FILED: NEW YORK COUNTY CLERK 04/27/ :13 PM INDEX NO /2014 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 04/27/2018

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1 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE UTILISAVE, LLC, a Delaware limited ) liability company, ) ) Plaintiff, ) C.A. No. ) v. ) ) ) MHS VENTURE MANAGEMENT CORP, ) ) and ) ) MICHAEL STEIFMAN, ) ) Defendants. ) VERIFIED COMPLAINT Plaintiff, Utilisave, LLC, a Delaware Limited Liability Company (the "Company", "Utilisave"), by and through its undersigned counsel, hereby brings this action for breach of fiduciary duty, fraud and unjust enrichment against MHS Venture Management Corp. ("MHS") "Defendants" and Michael Steifman ("Steifman") (collectively "Defendants"), and seeks imposition of a mandatory injunction requiring Steifman to immediately return the funds he wrongfully withdrew from the Company's bank accounts. NATURE OF THE ACTION 1. The parties to this action have been in litigation with each other for a number of years, including in this Court. There is currently a pending action in.the New York Supreme Court originally brought by Steifman against Khenin and Utilisave alleging claims sounding in breaches of fiduciary duty, breach of contract, conversion and others (Index No ). Steifman claims that the money he withdrew from the Company is owed to him for his claims in the New York Action. The claims against Khenin personally were dismissed and Utilisave i/40 l91568v. I

2 Action" responded with like counterclaims (collectively, the "New York Action"). 2. Additionally, two separate actions were brought in this Court by Steifman. The first alleged claims substantially similar and related to those in the New York Action. By Order dated September 28, 2009, this Court dismissed that action in favor of the first filed New York Action. The second action brought by Steifman was for a judicial dissolution of Utilisave. By Order dated September 28, 2009, this Court stayed that matter pending the adjudication of the New York Action. 3. On October 26, 2010, the parties in the New York Action participated in mediation which was unsuccessful. 4. The next day, Steifman unilaterally, without any authority, emptied all of the Company's bank accounts totaling approximately $655,000 leaving the Company unable to meet its payroll (due November 3, 2010), as well as unable to meet its medical insurance obligations or the $45,000 in outstanding checks for general business expenses. On information and belief, Steifman is now in Israel and the money has been transferred overseas outside of the United States. 5. The Company moved for an expedited hearing and sought emergency relief in the New York Action. On Friday, October 29, 2010, the Honorable Alex D. Scheinkman held a hearing to address the emergency matter. (The 10/29/2010 Hearing Transcript is attached hereto as Exhibit A). 6. At that hearing, counsel for Steifman conceded that the facts of what had occurred were not in dispute. (See 10/29/2010 Hearing Trans. at p. 5). Steifman exercised self help by taking the money he deems owed to him in the New York Action. 7. While finding self help utterly impermissible, the New York Court directed the / v, 1 2

3 parties to address Steifman's conduct in Delaware, because the Court felt that only Delaware courts have control over the affairs and actions of Delaware entities and fiduciaries. 8. In response, on November 4, 2010, Utilisave filed an Emergency Motion for a Limited Lift of Stay to Seek Temporary Restraining Order to Preserve the Assets of the Company and Mandatory Preliminary Injunction in this Court. 9. In opposing the motion, Steifman again admitted that he had, in fact, taken the money but did so because he believed he was entitled to it. He admitted, however, that his claims to the money are at the core of the New York Action. The trial is scheduled for January 24, In other words, rather than wait for the resolution of the New York Action, he took it upon himself to preemptively take what he believed would be awarded to him in damages. 10. On November 8, 2010, this Court held a hearing on the motion. The Court entered an oral status quo order prohibiting MHS or Steifman to have any involvement in the day-to-day operations of the Company, preventing them from having access to any of the Company's bank accounts and freezing any or all accounts MHS or Steifman has in the United States. Khenin was given operational control of the Company to act in the ordinary course of its business affairs. 11. The Court, although unable to order a return of the $655, on the existing record, suggested to counsel for MHS and Steifman that a return of the money would be the prudent course of action. After the hearing, counsel for Plaintiff requested that Steifman return the funds voluntarily but were told that he would not do so without a court order. 12. Plaintiff now brings this action for a mandatory injunction ordering Steifman to immediately return the $655, he wrongfully took from Utilisave /40]91568v,l 3

4 THE PARTIES 13. Plaintiff Utilisave is a limited liability company that is engaged in the business of auditing utility bills on behalf of individuals and entities. On or about March 1, 2006, MHS, Khenin, Donna Miele ("Miele"), Gotham Partners, L.P., Gotham Partners III, LP. and Gotham "Gotham" Holdings II, LLC (collectively, "Gotham") entered into an Amended and Restated Limited Liability Company Agreement of Utilisave LLC dated as of January 1, 2006 (the "LLC Agreement" Agreement"). 14. Defendant MHS is a managing member of Utilisave and has a 40% interest therein. Defendant Steifman is the sole shareholder of MHS. The Company was formed in November of 1997 and in July of 2000, he relocated his family from New York to Israel ceasing to be involved in the day-to-day operations of Utilisave. 15. Non-party Khenin is a Managing Member of Utilisave and its CEO. Khenin owns 40% of the Company. 16. Non-party Donna Miele ("Miele") is a 10% interest member of Utilisave and is the Company's President. Gotham collectively owned the remaining 10% of the Company. 17. Recently, Steifman purchased the 10% interest of Gotham although he loses all of Gotham's rights in the event of a dissolution. FACTS Background 18. Utilisave was formed in Khenin has been employed by the Company since In July of 2000, Mr. Steifman moved to Israel, where he has resided permanently ever since. Khenin has been entirely responsible for the managing and running the Company since (See Affidavit of Mikhail Khenin at 2-3, attached hereto as Exhibit B) / v. 1 4

5 19. In 2001 or 2002, Khenin, as COO and member of the Company, signed a signatory card with the Company's bank, Fleet Bank (now Bank of America), for both a money market account and a checking account for Utilisave. Beginning in 2002 to today, almost all Utilisave checks were signed by Khenin. (Khenin Aff. at 4). 20. The Utilisave Operating Agreement dated January 1, 2006 specifically authorizes Khenin to have access to these accounts. Specifically, Section 2.02 of the Operating Agreement authorizes the managing members to manage and direct the business affairs of the Company, the paying of expenses of the Company, the hiring of employees, the opening and maintaining of bank accounts, etc. Steifman Engages in Self Help 21. The dispute between Steifman and Utilisave centers on Utilisave's termination of Steifman's employment for cause on March 29, 2007 due to Steifman's attempt to embroil the company in his tax machinations by under-reporting his W2 income to the IRS. On May 3, 2007, Steifman filed the New York Action. Steifman's claims, along with Utilisave's counterclaims are set for trial in January On October 26, 2010, the parties participated in mediation in the New York Action in an attempt to resolve their issues. That mediation was unsuccessful. 23. On Oct 28, 2010, Utilisave's bookkeeper, Kameka Clarke, contacted Bank of America to confirm that a payment of approximately $5,000 from one of Utilisave's clients, Columbia University, was electronically deposited into its account. Ms. Clarke learned that the company did not have sufficient funds in its account to fulfill its payroll obligations as well as other financial obligations. (See First Affidavit of Zoya Leonoff at 2-3, attached hereto as Exhibit C) / v.l 5

6 24. The bank's representative refused to provide Ms. Clarke with any information. Ms. Clarke asked her to call Utilisave's account representative, Christopher Bruschi. After that Ms. Clarke was informed that Steifman put a restriction on the account precluding anyone but him from obtaining any information on the account. (Leonoff First Aff. at 4). 25. Utilisave's office manager, Zoya Leonoff, then called the bank's automatic phone system to check the balance in the Company's checking account and discovered that there was a zero balance. This caused concern because the day before, October 27, 2010, Utilisave had transferred $100,000 from the money market account to the checking account. (Leonoff First Aff. at $5). 26. Ms. Leonoff also checked the bank's automatic system to determine the balance in the Company's money market account and it was discovered that this account also had a zero balance. (Leonoff First Aff. at $6). 27. Ms. Leonoff then called the bank to find out why the company's accounts had zero balances and was told by the bank representative that the bank could not give her any information because there were notes on the account instructing the bank to only give information to Mr. Steifman. (Leonoff First Aff. at 7). 28. Ms. Leonoff called the bank a second time to confirm this information and was told by another bank representative that there was a $100,000 transfer from the checking account to the money market account and an online transfer withdrawing all the money in the money market account. The bank representative was unable to identify the user ID and password used to effect the withdrawal and was unable to identify where the money was sent. (Leonoff First Aff. at 18). 29. In addition it was thereafter discovered that Steifman had facilitated three / v. 1 6

7 transactions on October 27* 27 as follows: 30. First, Steifman transferred $124, from the Company's checking account to the money market. 31. Second and third, Steifman made two withdrawals from the money market account - one for $292, and the second for $362, leaving no money in the Company's money market account or checking account. (Khenin Aff. at l 1; Leonoff First Aff. at 9-11). 32. When Utilisave questioned the bank further about these transactions, it was told that Steifman instructed them to not disclose any information to anyone except him. (Leonoff First Aff. at l2). 33. It has been learned that Steifman removed Khenin as signatory and made himself the sole holder of record for these accounts. Khenin was unaware until this revelation that he no longer had full authority as granted to him as a managing member of Utilisave under the Operating Agreement to deal with the bank accounts. (Khenin Aff. at $12-13). 34. It was also recently discovered that Steifman used this opportunity as sole holder of record on these accounts, to link four personal accounts having nothing to do with Utilisave,. in the same bank and have all bank fees for those accounts charged to Utilisave's account. He has been charging Utilisave for these accounts for years. In fact some of these companies were opened as early as 2000 or (Khenin Aff. at 114). Utilisave Seeks Help in the New York Court 35. At the October 29, 2010 hearing for emergency relief in the New York court, while admitting that his client engaged in self-help, counsel for Steifman explained that Steifman took the money because he no longer wished to "essentially subsidize Utilisave month after / v. I 7

8 month." (10/29/2010 Hearing Trans, p. 5). 36. The New York court stated that, although sympathetic to the request, it did not believe it had the proper jurisdiction to order a return of the money or otherwise dictate the affairs of an out of state entity. (Id at 9). Specifically, Judge Scheinkman stated: If you can come up with a way of providing jurisdiction, you' you can do that. The other thing you can do, if re so advised is, you know, you can present an application to the Judge in Delaware and you can tell the Judge in Delaware that you presented this to me and that I was very impressed with the application but I felt constrained not to be able to do anything because I don't think I have jurisdiction to regulate the affairs of a Delaware entity. (See 10/29/2010 Hearing Trans. at p. 11). 37. The Court further described Steifman's conduct as "a misguided effort" (id at 11) and "an incredibly inappropriate thing to do" (id at 13) and stated that the only reason it was not doing anything is because there was no proper basis to do so. (Id) 38. The New York court made its sentiments quite clear: I think that the use of self help by anybody is inappropriate, particularly the idea that anybody is going to leverage a settlement by draining the corporate bank accounts. I think that's wrong. I cannot make it any clearer to you that I think that's wrong. And if there was a basis for me to act, I will act. (Id at 16). 39. Judge Scheinkman also indicated that he was "not at all adverse" to having his sentiments known to this Court. Id at 13. Utilisave Turns to Delaware for Assistance 40. In response to the New York court's comments, Utilisave filed an Emergency Motion for a Limited Lift of Stay to Seek Temporary Restraining Order to Preserve the Assets of the Company and Mandatory Preliminary Injunction in this Court on November 4, / v. 1 8

9 41. In response to the motion, MHS and Steifman justify Steifman's conduct by asserting that Utilisave owes him more than the $655,000 he took and, therefore, equity justifies his actions. (Opp. Brf. at 4). Defendants acknowledge that the money purportedly owed is the subject of the New York Action scheduled for trial in three months but claim that Khenin's own wrongful conduct justifies his behavior. 42. A hearing in this Court was held on November 8, The Court entered an oral status quo order to prevent Steifman from engaging in any additional self help conduct. In doing so, the Court stated "[i]t's frankly inappropriate, to say the least, what he did." (See Nov. 8, 2010 Hearing Transcript, at p. 7, attached hereto as Exhibit D). Khenin was ordered to take dayto-day control of the Company and the banks were to be notified that Steifman had no ability to act for the Company. Utilisave is Being Irreparably Harmed 43. Prior to Steifman's.conduct, Utilisave was a healthy company employing 19 people. Utilisave is in the business of identifying savings opportunities for its clients in its utility billing and then partially sharing in any savings it recovers. Utilisave works exclusively on a contingency fee basis. Therefore, the Company does not have a steady revenue stream. As a result of Utilisave's revenue and collection streams, there are a series of peaks and valleys. In particular, the end of each year and the beginning of each New Year are historically difficult economic periods for the Company. The Company functions based on the collections secured from previous periods of revenue. Therefore, historically, December and January are the most difficult economic periods in the year. 44. Utilisave paid its employees through the use of Paychex, Inc., a payroll company. Payroll would be submitted on-line every other Monday. Paychex would report back to / v.1 9

10 Utilisave the amount that was needed to cover payroll and taxes and Utilisave would deliver a physical check for that amount to the local Bank of America branch and deposit it into the payroll account. Paychex would then distribute the appropriate amount to each employee from the payroll account. (See Leonoff Second Aff. at 115, attached hereto as Exhibit E). 45. On November 2, 2010, Michael Santangelo from Paychex called Ms. Leonoff at Utilisave to inform her that Utilisave's payroll account did not have sufficient funds to cover the current biweekly payroll because there was no money in the Bank of America account. (Leonoff Second Aff. at $2-3). 46. Mr. Santangelo also informed Ms. Leonoff that only part of the payroll was covered by Paychex and that employee's taxes, as well as the employer's taxes, would not be remitted to the appropriate governmental agencies. (Leonoff Second Aff. at 4). 47. Utilisave was told that it must reimburse Paychex for the payroll by November 4, 2010 or they would terminate their services and cease processing Utilisave's payroll and payroll related tax processing. Paychex also informed Utilisave that if it did not receive the reimbursement, they would withdraw the money from the Utilisave employees' accounts in five calendar days. (Leonoff Second Aff. at 16-7). 48. Utilisave was unable to reimburse Paychex because Steifman had emptied the Company's bank accounts. Utilisave was able to negotiate a payment plan with Paychex and Paychex would retain Utilisave as a client so long as Utilisave abides by the payment plan. (Leonoff Second Aff. at 19-13). 49. As result of its inability to meet payroll, however, Utilisave is no longer considered a client in good standing with Paychex. This means that Utilisave is required to wire in advance all money for each payroll and a fee is charged by the bank for the wire. (Leonoff / v,l v. 1 10

11 Second Aff. at 5; 14; 16-18). 50. Currently the company has $52,000 in its bank account which is needed to cover the next payroll and to partially payback Paychex for the prior payroll. To date there are no other funds to cover the other business expenses necessary to run the day- today operations. Now the liquidity of the Company must be rebuilt while simultaneously laying off some employees, reducing hours and reducing compensation of others. (Khenin Aff at 22). 51. Specifically, Utilisave has already laid off four employees and had to reduce the salaries of other employees. (Khenin Aff. at 23). 52. If the money is not returned immediately to the Utilisave accounts then the Company will be forced to lay off additional employees. (Khenin Aff. at $20). 53. In addition, Utilisave may face civil and criminal liability for its failure to meet its payroll obligations. (Khenin Aff. at $21). 54. Defendants claim there is no irreparable harm based on an purportedly sent to Khenin and others at Utilisave on November 1, In the , Steifman offers to fund the ongoing operations of the company under certain conditions, therefore there can be no irreparable harm. (November 1, is attached hereto as Exhibit F). The , however, quite clearly reveals the true motivation for Steifman's conduct. Blackmail. He will fund the operations of Utilisave if and only ifkhenin accedes to a list of demands, including that Khenin step down as CEO and allow Steifman to run the Company. In the alternative, Steifman suggests the Khenin himself personally fund the Company's operations. This is outright extortion and blatant self-evident breach of fiduciary duty of loyalty. 55. Although Defendants claim that Khenin rejected the offer, the truth is the was never sent and was created after the fact only to counter the claim that the Company was / v. 1 11

12 irreparably harmed by Steifman's conduct. BASIS FOR MANDATORY INJUNCTIVE RELIEF 56. A mandatory injunction is warranted where a plaintiff is entitled as a matter of law to the relief is seeks based on the undisputed facts. The facts here are not in dispute. Stiefman, through MHS, fraudulently and in violation of his fiduciary duties to Utilisave stole over $655,000 from the Company, The Company is and will continue to suffer irreparable harm from his actions. Plaintiff is entitled to an order requiring Defendants to restore the funds. COUNT I BREACH OF FIDUCIARY DUTY 57. Plaintiff incorporates each and every preceding paragraph as though fully set forth herein. 58. Steifman, via MHS, in his capacity as manager and member of Utilisave, LLC, owes fiduciary duties of care, loyalty and good faith to the Company and its members. 59. Steifman and MHS breached all of these fiduciary duties by, inter alia: (i) Falsely and fraudulently removing Khenin's name from the signature cards on the Company's bank account; (ii) In anticipation of the ultimate scheme to steal the Company's money, fraudulently and falsely representing to the bank that Stefiman had unilateral authority and control over the Company's accounts; (iii) In furtherance of the scheme to steal the Company's money and to prevent the Company from discovering the plot, instructing the Bank that only Steifman should have access to the Company's accounts and that the bank should not communicate with anyone other than Steifman regarding the Company's accounts; / v. 1 12

13 (iv) On October 27, 2010, without any notice to the Company, Steifman instructed the bank to move all the money from the Company's accounts and withdrawing it from the bank; (v) By emptying the Company's bank accounts, Steifman has caused the Company to bounce checks and jeopardize and ruin its customer and client relationships; (vi) By emptying the Company's accounts, Steifman has caused the Company to be in violation of applicable labor and wage laws and be unable to meet its payroll obligations and medical insurance reimbursements thereby facing fines and penalties; (vii) By emptying the Company's accounts, Steifman has made it difficult for the Company to meet its financial obligations; (viii) By emptying the Company's accounts, Steifman exercised self-help in an attempt to force the Company.out of business. 60. The Company was not aware of any of Steifman's actions in preparation and planning of the theft. 61. Defendants' breaches of fiduciary duties described above have already irreparably harmed the Company and continue to cause irreparable harm. COUNT H FRAUD 62. Plaintiff incorporates each of the preceding paragraphs as though fully set forth herein. 63. Steifman and MHS falsely, intentionally and knowingly concealed and misrepresented to the Company that: i. Khenin has been removed from the bank account signature cards; / v. 1 13

14 ii. Steifman had a plan to empty all of the Company's bank accounts without any authorization; iii. Falsely representing to the Bank that only Steifman has authority to act for the Company respecting the Accounts. 64. Defendants intended to induce the Company into believing that the bank accounts were maintained in accordance with the original signature cards and the Khenin, the manager who runs the day-to-day operations continues to have access to the accounts and authority to manage the accounts for the benefit of the Company. 65. The Company has operated with Khenin having such authority since 2002 and the Company justifiably relied on Khenin's having access to the accounts and on Steifman not fraudulently changing the signature cards and withdrawing all the money. 66. As a result of Defendants' fraud, the Company has been injured in an amount to be determined at trial, but estimated at this time to be no less than the amount stolen by Steifman. COUNT HI UNJUST ENRICHMEN'I" ENRICHMENT 67. Plaintiff incorporates each of the preceding paragraphs as though fully set forth herein. 68. On October 27, 2010, Steifman without any authority unilaterally withdrew all of the Company's money from its bank accounts. 69. Steifman's conduct was detrimental to the Company and the Company received no benefit from Steifman's blatant self-dealing. 70. Steifman has previously utilized the Company's account as his personal piggy bank / v.1 14

15 71. Steifman has been unjustly enriched by his theft of the Company's funds. WHEREFORE, Plaintiff requests a mandatory injunction that Steifman be ordered to immediately return the money he wrongfully withdrew from the Company and that judgment be entered against Steifman in the amount of $655,700.42, plus post- and pre- judgment interest and attorney's fees. BLANK ROM P " Alisa E oen ( Ê No. 4088) Christine S. Azar (DE No. 4170) 1201 N. Market Street, Suite 800 Wilmington, DE Telephone: (302) Facsimile: (302) Counsel for Utilisave, LLC, a Delaware limited liability company Dated: November 15, / v. 1 15