FILED: NEW YORK COUNTY CLERK 10/10/ :28 PM INDEX NO /2018 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 10/10/2018

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1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK 1186 BROADWAY TENANT LLC, and, 1186 BROADWAY RESTAURANT LLC, Plaintiffs, - against - KENNETH FRIEDMAN and BIERGARTEN, LLC, Defendants. Index No. Date Index No. Purchased: SUMMONS Plaintiff designates New York County as the place of trial CPLR 503(a: The basis for the venue is that the parties maintain their principal places of business in the venue and a substantial part of the events or omissions giving rise to the claims occurred in the venue. TO THE ABOVE NAMED DEFENDANTS: YOU ARE HEREBY SUMMONED to answer the Complaint in this action and to serve a copy of your answer on the undersigned counsel for plaintiff within twenty (20 days after the service of this summons, exclusive of the day of service, or within thirty (30 days after service is complete if this summons is not personally delivered to you within the State of New York; and upon your failure to answer, judgment will be taken against you by default for the relief demanded in the Complaint. 1 of 20

2 Dated: New York, New York October 10, 2018 KASOWITZ BENSON TORRES LLP By: /s/ David E. Ross David E. Ross Sarmad M. Khojasteh 1633 Broadway New York, New York Tel.: ( Fax: ( Attorneys for Plaintiffs TO: Biergarten, LLC 9 West 29th Street, 2nd Floor New York, New York Kenneth Friedman 9 West 29th Street, 2nd Floor New York, New York of 20

3 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK x 1186 BROADWAY TENANT LLC, and : 1186 BROADWAY RESTAURANT LLC, : : Plaintiffs, : : - against - : Index No. : : COMPLAINT KENNETH FRIEDMAN and : BIERGARTEN, LLC, : : Defendants. : x Plaintiffs 1186 Broadway Tenant LLC and 1186 Broadway Restaurant LLC (collectively Broadway or Plaintiffs, for their complaint against defendants Kenneth Friedman ( Friedman and Biergarten LLC ( Biergarten, and collectively with Friedman, Defendants, allege: PRELIMINARY STATEMENT 1. Plaintiffs operate the Ace Hotel New York (the Ace Hotel, including the Breslin Restaurant (the Breslin, the John Dory Restaurant (the John Dory and, collectively with the Breslin, the Restaurants, and the Ace Hotel s food and beverage services. Plaintiffs bring this action to recover millions of dollars in damages they have suffered by reason of the fraud, defalcations and other improprieties of restaurateur Kenneth Friedman and his company Biergarten. Using financial manipulations and deception, and other unlawful conduct only recently revealed through a forensic audit, Friedman and Biergarten, at Friedman s direction, concealed the declining financial performance of the Restaurants, and breached their obligations to Plaintiffs, all while receiving management fees that were not due, and which Plaintiffs never would have paid had Friedman and Biergarten not concealed their wrongdoing. Plaintiffs 1 3 of 20

4 therefore seek in excess of $5 million in compensatory damages, plus consequential damages, punitive damages, costs, and attorneys fees in an amount to be determined at trial. PARTIES 2. Plaintiff 1186 Broadway Tenant LLC is a Delaware limited liability company with its principal place of business at 140 Broadway, 41 st Floor, New York, New York Plaintiff 1186 Broadway Restaurant LLC is a Delaware limited liability company with its principal place of business at 140 Broadway, 41 st Floor, New York, New York Defendant Kenneth Friedman is a resident of the State of New York. Friedman is a member of Biergarten. 5. Defendant Biergarten LLC is a New York limited liability company with its principal place of business at 9 West 29th Street, 2nd Floor, New York, New York JURISDICTION AND VENUE 6. Jurisdiction is proper pursuant to CPLR 301 in that, among other things, Defendants are citizens of New York and have transacted business and committed tortious acts within New York, causing injury in this State and resulting in the claims herein, and because Biergarten, as the Managing Member of Friedfield Breslin, has contractually agreed to jurisdiction in this Court pursuant to Section 37.9 of the Restaurant Management Agreement between Plaintiff 1186 Broadway Tenant LLC and Friedfield Breslin LLC dated April 29, 2009 (the RMA. 7. Venue is proper pursuant to CPLR 503(a as the parties maintain their principal places of business in New York County, and a substantial portion of the activities from which this matter arose occurred in New York County. 2 4 of 20

5 FACTUAL BACKGROUND I. Broadway and Friedman Form Joint Venture To Operate Restaurants At The Ace Hotel Broadway Tenant LLC ( Broadway Tenant operates the Ace Hotel located at the corner of Broadway and West 29th Street in New York City. Biergarten is a restaurant management company owned by restauranteur Kenneth Friedman. 9. On April 29, 2009, Biergarten and 1186 Broadway Restaurant LLC ( Broadway Restaurant signed an Amended and Restated Limited Liability Company Agreement of Friedfield Breslin LLC (the LLC Agreement pursuant to which the parties formed a joint venture called Friedfield Breslin LLC ( Friedfield Breslin or the Company to operate and manage the restaurant, food, and beverage services at the Ace Hotel. Pursuant to the LLC Agreement, Plaintiffs provided the premises and initial capital while Friedman and Biergarten agreed to manage and operate the restaurants and hotel food services. 10. Pursuant to the LLC Agreement, Biergarten was the Managing Member of Friedfield Breslin (LLC Agreement 1.45, and, as such, management and control of the Company s business... rest[ed] exclusively with [it].... (id Specifically, the LLC Agreement charges Biergarten, as the Managing Member, with having the (i fiduciary responsibility for the safekeeping and use of all funds and assets of the Company, whether or not in its immediate possession or control, and (2 full and complete charge of all affairs of the Company. (Id. 11. Simultaneously with the execution of the LLC Agreement, on April 29, 2009, Friedfield Breslin and Broadway Tenant entered into the RMA, pursuant to which Biergarten was to operate the restaurant and food and beverage services at the Ace Hotel. (RMA at of 20

6 Pursuant to the LLC Agreement and the RMA, Friedfield Breslin launched the Breslin in October On April 19, 2010, Biergarten signed the First Amendment to the Amended and Restated Limited Liability Company Agreement of Friedfield Breslin LLC (the First Amendment to the LLC Agreement, which provided that the parties would construct an upscale oyster bar -- the John Dory -- within the corner space of the Ace Hotel lobby, and that Biergarten would operate and manage it pursuant to the LLC Agreement and RMA. (First Amendment to the LLC Agreement 1. Pursuant to the First Amendment to the LLC Agreement, Friedfield Breslin launched the John Dory in November II. Contractual Provisions For The Calculation Of The Return On Investment To Be Paid By Friedfield Breslin To Broadway Tenant 13. Pursuant to the RMA, Broadway Tenant was entitled to an annual Return on Investment equivalent to 9.5% of net sales to the extent permitted by Available Cash Flow in exchange for the right to operate in the Ace Hotel. (RMA at 1.1. The parties defined Available Cash Flow as Net Sales less the sum of Friedfield Breslin s Operating Expenses and the minimum management fee payable to Friedfield Breslin as set out in the LLC Agreement. (Id. at Definitions. Pursuant to the RMA, the Return on Investment is calculated after Operating Expenses are subtracted from Available Cash Flow. (RMA at The RMA defines Operating Expenses as all expenses actually incurred by Manager as defined under GAAP for the operation of the Food and Beverage Facilities, food and beverage service within the Hotel Lobby, Room Service and Off-Site Catering Services, including funds deposited into the Manager s capital reserve account. (RMA at Definitions (emphasis added. Likewise, the LLC Agreement defines Operating Expenses as all expenses actually incurred by the Company as defined under GAAP for the operation of the Food and 4 6 of 20

7 Beverage Facilities, food and beverage service within the Hotel Lobby, Room Service and Off- Site Catering Services, including funds deposited into the Capital Reserve. (LLC Agreement at 1.57 (emphasis added. The provision requires that Biergarten record and treat the funds deposited into the capital reserve as an Operating Expense to be subtracted from Net Sales for the purpose of calculating the Return on Investment. 15. Pursuant to the LLC Agreement, Biergarten was required to establish a capital reserve account and to deposit 4% of gross revenues into it each month. (LLC Agreement In exchange for Biergarten s labor as the Managing Member of Friedfield Breslin, Biergarten was to be paid an Operator Management Fee of the greater of $250,000 per year or 4.50% of all Gross Sales Revenue of the Company plus 2.25% of the Gross Sales Revenues of the Company generated with respect to the Ace Hotel s event space. (LLC Agreement at The RMA required Biergarten to prepare monthly and annual financial statements that accurately reflected Friedfield Breslin s Net Sales, Operating Expenses and Return on Investment for the applicable month of each operating year. (RMA at 1.3(A. The annual statements were subject to audit by an independent certified public accountant. (Id. The RMA also required that the annual statement be in reasonable detail and shall be prepared in accordance with generally accepted accounting principles, consistently applied. (RMA at 1.3(B. 18. Under Section 41.1 of the RMA, if Friedfield Breslin failed to pay a Return on Investment to Broadway Tenant totaling at least $500,000 in any year following the third full year of operations, Broadway Tenant was entitled to terminate the contract prior to its stated expiration date. (RMA at of 20

8 III. The Restaurants Financial Condition Deteriorates Precipitously At The Same Time That Independent Auditors Identify Red Flags In Biergarten s Management 19. At inception, the Breslin and John Dory were financial successes, generating an average of $2.7 million in Available Cash Flow for each year from 2012 through However, from 2015 through 2017, the Restaurants financial condition deteriorated precipitously, with Available Cash Flow nose diving from $3.071 million in 2012 to $1.107 million in 2015, and to negative $65,956 in As revenues and Available Cash Flow plummeted, Friedman continued to direct Biergarten to pay itself sizeable Operator Management Fees. Specifically, Friedman caused the Company to pay Biergarten $806,608 in 2012; $778,619 in 2013; $773,727 in 2014; $727,231 in 2015; $693,561 in 2016; and $647,922 in At the same time, an annual audit of Friedfield Breslin conducted in the normal course by PKF O Connor Davies, LLP ( PKF revealed a company suffering from extremely poor financial management. Specifically, the annual audit for the year ending December 31, 2016, identified in the Company s internal controls material weaknesses -- which PKF defined as a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement in the entity s financial statements will not be prevented, -- including, without limitation, the following: a lack of documentation and implementation of policies and procedures relating to journal entries, cash disbursements, revenue and cash receipts, and several functions of the human resource department; balance sheets that were not properly reconciled and variances that required lengthy explanation and others that management could not explain; journal entries that lacked proper support or were improperly recorded in accounts receivable and payable; invoices that lacked general ledger codes posted on them, making it difficult to record them to the correct ledger; cash disbursements that lacked dual signature, which is a required procedure; and 6 8 of 20

9 management that lacked the requisite experience to prepare the Company s financial statements. Within the hospitality business, such findings are recognized as red flags -- indications of fraudulent conduct in a restaurant s operations. Though Broadway communicated the results of the audit to Friedman on May 3, 2017, Friedman s management of the Company failed to improve. Indeed, the audit for year ending December 31, 2017, revealed precisely the same material weaknesses in Friedman s management of the Company. IV. A Full Forensic Audit Reveals That Friedman Improperly Inflated The Return On Investment Owed To Broadway Tenant To Avoid Early Termination 21. Based on the results of the year-end annual audits for 2016 and the continued diminishing financial performance of the Restaurants in 2017, Broadway engaged PKF on November 13, 2017, to conduct a forensic accounting of Friedfield Breslin s books and records to assist Broadway in understanding the accounts and provisions of certain agreements that [Friedfield Breslin] is a party to. 22. The forensic audit revealed very serious wrongdoing. First, the forensic audit revealed that, notwithstanding the findings of the 2016 year-end audit, Friedman had failed to correct the material deficiencies and weaknesses in the Company s accounting procedures. 23. Second, and even more troubling, the financial records produced by Friedman in connection with the audit revealed that Defendants, knowing that Biergarten had not met the minimum Available Cash Flow threshold, intentionally falsified the Return on Investment by failing to make the deposit into the capital reserve account, as is required under Section 7.12 of the LLC Agreement, and failing to deduct the required capital reserve account deposit from the Available Cash Flow prior to calculating, and paying, the Return on Investment owed to Broadway Tenant, as required by the RMA. As a result, Friedman and Biergarten, at Friedman s 7 9 of 20

10 direction, had intentionally and fraudulently inflated the Return on Investment paid to Broadway Tenant to mask the Restaurants substandard performance. 24. Specifically, in 2017, Friedman directed Biergarten to issue checks to Broadway Tenant on January 31, February 28, March 31, April 30, May 31, June 30, July 31, August 31, September 30, October 31, November 30, and December 31. On each occasion, Friedman directed Biergarten to refrain from disclosing to Broadway Tenant that the Return on Investment being paid was calculated without making the proper deposit into the capital reserve account. Defendants had a duty to disclose the true ROI and the Company s true financial figures. Defendants fiduciary obligations to Plaintiffs required full disclosure of accurate financial facts. Likewise, Defendants superior knowledge of material financial information required true and complete disclosure. Full, accurate disclosure was also necessary to correct the false impression Defendants created that Friedfield Breslin was profitable and that the ROI exceeded $500,000, which it did not. 25. Had Defendants made the proper deposits into the capital reserve account, and properly deducted said deposits from the Available Cash Flow prior to calculating the Return on Investment owed to Broadway Tenant, Defendants would have had to report insufficient Return on Investment, which would have triggered Broadway Tenant s early termination rights under Section 41.1 of the RMA. 26. To conceal the Company s deficient returns and avoid triggering Broadway Tenant s early termination rights, Friedman and Biergarten, at Friedman s direction, intentionally misrepresented to Plaintiffs the Available Cash Flow. Specifically, Defendants directed the Company to withhold the capital reserve account deposits that should have been deducted from Available Cash Flow, which allowed Friedman and Biergarten to pay an intentionally 8 10 of 20

11 miscalculated Return on Investment to Broadway Tenant that was greater than the $500,000 minimum required to prevent the triggering of Broadway Tenant s early termination rights. Until the results of the forensic audit were known, Plaintiffs had relied on Biergarten s payments and financial reporting and, as a result, Broadway Tenant was unaware of the extent of the Company s financial decline, and was unaware of the triggering of its right to terminate the RMA. Defendants concealment of the Company s true financial condition allowed Defendants to continue to extract substantial management fees which Defendants had not truly earned, and to which Friedman was not entitled under the RMA. 27. In addition, upon information and belief, Friedman intentionally directed Biergarten to manage the Company with inadequate internal controls and to ignore PKF s warnings and guidance with respect to those inadequacies in order to enable him to continue to misappropriate the Company s profits and cash proceeds for his own personal use. Had Broadway Tenant not discovered Defendants fraudulent conduct, Defendants would have continued to falsify the Restaurants performance numbers and would have continued to take management fees to which Friedman and Biergarten were not entitled. 28. The lack of internal control and mismanagement of the Company s books and records enabled Friedman and Biergarten, at Friedman s direction, to (i double charge the Company for Biergarten services by not only collecting a management fee for Biergarten, but also charging the Company for services provided by individual Biergarten employees; (ii use the Company as a piggy bank to fund Biergarten expenses that were wholly unrelated to the Company or the Ace Hotel, including, without limitation, the health benefits and insurance liabilities of Biergarten s other ventures; and (iii charge the Company for fees and services charged to Biergarten by third parties, irrespective of whether said third parties were performing 9 11 of 20

12 services for other Biergarten entities unrelated to the Company or the Ace Hotel. Likewise, the lack of internal controls and mismanagement of the Company s books and records enabled Friedman to pay the bare minimum of rent owed to Broadway Tenant, and to misallocate the Company s cash, leaving the Company saddled with nearly $2 million of back-owed rent. 29. Defendants misrepresentations and fraudulent conduct constituted an Event of Default under section 16.1(I of the RMA. On February 15, 2018, Broadway Tenant exercised its early termination right under Section 41.1, and terminated the RMA. Broadway Tenant provided written notice, and followed all requirements of section Biergarten did not, and could not, cure the default within 30 days. V. Friedman s Post-Termination Conduct 30. Since termination, Friedman and Biergarten, at Friedman s direction, has defaulted on obligations to food suppliers, insurance companies, and employees, adversely impacting and interfering with Plaintiffs ability to forge new relationships to replace Friedman in the management of the Restaurants and food service at the Ace Hotel. FIRST CAUSE OF ACTION (Fraud against Biergarten and Friedman 31. Plaintiffs repeat and re-allege the allegations set forth in paragraphs 1 through 30 as if fully set forth herein. 32. Friedman and Biergarten, at Friedman s direction,, knowing that Biergarten had not met the minimum Available Cash Flow threshold under the RMA, intentionally falsified the Return on Investment by failing to make the required deposit into the capital reserve account, as is required under section 7.12 of the LLC Agreement, and failing to deduct the required capital reserve account deposit from the Available Cash Flow prior to calculating, and paying, the Return on Investment owed to Broadway Tenant, as is required by the RMA. As a result, Friedman and of 20

13 Biergarten, at Friedman s direction, intentionally and fraudulently inflated the Return on Investment paid to Broadway Tenant to mask the Restaurants substandard performance. 33. Had Defendants made the proper deposit into the capital reserve account, and properly deducted said deposit from the Available Cash Flow prior to calculating the Return on Investment owed to Broadway Tenant, Defendants would have had to report insufficient Return on Investment, which would have triggered the Broadway Tenant s early termination rights under Section 41.1 of the RMA. 34. To conceal the deficiency and avoid triggering Broadway Tenant s early termination rights, Friedman and Biergarten, at Friedman s direction, intentionally misrepresented to Plaintiffs the Available Cash Flow and Return on Investment. Specifically, Defendants directed the Company to intentionally inflate the Available Cash Flow by withholding capital reserve account deposits and then pay an intentionally miscalculated Return on Investment to Broadway Tenant. In so doing, Defendants misrepresented to Broadway Tenant that the Return on Investment was greater than the $500,000 minimum figure so as to prevent triggering Broadway Tenant s early termination right. Plaintiffs were unaware of Defendants intentional misrepresentations and intentional omissions, and relied upon Defendants payment of the Return on Investment and Defendants financial reporting as accurately reflecting and representing the financial status of Friedfield Breslin. 35. As a direct and proximate result of Defendants fraudulent misrepresentations and omissions, Plaintiffs have been damaged in an amount to be determined at trial which is in excess of $5 million, together with interest thereon, attorneys fees and costs of 20

14 SECOND CAUSE OF ACTION (Breach of the LLC Agreement against Biergarten 36. Plaintiffs repeat and re-allege the allegations set forth in paragraphs 1 through 35 as if fully set forth herein. 37. On or about April 29, 2009, the Biergarten and Broadway Restaurant entered into the LLC Agreement, which constitutes a valid and binding contract. 38. Biergarten breached the LLC Agreement by the conduct alleged herein, including, without limitation, by failing to make the required deposit into the capital reserve account, as required by Section 7.12 of the LLC Agreement. 39. Biergarten breached the LLC Agreement with willful misfeasance, bad faith and/or gross negligence, and/or with reckless disregard of its obligations under the LLC Agreement. 40. Plaintiffs performed all of their material obligations under the LLC Agreement. 41. As a direct and proximate result of Biergarten s breach, Plaintiffs have been damaged in an amount to be determined at trial which is in excess of $5 million, together with interest thereon, attorneys fees and costs. THIRD CAUSE OF ACTION (Breach of Fiduciary Duty against Biergarten 42. Plaintiffs repeat and re-allege the allegations set forth in paragraphs 1 through 41 as if fully set forth herein. both entities. 43. Biergarten is the Managing Member of Friedfield Breslin and Friedman controlled 44. As Managing Member of Friedfield Breslin, Biergarten owes fiduciary duties to Plaintiffs, including, without limitation, a duty to deal with Plaintiffs with the utmost good faith and with absolute and undivided fidelity. Additionally, Section 7.8 of the LLC Agreement of 20

15 charges Biergarten, as the Managing Member, with having the (i fiduciary responsibility for the safekeeping and use of all funds and assets of the Company, whether or not in its immediate possession or control, and (2 full and complete charge of all affairs of the Company. (LLC Agreement at Biergarten knowingly, intentionally and willfully breached its fiduciary duties by the conduct alleged herein, including, without limitation, failing to implement proper accounting procedures and management policies. Biergarten intentionally falsified the Return on Investment by failing to make the required deposit into the capital reserve account, as is required under section 7.12 of the LLC Agreement, and failing to deduct the required capital reserve account deposit from the Available Cash Flow prior to calculating, and paying, the Return on Investment owed to Broadway Tenant, as is required by the RMA. As a result, Biergarten had intentionally and fraudulently inflated the Return on Investment paid to Broadway Tenant to mask the Restaurants substandard performance. Biergarten also (i double charged the Company for its services by not only collecting a management fee for itself, but also charging the Company for services provided by its individual employees; (ii used the Company as a piggy bank to fund expenses of Biergarten that were wholly unrelated to the Company or the Ace Hotel, including, without limitation, the health benefits and insurance liabilities of Biergarten s other ventures; (iii charged the Company for fees and services charged to Biergarten by third parties, irrespective of whether said third parties were performing services for other Biergarten entities unrelated to the Company or the Ace Hotel; and (iv Biergarten also intentionally paid the bare minimum of rent owed to Broadway Tenant in order to allow it to misallocate the Company s cash, leaving the Company saddled with nearly $2 million of back-owed rent of 20

16 46. Biergarten failed to honor its duty of absolute and undivided loyalty, and failed to deal with Plaintiffs in utmost good faith, all while directly profiting by withholding fees due Plaintiffs. 47. As a direct and proximate result of Biergarten s breach of fiduciary duty, Plaintiffs have been damaged in an amount to be determined at trial which is in excess of $5 million, together with interest thereon, attorneys fees and costs. FOURTH CAUSE OF ACTION (Aiding and Abetting Breach of Fiduciary Duty against Friedman 48. Plaintiffs repeat and re-allege the allegations set forth in paragraphs 1 through 47 as if fully set forth herein. 49. Friedman provided substantial assistance to Biergarten in the breach of its fiduciary duty. Specifically, Friedman intentionally and willfully directed Biergarten to breach its fiduciary duties by the conduct alleged herein, including, without limitation, failing to implement proper accounting procedures and management policies. Friedman intentionally and willfully directed Biergarten to falsify the Return on Investment by failing to make the required deposit into the capital reserve account, as is required under section 7.12 of the LLC Agreement, and failing to deduct the required capital reserve account deposit from the Available Cash Flow prior to calculating, and paying, the Return on Investment owed to Broadway Tenant, as is required by the RMA. As a result, Biergarten, at Friedman s direction, had intentionally and fraudulently inflated the Return on Investment paid to Broadway Tenant to mask the Restaurants substandard performance. Friedman also directed Biergarten to (i double charge from the Company for its services by not only collecting a management fee for itself, but also charging the Company for services provided by its individual employees; (ii use the Company as a piggy bank to fund expenses of Biergarten that were wholly unrelated to the Company or the Ace Hotel, including, of 20

17 without limitation, the health benefits and insurance liabilities of Biergarten s other ventures; (iii charge the Company for fees and services charged to Biergarten by third parties, irrespective of whether said third parties were performing services for other Biergarten entities unrelated to the Company or the Ace Hotel; and (iv intentionally pay the bare minimum of rent owed to Broadway Tenant in order to allow it to misallocate the Company s cash, leaving the Company saddled with nearly $2 million of back-owed rent. 50. As a direct and proximate result of Friedman s aiding and abetting in the breach of fiduciary duty committed by Biergarten, Plaintiffs have been damaged in an amount to be determined at trial which is in excess of $5 million, together with interest thereon, attorneys fees and costs. FIFTH CAUSE OF ACTION (Unjust Enrichment against Friedman 51. Plaintiffs repeat and re-allege the allegations set forth in paragraphs 1 through 50 as if fully set forth herein. 52. Friedman has engaged in wrongful and inequitable conduct that has caused, and will continue to cause, injury to Plaintiffs. Friedman, by and through Biergarten, exercises complete domination over the Friedfield Breslin joint venture, and has used that domination to cause Friedfield Breslin to misrepresent its financial condition to Broadway by intentionally miscalculating the fees to which Broadway contractually was entitled. Friedman caused Biergarten to calculate the Return on Investment without making the contractually required payment into the capital reserve account, and, had it done so, the Return on Investment would have been less than $500, Friedman s calculated and intentional misrepresentations inflated the Available Cash Flow and allowed Friedfield Breslin to pay Return on Investment Fees when, in actuality, of 20

18 there was insufficient Available Cash Flow. As a result, Broadway was unaware of Friedfield Breslin s precipitous financial performance and did not terminate the RMA. Due to Friedman s concealment of the Company s true financial condition, on information and belief, Friedman continued to collect Management Fees through Biergarten under the LLC Agreement to which he was not entitled and was able to continue to divert cash proceeds from the Restaurants to his personal use. Specifically, Friedman (i double charged from the Company for Biergarten services by not only collecting a management fee for Biergarten, but also charging the Company for services provided by individual Biergarten employees; (ii used the Company as a piggy bank to fund expenses of Biergarten that were wholly unrelated to the Company or the Ace Hotel, including, without limitation, the health benefits and insurance liabilities of Biergarten s other ventures; (iii charged the Company for fees and services charged to Biergarten by third parties, irrespective of whether said third parties were performing services for other Biergarten entities unrelated to the Company or the Ace Hotel; and (iv intentionally paid the bare minimum of rent owed to Broadway Tenant in order to allow him to misallocate the Company s cash, leaving the Company saddled with nearly $2 million of back-owed rent. 54. Friedman has been unjustly enriched as a result of his wrongful and inequitable conduct in the amount of the monies and other benefits he has received. 55. As a direct and proximate result of Friedman s unjust enrichment, Broadway has been damaged in an amount to be determined at trial which is in excess of $5 million, together with interest thereon, attorneys fees and costs of 20

19 SIXTH CAUSE OF ACTION (Conversion against Friedman 56. Plaintiffs repeat and re-allege the allegations set forth in paragraphs 1 through 55 as if fully set forth herein. 57. Friedman, by his wrongful acts, illegally took money rightfully belonging to Friedfield Breslin and Plaintiffs and converted it for his own use and benefit to the exclusion of Plaintiffs rights. Specifically, that money relates to unearned management fees and cash proceeds from the Restaurants that was diverted to Biergarten and Friedman s use unrelated to the Company. 58. Friedman s wrongful acts include mismanaging the financial affairs of Friedfield Breslin and causing it to misrepresent its financial status and to improperly pay Return on Investment fees so as to prevent Plaintiffs from terminating the RMA. Friedman s calculated and intentional misrepresentations, omissions and inflation of Available Cash Flow allowed him to continue to cause the Company to pay unjustified Operator Management Fees to himself through Biergarten and to continue to divert cash proceeds from the Restaurants to his personal use. 59. As a direct and proximate result of Friedman s conversion, Broadway has been damaged in an amount to be determined at trial which is in excess of $5 million, together with interest thereon, attorneys fees and costs of 20

20 PRAYER FOR RELIEF WHEREFORE, Plaintiffs demand judgment: (a Awarding Plaintiffs compensatory and consequential damages in an amount to be determined at trial in excess of $5 million; (b Awarding Plaintiffs punitive and exemplary damages in amounts to be determined at trial; (c Awarding Plaintiffs the costs of this action, including attorneys fees, in amounts to be determined at trial; (d (e Awarding Plaintiffs prejudgment and post-judgment interest; Granting such other and further relief as is just and proper. Dated: October 10, 2018 KASOWITZ BENSON TORRES LLP By: /S/ David E. Ross David E. Ross Sarmad M. Khojasteh 1633 Broadway New York, New York Tel.: ( Fax: ( Attorneys for Plaintiffs of 20