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1 Dirk O. Julander, Bar No.

132313
doj@jbblaw.com
2 Catherine A. Close, Bar No. 198549
cac@jbblaw.com
3 JULANDER, BROWN & BOLLARD
9110 Irvine Center Drive
4 Irvine, California 92618
Telephone: (949) 477-2100
5 Facsimile: (949) 477-6355

6 Attorneys for Plaintiff SCANWARE
SOLUTIONS, INC.
7

8 SUPERIOR COURT OF THE STATE OF CALIFORNIA

9 COUNTY OF ORANGE, CENTRAL JUSTICE CENTER

10 SCANWARE SOLUTIONS, INC., a Case No.
Delaware corporation;
11 COMPLAINT FOR:
Plaintiff,
12 1. BREACH OF FIDUCIARY DUTY;
vs. 2. EMBEZZLEMENT/CONVERSION;
13 3. RESTITUTION FOR UNJUST ENRICHMENT;
MICHAEL OGBURN, an individual; 4. ACCOUNTING; AND
14 DEBBIE OGBURN, an individual; and DOES 5. DECLARATORY RELIEF
1 through 25, inclusive,
15 [JURY TRIAL REQUESTED]
Defendants.
16 Action Filed: August 26, 2016
Trial Date: None Set
17

18 Plaintiff SCANWARE SOLUTIONS, INC. alleges for its Complaint against Defendants
19 MICHAEL LEE OGBURN, DEBBIE OGBURN and DOES 1 through 25, inclusive, as follows:

20 INTRODUCTION
21 1. This is an action to recover damages for breach of fiduciary duty and
22 embezzlement, and for declaratory relief and an accounting, in connection with the systematic

23 corporate mismanagement by a corporate officer. As set forth herein, Defendants failed to manage

24 Scanware in a way that would maximize value for Scanware and its shareholders; repeatedly took

25 actions to enrich themselves at the expense of Scanware; intentionally mislead Scanware

26 shareholders, Board of Directors and regulators; and violated various federal and state securities
27 regulations. In doing so, Defendants harmed Scanware.

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COMPLAINT
1 PARTIES

2 2. Plaintiff SCANWARE SOLUTIONS, INC. (“Scanware” or “Plaintiff”) is a

3 corporation duly organized and existing under the laws of the State of Delaware.

4 3. Plaintiff is informed and believes and, based thereon, alleges that Defendant

5 MICHAEL LEE OGBURN (“Mr. Ogburn”) is, and at all relevant times, was an individual

6 residing in the County of Orange, State of California.

7 4. Plaintiff is informed and believes and, based thereon, alleges that Defendant

8 DEBBIE OGBURN (“Ms. Ogburn”) is, and at all relevant times, was an individual residing in the

9 County of Orange, State of California.

10 5. The true names and capacities, whether individual, corporate, or otherwise of the

11 Defendants named herein as DOES 1 through 25, are unknown to Plaintiff, who therefore sues

12 said Defendants by such fictitious names. Plaintiff will amend this Complaint to state their true

13 names and capacities when the names are ascertained. Plaintiff is informed and believes and,

14 based thereon, alleges that each such fictitiously named Defendant is in some manner liable for the

15 acts hereafter alleged. Mr. Ogburn and the Defendants named herein as DOES 1 through 15 will

16 sometimes collectively be referred to as “Mr. Ogburn.” Ms. Ogburn and the Defendants named

17 herein as DOES 16 through 25 will sometimes collectively be referred to as “Ms. Ogburn.” And

18 Mr. Ogburn and Ms. Ogburn will sometimes collectively be referred to as “Defendants.”

19 6. Plaintiff is informed and believes and, based thereon, alleges that at all times herein

20 mentioned, Defendants, and each of them, were and are (for purposes of the law of tort, contract

21 and otherwise) agents, principals, representatives, servants, masters, partners, trustees, associates,

22 co-conspirators, employers and/or employees of each other, as well as predecessors-in-interest

23 and/or successors-in-interest to each other, all acting within the course and scope of such

24 capacities, within actual and/or apparent authority of such capacities, within the course and scope

25 of such conspiracies, and with actual and/or constructive notice of the knowledge of their

26 predecessors-in-interest and/or each other. Each of the Defendants conspired with one another
27 and/or aided and abetted the wrongdoing alleged herein.

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2
COMPLAINT
1 7. This Court has jurisdiction over each of the Defendants , and venue is proper in this

2 Court pursuant to Code of Civil Procedure section 394, because, at all relevant times, Defendants

3 conducted business in Orange County, California, and/or resided in Orange County, California,

4 and/or engaged in acts herein alleged in Orange County, California.

5 FACTUAL BACKGROUND

6 8. Scanware was organized in October 2014 for the purpose of taking the inventory

7 tracking software technology developed by Patricia Tzannakos (“Ms. Tzannakos”) into new

8 commercial markets. Ms. Tzannakos owned the inventory control software and the pending patent

9 application. Ms. Tzannakos also owns and operated Component Sourcing Group, a California

10 corporation (“CSG”) that has been using and selling the same technology in the government sector

11 since 2006.

12 9. When Scanware was organized, Mr. Ogburn was appointed as Chief Operating

13 Officer and subsequently the Chief Financial Officer. Mr. Ogburn was responsible for the day-to-

14 day operations of Scanware. Ms. Tzannakos was appointed as Chief Executive Officer and

15 Director, but the majority of her time and efforts was devoted to the operation of CSG.

16 10. In February 2015, just months after it was formed, Scanware filed to undertake a

17 public offering of securities by filing an S-1 registration statement with the Securities and

18 Exchange Commission. Commencing in about February 2015, Mr. Ogburn began selling

19 approximately 2,926,000 shares of Common Stock at a price of $0.10 per share, the price

20 proposed in the S-1, to approximately 31 persons. However, at time Mr. Ogburn began selling the

21 shares the SEC had not declared the S-1 effective and, as a result, sale of the shares of Common

22 Stock was not allowed.

23 11. Scanware later learned in September 2015 that Mr. Ogburn knew that he should not

24 have sold the securities but did it anyway, that he did not have a list of all investors who purchased

25 the stock, and that he paid or agreed to pay sales commission in cash or stock to persons for

26 selling certain shares of the Common Stock and the recipients of such commissions were not
27 registered broker dealers. Pursuant to federal and state laws, Scanware may not pay commissions

28 to unregistered broker dealers. At the time, the Board of Directors of Scanware and other officers

3
COMPLAINT
1 had no knowledge that the sale of stock was unlawful and had no knowledge of the unlawful

2 commissions.

3 12. Scanware also learned in September 2015 that it was paying Mr. Ogburn’s salary as

4 a 1099 payment to his company, Lightwave Capital, which was held in Ms. Ogburn’s name.

5 13. Scanware also later learned that Mr. Ogburn was selling his own restricted stock to

6 other purchasers, either directly or through his company, Lightwave Capital, at a price lower than

7 the price of the Company’s shares. Scanware is informed and believes that such sales did not

8 comply with federal and state securities laws.

9 14. After discovering the foregoing, on and around March 2, 2016, Scanware offered

10 rescission to each person who purchased shares of common stock from Scanware. Scanware sent

11 letters and disclosure statements to each of the affected purchasers. However, because Scanware

12 had no cash or assets with which to pay the rescission payments since the money received for the

13 stock sales had been misused and diverted by Defendants, it was forced to obtain a private loan of

14 more than $310,000 to cover the cost of the rescission payments. The loan was secured by all of

15 the assets of Scanware.

16 FIRST CAUSE OF ACTION

17 (Breach of Fiduciary Duty Against Mr. Ogburn)

18 15. Plaintiff refers to and incorporates by reference the allegations of paragraphs 1

19 through 14 as though fully set forth herein.

20 16. As a corporate officer responsible for the management of the corporation, Mr.

21 Ogburn owed fiduciary duties of care, loyalty and good faith to Scanware. Mr. Ogburn’s fiduciary

22 duties include obligations to exercise good business judgment, to act prudently in the operation of

23 Scanware’s business, to discharge his duties in good faith, to act in the best interests of Company

24 and to avoid acting in his own self-interest, and to honestly disclose all material facts when

25 providing information about the business to its shareholders.

26 17. Plaintiff is informed and believes and on that basis alleges that within the past

27 year, Mr. Ogburn breached his fiduciary duties by, among other things:

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4
COMPLAINT
1 a. Mismanaging Scanware and violating the terms of Scanware’s corporate

2 governance documents and applicable corporate laws;

3 b. Engaging in self-dealing by making decisions which enhanced his own

4 compensation to the detriment of Scanware, including misusing company funds by paying

5 himself a salary grossly disproportionate to the value of their services and selling his own

6 restricted stock to other purchasers at a price lower than the price of the Company’s shares;

7 c. Intentionally violating corporate securities regulations in the sale and offer

8 of Company stock; and

9 d. Diverting Company funds to entities controlled by Defendants.

10 18. By and through his conduct, Mr. Ogburn failed to exercise the degree of care

11 required of corporate officers, directors and fiduciaries. Mr. Ogburn’s conduct was not due to an

12 honest error in business judgment, but rather to his gross mismanagement, bad faith and/or

13 reckless disregard of the interests of Scanware and its shareholders.

14 19. As a direct and proximate result of the above described breaches, Plaintiff has

15 suffered damages in an amount to be determined at trial, but not less than $310,000.

16 20. Plaintiff is entitled to recover from Mr. Ogburn the benefits and/or profits received

17 by him as a result of any breach of duty. Plaintiff is entitled to the imposition of a constructive

18 trust on the proceeds of any and all sales of Scanware’s stock by Mr. Ogburn, and/or on all

19 accounts in which such monies were commingled.

20 21. Plaintiff is entitled to prejudgment interest at the maximum rate permitted by law

21 and/or compounded in the maximum manner permitted by law in light of Mr. Ogburn’s breaches

22 of his fiduciary duties.

23 22. Plaintiff is informed and believes and on that basis alleges that in doing the acts

24 described above, Mr. Ogburn acted with malice and with specific intent to injure Plaintiff and its

25 shareholders. Plaintiff therefore seeks an award of exemplary or punitive damages on behalf of

26 Scanware pursuant to California Civil Code section 3294 in an appropriate amount to deter similar
27 conduct in the future.

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5
COMPLAINT
1 SECOND CAUSE OF ACTION

2 (Embezzlement/Conversion as Against all Defendants)

3 23. Plaintiff refers to and incorporates by reference the allegations of paragraphs 1

4 through 22 as though fully set forth herein.

5 24. Plaintiff is informed and believes and on that basis alleges that Defendants have

6 embezzled and converted Scanware’s funds by among other things, failing to use the corporate

7 funds to pay Scanware’s outstanding financial obligations, paying themselves exorbitant salaries

8 which are grossly disproportionate to the value of their services, using corporate funds to pay for

9 personal items, and converting Company checks for their own use and benefit.

10 25. Plaintiff has demanded from Defendants the return of all monies improperly

11 converted and diverted to Defendants, but Defendants have failed and refused, and continue to fail

12 and refuse, to do so.

13 26. As a direct and proximate result of the above described breaches, Scanware has

14 been damaged in an amount to be determined at trial, but not less than the jurisdictional minimum

15 for this Court.

16 27. Plaintiff is informed and believes and on that basis alleges that in doing the acts

17 described above, Defendants acted with malice and with specific intent to injure Scanware and its

18 shareholders. Plaintiff therefore seeks an award of exemplary or punitive damages on behalf of

19 Scanware pursuant to California Civil Code section 3294 in an appropriate amount to deter similar

20 conduct in the future.

21 THIRD CAUSE OF ACTION

22 (Restitution/Unjust Enrichment as Against all Defendants)

23 28. Plaintiff refers to and incorporates by reference the allegations of paragraphs 1

24 through 27 as though fully set forth herein.

25 29. By reason of the wrongful conduct complained of herein, Defendants, and each of

26 them, have benefitted financially to the financial detriment of Scanware and its shareholders in
27 that Defendants have improperly sold their restricted corporate stock and wrongfully obtained and

28 used corporate funds.

6
COMPLAINT
1 30. In equity and good conscience, the shares of stock wrongfully issued and corporate

2 funds misappropriated by Defendants belong to Scanware. These benefits were accepted by

3 Defendants under such circumstances that it would be inequitable to be retained without payment.

4 31. It would be unjust to allow Defendants, and each of them, by such unlawful and

5 wrongful conduct, to profit at the expense of Scanware and its shareholders. Therefore, all stock

6 certificates improperly issued by and to Defendants should be cancelled and all sums unjustly

7 received by Defendants should be returned to Scanware.

8 FOURTH CAUSE OF ACTION

9 (Accounting as against All Defendants)

10 32. Plaintiff refers to and incorporates by reference the allegations of paragraphs 1

11 through 31 as though fully set forth herein.

12 33. As set forth above, Plaintiff is informed and believed that Defendants have

13 misappropriated and misused corporate funds by, among other things, failing to use the corporate

14 funds to pay Scanware’s outstanding financial obligations, paying themselves exorbitant salaries

15 which are grossly disproportionate to the value of their services, and using corporate funds to pay

16 for personal items and expenses.

17 34. An accounting of the monies received by Defendants is necessary to determine the

18 amount of misused and misappropriated funds.

19 35. To date, Defendants have failed and refused, and continue to fail and refuse, to

20 provide the requested accounting.

21 36. As a result, an accounting is necessary and appropriate regarding all corporate

22 funds paid to or improperly retained by Defendants.

23 FIFTH CAUSE OF ACTION

24 (Declaratory Relief as Against all Defendants)

25 37. Plaintiff refers to and incorporates by reference the allegations of paragraphs 1

26 through 36 as though fully set forth herein.
27 / / /

28 / / /

7
COMPLAINT
1 38. An actual controversy has arisen and now exists between Plaintiff, on the one hand,

2 and Defendants, on the other hand, concerning the validity of certain stock transfers of Defendants

3 as detailed herein and the stock ownership percentages of the various shareholders of Scanware.

4 39. Plaintiff contends that the stock transfers from and to Defendants are void as

5 unlawful. Plaintiff is informed and believes and, based thereon, alleges that Defendants dispute

6 Plaintiff’s contention and assert that the stock transfers to and from Defendants are valid.

7 40. As a result, a judicial determination is necessary and appropriate to ascertain the

8 respective ownership interests of the parties and remaining shareholders as detailed above.

9 PRAYER

10 WHEREFORE Plaintiff prays for judgment against Defendants, and each of them, jointly

11 and severally, as follows:

12 1. For general, special, compensatory and/or consequential damages according to

13 proof against Defendants, jointly and/or severally, for all losses and/or damages suffered as a

14 result of the acts and/or transactions complained of herein;

15 2. For all available equitable, legal and/or related remedies against Defendants, jointly

16 and/or severally;

17 3. For a complete verified accounting from Defendants of all monies received by

18 Scanware and an order directing the immediate payment to Scanware of all monies improperly

19 diverted;

20 4. For a complete verified accounting from Defendants of all funds paid to and/or by

21 Scanware, all stock sales by Defendants, and all dispositions of any kind of Scanware’s assets;

22 5. For disgorgement from each Defendant of all ill-gotten gains, profits, benefits,

23 and/or other compensation obtained by Defendants as a result of the acts and/or transactions

24 complained of herein;

25 6. For restitution from each Defendant of all assets taken from Scanware whether or

26 not pursuant to contract and/or whether or not received in exchange for consideration;
27 7. For the recording and/or allowing the recording of an equitable lien and/or a

28 constructive trust on assets of Defendants;

8
COMPLAINT
1 8. For prejudgment interest on the foregoing sum at the highest legal rate from the

2 earliest legal date;

3 9. For attorney’s fees and/or expenses incurred herein as allowed by law;

4 10. For costs of suit incurred herein;

5 11. For exemplary and punitive damages according to proof at the time of trial; and

6 12. For such other and further relief as the Court may deem just and/or proper.

7

8 DATED: August 26, 2016 JULANDER, BROWN & BOLLARD

9

10
By:
11 Dirk O. Julander
Attorneys for Plaintiff SCANWARE
12 SOLUTIONS, INC.
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COMPLAINT