Case 2:16-ap Doc 1 Filed 04/22/16 Entered 04/22/16 19:32:02 Desc Main Document Page 1 of 32

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1 Document Page 1 of 32 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF OHIO EASTERN DIVISION In re: John Joseph Louis Johnson, III, Debtor. John Joseph Louis Johnson, III 5309 Adventure Drive Dublin, Ohio 43017, v. Rodney Blum Oakland Farms Road Dubuque, IA 52003, Plaintiff, Defendant. : : : : : : : : : : : : : : : : Case No Chapter 11 Judge John E. Hoffman, Jr. Adversary No.: DEBTOR S COMPLAINT AGAINST RODNEY BLUM John Joseph Louis Johnson III, an individual ( Debtor or Johnson ), by and through his undersigned counsel, for complaint against Rodney Blum respectfully states as follows: Parties, Jurisdiction, Venue 1. Debtor is an individual currently residing in Franklin County, Ohio. 2. Debtor commenced the bankruptcy case in which this adversary proceeding is filed by filing a voluntary petition for relief under chapter 11 of title 11 of the United States Code (11 U.S.C ) (the Bankruptcy Code ) in the United States Bankruptcy Court for the Southern District of Ohio (Columbus Division), which case was assigned Case No Upon information and belief, Rodney Blum is a natural person residing in Dubuque, Iowa

2 Document Page 2 of This Court has jurisdiction over this matter pursuant to 28 U.S.C. 1334(a) and 157(a) and the general order of reference in effect in this District. 5. Venue is proper before this Court pursuant to 28 U.S.C. 1409(a) in that this adversary proceeding arises in a case under title 11(the Bankruptcy Code ) of the United States code currently pending before this Honorable Court. 6. This matter is a core proceeding pursuant to 28 U.S.C Debtor consents to entry of final judgment by this Court. PRELIMINARY STATEMENT 8. Rodney Blum ( Blum ) created a fiduciary relationship with Johnson when he selected and mandated that Johnson use Blum s personal financial advisor and further made the payment of the financial advisor s fees and charges as an originator of the loan at issue. It constituted a condition of default under the loan for Debtor to not use the services of Blum s personal financial advisor. Blum s blatant and inexplicable breaches of his fiduciary duty render his purported loan documents invalid and unenforceable. Further, the Modification Agreement and the Confession of Judgment Agreement (each as defined below) were signed, but not by Debtor, as even a cursory glance at those documents and the initial promissory note would reveal. Blum already collected over $1.5 million on a loan where only $1.4 million was genuinely advanced to Johnson. For these reasons and those set forth herein, Blum s claims are avoidable and the amounts paid should be returned to Debtor s estate. FACTUAL BACKGROUND 9. In 2011, after Johnson executed his professional hockey Standard Player s Contract, his parents, who were serving as his advisors, were contacted by numerous brokers and lenders all offering to help Johnson invest his money in a manner that would monetize his earnings

3 Document Page 3 of Many of these lenders literally used and preyed upon Johnson, and his parents who were both unemployed and admittedly unsophisticated investors, to lay claim to his assets. 11. Debtor s parents, John Joseph Louis Johnson II and Kristina ( Tina ) A. Johnson (collectively, the Johnsons or parents ), were initially referred to a financial advisor in Dubuque, Iowa by their accountant. This particular advisor, Chad M. Breen ( Mr. Breen ) and/or his company Breen Financial Services, Inc. ( Breen, Inc. and collectively with Mr. Breen, Breen ), arranged a loan from Rodney L. Blum ( Blum ), then a businessman in Dubuque, Iowa. Blum is now a sitting Congressman from Iowa who, upon information and belief, also used Breen as a financial advisor. 12. In or about March 2011, Blum brokered a loan whereby he loaned Johnson, by and through his parents, $2 million pursuant to a promissory note (the Promissory Note ). A true copy of the Promissory Note is attached as Exhibit A, and incorporated herein as if set forth in full. The only amount paid to Johnson s parents was $1.4 million that was transferred to two separate bank accounts. 13. The stated business purpose of the loan was for life and disability insurance with the remainder to be exclusively invested by Breen. 14. Not a single dollar can be identified as going towards insurance or investment. Instead, it appears that Johnson s parents received $1.4 million with $55,000 being paid as a management fee to Breen. 15. This was the start of the monetization process with Breen, the financial advisor selected and mandated by Blum. It should be noted that $500,000 was held back in an account controlled by Breen only to be paid back to Blum four months later in a lump sum. 16. Johnson was not represented by counsel in this transaction

4 Document Page 4 of Blum breached his fiduciary obligations to Johnson by contractually requiring Johnson to use Blum s own financial advisor who was only protecting his interests. 18. Requiring Johnson to give Breen exclusive control over the loaned proceeds was, in and of itself, a breach of his fiduciary obligations. 19. The advisor chosen by Blum knew or should have known the manner and timing of payments to Johnson as an NHL player. Specifically, the NHL club teams do not pay their players in the off season unless the team makes the playoffs. Nevertheless, Blum and Breen conspired to create a loan that could not be properly serviced by Johnson and would inevitably fall into default. 20. The loan obligated Johnson to pay $62, per month, even when he was not receiving his salary in the off season. 21. To make matters worse, Breen allowed and/or authorized with Blum s knowledge, Johnson s parents to receive and direct where the loan proceeds would flow and ultimately to be used. 22. The terms imposed by Blum were pre-ordained to place Debtor in default, impose a default interest rate, and cause the loan to be unnecessarily accelerated. 23. On or about April 9, 2012, Blum issued a notice of default (the Notice of Default ). A true copy of the Notice of Default is attached as Exhibit B, and incorporated herein as if set forth in full. 24. Following his purported issuance of the Notice of Default, Blum demanded the execution of a Promissory Note Modification Agreement (the Modification Agreement ), purporting to replace the original loan. A true copy of the Modification Agreement is attached as Exhibit C, and incorporated herein as if set forth in full. The Modification Agreement was

5 Document Page 5 of 32 signed, but not by Debtor, as even a cursory glance at the Modification Agreement and the Promissory Note demonstrate. 25. The Modification Agreement required, among other things, the execution of the Agreement Regarding Confession of Judgment (the Confession of Judgment Agreement ) an automatic payroll deduction that directed any monies from a projected tax refund to first go toward paying Breen as the financial advisor. A true copy of the Confession of Judgment Agreement is attached as Exhibit D, and incorporated herein as if set forth in full. The Confession of Judgment Agreement, just like the Modification Agreement, was not signed by Debtor. 26. When Johnson s parents failed to make a payment under the Modification Agreement, Blum filed the confession of judgment against Johnson. On or about March 12, 2013, without ever contacting Johnson directly, the Confession of Judgment was entered in the Iowa District Court in Dubuque County, Case No LACV , as a judgment (the Judgment ) against Johnson. A true copy of the Judgment is attached as Exhibit E, and incorporated herein as if set forth in full. 27. At the time of the entry of the Judgment, Blum had collected $968, After Blum obtained the Judgment by confession, Blum collected another $50,000 to bring his receipts to $1,108, Thereafter, again, without contacting Johnson directly, Blum sought garnishments. 29. On or about July 17, 2013, the Judgment by confession was domesticated in the Franklin County, Ohio Court of Common Pleas in Case No. 13JG

6 Document Page 6 of Blum proceeded to garnish on the Judgment. Through garnishments Blum seized an additional $493, during the season, and $1, shortly after the season concluded. 31. By summer of 2014, the sums collected by Blum totaled $1,513, On October 7, 2014, Debtor filed his voluntary petition for relief under chapter 11 of the Bankruptcy Court. 33. On February 8, 2015, Blum filed a Proof of Claim (Claim No. 17) asserting a claim of $1,171, (the Claim ). rewritten herein. COUNT ONE DECLARATORY RELIEF 34. Debtor incorporates the foregoing paragraphs of this Complaint as if fully 35. Debtor did not sign and never assented to either the Modification Agreement or to the Confession of Judgment Agreement (together, the Unauthorized Loan Documents ). 36. As such, there was no mutual assent between the parties identified in the Unauthorized Loan Documents. 37. Debtor would not have agreed to the terms of the Unauthorized Loan Documents had he known their terms and conditions. 38. Blum s conduct rises to the level of fraud in the inception or execution because he knew or should have known the Unauthorized Loan Documents were forgeries. 39. The Unauthorized Loan Documents are void ab initio. 40. As a result, Debtor is entitled to a declaration that the Unauthorized Loan Documents are either void or no contract was formed due to the lack of the requisite mutual assent

7 Document Page 7 of 32 COUNT TWO UNCONSCIONABILITY 41. Debtor incorporates the foregoing paragraphs of this Complaint as if fully rewritten herein. 42. A contract is unconscionable where it is both procedurally and substantively unconscionable. 43. The Unauthorized Loan Documents are unconscionable contracts and, therefore, are unenforceable. 44. The Unauthorized Loan Documents are procedurally unconscionable and substantively defective, in as much as Blum solicited and accepted forged signatures. Further, the Unauthorized Loan Documents are procedurally unconscionable because they were never presented to Debtor and no due diligence was conducted by Blum or his hand selected financial advisor. 45. The Unauthorized Loan Documents are substantively unconscionable because: (a) They fail to evidence the consideration, if any, provided by Blum to or for the benefit of Debtor. (b) Debtor never assented to these terms with Blum. (c) Debtor has not received any benefit from Blum in connection with these agreements. 46. Debtor is entitled to a declaration that: (1) Debtor did not breach any enforceable obligations to Blum; (2) the Unauthorized Loan Documents are not valid or enforceable obligations; and (3) that Blum shall provide an immediate full and complete accounting to Debtor. COUNT THREE AVOIDABLE TRANSFERS 47. Debtor incorporates the foregoing paragraphs of this Complaint as if fully

8 Document Page 8 of 32 rewritten herein. 48. Prepetition, from time to time, Blum obtained payments totaling not less than $1,513, (collectively, the Transfers ). 49. The amounts and dates of receipt of each of the Transfers are known to Blum, and, upon information and belief, such Transfers were received between in or about April 2011 and April By virtue of the Promissory Note, and the control Blum asserted through Breen, through the Unauthorized Loan Documents and otherwise, Blum was an insider pursuant to 11 U.S.C. 101(31). 51. Debtor himself received no benefit of reasonably equivalent value in return for any of the Transfers. 52. Upon information and belief, Debtor was insolvent on the date that each of the Transfers were made, or became insolvent as a result of one or more of the Transfers. 53. The Transfers may be avoided pursuant to 11 U.S.C Pursuant to 11 U.S.C. 544(b), the Transfers also may be avoided to the extent avoidable under applicable law. 55. The Transfers are fraudulent as to Debtor s creditors and may be avoided pursuant to O.R.C and 11 U.S.C Debtor is entitled to recover from Blum an amount to be determined at trial that is not less than the value of the total amount of the Transfers made to Blum, plus interest thereon to the date of payment and the costs of this action

9 Document Page 9 of 32 COUNT FOUR BREACH OF FIDUCIARY DUTY 57. Debtor incorporates the foregoing paragraphs of this Complaint as if fully rewritten herein. 58. At all material times, Blum owed fiduciary duties to Debtor. 59. The fiduciary duties owed by Blum to Debtor included duties of care and loyalty. 60. The duty of loyalty includes the duty to avoid conflicts of interest, to refrain from obtaining secret profits, to refrain from seizing opportunities, to refrain from engaging in transactions involving Debtor and other entities in which he had or may have pecuniary interests. 61. As detailed above, numerous Transfers were made to Blum. Furthermore, upon information and belief, transfers also were made to Blum s affiliates for the benefit of Blum. 62. The transfers to or for the benefit of Blum were made without receiving any reasonably equivalent value from Blum or his affiliates. 63. The transfers for the direct or indirect benefit of Blum (a) were taken by Blum for his own personal gain; (b) were not intended to benefit Debtor; (c) did not benefit Debtor; and (d) were not fair and reasonable to Debtor when made. 64. Blum s breaches of his fiduciary duties were the proximate cause of damages incurred by Debtor and his estate. COUNT FIVE UNJUST ENRICHMENT 65. Debtor incorporates the foregoing paragraphs of this Complaint as if fully rewritten herein

10 Document Page 10 of Blum used his influence and position to divert funds belonging to the Debtor to or for the benefit of himself and his affiliates. Such diversions of funds, in addition to being a breach of his fiduciary duties, conferred benefits upon Blum. 67. Blum voluntarily accepted and retained the benefits conferred upon him in connection with the diversion of funds. 68. It would be inequitable for Blum to retain the benefits of the diversion of funds without paying the value thereof to the Estate. COUNT SIX EQUITABLE SUBORDINATION 69. Debtor incorporates the foregoing paragraphs of this Complaint as if fully rewritten herein. 70. Blum s inequitable conduct as set forth above is tantamount to fraud. 71. Blum s wrongful, inequitable and unconscionable conduct enabled Blum to obtain payments, transfers and/or other benefits that conferred upon Blum benefits to the detriment of legitimate creditors of Debtor. 72. Subordination of Blum s claims against Debtor to the claims of the legitimate general unsecured creditors is not inconsistent with the Bankruptcy Code. 73. In determining whether to equitably subordinate Blum s claims, this Court should apply a standard of simple unfairness. However, the extent of Blum s fraudulent and inequitable conduct described above would warrant equitable subordination regardless of the applicable standard. 74. Blum s claims, if any, should be equitably subordinated to the claims of the general unsecured creditors under Bankruptcy Code Section 510(c) to the extent necessary or

11 Document Page 11 of 32 appropriate to prevent Blum from acquiring or retaining any benefit to the detriment of legitimate creditors of Debtor. COUNT SEVEN DISALLOWANCE OF CLAIM 75. Debtor incorporates the foregoing paragraphs of this Complaint as if fully rewritten herein. 76. As a result of Blum s actions, Blum s claims in Debtor s bankruptcy case should be disallowed and expunged in their entirety. WHEREFORE, Plaintiff John Joseph Louis Johnson, III, Debtor herein, requests that the Court enter a judgment in his favor and against Blum as follows: 1. awarding judgment against Blum in amount to be determined at trial, including compensatory and punitive damages, attorneys fees, costs, and any and all other amounts allowed by law; Documents; 2. finding that Debtor did not assent to entering into any of the Unauthorized Loan 3. finding Blum engaged in fraud in the inception or execution relating to the Unauthorized Loan Documents; 4. finding the Unauthorized Loan Documents were void ab initio; 5. finding the Unauthorized Loan Documents are unenforceable; 6. disallowing any and all claims asserted by Blum in Debtor s bankruptcy case; 7. equitably subordinating any and all claims asserted by Blum in Debtor s bankruptcy case; 8. avoiding and recovering for the benefit of Debtor s estate any and all avoidable transfers, together with interest, attorneys fees, costs, and any and all other amounts allowed by

12 Document Page 12 of 32 law; and 9. granting any and all other such legal and equitable relief to which Johnson may be entitled as the Court deems just and proper. Respectfully submitted, Dated: April 22, 2016 /s/ Marc J. Kessler Marc J. Kessler ( ) Daniel A. DeMarco ( ) Hahn Loeser & Parks LLP 65 E. State Street, Suite 1400 Columbus, Ohio Telephone: (614) Facsimile: (614) Attorneys for Debtor John Joseph Louis Johnson, III

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