Case 17-00016 Doc 7 Filed 02/28/17 Page 1 of 11 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MARYLAND (Greenbelt Division) In re Case No. 14-26159 WIL SO. MARYLAND TRANSMISIONS, LLC Chapter 7 Debtor. JANET M. NESSE, TRUSTEE Plaintiff vs. AMERICAN DRIVELINE CENTERS, INC. 201 Gibraltar Rd. Horsham, PA 19044 Serve Registered Agent Adversary Proceeding No. 17-00016 National Corporate Research, Ltd. Second Floor 836 Park Avenue Baltimore, MD 21201 Also Serve Maryland Department of Assessments and Taxation 301 W. Preston St. Baltimore, MD 21201 Also Serve Brett Ponton, CEO 201 Gibraltar Rd. Horsham, PA 19044 and AAMCO TRANSMISSIONS, INC. 201 Gibraltar Rd. Horsham, PA 19044 Serve
Case 17-00016 Doc 7 Filed 02/28/17 Page 2 of 11 Maryland Department of Assessments and Taxation 301 W. Preston St. Baltimore, MD 21201 Also Serve Brett Ponton, CEO 201 Gibraltar Rd. Horsham, PA 19044 and WASHINGTON, DC AAMCO DEALERS ADVERTISING POOL c/o Aamco Transmissions, Inc. 201 Gibralter Rd., Suite 150 Horsham, PA 19044 Also Serve Mike Ganjei, President National Aamco Dealers Association 7316 Wisconsin Ave., Suite 420 Bethesda, MD 20814 Defendants. FIRST AMENDED COMPLAINT TO AVOID AND RECOVER FRAUDULENT CONVEYANCE COMES NOW Janet M. Nesse, trustee ( Trustee ) of the Chapter 7 bankruptcy estate of So. Maryland Transmissions, LLC ( Debtor or So. Maryland ), by and through counsel McNamee Hosea, and states her First Amended Complaint to Avoid and Recover Fraudulent Conveyance, as follows JURISDICTION AND VENUE 1. This adversary case arises out of a bankruptcy proceeding initiated by the Debtor on, October 20, 2016. 2
Case 17-00016 Doc 7 Filed 02/28/17 Page 3 of 11 2. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334. 3. The Trustee consents to entry of final orders or judgment by the Bankruptcy Court. 4. Venue is proper in this district pursuant to 28 U.S.C. 1409. PARTIES 5. Plaintiff Janet M. Nesse is the Chapter 7 Trustee of the bankruptcy estate of the Debtor, So. Maryland Transmissions, LLC. 6. The Debtor filed a petition for relief under Chapter 11 of the United States Bankruptcy Code on November 20, 2014. The case was converted to a Chapter 7 case on May 14, 2014. 7. Defendant Aamco Transmission, Inc. ( Aamco ) is a Pennsylvania Corporation, which does business throughout the State of Maryland without authorization from the State. 8. Defendant American Driveline Centers, Inc. ( ADC ) is the parent company of Aamco. ADC is a Pennsylvania Corporation, whose authority to do business in Maryland was terminated on November 15, 2012. 9. Defendant Washington, DC Aamco Dealers Advertising Pool ( Ad Pool ) is an unincorporated association organized by Aamco and the National Aamco Dealers Association for the purpose of collecting advertising contributions from Aamco franchisees and expending those funds on local advertising. FACTS 10. Robert Jones is the managing member of So. Maryland Transmissions, LLC. 3
Case 17-00016 Doc 7 Filed 02/28/17 Page 4 of 11 11. Aamco and ADC are franchisors, who contract with franchisees to operate businesses engaged in the repair of automobile transmissions and general automobile repair. 12. On September 14, 2012, Mr. Jones (entered into a franchise agreement ( Franchise Agreement ) with Aamco, pursuant to which Mr. Jones was entitled to operate an Aamco transmission repair center in Fort Washington, Maryland. A copy of the Franchise Agreement is attached hereto as Exhibit A. 13. The Franchise Agreement provided for payment of an initial license fee ( License Fee ) in the amount of $39,000.00, with an acknowledgement by AAMCO of receipt of a deposit of $20,000.00 to be applied to the License Fee. The Franchise Agreement further provided that the balance of the License Fee was due at the start of AAMCO s operator training school. 14. In conjunction with the Franchise Agreement, Mr. Jones and So. Maryland, denoted collectively Buyer and ADC denoted Seller entered into an Asset Purchase Agreement, dated August 23, 2012. 15. The Asset Purchase Agreement was signed by Mr. Jones individually and by Mr. Jones on behalf of So. Maryland Transmissions, LLC. A copy of the Asset Purchase Agreement is attached hereto as Exhibit B. 16. Under the terms of the Asset Purchase Agreement, ADC sold certain equipment, machinery and other assets ( Assets ) to Mr. Jones and So. Maryland for a purchase price of $325,000.00 ( Purchase Price ). 17. The Asset Purchase Agreement states that the Assets may be used and that the Assets would be delivered to the Buyer with only ordinary wear and tear. 18. It was later determined that the total value of the personal property transferred by Aamco was less than $10,000.00. 4
Case 17-00016 Doc 7 Filed 02/28/17 Page 5 of 11 19. As stated in the Asset Purchase Agreement, the Purchase Price was to be paid as follows a) One payment of $25,000.00 to be paid at signing of the Asset Purchase Agreement; b) One payment of $112,750.00 to be paid via wire transfer by the closing date, September 26, 2012; c) A secured promissory note for $137,750.00; and d) A second note in the amount of $49,500.00 (these promissory notes are, collectively, the Purchase Notes ). The Purchase Notes bore interest at the rate of 10% per annum. 20. Mr. Jones and So. Maryland made both the $25,000.00 payment and the $112,750.00 payments to ADC. 21. A Promissory Note ( 49,000.00 Note ), dated September 26, 2012, states that Robert Jones and So. Maryland Transmissions, LLC (hereinafter collectively Borrower, ) agreed to pay the principal sum of $49,000.00 to ADC, designated as the Holder. 22. The $49,000.00 Note was signed by Robert Jones, individually and by So. Maryland Transmissions, LLC, by Robert Jones, President. A copy of the $49,000.00 Note is attached as Exhibit C. 23. To secure their performance under the $49,000.00 Note, Robert Jones, Individually and So. Maryland Transmissions, LLC by Robert Jones, President, executed a Security Agreement ( $49,000.00 Security Agreement ) granting a secured interest in collateral (Assets) to ADC, the Secured Party. In the $49,000.00 Security Agreement, Mr. Jones and So. Maryland are the Debtor. A copy of the $49,000.00 Security Agreement is attached as Exhibit D. 24. A second Promissory Note ( $137,750.00 Note ), also dated September 26, 2012, states that Robert Jones and So. Maryland Transmissions, LLC (hereinafter collectively 5
Case 17-00016 Doc 7 Filed 02/28/17 Page 6 of 11 Borrower, ) agreed to pay the principal sum of $137,750.00 to ADC, designated as the Holder. 25. The $137,750.00 Note, was signed by Robert Jones, individually and by So. Maryland Transmissions, LLC, by Robert Jones, President. A copy of the $137,750.00 Note is attached as Exhibit E. 26. To secure their performance under the $137,750.00 Note, Robert Jones, Individually and So. Maryland Transmissions, LLC by Robert Jones, President, executed a Security Agreement ( $137,750.00 Security Agreement ). In the $137,750.00 Security Agreement, Mr. Jones and So. Maryland are the Debtor. A copy of the $137,750.00 Security Agreement is attached as Exhibit F. In addition, Mr. Jones was required to execute a third note, dated September 14, 2012, pursuant to which he agreed to pay $68,120.00 to the Washington, DC AAMCO Dealers Advertising Pool ( Ad Pool ) in 104 monthly installments of $655.00 ( Ad Pool Note ). A copy of the Ad Pool Note is attached as Exhibit F.. 27. Although not disclosed in the Franchise Agreement or the Asset Purchase Agreement, the addition of the Ad Pool Note raised the purchase price from the stated $325,000.00 to $393,120.00. 28. The Franchise Agreement also were royalty payments in the amount of 7.5 % of gross annual sales. See Franchise Agreement, 10. 29. In 2014, the Debtor and So. Maryland were unable to make required payments to the Ad Pool. 30. On August 29, 2014, Mr. Jones and So. Maryland were notified by Aamco that the balance owed to the Ad Pool of $36,000 was unacceptable and that the Franchise 6
Case 17-00016 Doc 7 Filed 02/28/17 Page 7 of 11 Agreement continues to remain in jeopardy. See email from William B. Jameson attached hereto as Exhibit F. 31. On October 9, 2014, Aamco sent a Notice of Default, which itemized the amounts owed to Aamco and the Ad Pool. Those amounts included a Note balance in the amount of $15,559.79 and a delinquency to the Ad Pool in the amount of $38,220.00, as well as a telephone charge of $2.82 and a FOCUS charge of $763.15. A copy of the Notice of Default is attached as Exhibit G. 32. No explanation was provided as to the amount of the Ad Pool delinquency, which far exceeded the amount of payments that had become due under the Ad Pool Note. 33. All efforts to negotiate a compromise were unsuccessful due to Aamco conditioning any agreement on a substantial unsupported payment toward the Ad Pool balance. 34. Aamco then terminated the Franchise Agreement and retained all amounts paid by Mr. Jones and So. Maryland, while maintaining that the Franchisors would sue for the Ad Pool balance and future payments under the Purchase Notes. 35. Prior to the purchase of the Aamco franchise, Mr. Jones was employed as a commercial pilot and had no experience in business operations or commercial automobile repairs. 36. The Franchise Agreement included a requirement that the Franchisee attend and complete Aamco s operator s training school (now called Aamco University ) and pay a $10,000.00 GOOD Program training fee. 37. A provision in the Asset Purchase Agreement pertaining to the full credit of the $10,000.00 AAMCO GOOD Program fee does not explain what a full credit means in connection with the Purchase Price paid by Mr. Jones and the Debtor. 7
Case 17-00016 Doc 7 Filed 02/28/17 Page 8 of 11 38. A substantial portion of the training offered was devoted to training the students to make their Ad Pool payments. 39. Aamco never informed the Mr. Jones or So. Maryland about the notoriously high failure rate for Aamco franchises. 40. Aamco also failed to notify the Mr. Jones or So. Maryland of the innumerable consumer complaints regarding to the quality of Aamco products and services. 41. The Franchise Application submitted to Aamco by Mr. Jones showed total assets of $835,000.00, with total liabilities of $815,000.00. A copy of the Franchise Application ( Application ) is attached as Exhibit H. 42. Prior to the purchase, Aamco compiled a Dealer Profile of Mr. Jones and seven other potential franchisees. The dealer profile shows credit scores, case, securities, retirement accounts and net worth for each individual. Of the eight profiled, Mr. Jones net worth was the lowest, at $20,000.00, with the next lowest at $330,000.00. 43. Although neither Mr. Jones nor So. Maryland were qualified to purchase an Aamco franchise or to succeed in operating the franchise, Aamco approved the Franchise Application and proceeded to take payments from Mr. Jones and So. Maryland, including the initial payments, payments to the Ad Pool, royalty payments and monthly payments on the various notes. 44. Although neither Mr. Jones nor So. Maryland were qualified to purchase an Aamco franchise or to succeed in operating the franchise, Aamco accepted the various Notes, knowing that Mr. Jones and So. Maryland would not be able to make the payments as they became due. 8
Case 17-00016 Doc 7 Filed 02/28/17 Page 9 of 11 45. In return, for their various payments to Aamco, Mr. Jones and So. Maryland received nothing of value. 46. As a result, Aamco was able to retain all payments made by Mr. Jones and So. Maryland, Mr. Jones and So. Maryland were left with substantial debt, no business, no funds and no property. COUNT I Fraudulent Transfer, 11 U.S.C. 548(a)(1)(B) 47. The Trustee realleges and incorporates paragraphs 1-46 as if fully stated herein. 48. The payments made to Aamco constituted a transfer of the Debtor s property 49. The indebtedness incurred by the Debtor constitutes a transfer of the Debtor s interest in property (the payments made and the indebtedness incurred are collectively, the Transfers. ). Transfers. 50. The Debtor received less than a reasonably equivalent value in exchange for the 51. The Debtor was insolvent on the date the Transfers were made or became insolvent as a result of the Transfers. 52. The Debtor intended to incur debts, including further payments to Aamco, that would be beyond its ability to pay as such debts matured. 53. The Trustee may avoid the Transfers pursuant to 11 U.S.C. 548. COUNT III Fraudulent Conveyance, Md. Code Ann. Com. Law 15-204 54. The Trustee realleges and incorporates paragraphs 1-53 as if fully stated herein. 55. All payments made by the Debtor and indebtedness incurred by the Debtor to Aamco and the Ad Pool constitute a conveyance of the Debtor s property ( Conveyance ). 9
Case 17-00016 Doc 7 Filed 02/28/17 Page 10 of 11 56. The Debtor was insolvent on the date of the Conveyances or became insolvent as a result of the Conveyances.. 57. The Debtor received no valuable consideration for the Conveyances. 58. The Conveyances are fraudulent as to the creditors of the Debtor pursuant to Md. Code Ann. Com. Law 15-204, and should be set aside pursuant to Md. Code Ann. Com. Law 15-209. COUNT III Fraudulent Inducement 59. The Trustee realleges and incorporates paragraphs 1-58 as if fully stated herein. 60. The Franchise Application submitted by the Debtor and Mr. Jones clearly showed that the applicants had no liquid assets other than cash in an amount sufficient to make the initial payments required by the Franchise Agreement. 61. Because of its years of experience in the business, Aamco know or should have known that an inexperienced franchisee, with no assets other than funds for his initial payments, would not be able to succeed. 62. Aamco approved the Application in order to induce the Debtor and Mr. Jones to execute the Franchise Agreement and accompanying contracts. 63. Aamco approved the Application in order to induce the Debtor and Mr. Jones into making the initial and subsequent payments, knowing that the rapidly accumulating Ad Pool fees would prevent the Debtor from succeeding. 64. The Debtor and Mr. Jones made all payments to Aamco in reliance on the representations of Aamco. 65. When it approved the Application, Aamco knew that the franchise would fail and that it would be able to keep all funds obtained from the franchisees without having to provide 10
Case 17-00016 Doc 7 Filed 02/28/17 Page 11 of 11 anything to the Debtor other than sporadic training, for which the Debtor was also required to pay. PRAYER FOR RELIEF WHEREFORE, the Trustee respectfully requests a. That the Court enter judgment in the amount of all funds paid to Aamco, ADC and the Ad Pool, against the Defendants and in favor of the Trustee, avoiding the Transfers and directing the Defendants to turn over the amount of the judgment to the Trustee; b. That the Court enter judgment in favor of the Trustee and against Defendants for fraud and award compensatory damages in an amount to be determined at trial; and c. Such other and further relief as is just and proper.dated February 28, 2017 Respectfully submitted, /s/ Janet M. Nesse Janet M. Nesse, Bar No. 07804 McNamee Hosea 6411 Ivy Lane, Suite 200 Greenbelt, MD 20770 (301) 441-2420 jnesse@mhlawyers.com Counsel for the Chapter 7 Trustee 11