistently applied.
(d)
Not create, incur, assume or suffer to exist any debt other than: (i) debt existing
as of the date hereof and previously disclosed by the Company to the Holder, (ii) debt secured
by liens permitted by Section 6(c)(ii) hereof in the aggregate amount of not more than
$250,000.00 at anyone time outstanding, (iii) unsecured debt incurred in the ordinary course of
business in the aggregate amount of not more than $250,000.00 at anyone time outstanding or
(iv) debt owing to the Holder, including, without limitation, debt under this Note.

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Case 3:16-cv-02167-AJB-BGS Document 1-2 Filed 08/26/16 Page 5 of 10

7.

Waivers. The Company hereby waives diligence, presentment for payment, demand, protest,
notice of non-payment, notice of dishonor, notice of protest, and any and all other notices and
demands whatsoever. The Company shall remain bound under this Note until all principal and
interest and any other amounts that are payable hereunder have been paid or converted in full,
notwithstanding any extensions or renewals granted with respect to this Note or the release of
any party liable hereunder. The Company and any and all endorsers hereof, also waive the right
to plead any and all statutes of limitations as a defense to any demand on this Note or any and
all obligations or liabilities arising out of or in connection with this Note, to the fullest extent
permitted by law.

8.

Events of Default. Any of the following events shall constitute an event of default by the
Company under this Note (an "Event of Default"):
(a)

the occurrence of any default of the $2,650,000 Fletcher note dated July 2, 2015;

(c)

the failure of the Company to pay to the Holder any of the monthly payments when
due, or pay on the Maturity Date, any and all amounts due and owing under this Note;

(d)

the failure of the Company to convert this Note as set forth herein when requested by
the Holder;

Upon the occurrence of any Event of Default, as defined hereinabove, at Holder's option,
Holder may declare immediately due and payable, and on any such declaration there shall
become immediately due and payable, the entire unpaid principal balance of this Note,
together with all accrued and unpaid interest under this Note and any other sums owing at
the time of such declaration pursuant to this Note, and Holder shall be entitled to exercise
all rights and remedies available to Holder hereunder and under applicable law, all of which
rights and remedies shall be cumulative. Without limiting the generality of the foregoing,
upon the occurrence of an Event of Default, the interest rate at which interest shall accrue
on the principal sum and any other amounts that are due under this Note shall be at a fixed
rate equal to ten percent (10%) per annum, from the date of such Event of Default until all
such amounts have been paid in full.

9.

Notice of Default of the Fletcher Note and Right to Cure. Upon the occurrence of any event
of default on the $2,650,000 note to Fletcher, the Company shall give immediate notice to
the Holder and the Holder shall be given 30 days to cure any and all defaults on the
$2,650,000 note and security instruments.

10.

No Waiver by the Holder. Any delay or omission on the part of the Holder to exercise any of the
Holder's rights or remedies hereunder or under applicable law, including, without limitation, the
right to accelerate amounts owing under this Note, shall not be deemed a waiver of that right or
remedy or of any other right or remedy of the Holder in respect thereof. The acceptance by the
Holder of any payment pursuant to the terms of this Note which is less than payment in full of
all amounts due and payable at the time of such payment shall not constitute a waiver of the
right to exercise any of the Holder's rights or remedies under this Note or under applicable law
at that time or at any subsequent time or nullify any prior exercise of any such rights or

Initial

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Case 3:16-cv-02167-AJB-BGS Document 1-2 Filed 08/26/16 Page 6 of 10

remedies without the express written consent of the Holder, except as and to the extent
provided to the contrary by applicable law.
11.

Initial

Adjustments.
(a)

In the event that the Company shall at any time after July 15, 2015: (i) declare a
dividend or make a distribution on the outstanding common stock payable in shares of
its capital stock, (ii) subdivide the outstanding common stock into a greater number of
shares of common stock, (iii) combine the outstanding common stock into a smaller
number of shares, or (iv) issue any shares of its capital stock by reclassification of the
common stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation}, then, in each case, the
Conversion Price of this Note in effect at the time of the record date for the
determination of Stockholders entitled to receive such dividend or distribution or of the
effective date of such subdivision, combination, or reclassification shall be adjusted so
that it shall equal the price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of common stock
outstanding immediately prior to such action, and the denominator of which shall be
the number of shares of common stock outstanding after giving effect to such action.
Such adjustment shall be made successively whenever any event listed above shall occur
and shall become effective at the close of business on such record date or at the close of
business on the date immediately preceding such effective date, as applicable.

(b)

All calculations under this Section 11 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.

(c)

In any case in which this Section 11 shall require that an adjustment in the number of
common shares be made effective as of a record date for a specified event, the
Company may elect to defer, until the occurrence of such event, issuing to the Holder, if
the Holder converted this Note after such record date, the common shares, if any,
issuable upon such conversion over and above the number of common shares issuable
upon such conversion on the basis of the number of shares of common stock in effect
prior to such adjustment; provided, however, that the Company shall deliver to the
Holder a due bill or other appropriate instrument evidencing the Holder's right to
receive such additional shares of common stock upon the occurrence of the event
requiring such adjustment.

(d)

Whenever there shall be an adjustment as provided in this Section 11, the Company
shall within fifteen (15) days thereafter cause written notice thereof to be sent by
registered mail, postage prepaid, to the Holder, at its address as it shall appear in the
Convertible Note Register, which notice shall be accompanied by an officer's certificate
setting forth the number of common shares issuable and the Conversion Price thereof
after such adjustment and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.

(e)

The Company shall not be required to issue fractions of shares of common stock or
other capital stock of the Company upon the conversion of this Note. If any fraction of a

Page 5

Case 3:16-cv-02167-AJB-BGS Document 1-2 Filed 08/26/16 Page 7 of 10

share of common stock would be issuable on the conversion of this Note (or specified
portions thereof), the Company shall purchase such fraction for an amount in cash equal
to the same fraction of the Conversion Price.

12.

(f)

No adjustment in the Conversion Price shall be required if such adjustment is less than
Five Cents ($0.05); provided, however, that any adjustments which by reason of this
Section 11 are not required to be made shall be carried forward and taken into account
in any subsequent adjustment.

(g)

Upon each adjustment of the Conversion Price pursuant to Section l1(a), the number of
shares of common stock purchasable upon conversion of this Note shall be adjusted to
the number of shares of common stock, calculated to the nearest one hundredth of a
share, obtained by multiplying the number of shares of common stock purchasable
immediately prior to such adjustment upon the conversion of this Note by the
Conversion Price in effect prior to such adjustment and dividing the product so obtained
by the new Conversion Price.

Reclassification; Reorganization; Merger.


(a)

Initial

In case of any capital reorganization, other than in the cases referred to in Section l1(a)
hereof, or the consolidation or merger of the Company with or into another corporation
(other than a merger or consolidation in which the Company is the continuing
corporation and which does not result in any reclassification of the outstanding shares
of common stock or the conversion of such outstanding shares of common stock into
shares of other stock or other securities or property), or in the case of any sale, lease, or
conveyance to another corporation of the property and assets of any nature of the
Company as an entirety or substantially as an entirety (such actions being hereinafter
collectively referred to as "Reorganizations"), there shall thereafter be deliverable upon
conversion of this Note (in lieu of the number of common shares theretofore
deliverable) the number of shares of stock or other securities or property to which a
holder of the respective number of common shares which would otherwise have been
deliverable upon the conversion of this Note would have been entitled upon such
Reorganization if this Note had been exercised in full immediately prior to such
Reorganization. In case of any Reorganization, appropriate adjustment, as determined
in good faith by the Board of Directors of the Company, shall be made in the application
of the provisions herein set forth with respect to the rights and interests of the Holder
so that the provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable upon exercise
of this Note. Any such adjustment shall be made by, and set forth in, a supplemental
agreement between the Company, or any successor thereto, and the Holder, with
respect to this Note, and shall for all purposes hereof conclusively be deemed to be an
appropriate adjustment. The Company shall not effect any such Reorganization unless,
upon or prior to the consummation thereof, the successor corporation, or if the
Company shall be the surviving corporation in any such Reorganization and is not the
issuer of the shares of stock or other securities or property to be delivered to holders of
shares of the common stock outstanding at the effective time thereof, then such issuer,
shall assume by written instrument the obligation to deliver to the Holder such shares of
stock, securities, cash, or other property as the Holder shall be entitled to purchase in

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Case 3:16-cv-02167-AJB-BGS Document 1-2 Filed 08/26/16 Page 8 of 10

accordance with the foregoing provisions. In the event of sale, lease, or conveyance or
other transfer of all or substantially all of the assets of the Company as part of a plan for
liquidation of the Company, all rights to conversion of this Note shall terminate thirty
(30) days after the Company gives written notice to the Holder that such sale or
conveyance or other transfer has been consummated.

13.

(b)

In case of any reclassification or change of the shares of common stock issuable upon
conversion of this Note (other than a change in par value or from a specified par value
to no par value, or as a result of a subdivision or combination, but including any change
in the shares into two or more classes or series of shares), or in case of any
consolidation or merger of another corporation into the Company in which the
Company is the continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the shares of
common stock (other than a change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination, but including any change in the
shares into two or more classes or series of shares), the Holder of this Note shall have
the right thereafter to receive upon conversion of this Note solely the kind and amount
of shares of stock and other securities, property, cash, or any combination thereof
receivable upon such reclassification, change, consolidation, or merger. Thereafter,
appropriate provision shall be made for adjustments which shall be as nearly equivalent
as practicable to the adjustments in Section 11.

(c)

The above provisions of this Section 12 shall similarly apply to


reclassifications and changes of shares of Common Stock and to
consolidations, mergers, sales, leases, or conveyances.

successive
successive

Notice of Certain Events. In case at any time the Company shall propose:
(a)

to pay any dividend or make any distribution on shares of common stock in shares of
common stock or make any other distribution (other than regularly scheduled cash
dividends which are not in a greater amount per share than the most recent such cash
dividend) to all holders of common stock; or

(b)

to issue any rights, warrants, or other securities to all holders of common stock entitling
them to purchase any additional shares of common stock or any other rights, warrants,
or other securities; or

(c)

to effect any reclassification or change of outstanding shares of common stock or any


consolidation, merger, sale, lease, or conveyance of property, as described in Section

12; or
(d)

to effect any liquidation, dissolution, or winding-up of the Company; or

(e)

to take any other action which would cause an adjustment to the Conversion Price;
then, and in anyone or more of such cases, the Company shall give written notice
thereof by registered mail, postage prepaid, to the Holder at the Holder's address,
mailed at least fifteen (15) days prior to: (1) the date as of which the holders of record

Initial

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Case 3:16-cv-02167-AJB-BGS Document 1-2 Filed 08/26/16 Page 9 of 10

of shares of common stock to be entitled to receive any such dividend, distribution,


rights, warrants, or other securities are to be determined, (2) the date on which any
such reclassification, change of outstanding shares of common stock, consolidation,
merger, sale, lease, conveyance of property, liquidation, dissolution, or winding-up is
expected to become effective and the date as of which it is expected that holders of
record of shares of common stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification, change of
outstanding shares, consolidation, merger, sale, lease, conveyance of property,
liquidation, dissolution, or winding-up, or (3) the date of such action which would
require an adjustment to the Conversion Price.

14.

Expenses of Enforcement. The Maker agrees to pay all reasonable costs and expenses,
including, without limitation, reasonable attorneys' fees, as a court of competent jurisdiction
shall award, which the Holder shall incur in connection with any legal action or legal proceeding
commenced for the collection of this Note or the exercise, preservation or enforcement of the
Holder's rights and remedies thereunder.

15.

Governing law. This Note shall be governed by and construed according to and enforced under
the internal laws of the State of California without giving effect to its choice of laws rules.

16.

Jurisdiction; Service of Process. Without limiting the right of the Holder to bring any action or
proceeding against the Maker or against the property of the Maker arising out of or relating to
any obligation of the Maker under this Note (an "Action") in the courts of other jurisdictions, the
Maker hereby irrevocably agrees, with respect to any Actions, to submit to the jurisdiction of
any California State or Federal court, and the Maker hereby irrevocably agrees that any Action
may be heard and determined in such California State or Federal court. The Maker hereby
irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient
forum to the maintenance of any Action in any such court. The Maker hereby irrevocably agrees
that the summons and complaint or any other process in any Action in any jurisdiction may be
served by first-class, registered, certified or overnight mail addressed to any address specified as
a notice address for the Maker hereunder or by hand delivery to an individual person of suitable
age and discretion at any of such addresses. Such service will be complete on the date such
process is so mailed or delivered. The Maker may also be served in any other manner permitted
by law.

17.

JURY TRIAL WAIVER. THE MAKER AND THE HOLDER HEREBY IRREVOCABLY WAIVE ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO ANY OBLIGATION OF THE MAKER UNDER THIS NOTE OR ANY DOCUMENTS
DELIVERED IN CONNECTION HEREWITH WHETHER IN CONTRACT, TORT OR ANY CAUSE OF
ACTION WHATSOEVER.

18.

Binding Nature. The provisions of this Note shall be binding on the Company and shall inure to
the benefit of the Holder.

19.

Usury Savings Provisions. In the event the Holder receive any sums under this Note which
constitute interest in an amount in excess of that permitted by any applicable law, then, all such
sums constituting interest in excess of that permitted to be paid under applicable law shall, at

Initial

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Case 3:16-cv-02167-AJB-BGS Document 1-2 Filed 08/26/16 Page 10 of 10

the Holder's option, either be credited to the payment of principal owing hereunder or returned
to the Company.
20.

Severability. If, but only to the extent that, any provision of this Note shall be invalid or
unenforceable, then, such offending provision shall be deleted from this Note, but only to the
extent necessary to preserve the validity and effectiveness of this Note to the fullest extent
permitted by applicable law.

IN WITNESS WHEREOF, the undersigned has caused this 6% Convertible Secured Promissory Note and
Security Agreement to be duly executed as of the date first above written.

PACIFIC IMPERIAL RAILROAD, IN>,

By:

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Name: Charles McHaffie


Title: Chief Executive Officer

Initial

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