Case Doc 259 Filed 05/03/11 Entered 05/03/11 15:03:32 Desc Main Document Page 1 of 7

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1 Document Page 1 of 7 UNITED STATES BANKRUPTCY COURT DISTRICT OF MASSACHUSETTS (Central Division In re: FGC LIQUIDATION, LLC ( 'kja Chapter 11 FLETCHER GRANITE COMPANY, LLC, Case No MSH and ~d Case No MSH Debtors. (Jointly Administered FGC LIQUIDATION, LLC (flkja FLETCHER GRANITE COMPANY, LLC, Plaintiff, Adversary Proceeding No. 10 v. THOMAS S. HANNOVER, Defendant. ADVERSARY COMPLAINT The debtor/plaintiff FGC Liquidation, LLC (flkja Fletcher Granite Company, LLC ("FGC" or the "Company" brings this Adversary Complaint as debtor-in-possession against the defendant-insider Thomas S. Hannover ("Hannover" based on Hannover's misrepresentation and fraud, breach ofcontract, and to avoid a preferential transfer. During the year preceding the petition date, Hannover caused FGC to pay him money for work he did not do, and to make a payment to him on account of other antecedent debt. Jurisdiction and Venue 1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157(a and 1334(b. This is a core proceeding pursuant to 28 U.S.C. 157(b (2. 2. The venue ofthe Debtor's Chapter 11 case and this Complaint is proper pursuant to 28 U.S.c and vI/ /2/2011 1

2 Document Page 2 of 7 3. This adversary proceeding arises under and is related to the above-captioned Chapter 11 Case, currently pending in this District. Background 4. On August 2,2010 ("Fletcher Petition Date", FGC commenced these bankruptcy proceedings by filing a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. 101, et seq. ("Bankruptcy Code". 5. On September 3, ("Fletcher-Georgia Petition Date", FGC's wholly owned subsidiary, Fletcher-Georgia, commenced bankruptcy proceedings by filing a voluntary petition for relief under the Bankruptcy Code. 6. By Order dated September 8,2010, the FGC and Fletcher-Georgia cases are being jointly administered. [Docket No. 78]. 7. The Debtors are operating their business and managing their property as debtors in possession pursuant to 1107(a and 1108 of the Bankruptcy Code. 8. Hannover is an individual resident of the Commonwealth of Massachusetts with a last and usual residence in Framingham, Massachusetts. At all relevant times, Hannover was a manager of FGC and an "insider" within the meaning of Section 101 (31 of the Bankruptcy Code. 9. Hannover and FGC entered into an agreement under which Hannover agreed to provide certain management and professional accounting services for FGC, while FGC agreed to pay Hannover as an independent contractor at agreed hourly rates (the "agreement". The agreement was both oral and in writing. Prior to negotiation and execution of the agreement, Hannover represented to the Company and its officers that he had the time, the proper skills, and an interest in working for FGC vllI /2l2011 2

3 Document Page 3 of Pursuant to the agreement, Hannover was to function as FOC's Chief Financial Officer, and he had commensurate duties, including preparation of the Company's state and federal tax returns and other tasks. Hannover reported to the Company's then-chief executive officer Victor Castellani ("Castellani". 11. Pursuant to the agreement, Hannover was to submit regular invoices to FOC for his time spent on the Company's work, and to accurately record his time so spent. Based on the nature of his position, and the trust placed in him then by the Company, Hannover exercised substantial control over the Company's operations and finances. 12. Hannover commenced his work for FOC on or about February 5, FOC reasonably relied on its expectation that Hannover would exercise due regard for the Company's welfare and would perform his necessary duties honestly and faithfully. 14. Hanover submitted periodic invoices to FOC which were, in the ordinary course, approved by Castellani based on a belief that they had been fairly prepared and represented work actually done by Hannover based on the agreement and the parties' joint expectations. 15. Hannover undertook to prepare the Company's 2009 tax returns and then expressly told the Company that he had done so. 16. Hannover submitted several invoices to Castellani at FOC, on at least six dates in May and June 2010, describing work he claimed to have done on "tax preparation" and "tax services." On information and belief, these invoices were false when submitted because Hannover had not done the work he claimed. 17. The Company relied on Hannover's representations about work done and paid Hannover in May and June 2010 pursuant to his invoices, for the claimed tax return work and on other matters, and issued Form 1099s to him reflecting the total amounts so paid I7vl!l /2011 3

4 Document Page 4 of At the time for filing the Company's 2009 tax returns, Hannover was asked about them so that they could be filed. On August 13,2010 he claimed to Castellani in an that the tax returns were "complete"; later he declared that they had been transmitted to the Company electronically. Thereafter, after acknowledging that he had not transmitted them, he declared that he would transmit them electronically to the Company. However, he has never done so and the Company never received them. 19. On information and belief, Hannover never completed the 2009 returns and his statements about completing them and sending them to the Company were false when made. 20. Pursuant to the invoices he prepared and submitted to FOC, Hannover was paid at least $11,000 by FOC to prepare the 2009 tax returns, yet FOC has never received any work product from him. 21. Because it never received the tax returns from Hannover, FOC was obliged to and did retain another professional to prepare its 2009 tax returns, at a cost to FOC of approximately $5,500. COUNT I 22. FOC incorporates paragraphs 1-21 of this Complaint by reference as if fully set forth 23. Hannover's conduct constituted a breach of the agreement, and FOC has been damaged as a proximate result thereof. COUNT II 24. FOC incorporates paragraphs 1-23 ofthis Complaint by reference as if fully set forth vllI /2/2011 4

5 Document Page 5 of Hannover's conduct, both before and after reaching the agreement with the Company, included misrepresentations made to induce payments by the Company, and on which the Company reasonably relied to its detriment. 26. FGC has been damaged as a proximate result of Hannover's fraudulent conduct and/or misrepresentations. COUNT III 27. FGC incorporates paragraphs 1-26 of this Complaint by reference as if fully set forth 28. Hannover's wrongful conduct triggered a series of fraudulent transfers of the Company's assets, within the meaning of Section 548 of the Bankruptcy Code and M.G.L. c.l 09 A, consisting of the payments to him in May and June 2010 when the Company was insolvent. 29. There was no consideration for the transfers, and the Company seeks an order to recover those assets for the Estate. 30. The amount wrongfully transferred, as alleged, is property of the Estate. 31. FGC is entitled to, and it requests, an order from this Court under 542(b of the Bankruptcy Code to Hannover to tum over those amounts owed as alleged COUNT IV 32. FGC incorporates paragraphs 1-31 of this Complaint by reference as if fully set forth 33. In early 2009, Hanover loaned the Company $30,000 and the Company executed a Promissory Note in that amount payable to Hannover ("Note". The Note was unsecured and vIl /2/2011 5

6 Document Page 6 of 7 was similar to notes issued by the Company to other individuals who also loaned the Company money at or about the same time. 34. The Note had a maturity date of December 31, 2009 and was not a demand note. 35. Hannover was, in 2009, functioning as the Company's chief financial officer, was named a Manager of Fletcher Granite Company, LLC, and was an "insider" at the Company within the meaning of that term in the Bankruptcy Code. 36. On or about October 30, 2009, within one year prior to the Petition date, Hannover caused the Company to issue a check to himself in an amount exceeding $15,000 (the "Funds". Of the amount paid, $15,000 was intended and accepted by Hannover as a payment on the Note. 37. No payment on the Note was due in October The October payment caused a transfer of the Funds by FGC to Hannover in his capacity as a creditor of FGC. 39. The Funds were transferred on account of an antecedent debt owed by FGC to Hannover when the transfer was made. 40. FGC was insolvent when the Funds were transferred to Hannover. 41. The transfer enabled Hannover to receive more than he would have received if the transfer had not been made and if Hannover had received payment on the debt (the Note to the extent provided by the provisions of the Bankruptcy Code. 42. The $15,000 transfer of Funds is avoidable pursuant to 11 U.S.C., Hannover is liable to FGC in the amount of$15,000 on account offgc's avoidance of this preferential transfer v 1/ /2/2011 6

7 Document Page 7 of 7 WHEREFORE, FGC demands that this Court: a. determine its damages and enter judgment accordingly against Hannover on Count I; b. determine its damages and enter judgment accordingly against Hannover on Count II; c. determine its damages and enter judgment accordingly against Hannover on Count III; d. enter judgment for $15,000 against Hannover as a result of the preferential transfer; e. award FGC interest and costs on the judgments; and f. grant such other and further relief as is reasonable and just. David J. Reier, BBO #5462 Steven S. Broadley, BBO # Laura A. Otenti, BBO Posternak Blankstein & L nd LLP Prudential Tower 800 Boylston Street, 33 rd Floor Boston, MA Main Telephone: Fax: drcicrcivpbl.com sbroadleyaij.pb1.com lotenti(a'pbl.com I7vI1l /2/2011 7