1 | Christopher Celentino (State Bar No. 131688) Christopher Lyon (State Bar No. 243259) DINSMORE & SHOHL LLP 655 West Broadway, Suite 800 3 |] San Diego, CA 92101 Telephone: 619.400.0500 4 || Facsimile: 619.400.0501 christopher.celentino@dinsmore.com christopher.lyon@dinsmore.com 6 || Counsel to Richard Kipperman, in his Capacity as Court Appointed Receiver in San Diego Superior Court case The 7 || People of the State of California v. Sean Joseph McManus, et.al,, Case No, SCD266439; DA No. AEM242 8 9 SUPERIOR COURT OF THE STATE OF CALIFORNIA 10 FOR THE COUNTY OF SAN DIEGO ul Richard Kipperman, in his Capacity as Court Case No. SCD266439: 12] Appointed Receiver in San Diego Superior Court case, DA No. AEM242 The People of the State of California v. Sean Joseph 13 || McManus, ef al, Case No. SCD266439; DA No. COMPLAINT FO} '37-2020-00032426-C1 ‘AEM242, | UST-CTL 4 (1) FRAUD IN THE INDUCEMENT; Plaintiff. (2) BREACH OF FIDUCIARY DUTY; Is (3) NEGLIGENT. v. | MISREPRESENTATION; 16 (4) UNJUST ENRICHMENT; DORI FENENBOCK, an individual, JUAN (5) CONVERSION; | 17 || CABRERA, an individual, RUDY individually and as Trustee of Jukemia Trust 18 || ESCHOOL, INC., a Texas Corporation, and (6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & PROF. CODE § 17200; AND | VIRTUAL EDUCATION SERVICE! (8) ACCOUNTING | 19 || Limited Liability Company. and DOES 1-100, inclusive. | | 20 | | Defendants, | 21 2 23 INTRODUCTION 24 1. PlaintifY RICHARD KIPPERMAN (hereinafter the "Receiver") is a resident of California and the duly authorized and appointed Receiver in the San Diego Superior Court case 26 || styled: The People of the State of California v. Sean Joseph McManus, et al., Case No. SCD266439; 27 || DA No. AEM242 ("Criminal Action"), The Criminal Action stems from an alleged scheme to defraud 28 urSc ea auwe u 13 4 15 16 18 19 20 2 2 23 24 25 26 2 28 ~ o the State of California through the operation of 19 otherwise unlawful charter schools throughout California (the "Schools"). 2. The Rei er having been appointed receiver as set forth in the Order Appointing Richard Kipperman As Receiver Pursuant To Penal Code Section 186.1 (e) and (f) entered on June 7, 2019, (the "Original Order"), as supplemented and amended by the Order Supplementing and ‘Amending Order Appointing Receiver entered on June 28, 2019 (the "First Supplemental Order"), the Order On Petition Under Penal Code Sections 186.11(4) and (¢); Preliminary Injunction; Confirmation and Appointment of Permanent Receiver; and Ancillary Relief entered on July 15, 2019 (the "Permanent Order"); by the Second Supplemental Order Amending Order Appointing Receiver entered on September 23, 2019 (the "Second Supplemental Order”); by the Third Supplemental Order Amending Order Appointing Receiver entered on January 7, 2020 (the "Third Supplemental Order"); ‘and by the Fourth Supplemental Order Amending Order Appointing Receiver entered on February 10, 2020 (the "Fourth Supplemental Order"); by the Fifth Supplemental Order Supplementing and ‘Amending Order Appointing Receiver entered on May 29, 2020 (the "Fifth Supplemental Order") (the Original Order, the First Supplemental Order, the Permanent Order, the Second Supplemental Order, the Third Supplemental Order, the Fourth Supplemental Order and the Fifth Supplemental Order as any of the foregoing may at any time be supplemented or amended, collectively, the "Receiver Order"). Attached hereto as composite Exhibit A are a true and correct copy of the Court's Receiver Order. The Receiver was appointed to take control over the Schools previously managed by A3, as well as control and possession of certain assets of the various defendants and non-parties in the Criminal Action, including A3, all of which assets are generally referred to as "Receiver. Property" in the Receiver Order. On or about June 11, 2019, the Criminal Action was transferred for all purposes to Hon. Frederick Link. THE PARTIES 3. Sean Joseph McManus ("McManus") is an individual residing in Australia and a defendant in the Criminal Action. 4, Jason Alan Schrock ("Schrock") is an individual residing in Long Beach, California and a defendant in the Criminal Action. 2 COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT: @) BREACH OF FIDUCIARY DUTY: (3) NEGLIGENT MISREPRESENTATION; (4) UNJUST ENRICHMENT (3) CONVERSION; (9) ALTER EGO LIABILITY: (7) VIOLATION OF BUS. & PROF. CODE § 17300, ‘AND (8) ACCOUNTING~ ~ 5. Academic Arts and Action Charter Academy, also known as Academics, Arts and Action Charter Academy, dba A3 Education (the foregoing entity(ies), together with all other "fka's", “db's" and "aka's" of the foregoing entity(ies), collectively, "A3 Education," and A3 Education, together with A3 Consulting, Inc. and A3 Consulting, and all "fka's", "dba's" and “aka’s" of any of| the foregoing entities, collectively, "A3"), is incorporated in California and has its principal place of business in California. A3 offers consulting and operational services for virtual schools across the United States. A3 is controlled by President and CEO MeManus and Secretary Schrock, and is a real party in interest in the Criminal Action, 6. Collaborative Services Corporation ("Collaborative") is a Wyoming corporation formed by McManus and Schrock as a single purpose entity to be the operator for Defendant e-School, Inc. (formerly eSchool Texas, LLC), and is a real party in interest in the Criminal Action. 7. Defendant eSchool, Inc. ("eSchool") is a Texas corporation in the business of| establishing virtual charter schools within the state of Texas. eSchool was wrongfully converted toa corporation from a Texas limited liability company, eSchool Texas, LLC ("eSchool LLC"), on or about December 2, 2019. 8. Defendant Dori Fenenbock ("Fenenbock") is an individual who resides in El Paso County, Texas. Fenenbock is the CEO, President, Secretary, Treasurer, and the sole Director of Defendant eSchool. Fenenbock is also the CEO of Virtual Education Services, LLC, a current shareholder of eSchool, and member of eSchool LLC before its legal status was wrongfully converted to that of a Texas corporation. Upon information and belief, Fenenbock is also the trustee of Black Lab Trust, a manager of School LLC before it was wrongfully converted into a Texas corporation. 9. Defendant Juan Cabrera ("Cabrera") is an individual who resides in El Paso County, Texas, and is a shareholder of eSchool. Upon information and belief, Cabrera was a member of| Virtual Education Services, LLC, a current shareholder of eSchool, and member of eSchool LLC before its legal status was wrongfully converted into a Texas corporation. 10. Plaintiff is informed and believes defendant Rudy Colmenero ("Colmenero") is an individual who resides in Austin, Texas. Colmenero is the trustee of Jukemia Trust, a manager of | MW 3 COMPLAINT FOR: (I) FRAUD IN THE INDUCEMENT: (2) BREACH OF FIDUCIARY DUTY; () NEGLIGENT MISREPRESENTA TION: (2) UNJUST ENRICHMENT: {Q CONVERSION; (6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS & PROF CODE $ 17300, ‘AND (8) ACCOUNTING10 W 12 13 14 16 17 18 19 20 21 22 23 24 25 26 27 28 ~ o_ eSchool LLC before it was wrongfully converted into a Texas corporation. Colmenero and Jukemia Trust, collectively, are referred to herein as "Colmenero.” 11, Plaintiff is informed and believes that defendant Virtual Education Services, LLC ("Virtual"), is a Texas limited liability company and shareholder in eSchool. Virtual was a member of eSchool LLC before it was wrongfully converted into a Texas corporation. Collectively, eSchool, Fenenbock, Cabrera, Colmenero, and Virtual are referred to herein as "Defendants." 12, The true names and capacities of the defendants named herein under Code of Civil Procedure section 474 as DOES | to 100 are unknown to Plaintiff. Such defendants are named by fictitious names. Plaintiff will amend this complaint when it ascertains the names and capacities of] such defendants. Plaintiff is informed and believes, and on that basis, that each of the defendants designated herein as a DOE was responsible in some legal manner for the events and happenings alleged herein, which proximately caused injury to Plaintiff, as hereinafter alleged. All references to “Defendants” herein also include DOES 1 to 100. RECEIVER'S AUTHORITY TO PURSUE ACTION 13, On May 21, 2020, Receiver sought an order from the Court deeming the legal, equitable and possessory tangible and intangible right, title and interest, otherwise held by Sean Joseph McManus, Jason Alan Schrock, and real parties in interest Collaborative and A3, and any and all Schools, with respect to the interest of McManus, Schrock and A3's interest in Collaborative, and the investment and interest of McManus, Schrock, A3 and/or eSchool, Inc. (hereinafter the "eSchool Assets") to be Receiver Property under the exclusive control, custody and/or possession of the Receiver, such that the Receiver obtains all legal and equitable right, title and interest in the eSchool Assets ("Receiver’s Motion"). The Receiver also sought an order authorizing the Receiver to generally, in his discretion, and specifically with respect to the interest in eSchool, commence litigation in this Court to preserve, liquidate, value, sell, invest, re-invest and/or otherwise dispose of such Receiver Property, or other assets of the Receivership Estate. (See Exhibit B.) 14. On May 29, 2020, this Court entered its Fifth Supplemental Order granted the Receiver's Motion and authorized the Receiver to bring in this Court the claims alleged in this complaint with respect to the eSchool Assets. Attached hereto as Exhibit B is a true and correct copy 4 (COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT: @) BREACH OF FIDUCIARY DUTY: () NEGLIGENT MISREPRESENTA TION; (4) UNJUST ENRICHMENT: (5) CONVERSION; (6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & PROF. CODE § 17300, ‘AND (8) ACCOUNTING~ Camas of the Fifth Supplemental Order. The Receiver, therefore, is the holder of any and all claims as against Defendants arising from the facts and circumstances as alleged herein. Accordingly, Receiver ("Plaintiff"), by and through his counsel, alleges as follows: JURISDICTION AND VENUE 15. The eSchool Assets are Receiver Property (as defined in the Receiver Order). ‘The facts and circumstances surrounding the acquisition of the interest in the School Assets were directed by Defendants to, occurred in, and were substantially consummated within the State of California. Additionally, the Defendants conducted substantial business activities and/or committed violations of law in the State of California and the Defendants intentionally reached into California to commit the wrongs alleged herein. Further, jurisdiction over the Defendants is proper under the theories of alter go liability and/or successor liability. See Coll Studio, Inc. v. Badpuppy Enterprise, 75 F.Supp.24 1104, 1111 (C.D. Cal. 1999); Flynt Distrb, Co. v. Harvey, 734 F.2d 1389, 1393, 1394; CenterPoint Energy, Inc. v. Superior Court, 157 Cal. App. 4th 1101, 1120 (2007). 16, Since Defendants are non-residents, venue is proper in this Court because venue as to such Defendants is proper in any county of this state. 17, Additionally, venue is proper because on May 29, 2020, this Court entered the Fifth Supplemental Order granting Receiver's Motion and authorized the Receiver to bring the claims alleged in this Complaint, in this Court. (See Exhibit B, 4 3.) 18. This Court has subject matter jurisdiction over this matter as the amount in controversy exceeds $25,000. FACTUAL ALLEGATIONS 19. In 2018, Defendant Cabrera, the superintendent of the El Paso Independent School District, and Defendant Fenenbock, the former President of the El Paso Independent Schoo! District Board of Trustees, decided to parlay their positions of public trust into a for-profit enterprise, a state- licensed virtual, internet-based school. In Texas, virtual schools are licensed by the state and are sponsored by a public school district. 20. To achieve their goal of opening a for-profit virtual school, Fenenbock and Cabrera required a capital investment and the intellectual property and know-how necessary to build a virtual 5 COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT: @) BREACH OF FIDUCIARY DUTY: () NEGLIGENT MISREPRESENTATION; (4) UNJUST ENRICHMENT (3) CONVERSION, (8) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & PROF. CODE § 17500, ’AND (8) ACCOUNTING~ ox school from the ground up. Thus, they reached out to, and engaged in a fraudulent scheme to solicit and induce MeManus and Schrock to (1) provide them with the intellectual property and expertise needed to build a virtual school; (2) provide them with the necessary cash investment to develop and operate same; and (3) to enter into an operating agreement that Defendants would ultimately use to defraud McManus and Schrock, therefore Plaintiff as holder of such claims. The ultimate goal of the scheme would be to convert the cash investment used to fund the virtual school and the intellectual property obtained from McManus and Schrock, to create to their own use and ultimately defraud Plaintiff as holder of the eSchool Assets of the funds, intellectual property, operational systems, and labors invested in the enterprise. 21. In late 2018, Fenenbock and Cabrera approached A3, though McManus and Schrock, with a proposal to develop a for-profit internet school and have A3 run “a school-within-a-school.” Cabrera and Fenenbock wanted McManus and Schrock, through their entity A3, to provide their intellectual property and proprietary information and know-how, including the proprietary procedures, marketing strategy, curricula, and manuals that A3, McManus, and Schrock had developed over many years through much expense and effort. To this end, Fenenbock and Cabrera entered into a Mutual Nondisclosure Agreement ("NDA") with McManus and Schrock on November 16, 2018. The ostensible purpose of the NDA was to protect the confidentiality of educational analyses, operational systems and proposed programs. 22. On January 15, 2019, Fenenbock and Cabrera reached out to McManus and Schrock in California and met with them to make a presentation titled "e-School Preparatory Academy A Publicly Funded K-12 Texas Online School" ("eSchool Prep"). During the presentation, Fenenbock and Cabrera referred to themselves as the "co-founders" of e-School Prep. Fenenbock and Cabrera made multiple representations to McManus and Schrock for the purpose of inducing McManus, ‘Schrock and A3 to invest substantial sums into the e-School enterprise and provide their trade secrets, intellectual property, operational systems and proprietary information in the development of eSchool Prep. The representations from Cabrera and Fenenbock included: (i) "[w]e estimate a positive cash flow of $103 per student in the first year and $961 in our fifth year," (ii) “[w]e are negotiating MW 6 COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT: (2) BREACH OF FIDUCIARY DUTY (3) NEGLIGENT MISREPRESENTATION; (4) UNJUST ENRICHMENT; (3) CONVERSION; (6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & PROF. CODE § 17300; ‘AND (8) ACCOUNTING~ o agreements with 3 of the 7 licensors and have a 4th in the pipeline;" and (iii) "[iJn five years we will build a $122mm business in Texas with an operating margin of 15.7% ($19.2mm)." 23. Fenenbock and Cabrera also made written representations to McManus and Schrock to induce them into entering into the NDA, and subsequently, the term sheet and LLC operating agreement of the legal entity eSchool LLC, and to invest sums into the eSchool enterprise to be operated by eSchool LLC. The written representations include, but are not limited to: a. A financial pro-forma used to induce the investment, which was reasonably relied upon, in which Fenenbock and Cabrera represented that e-School Prep will have an enroliment of 2,000 students and earn revenue of $12.3 million during the 2019-2020 school year; and b. A pro-forma Excel sheet in which Fenenbock and Cabrera represented that the overall €-School enterprise operated by eSchool LLC would have a cash flow of collections for distributions to be made to investors from state education funds of $3,065,200.00 in the fourth quarter of 2019. 24, Additionally, in order to induce McManus and Schrock to disclose trade secrets and center into the operating agreement, Fenenbock and Cabrera also represented: a, A3 would be the exclusive operator of e-School Prep; b. The use of the proprietary operational protocols and procedures would significantly increase the value of the enterprise; and ¢. Cabrera would resign as El Paso 1.S.D. superintendent and devote all of his efforts to assisting them in operating e-School Prep. 25. The promise that Cabrera would resign as El Paso I.S.D. superintendent was material to McManus and Schrock because Cabrera's full-time efforts were necessary for the enterprise to succeed, and Cabrera's credentials and expertise as an education administrator were one of the primary reasons A3, McManus and Schrock chose to not only invest $5,000,000, but also to share their proprietary operational protocols and procedures. Further, Cabrera's continuation as the highly compensated superintendent of El Paso I.S.D. could jeopardize the enterprise because it would raise Mm 1 COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT: @) BREACH OF FIDUCIARY DUTY; () NEGLIGENT MISREPRESENTATION; (4) UNJUST ENRICHMENT (3) CONVERSION; (6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & PROF. CODE § 17300; ‘AND (8) ACCOUNTINGwe wn we am 10 " 12 14 15 16 7 18 19 20 21 2 23 24 25 26 27 28 ~ ~ ethical questions and create either a real or perceived conflict of interest. Such a cloud of impropriety ‘would hobble the enterprise and jeopardize the investment made by A3, McManus and Schrock. 26. 3, Schrock, and McManus relied on all of the foregoing representations, including the financial projections that Defendants knew were false and were made for the sole purpose of inducing A3, McManus, and Schrock, in deciding to make an investment of $5,000,000 in the eSchool enterprise, and to provide Fenenbock and Cabrera with their proprietary operational protocols and procedures, such as the handbooks, curricula and school template agreements. 27. In February 2019, based on the representations made by Defendants, A3, through McManus and Schrock, entered into a term sheet with Defendants Fenenbock, Cabrera, and Virtual ("Term Sheet"). Through the Term Sheet, Cabrera and Fenenbock represented that the eSchool enterprise had a base valuation of $15 million and this would increase to $17 million if A3, Schrock, and MeManus provided their proprietary operational protocols and procedures, and if they agreed, at cost, to develop and operate the programs as part of the eSchool enterprise. In lieu of being paid a fee for providing their services and proprietary operational protocols and procedures, A3, Schrock, and McManus would share in the profits and ownership of the eSchool enterprise. 28. In February 2019, after several exchanges between the parties, Cabrera and Fenenbock met with McManus and Schrock in Los Angeles, California to discuss the Term Sheet as well as discuss the documents for the limited liability company they would form, eSchool Texas, LLC 29. On February 19, 2019, Cabrera and Fenenbock formed eSchool Texas, LLC. Fenenbock and Cabrera designated two trusts as managers of the LLC, Black Lab Trust, of which Fenenbock is trustee, and Jukemia Trust, of which Colmenero is trustee. Plaintiff is informed and believes that Cabrera and Fenenbock designated the trusts as managers of the LLC to hide their involvement in the eSchool enterprise and because, contrary to their promises to McManus and Schrock, Cabrera had no intention of stepping down as Superintendent of El Paso 1.S.D. 30. On February 19, 2019, McManus and Schrock formed Collaborative Services Corporation ("Collaborative"), a single purpose entity to be the operator for Defendant e-School. McManus, Shrock, A3, and Collaborative are referred to hereinafter collectively, as. the "Collaborative Parties.” 8 ‘COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT; (2) BREACH OF FIDUCIARY DUTY; , NEGLIGENT MISREPRESENTATION; (4) UNJUST ENRICHMENT; (3) CONVERSION; (6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & PROF CODE § 17500, [AND (@) ACCOUNTINGSow wr anuneun u 12 13 14 15 16 18 19 20 21 2 23 24 25 26 27 28 ~ ~ 31. On March 19, 2019, through the use of the experience and proprietary operational protocols and procedures provided by the Collaborative Parties, eSchool LLC won a five year Online Program Management Agreement with the Texarkana Independent School District ("School District Agreement"). The School District Agreement entitled eSchool LLC to receive funding based on the percentage of the state's tier 1 allotments eared by students completing the eSchool LLC program. 32. Based on the fraudulent representations made by Cabrera and Fenenbock, on March 22, 2019, McManus and Schrock, though their entity Collaborative, entered into an LLC operating agreement for eSchool LLC ("LLC Agreement"). To document the investment and prepare the operating agreement for eSchool LLC, Defendants deliberately interacted and negotiated with McManus and Schrock's attorneys based in San Diego, California, The LLC Agreement identified the members as Virtual and Collaborative. Virtual would receive a stake of 70 percent in eSchool LLC, and Collaborative would receive a stake of 30 percent in exchange for investing $5,000,000 into eSchoo! LLC, and providing the proprietary operational protocols and procedures to build and run the enterprise. 33. On March 25, 2019, Schrock wired $5,000,000 from a California bank account to eSchool LLC's bank account. 34. Upon receiving $5,000,000 from the Collaborative Parties, along with proprietary ‘operational protocols and procedures, Fenenbock and Cabrera (through Black Lab Trust, Jukemia Trust, and Virtual, which were each members or managers of eSchool LLC) proceeded to the next and final phase of their fraudulent scheme to deprive the Collaborative Parties of their investment, proprietary operational protocols and procedures. 35. On June 30, 2019 Fenenbock and Cabrera demanded McManus resign from the eSchool LLC board, citing McManus's unspecified "personal situation.” Fenenbock and Cabrera also represented to McManus that as a shareholder he would "continue to be provided all reporting available to other shareholders.” McManus did not accede to the demand. Fenenbock and Cabrera removed him from the board anyway. uw it 9 COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT: (2) BREACH OF FIDUCIARY DUTY; (3) NEGLIGENT MISREPRESENTA TION; (4) UNJUST ENRICHMENT, (5) CONVERSION: (6) ALTER EGO LIABILITY: (7) VIOLATION OF BUS. & PROF, CODE § 17300; ‘AND (8) ACCOUNTINGee ao ~ (aie! 36. After Fenenbock and Cabrera removed McManus from the board, they ceased all communications with McManus and Schrock, and thereafier the Collaborative Parties, refusing to respond to their many telephone calls, and emailed requests for information. 37. On December 2, 2019, Fenenbock and Cabrera converted eSchool LLC froma limited liability company into the Texas corporation, eSchool and converted the units in the LLC into 100 authorized shares with 10 of those shares issued. Fenenbock and Cabrera, through Virtual, were issued 7 shares and Collaborative was issued 3 shares. 38. One day later, on December 3, 2019, Fenenbock and Cabrera enacted new bylaws for eSchool. These bylaws reduced the quorum for the board of directors to a simple majority and reduced the number of board members to one, with Fenenbock as sole director. 39. Toaccomplish the fraudulent conversion from an LLC to a corporation: (1) Fenenbock executed a "consent in lieu of a special meeting" to amend the Certificate of Formation, which authorized a reverse stock split resulting in issuance of a single share for the entire corporation; (2) Colmenero, as trustee, and Fenenbock executed the "Written Action by the Board of Managers," which removed Collaborative as a shareholder of eSchool LLC; and (3) Fenenbock, on behalf of] eSchool, executed the "Certificate of Formation of eSchool, Inc.” that converted the entity. 40. The “consent in lieu of a special meeting" amended Article IV of the Certificate of Formation provides specifically as follows: "In lieu of issuing any fractional shares as a result of this reclassification, any fractional share remaining after aggregating all fractional shares held by the record holder thereof shall be cancelled and the holder thereof shall be paid the fair value such fractional share." 41. The "Written Action by the Board of Managers" to remove Collaborative as a shareholder of eSchool LLC was done solely because of the aforementioned "personal situation" or hardships of the enterprise 42, This amendment to the Certificate of Formation, removal of Collaborative, and conversion of eSchool LLC to eSchool, Inc. are evidence of Defendants’ bad faith motivation and are evidence of a desire to capitalize on the hardships of the enterprise to steal the intellectual property and cash-out the profits and ownership interest for unfair, insufficient value. 10 COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT: (2) MISREPRESENTATTION; (4) UNJUST ENRICHMENT. (3) CONVERSION; 6) ALTER EGO LI VIOLATION OF BUS. & PROF. CODE § 17200; ‘AND (8) ACCOUNTING REACH OF FIDUCIARY DUTY; (3) NEGLIGENTBw RN ee aan 10 12 13 14 15 16 7 18 19 20 2 22 23 24 25 26 27 28 ~ o 43. Reducing Collaborative to a fractional share of eSchool enabled Fenenbock and Cabrera to strip the Collaborative Parties of their ownership of and significant profitable interest in ‘eSchool, which is precisely what Fenenbock and Cabrera did, 44. On December 20, 2019, Fenenbock, for the first time, notified McManus and Schrock of the entity conversion and reverse stock split. They told McManus that Collaborative would not receive its fractional share, 45. In lieu of the fractional share, on or about January 13, 2020, Plaintiff received a forwarded check from Robert Williams, originally mailed to Collaborative, attention Sean McManus, at 1712 Pioneer Ave., Suite 500, Cheyenne, Wyoming, in the amount of $483,000.00, dated December 13, 2019, purportedly representing payment of a "cash-out” of an “alleged” interest in eSchool. The 2018 fraudulent scheme had come full circle to its intended fruition. 46. Defendants improperly assert that fractionalized payment of $483,000.00, which is less than 10% of the $5,000,000.00 investment that the Collaborative Parties made less than a year earlier, represented the fair value of their equity in eSchool. However, the payment is not supported by an evaluation, and in any rational scenario represents little more than a theft of the intellectual property, proprietary operational protocols and procedures, knowledge, know-how and cash infusion. 47, Plaintiff is informed and believes the payment was a fraudulent attempt to convert the $5,000,000.00 investment into less than 10% of that value, and that the check was issued in bad faith to deprive the Collaborative Parties, and ultimately the Receiver and the Receivership Estate, of the full and appropriate value of the investment in and overall contributions to, a thriving eSchool. FIRST CAUSE OF ACTION FRAUD IN THE INDUCEMENT (Against all Defendants) 48. Plaintiff re-alleges each and every allegation contained in paragraphs | to 47 of this Complaint, inclusive, as though fully set forth herein. 49. Defendants made representations and promises to one or more of the Collaborative Parties, including but not limited to: mM u COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT: @) BREACH OF FIDUCIARY DUTY; (3) NEGLIGENT MISREPRESENTATION: () UNJUST ENRICHMENT, (9) CONVERSION: (6) ALTER EGO LIABILITY: (7) VIOLATION OF BUS. & PROF. CODE § ‘AND (8) ACCOUNTINGSc e aan u 12 13 4 15 16 7 18 19 20 21 22 23 24 25 26 27 28 ~ -_ ion of one statewide a. That eSchool had a base valuation of $15,000,000 with the acqui license; b. That the Collaborative Parties, by providing their proprietary operational protocols and procedures, would immediately increase the enterprise's value to $17,000,000.00; ¢. That eSchool would grow to be worth more than $122,600,000.00 (and therefore the Receiver's anticipated interest would be worth more than $40,458,000) in five years; d. That in exchange for their investment, the use of the proprietary operational protocols and procedures, and time and efforts, the Collaborative Parties would share in the profits and increased value of eSchool; and €. That Cabrera would resign as the superintendent of El Paso Independent School District to dedicate his full time and resources to eSchool. 50. The promise that Cabrera would resign as El Paso I.S.D. superintendent was material to the Collaborative Parties because Cabrera's full-time efforts were necessary for the enterprise to succeed, and Cabrera's credentials and expertise as an education administrator were one of the primary reasons the Collaborative Parties chose not only invest $5,000,000, but also to share their proprietary operational protocols and procedures, and enter into the LLC operating agreement, 51. Defendants made these representations and promises for the purpose of inducing the Collaborative Parties to enter into the NDA, the Term Sheet, and the LLC Agreement, invest $5,000,000 in eSchool, and provide their proprietary operational protocols and procedures to the enterprise. 52. At the time of making the representations, Defendants either knew these representations to be false or made them without regard to their truth or falsity. 53. One or more of the Collaborative Parties reasonably relied on the representations and promises by entering into the NDA and Term Sheet, providing proprietary operational protocols and procedures to Defendants, investing $5,000,000 into eSchool, creating Collaborative for the single purpose of running the eSchool LLC enterprise, and subsequently entering into the LLC operating agreement. Me 2 COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT: (2) BREACH OF FIDUCIARY DUTY; () NEGLIGENT. MISREPRESENTA TION; (4) UNJUST ENRICHMENT: (3) CONVERSION; 6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & PROF. CODE § 17300; ‘AND (8) ACCOUNTINGow eR wn Sc we xa ~ ol 54, Asa result of Defendants’ conduct, the Receiver may recover damages in an amount to be proven at trial. SECOND CAUSE OF ACTION BREACH OF FIDUCIARY DUTY (Against all Defendants) 55. Plai iff re-alleges each and every allegation contained in paragraphs | to 54 of this ‘Complaint, inclusive, as though fully set forth herein. 56. As majority shareholders, directors and/or officers of eSchool, Defendants each owed fiduciary duties of care and loyalty to the Collaborative Parties. These duties include exercising good business judgment, acting prudently in the operation of the company's business, discharging their actions in good faith, acting in the best interests of the company and its investors, putting the interests of the company before their own, and acting in a fair, just, and honorable manner with respect to the Collaborative Parties. 57. Defendants breached their fiduciary duties of care and loyalty by, among other things, putting their own interests over the interests of eSchool and its investors, the Collaborative Parties. Specifically, among other things, Defendants: a. Wrongfully removed Sean McManus from the eSchool LLC board; b. Wrongfully removed Collaborative as a shareholder of eSchool LLC; c. Willfully converted eSchool LLC from a limited liability company to a corporation, converting the units in the LLC into 100 authorized shares with 10 of those shares issued and only 3 shares issued to Collaborative, and thereby substantially de-valuing the shares of Plaintiff without providing notice; dd. Enacted new bylaws for the corporation, reduced the quorum for the board of directors, and reduced the number of board members to one, with Fenenbock being sole director, without notice or approval; Authorized a reverse stock split resulting in the issue of a single share for the entire corporation without notice or approval of one or more of the Collaborative Parties ; and b COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT: 2) BREACH OF FIDUCIARY DUTY: () NEGLIGENT MISREPRESENTATION; (4) UNJUST ENRICHMENT, (3) CONVERSION, (6) ALTER ECO LIABILITY. (7) VIOLATION OF BUS. & PROF. CODE § 17300; ‘AND (8) ACCOUNTINGwe eran een 10 12 13 14 15 16 7 18 19 20 a 2 23 24 25 26 27 28 ~ ~ f, Failed to provide the Collaborative Parties with the fractional shares and, instead, attempted to wrongfully "cash-out" the very valuable interests for a fraction of its provable fair value for a mere $438,000, an amount less than 10 percent of the Collaborative Parties’ investment, in an unlawful attempt to cash out the Collaborative Parties’ interest in eSchool without notification, approval or paying fair value therefor. 58. As a direct and proximate result of Defendants’ conduct, the Collaborative Parties Plaintiff, as the sustained and continue to sustain injury in an amount presently unknown, but wl holder of such claims, is informed and believes, and on that basis alleges, exceeds the jurisdictional minimum of this Court, 59. Defendants acted wi tent to deprive the Collaborative Parties’ of their legal rights and to injure it such that Defendants! actions constitute fraud, oppression, and/or malice within the meaning of Civil Code § 3294. Defendants! conduct was despicable, oppressive, and outrageous justifying the imposition of exemplary damages against Defendants in an amount to be proven at trial. THIRD CAUSE OF ACTION NEGLIGENT MISREPRESENTATION (Against all Defendants) 60. Plaintiff re-alleges each and every allegation contained in paragraphs 1 to 59 of this Complaint, inclusive, as though fully set forth herein. 61. Defendants’ made representations and promises to the Collaborative Parties, including but not limited to: a. That eSchool had a base valuation of $15,000,000 with the acquisition of one statewide license; b. That the Collaborative Parties, by providing proprietary operational protocols and procedures, would immediately increase eSchool’s value to $17,000,000 (and their- one-third interest to 5,610,000, or already a profit of $610,000); ¢. That eSchool would grow to be worth more than $122,600,000.00 in five years, meaning the interest of the Collaborative Parties would be worth over $40,000,000; MW 4 COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT; (2) BREACH OF FIDUCIARY DUTY; (3) NEGLIGENT MISREPRESENTATION; (4) UNJUST ENRICHMENT; % CONVERSION; (6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & PROF. CODE § 17300, ‘AND (8) ACCOUNTINGSc er auwe uw 13 14 16 "7 18 19 20 2 22 23 24 2s 26 27 28 ~ on 4. That in exchange for their investment, the use of the proprietary operational protocols and procedures and time and efforts, the Collaborative Parties would share in the profits, distributions and increased value of eSchool; and fe. That Cabrera would resign as the superintendent of El Paso Independent School District to dedicate his time and resources to School. 62. Defendants’ supplied false information to the Collaborative Parties without reasonable s' reliance on the ground for believing it to be true, and with intent to induce the Collaborative Pa facts misrepresented. 63. The Collaborative Parties were unaware that the representations made by Defendants were false and relied on these representations to its detriment. 64. Asa result of Defendants’ misrepresentations to one or more of the Collaborative Parties, Plaintiff, as holder of the claims, was injured and sustained damages in an amount to be proved at trial. FOURTH CAUSE OF ACTIO! UNJUST ENRICHMENT 65. Plaintiff re-alleges each and every allegation contained in paragraphs | to 64 of this ‘Complaint, inclusive, as though fully set forth herein. 66. Defendants have been unjustly enriched by the benefits provided by one or more of the Collaborative Parties. 67. One or more of the Collaborative Parties provided Defendants with their proprietary operational protocols and procedures, and entrusted them with control of the $5,000,000, wired to the eSchool LLC account for the benefit of the Collaborative Parties, and now held by the Plaintiff. The account was created for the benefit of the eSchool enterprise to pay necessary expenses before it began enrolling students. None of the Collaborative Parties’ or their successor, had any control over the account that held the $5,000,000. Thus, Defendants have wrongfully secured the benefit of the $5,000,000 investment and one or more of the Collaborative Parties’ proprietary operational protocols and procedures. a Is COMPLAINT FOR: (I) FRAUD IN THE INDUCEMENT: @) BREACH OF FIDUCIARY DUTY; (3) NEGLIGENT. MISREPRESENTATION; (4) UNJUST ENRICHMENT: (5) CONVERSION; (6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & PROF. CODE § 17300; ‘AND (8) ACCOUNTINGSoe nanan u 12 13 14 16 17 18 19 20 ai 22 23 24 25 26 27 28 a (aa | 68. After obtaining the Collaborative Parties’ $5,000,000 investment, Defendants: (1) willfully converted eSchool LLC from a limited liability company to a corporation, and converted the units in the LLC into 100 authorized shares with only 3 shares issued to Collaborative, substantially de-valuing the shares held by the Collaborative Parties, and now the Plaintiff; (2) authorized a reverse stock split resulting in the issue of a single share for the entire corporation without notice or approval of the Collaborative Parties; and (3) failed to provide the Collaborative Parties with the fractional ion dollar investment for a mere $438,000, an shares and, instead, sought to cash out a multi amount less than 10 percent of the Collaborative Parties’ investment, in an unlawful attempt to cash out the interest held in eSchool by Plaintiff without notification or approval. 69. Defendants refuse to return the $5,000,000 investment and profits thereon, failure to return and cease use of the intellectual property and proprietary operational protocols and procedures, refuse to provide an accounting of how the money was spent, and have refused to disclose how Defendants were spending the investment funds and or provide any information regarding their actions, nor the true value of the wrongfully “cashed-out" interest. Thus, Plaintiff has been kept in the dark while Defendants have control ofits intellectual property and investment funds. 70. Defendant secured a benefit from one or more of the Collaborative Parties by fraud, duress, and/or the taking of an undue advantage. It would be unconscionable for Defendants to be able to retain Plaintiff's $5,000,000 investment without accountability, accounting, or transparency, or disbursing the fair value of the lost profits and interest in the eSchool enterprise. 71. By wrongfilly retaining the funds, Defendants are liable under the equitable doctrine of unjust enrichment and/or quantum meruit. Plaintiff, as holder of the claims, has been damaged in an amount to be proven at trial. FIFTH CAUSE OF ACTION CONVERSION 72. Plaintiff re-alleges each and every allegation contained in paragraphs 1 to 71 of this Complaint, inclusive, as though fully set forth herein. uM i 16 COMPLAINT FOR: (0 FRAUD IN THE INDUCEMENT: @) BREACH OF FIDUCIARY DUTY: (NEGLIGENT MISREPRESENTA TION; (4) UNJUST ENRICHMENT; Qgoersions (6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & PROF. CODE ‘AND (8) ACCOUNTING~ o~ 73. One or more of the Collaborative Parties owned and had a right to possession of $5,000,000 in investment funds and proprietary operational protocols and procedures information used by Defendants. 74, Defendants disposed of the $5,000,000 owned by one or more of the Collaborative Parties’ and the proprietary operational protocols and procedures in a manner inconsistent with Pla iff's property rights by: (1) substantially de-valuing the shares of the Collaborative Parties; (2) authorizing a reverse stock split resulting in the issue of a single share for the entire corporation without notice or approval of the Collaborative Parties; and (3) failing to provide the Collaborative Parties with the fractional shares and, instead, attempting to tender a measly check for $438,000, an amount less than 10 percent of Plaintiffs investment, in an unlawful attempt to cash out the interest held by Plaintiff in eSchool without notification or approval 75. Addi nally, Defendants refuse to return the $5,000,000 investment and intellectual property, refuse to provide an accounting of how the money was spent, and have refused to tender the fair value of the investment in eSchool, or otherwise. 76. Provide the Collaborative Parties with any information regarding their wrongful possession of the Collaborative Parties’ property. 77. Asa result of Defendants’ wrongful possession of Plaintiff's property, Plaintiff has been damaged in an amount to be proven at tral SIXTH CAUSE OF ACTI DECLARATORY RELIEF REGARDING ALTER EGO LIABILITY 78. Plaintiff re-alleges each and every allegation contained in paragraphs | to 77 of this Complaint, inclusive, as though fully set forth herein. ue Upon information and belief, at all relevant times, Defendants Virtual, Colmenero, Fenenbock, and/or Cabrera ("Alter Ego Defendants") were the alter egos of eSchool and each other, and there existed a unity of interest and ownership such that, any separateness between eSchool on the one hand and Alter Ego Defendants on the other, ceased to exist. MW Mm 7 COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT: @) BREACH OF FIDUCIARY DUTY: (@) NEGLIGENT. MISREPRESENTATION; (4) UNJUST ENRICHMENT: (5) CONVERSION; (6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & BROF. CODE § 17300; ‘AND (8) ACCOUNTINGwe wn Sc we ra u 1B 14 15 16 7 18, 19 20 21 22 23 24 25 26 27 28 os = 80. Upon information and belief, Alter Ego Defendants converted eSchool from a limited liability company into a corporation, and converted the units in the LLC into 100 authorized shares with 10 of those shares issued for the personal benefit of the Alter Ego Defendants. 81. Upon information and belief, Alter Ego Defendants willfully reduced the profits and ownership of the Collaborative Parties, and failed to provide the Collaborative Parties with the fractional shares or the fair value of the profits and ownership interest in the eSchool enterprise. Instead, Alter Ego Defendants attempted to tender a check for a measly $438,000, less than 10 percent of their investment, in an unlawful attempt to cash out the interest in eSchool without notification or approval. 82. By failing to notify Plaintiff of the conversion and reverse stock split, Alter Ego Defendants failed to comply with corporate formalities including, but not limited to, (1) diversion of funds or assets; (2) concealment or misrepresentation of the responsible ownership, management and financial interests; and (3) the manipulation of corporate assets. 83. As a result of the unity of interest between eSchool and the Alter Ego Defendants, adherence to the fiction that eSchool is a separate entity from the Alter Ego Defendants would sanction fraud and promote injustice. 84. Therefore, Plaintiff desires a judicial determination that the Alter Ego Defendants are the alter egos of eSchool and each other; that the facts and circumstances warrant the Court piercing the corporate veil of eSchool and the Defendants; and that the Alter Ego Defendants be held personally liable for money owed by eSchool. 85. There exists a substantial controversy of sufficient immediacy and reality to warrant the issuance of the issuance of a declaratory judgment. 86. A judicial declaration pursuant to Cal, Civ. Proc. Code § 1060 is necessary at this time so that Plaintiffs rights may be determined with certainty. SEVENTH CAUSE OF ACTION VIOLATION OF BUS. & PROF. CODE § 17200 87. Plaintiff re-alleges each and every allegation contained in paragraphs 1 to 86 of this, Complaint, inclusive, as though fully set forth herein. COMPLAINT FOR: (I) FRAUD IN THE INDUCEMENT: (2) BREACH OF FIDUCIARY DUTY: @) NEGLIGENT MISREPRESENTA TION; (4) UNJUST ENRICHMENT: (3) CONVERSION; (8) ALTER EGO LIABILITY: (7) VIOLATION OF BUS. & BROF. CODE § 17300; ‘AND (8) ACCOUNTINGee 10 " 12 13 14 15 16 7 18 19 20 21 22 23 24 25 26 27 28 a ~ 88. The acts of Defendants as alleged above constitute a pattern and/or course of conduct that is unlawful, unfair, and/or fraudulent and therefore constitutes an unfair business practice in violation of Business and Professions Code section 17200 ef seq. The conduct also constitutes unfair competition under California common law. 89. Under the terms of Section 17200, any business practice that violates a civil, criminal, state, federal, municipal, or common law is actionable as unfair competition, In addition, any business practice that offends an established public policy or is immoral, unethical, oppressive, unscrupulous, or is substantially injurious to consumers, is actionable as unfair competition 90. Defendants have engaged in acts and/or practices of unfair competition and/or unlawful, unjust, or unfair business practices, including: (i) fraudulently inducing one or more of the Collaborative Parties to enter into the operating agreement with Defendants; (ii) fraudulently intending to steal one or more of the Collaborative Parties’ property now owned or hereafter held by Plaintiff, including investment funds and proprietary operational protocols and procedures. 91. As a result of the aforementioned actions, Plaintiff, as holder of such claims, has suffered injury in fact, while Defendants have been unjustly enriched and continue to hold money and/or property belonging to Plaintiff. 92. Pl also seeks restitution and injunctive relief under Business and Professions Code section 17203. EIGHTH CAUSE OF ACTION ACCOUNTING 93. Plaintiff re-alleges each and every allegation contained in paragraphs 1 to 92 of this Complaint, inclusive, as though fully set forth herein. 94. As majority shareholders, directors and/or officers of eSchool, Defendants had a fiduciary relationship with one or more of the Collaborative Parties, the investors. This relationship allows for an appropriate claim for accounting to be made by Plaintiff, as holder of such claims. 95. Plaintiff is informed and believes that one or more of the Collaborative Parties has demanded an accounting, but Defendants have refused to provide an accounting of how the investment money was spent, and have refused to inform the Parties of how Defendants were 19 COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT: @) BREACH OF FIDUCIARY DUTY: G) NEGLIGENT MISREPRESENTA TION; (4) UNJUST ENRICHMENT (3) CONVERSION; (6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & PROF. CODE § 17200; ’AND (8) ACCOUNTING~~ =~ spending the investment funds and or provide the Parties with any information regarding their actions, including how an appreciating multi-million dollar ownership and profits interest would be liquidated for a fraction of its original, not its much appreciated investment. 96. As a result of the wrongful acts, Plaintiff, as holder of such claims, has been injured and damaged. A balance due from the Defendants to the Plaintiffs can only be ascertained by a icially compelled accounting. PRAYER FOR RELIEF WHEREFORE, Plaintiff prays for judgment from this Court as follows: a. Compensatory damages at an amount to be proven at trial; b. Injunctive relief under Business and Professions Code section 17200, et seq., or Unfair Competition Law; c. Declaratory relief, d. Fora full and complete accounting from Defendants; €. Forattorney's fees, as allowed by law; £ Foreosts of suit; & For exemplary damages; h. For prejudgment and post-judgment interest; and i. For such other and further relief as the Court may deem proper. Dated: September 15, 2020 DINSMORE & SHOHL LLP » COM Christopher Celentino Christopher Lyon Counsel to Richard Kipperman, in his Capacity as Court Appointed Receiver in San Diego Superior Court case The People of the State of California v. Sean Joseph McManus, et al., Case No. SCD266439; DA No. AEM242 20 COMPLAINT FOR: (1) FRAUD IN THE INDUCEMENT; (2) BREACH OF FIDUCIARY, DUTY; (3) NEGLIGENT MISREPRESENTATION; (4) UNJUST ENRICHMENT: (9) CONVERSION; (6) ALTER EGO LIABILITY; (7) VIOLATION OF BUS. & PROF. CODE § 17300; ‘AND (8) ACCOUNTING