Amended 2255 Motion 5-8

/ ....
,
'",
NO.
CCNNIE C. ~~STRONG, § IN THE DISTRICT COURT

:~dividual~v, and §
~n the Riqhc Of ~PPJVl~, S
r~c" and PJL~ILTON-TAf~ & §
CC~ANY, §
~~=cugh a~ Lease Febr~ary 9, § U.s. v ARMSTRONG
CR94-0276 _ CAL ' FOWLES
1989, as Q 5hareholde~ in §
y-~ P HA.RJ.4_~ , 1: ~lC . , §
§
GOVERNMENT EXHIBIT 161
?laint::fs, §
§
v. §
§
~_~_XP?-AR..I..(_~, INC.; l-iA:~!:..r8N-7MT §
& C~~ANY; CHRISTIANA §
E~IERGYC8RPORATION; :r! S ION I §
elC. iKEYSTONE F INANC :.;L S JUDICIAL DISTRICT
C:RPORATIONi CR ACCU:SIT:ONS, §
L~C.; LAwRENCE 8" C:S~~LLai §
C. ~AYNE Lr~C~FIELD; ?£G~Y f. §
CA:T£1L; TI~OTHY w. =EL~; §
~C~JLv~Q A. F~DrD; CR. ?5. §
~~~SAD; and JOHN H. ~CeERTS, JR.; §
e~c~ respec~~vely CCt~ §
i~=ividual!y and as §
S~~==hclde=s of ~~~?~~~~, §
:~:C., ana ce:.-ivac':'":el.y therefrom S
~~c as d result of :~2 cant=ol S
~~=~=ot, c~nc=~ll~~~ :harehalders §
~: ~~~!:~ON-TAFT & C:., chr~ugn §
dC, lease Febr"..lary 9, :989 §
S
Defendants. § DA.L.:.-;S COUNTY, TEXAS -
PLAINTIFFS' ORIGINAL PETITION, APPLICATION FOR

T~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST
~c T~£ HONORABLE JUCGZ OF SAID COURT:
COM.ES NOW, CCNN r E C. ARMSTRONG ( .. A.R-'!STRONG - ), Indi v iduall y
and in che =ight. ;::E ~.AXPH...~R.!-'..A, INC. and HAMILTON-TAFT & CO.
I
t.;;==u.gh at. leas~ :ebruary 9, 1989, and as Shareholder of

T~~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PE~~ENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST Page 1
~!AXPHAR~, INC;. , ?laint.iff ("ARMSTRONG"), and for Original
Pet.~tion, Application for Temporarj Res~raining Order, Ex Par~e,
Applicat:ion for Temporary and Permanent. rnjunct.ion, and
Applicat.ion for ImposiT:ion of Const:=uc~ive Trust., respeccfully
shc~s the Cour~ in suppor~ t.hereof as follows:
I .
PARTIes
1. ?laint.:'::, ,A.R..~STRCUG, is an indi'/idual and shareholder
cr >!..;X;:i.A.R.'-!A, INC., residing in Dallas C:Junt:y, Texas.
2. DeEendant, LAWRENCE B. COSTELLO ("COSTELLO") t is an
indivicual resid:ng in Da~las Caunt.y, Texas, and is current.ly the
President. of ~~XP~~~~~, INC. COSTE~~O may be served wit.h pr~cess
her e i:l by s e !:"v in g h i 1T1 at his p r inc i ? a 1 ? 1 ace a f bus in e s s 10 cat 2 d
dt. 200 C=escent Ccu=~, Suite 1300, Dallas, Texas 75201.
:: 2 : -2 n c: a. r. ': , C. ~'\j' AY~ IE L : T c: :::: :: =: :. J ( .. LITCHF ! :: L => " ), :.. 5 an
l.:-,,::':".":';:uc2. :-esid':'~.g ~:1 Oklahcrna City, Ckl.ahcma, and is c:l===ntly

d ·::':'=ec,;;::- 2r :!..AX?:t.ARl'A..A, INC., and a member of it.s Board of
LITC~:~£LD may be ser'.red ;..rith process herein by
ser:ir.g him dt: his ~rincipal place of business, located dt: 200
C=e5cen~ Courc, Suite 1300, ~allas, Texas 75201.
Detendan~, :OHN ROBER.7:S, JR. ("ROBERTS"), is an
irlcivicual residing ':'n Dallas County, ':'exas, wit.h his principal
~lcce of business in Dallas, Dallas County, Texas. ROBERTS may

be ~e~Jed with process dt his princi~al place of business at 200
,
PLAINTIFPS' ORIGINAL PETITION, APPLICATION FOR
TEMPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
C.=escen':. Cour~1 Sui~e 13i'5 1 Dallas, Dallas Count.y, Texas 75201,
<0= d~ his =esidence at: 3737 Pot.omac, Dallas, Dallas Count.y,
T2xas 75205>.
5. Defendant, ~OH~\f.ED A. HADrD ("HADIO·), at. a.ll t.imes
mat.e!"ial herei.n, has engaged in business in the Stat.e of Texas,
as ~cre par~icularly described below. HAOID does nat. maint.ain a
~eqular place of business or residence in the Stat.e of Texas, and
has :;'0 deSl';:1dt.ed agent: on ...... hom service of cit.at.ion may be made
1:1 -:!".i s cause. !'I_""DID is not. a =esident. of the Stat.e of Texas.
T~e causes of ac-::cn asser~ad herein arose from or are connect.ed
',.;i:.:: ?u~~osei!Jl ac:.£ ccmmi:.:.ed by HADID in Texas because P..ADID
en:.e=ed int.:J a t=r::missory ~ot.e while in Callas, Dallas Ccunt.y,
Texas I and ~:-'d':. note is now due and payable in Dallas, Da.llas
C:::":':-'.:.y, ':'=x~s. ~D:Q'S breach of his dut.y to ~ay the p=omissory
::: ':.= ·.... ne['. c.:..:.e :::-::;s d ::::a=:. 0f the ::a5 is c = :.he causes c:: act. ien
:n addition, P-ADID is a
Fe=::.::n '",ho ::as (d) facili.cated che acquisit.ion ty ROEER.TS of
C:::-'.:'=:Jl over JR. ?S. PRASAD, (b) through effecr.uat.ion of
mc='i.:~c=.tions co the lending agreement.s bet.·",een DR. P.S. EJRASAD
a:1c- :.ne Nat.ional Sank of ~ashing-r.:Jn, as ;.Jell as having received
=-=-:.~.!:::'CN-TAf:' & c.:. C8NCENTRATION n.CCOUNT ,UNDS as a =esu I t o E
:-.':'5 .::::nt.i:1ui:-.g inter-est. in ~A..AXPP..A.R..\(.A. Acc~rdingly, ~ID may be
C':':'E:S by s.;!!:":i.ng t.he Secrec.,ary of Stat.e of Texas provi.ded t.ha.t.

kPPLlCATION FOR IMPOSITION OP CONSTRUCTIVE TROST Page 3
t.r.e cication anQ !?et.ic.ion dre for..;arded too HADIO'S home office
addres s at 1300 N. 17th Streec, Suite 1100, Rosslyn, Virginia
6. Defendant., DR. P. S. PRASAD ( .. PRASAD" ) J was a t a l l cimes
material hereto and is believed t.o cur:=ent:ly be a member of the
Beard. of Direccors of ~.AXPHARMA and, at all times material
here in / has engaged in bus iness in Dallas County, Texas / as more
par~ic~larly desc=~bed below. PRASAD does not. mainr.ain a place
of =egular business ~n Texas and has no agent. on whom service of

cic.ation :nay be made in chis cause. The causes of aC't.ion
dsser~ed herein arese from or dre connect:ed with c.he purposeful·
dC~S comrnit~ed by PRASAD in Texas because (a) he has facilitaced
through his original conduct in assist-ing ROBERTS ~o acquire
~~~p~~~~~ as a cor?orac.e shell through ~hich t.o acquire ~~~ILTON-
:'.~_::' =.r.c' ::-.erea::er dissipace the asset.s of fV.}!ILTON-T.~fT/ ant
(t: \ t~E subsequenr. :ailure ':.0 exerc:'se in good fait.h and ·.... l:.~ due
di':"':"gence c.he fiducia.ry duc.ies of a direct-or and con't.rolling
shareholder of ~?H..A.RJ-f.A, as more fully descr.:.bed below is che
basis of Plaintiff's cause of action. According 1 Y , De f e ndan t.
PR.ASAD, may be cited by serving t.he Secret:ary of State of Texas
~=:::'lided that. the ci~at:ion and pet.i:.ion are forwarded co PRASAD' 5
p=:. .... ci.;;al place of business, KEYSTONE FINANCIAL CORPORATION,
400 (Jest. Fifch Street., Greenville, Nort.h Carolina 27834, by
ce~~ified mail, return receipt. requesr.ed.

,
POR TEMPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TROST Page 4
7. Defenda.nt:, PEGGY f. CATTELL ("CATTELL"}, is an
indi v idual res iding in Dallas Count:y I Texas I a.nd may be served
wit:h cit.at.ion a.t. her principal place of business, 200 Crescent:
Cour~, Suit.e 1375, Dallas, Dallas County, Texas iSlOt.
8. Defendant, MAXFHARMA, INC. {"MAXPHARMA"}, is a
ccr;o=at.icn duly fo~ed and existing under t.he laws of t.he Stace
of Tennessee and duly au'thorized t:o t=ansact business in t.he
Stat.e of ':'axas, and . may be served '''/it.h cit.at:ic:l by serring it.s
regi.s~c:!:'ed aqent:, i:..,.;WRENCE 3. COST::UO, at 200 Crescenc Cour1:,
Suit.e :300, Jallas, Dallas Count.y, Texas 75201.
9, Deiendant., HA.."1IL:'ON-TAFT & CO}!FANY ("H.A..'1ILTON-TAFT"),
i.s d c:::-::orat.ion duly for:ned and exist:.inq under ehe ~aws of t.he
Stat.e at Calif:rnla. HA~ILTON-TAFT, at: 0.1:" t.imes mdt-erial
he=e!..;., has engaged in business in Texas and l':as no des ic;nat:ed
~;e~~ ~~ :~e Scace cf Texas an whcm service Cl:at.lon may be made
::use. The causes of acr.ion assert:ed herei:1 a<;alns't
~:'''':·::::':~i-:.;.r!, arose from or are ccnnecr:ed ·,..rith t=urposei:Jl acts
c ~;n~.:. ~ ~ ad =y HAMI LTON -TAFT in Texa s becd us e :-tAXP HARMA and
fJ_~~! :':CN-:'AFT engaged in loan t.ransact:ion, through nominees, the
e:e!'::: =::lance wi 'th res pec t: 'Co which ·,..,as due, in part:, in Texas;
ar.c. :·..1r~her, because P..A..'1IL:'ON-TA.FT permit.:.ed lese1 f t.::l be, and
~as, ~::~ized by ROBERTS and COSTELLO as a vehicle for f~nding of
i:1s.:.':e= ~~ans may be cit-ed by serving che Secret.ary of State of
,
Tf~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
, •• w ......--
Texas prav ided cha e the c i ca. cion and peei tion are fa rvarded to
HA."!ILTON-TAFT'S regiseered agen-c in the State of California,
Albert: L. ~~ay, 567 Golden Ga'Ce Avenue, San Franc isca, Cali farnia
9~102, by cerr.ified mail, return receip-c requesr.ed.
10. Defendanc, VISION, INC. ("VISrON") is a corporation
duly fo~ed and existing under the laws of che State of Delaware.
VISION has cbtained a Cert.~ficate or Au~hority fram the Secretary
c: State c: Texas, is duly aur.horized to t~ansact business in the
5cace cf ~exas, and may be served with citat.ion in this action by
se~:ice or ciCct:on upon its regis-cered agent, PEGGY F. CATTEL~,
at its ~eg:stered office, 200 Crescent Cour~, Suite 1JiS, Dallas,
Callas County, Texas 75201,
11. Defendanc, CHRISTIANA ENERGY CORPORATION

i ··::::~ISTL;JIA.··), is a carpor-acion duly for:ned and existi!19 under
:'.-.2 ~a .... s : f. che Stat.e of Delaware. CHRISTIANA, at all ci.mes
:ne:.e~ial ::e.:-ein, has engaged in busir.ess in Texas, as more
::a=-::cu!.a=~y desc=ibed below. CHRISTIANA does not. maint.ain a

~~ace of =egular business in Texas and has no designa~ed agenc in
r::.e 5 ta 1:e a E Texas on whom serv ice 0 f c i ca cion may be made in
:::':'s cause. Despite the fact: thac it. was noc licensed t.o do
=~s':'r.ess in t.he Stat.e of Texas, CHRISTIANA execuced and delivered
a ;::romissory not.a in Dallas, Dallas Count.y, Texas, payable in
Ca~las, Dallas Count.y, Texas. That. noce is t.he crux of the

TEKPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PERMANeNT INJUNCTION, AND
APPLICATION FOR IMPOSITION OP CONSTRUCTIVE TROST Page 6
causes of action ass~~ed herein againsc CHRISTIANA. The causes
of act.ion asserted arose from or are connecced with pu~oseful
ac -: s c =mrni -: t.ed by CHRIST!ANA in Texas cecause CHRI STIANA is a
nominee for ROBERTS, and is a corporat.e encity. cont.rolled by
RCEERTS through which HAMILTON-TAFT CONCENTRATION ACCOUNT FUNDS
have ceen dist.ributed to indivicuals or enc~cies affiliat.ed with
RC:C::~TS. Accordingly, CERISTIANA :nay be c':t.ed by ser-Jing the
Sec:-etar'l cf State of Texas prcvided ,,-::at the cieat.ion and
pec::':'on are fo:r....arded t.o CHRISTIAl~AtS regist.ered agent. in t.he
S:.a:.e of Delaware, The Incorpcrators, Ltd., Coffee Run
?=c:essional Cent.re, Lancast.er Pike & Loveville, R.D., Hockessin,
Ce~=~are 19i07, by cert.ified mail, ret~rn receipt request.ea.

: 2. Ce rendant., KEYSTCNE FINANC:.u CORPORATION ("KEYSTONE ~) ,
~= :. fo!:ei~:1 corporation, t.he st.ate c: fcr:nat:ion and exist:ence of
'''/:-.:'=:-. i.s ;resently unkncwn t.o Plai:1t.i.ff, although a. principal
~~:== ~c =~siness is known and is d~~cged hereinbelo~. KEYSTONE I
a: ~:'1 :.i..'Tles rna 'ter ial herein, has ango:iged :':1. bus iness in Texas,
as ~cre par~icularly de5cri~ed belew. KEYSTCNE does nee maineain
a ;:dce of requla~ business in Texas and has no designaced agent

:~ :~e Stat.e of Texas on whom service of citat:ion may be made in
..... _:: cause. The causes of acticn asserted arose f=om or are
c:::-.:-.ected ;..rith purposeful aces ccmmitt:ed by KEYSTONE in Texas
cec~use KEYSTONE is t.he nominee shareholder of record for shares
C·..Ii.ec by PRASAD and MAXPi'iA.R}(.A. Accordingly I KEYSTONE may be

I
PLAINTIFFS' ORIGINAL PETITION, APPLICATION POR

TE~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
._-._-- ..
". '
-._-----
cited =y serving the ~ Secret.ary of State of Texas provided that
the ci:.at.ion and petition a.re forwarded to KEYSTONE'S principa.l
place of business, 400 West fifth St:-eet, Greenville, Nort:h
Caroli~a 27834, by cer~ified mail, ~eturn =eceipt requested.
lJ. Defendant, TIMOTHY w. BELL ("8ELL~), is an individual
resid:~g in Plano, Collin Count.y, Texas. SELL does not maintain

a place af regular business in Texas anc. has no agent on whom
serlics of citation 'may be made i.n :his cause. The causes 0 f
ac:.:on asser~ed arose from cr are connec:.ed with purposeful acts
c::m..rni ~ :ed by BELL in Texas because (a) he is a twenty percent
( 2 a ~) shareholder I wi th adci t iana 1 options I in CR ACQU~SrT! ONS,
INC., the current ccntroll:":lg shareholce.:- of HAMILTON-TAFT, and
(b) is one Q f t.he present. princi.;:a.l sources of financing for
~C=::R.TS and j accordingly, may have access to the shares of
Acco~dinglYI Defendanc, cELL, ~ay be cited by serling

:.:-:e St:c=etary of State of -:'exas provi:ied ~hat the cit.at.i::n and
pe':.':'~:":Jn are forwarded to BELL'S pr1.nci?al place of business, 133
C=escent Avenue, Spo~swood, New Jersey 08884, by cer~ified mail,
retu=n receipt reques~ed.
lot. De fendant I CR ACQUISITIONS, rNC. ("CR ACQUISITIONS") I
is d ccmpany duly fo~ed No~ember 9, 1988, and existing under the
laws at the State of Texas ~ith its principal place of business

in Dallas, Dallas Count.y, Texas, and may be served with citation

TE..1o£PORARY RESTRAINING ORDER, EX PART!, APPLICATION
FOR TE.HFORARY AND PER.M.ANENT INJUNCTION, AND
in ~his ac~ion by service of cication upon its registered agent,
PE~·{ f. CATTELL, at its registered office! 200 Crescent: Court:,
SUi~2 1375, Dallas, Dallas County, Texas 75201.

CASE OVERVIEW
~S. This case concerns the claims by a shareholder,
indi'Jidually and derivatively, against. of:icers, direct.ors and
cant.=olling persons I.Iho have engaged in conduct constit.ut.ing
tet.al abandonmenc and" disregard of :iduciar/ duties, to init.ially
"' 1.00 t " t.r.e as 5 et.s 0 f. t.he who 11 y-owned corpora toe subs idiary which
consr.:"t.ut.es the primary asset. of t.he publicly traded parent:
ccmpany of which Plaint.iff is a shareholder and, most. recently,
di'/est. t.hat corporate subsidia.ry ·..Jic~out. shareholder a~9r=val and
in sucj a fashion as co const.it.ut.e an abdication and violation of
fi.c·~=:.a_f dut.ies awed ~o t.he minoricy shareholders of 7:he parent
put::=~y held and traded ccrpora~ion.
:5. Derendant ROBERTS, th=cugh nominees and cC:J.t.=:lllea
inc':":lduals or affiliat.es, obtained coneral of ~..A.XPHA.R."'!.A, a

pul:':"':"cly held corporat.ion, through a series of transac~':'ons in
whic~ ROBERTS arranged for HADID, an individual with whom he had
busi.:less dealings, to assist. :.he majority shareholder of
M..a..x:::_a..R..'o(_~ ("PRASAD") with =:egard t.o refinancing the indebt.2dness
of ::~SAD associated with ~he initial acquisit.ion by PR.A.SAD of
his int.erest in ZWf~XPHARMA, in exchange for which financial
,
TI:MPORARY RESTRAINING ORDER, ex PARTE, APPLICATION
as sis t:ance ROBERTS acqu i red de f aCl:O vat. ing and dis position
right.s of the majority int.ereses derivative from his control of
t.he entit.ies and individuals involved.
17. At. or abou t. the t.ime 0 f -=.he acquis i tion by ROBERTS of
con't=ol of MAXPHARMA, ROBERTS was also at:t.emptinq to ef fect.uat.e
the acquisit.ion of HAMILTON-TAFT, a "cash rich" payroll services
company which had theret.ofore been owned by CIGNA Insurance
Ccmpany but. as to which CIGNA was seeking a purchaser, as CIGNA

was divesi:ing itself of non-insurance rei-at.ed asset:s during a
pe!'iod when CIGNA. had sust.aineci subst.antial losses in the
pr=~ert:y and casualty insu=ance businesses.

18. COSTELLO arranged Ear a i:=ansac'tion wherein cash asset.s
of HAMILTON-TAFT lJould be used in a "reverse repossession"
financing arrangernen't whereby said cash assets t.hemselves serJed

as ~he means by which ~~XPHAR~A, as a con'tralled entity of
RCc£R.TS I could purchase :tA.'1ILTON-TAFT ut.ilizing the asset.s of
HA."!IL70N-TAFT. In this t:=ansact.ion, the cash of HAMILTON-TAFT
was transferred t.o an investment. banking firm, which in turn
p u ~c ha s ed treasury s ecur i 1: ie 5 wh ic h we re t.hen he Id by the
invest.ment. banking firm ·,..rith rights of repossession t.hereon
sueject to t.he fait.hful performance by ~PHARMA and fLa..MILTON-
TAFT of debt. satisfact.ion wit.h :-egard co manies paid by the
invest.ment. banking firm to CIGNA in sat:isfac'tion for t.he purchase
ot P~~ILTON-TAFT by MAXP~~.
I

rOR T~ORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OP CONSTRUCTIVE TROST Page 10
19. Once ROBERTS' had acquired MAXPHARMA, and in t.urn
ar.::anged for the acquisition by :-L\XPHARl"..A of HAHILTON-TAFT,
ROSER~S then proceeded to remove the existing Board of Oirec~ors
for each company and replace them with COSTELLO and LITCHFIELD.
20. f{A..\!ILTON-TAFT is a payroll s erv ices company whic h
receives tax withholdings from cust:cmer ciient.s, retains t.hose
funds in account.s for subsequent ~a.yment, is entitled co ea.rn
interest on ~hose funds, and ultimately prepares returns and pays
taxes, in exc~ange for which fWiIL7CN-TAFT agrees to ce 11ab ie
for any penalties which may resul-c with respec't to imprc;:er

filing. 1:1 'Chis respect, 1-!&.'1ILTON-TAFT is one of the naeien 's
largest companies. Prior co the acquisition of cont.=ol of
HAMILTCN-TAFT by R08ERTS, f~ILTON-TAfT had no~ ut.ilized cust.cmer

acc=unt tunas for any purpose ot.he~ ~han ac~iring secure assets
(SUC:1 as government bones or t=easurj not.es) which c:;ul::' be
redai~y =edeemed for purposes of mee~~~q clien~ tax obligat:=r.s.

21. After the acquisit.ion 0: control of MAXPKAR.'1A and
P.&"!ILTCN-TAfT by ROBERTS, during 1988 approximat.ely S14 :nil.!.ion
in funds were caused ~o be removed from client. acccunt.s of
HA..'1IL:'ON-TAET and dist.ribut.ed in the for:n at loans to ~.AX?~.AR."!A
or di=ect.ly to a.ffiliat.ed en~it!.es wit.h which R08ERTS did
busi~ess, all for t.he benefit of the interests of ROBERTS and all
contra~1 to the in~erest.s of ~he shareholders of MAXP~~.
PLAlNTIPPS' ORIGINAL PETITION, APPLICATION POR

TEMPORARY RESTRAINING ORDER, ex PARTE, APPLICATION
FOR TnO?ORARY AND PERMAlfENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OP CONSTRUCTI~ TROST Page 11
¢sa
22. As a consequence of the "lao-cing" of HAMILTON-rUT at
the direc~ion of ROBERTS, HAMILTON-TAFT was placed in jeopardy of
being unable co meet. it.s obligations. As a result. of this
j eOFardy, 1-'..A.XPH.A.RJof..A was required t:) at tempe some means by whic h
t.c obtain funds to assure accom~lishmenc. of thac. shor~-t:erm
purpose. ROBERTS engaged the serJices of a goad friend and San
Ant::nio act:crney, Stanley D. Rosencerg (ROSENBERG), to ob'Cain a
loan in a face value of 5625,000.00, as to which approxirnat.ely
5:00,000.00 ·,..,as actually ext.ended {"FIRST ROSENBERG NOTE"}. This
loa n was use d tom e e t s h 0 r t - t e rID obI i gat ion S 0 f ~x P HAR.."!A
cerivative from the inability or ir.s wholly-owned subsidiary,
HA~rLTON-TAFT, to fulfill it.s cbligat.ions. As part a f. this
t:-ansact.ion, ROBERTS caused one hundred percent: (100\) of the
sha~e5 of ~~~ILTON-TAFT to be pledged as collateral on :~e FIRST

:1.0SENEERG NOTE. No shareholder cE=proval rias obtained for this
23. In Sept:emcer I 1988, for the purpose of crea~ing the
appearance of a good faich effort. co eniarce ics ri<;hts wit.h
respect to loans which had bee~ made, MAXPHARMA iniciat.ed suit in
Dallas County, Texas, styled !-!axcnarma, Inc. v. Vislcn, Inc. I
C!'-.::-:'stiana Enerov Cor~orat.icn, :-toha..'1led A. Hadid, an fr.ci'.ridual,
and John H. Robert:s, Jr. r an I ndi'l idual [the .. MAXPHARl".AI ROBERTS
SUIT")" seeking collection on indebt:edness owed by ROBE~TS which
P~NTIFPS' ORIGINAL PETITION, APPLICATION FOR

Ci
was chen in default. Had ROBERTS repaid the amounc which ~as due
and owing, ~PHAR.MA would ha.ve been in the pes i tion to sa tis £y
the FIRST ROSENBERG NOTE, effect:uate the reacquisition of the
transferred pledged collat.eral on the fIRST ROSENBERG NOTE, and

::Jeg i n co rep leni s h the funds whic h. had been di vert:ed from
HAMILTCN-TAFT in the form of loans. T~e pleadings in the lawsuit
fail to fully and ccmpletely celat.e the relat.ionship of the
~art.:es :0 ene another and the fact.s associated with the c=eacion
of cha various indebtednesses which had, as of that time, ?laced
!-'.AX.P~.AR.),l_~ and HAMILTON-TAFT, as its -,Jhol1y-owned subsidiary, in
substantial f~nancial danger.
24. In December, 1988, ROBERTS sought. the imposi::.on of
injunccl.ve =e1ie£ rest:rainlng XAXPr;..AR.."iA from transferr:":lg any
assets :0 satisfy the FIRST ROSENBERG NOTE. Alt.hough ROEE~TS was
d f=::'er.d cr ROS£NEERG, the ;:;asition :.aken in the pleac.:.:-.gs ',Jas
thee ~C5ERTS had developed a business opporcunity which ~aQ ~hen
been :ransierred to .:-!A.XPHAR."!A. ~nd thae, subsequently, ~.A.X?HAR.'4.A
had mismanaged the business 0ppQr~unity co the pct.ent.~al
detri.:nenr. of ROBERTS. What ROSERTS failed to acc'..lrately
represent to the Cour1: in chat lawsuie was (a) the nat'.Jre and
exten~ of concrol ·,."hich ROBERTS exercised over the -'cari.ous
enti-ties, (b) the nature and extent to which the ac~:ons and
c0r.lduct. of ROBERTS had themselves ::=eated the financial hazard
~~?HA~~,
for
, and (c) the fact that the management. of ~~PHARMA
PLAINTIPFS' ORIGINAL PETITION, APPLICATION FOR

TeMPORARY RES~NING ORDER, EX PARTE, APPLICATION
.'.. --.. . _~----::s-=::s-=

and HAMILTON-TAFT under the direc~ion and conerol of ROBERTS had
been such as to ~ loot" HAMILTON-TAFT in such a way as to crea~e
the appearance that the diminucion of the value of HAMILTON-TAFT

had been the result. of mismanagement. by MAXPHARMA and, thereby,
enable ROBERTS to (i) obtain large quantities of cash from
HAMILTON-TAFT under the ruse and guise that 1:he acquisition of
t.hese a.ssets had l in fact, occurred as a result of !'iAXPHAR-"'1..A'S
ac~ion and (ii) as a result of tha~ =use, to then orches~rate a
process whereby ROBERTS could aCq"..li=e the shares of HAMILTON-

TAFT 1 a viable entity with exisci..:-.g client: base, and leave
MAX?H.ARMA as the shell it ha.d been before t.he acquisition of
HAMILTON-TAFT, without any assets and. to the detriment. of t:.he
shareholders of the publicly held MAX?KARMA.
25. P 1 a i n t iff A.R.J.!STRONG, through Dresner Corpora t ion, had
~resent.ed a proposa 1 to MA.XPH.A..R.1J~ fc~ the purchase 0 f ~?~-A.fL\,l..A
shares and c=~trol of the ~PHAR¥_~ coard in consideration f~r 53

.• 1 .
m~l._~on, which stUn •... ould have readily (a) sat.isfied the :IRST
ROSENBERG NOTE dnd (b) pro\Tided approxima1:ely S2.5 million in
operating capital for MAXPHARMA. COSTELLO, still as de faceo
nominee and controlled person of ROBERTS, =efused to accept this
business oppor't.unit.y to sust.ain the operations of !'tA.XPHA..R-~ and
HAMILTON-TAFT, and ins1:ead proceeded en a course to seek to cause
R08;:RTS to repay t.he ouc.standi:lg debts due and owing to
MAX p H.A.R1wf~ •
J

T£MPORARY RESTRAINING ORDER r ex PARTE, APPLICATION
FOR TEMPORARY AND peRMANENT INJUNCTION, AND
.
26. In late December, 1988, ROBERTS represent.ed to c:he
Cour~ in the :-£AXPHARHA/ROBERTS SUIT that. ROBERTS had developed
the corporat.e opport:unity for M.A.XPHARHA, t.ransferred t.he
corporate opport.unit.y to MAXPHARMA, and that MA.XPHARMA was
mismanaging t.he business opport.unity ·.,rhich ROBERTS had
t.ransferred, for all of which ROBERTS then .souqhr. to ha.ve t.he
prior transac'tians rescinded and cont:.rol of HAMILTON-TAFT
recur:1ed co ROBERTS. In conjunct:ion with 'this effor~, ROBERTS
succesz fully obtained a. Temporary Res'Craining Order res~raining
MAXPH.A.Rl-f.A from ut.ilizing from using any HAMILTON-TAFT assets to
sat.is i.y the FIRST ROSENBERG NOTE. Foreclosure on the FIRST
ROSE~BERG NaT~ was set. for Ja.nuary 27, 1989.
27. ~~STRONG acquired 500 shares of MAXPHARMA on or about.
January 13 I 1989 I and cont.inued wit.h efforts t.o negotiate tor

sar.":"sfa.ct':"cn of the first: Rosencerg r.ot.e and i.nfus:.cr. of
add:~:~nal c~e~ating capital a.s ou~li~ed above.
28. On or about January 23, 1989, AR."!STRONG sold his sha=es
fer valuable consideracion to Pat.ei C. ~on~ague, his sec=er.ary,
who then filed suit in Collin Count:y, Texas, st.yled Pacty
Montaaue, Individually and Shareholder of MAXPH.AR1'.A, INC. v.
LA~RENCE B. COSTELLO, C. wAYNE LITC~:IELD, JOHN H. ROBER!S, :R.,
anc ~OH.AM:ED A. HADID, bot.h Indivicuallv and as Shareholders of
l'4.AXPP_h.R."tA, I~IC., HAt."1ILTON-TAFT, INC. and VISION, INC., as Parcy
P~NTIPFS' ORIGINAL PETITION, APPLICATION FOR

POR TE.KPORARY AND PEJUtANENT INJUNCTION, AND
APPLICATION paR IMPOSITION OF CONSTROCTlVE TRUST Page 15
"ouc
De fendant:s, and obtained a Temporary Restraining Order
rest.raining ROBERTS from furt:her act:ion. This Temporary
Rest.raining Order .was dissolved t.he next. day upon a Plea In
Abatement. with respect. to the Dallas Count.y case.
29. At 9:55 a.m. on the morning of foreclosure, and wit.h
t.he offer of ARMSTRONG out.standing, the FIRST ROSENBERG NOTE was
sa tis f ied t.hrough payment. via t.he Dallas, Texas, law fir:n of
Gardere & Wynne usi~ a t.rust. fund check, the sources of ·,.rhich
was then unknown.
30. On January 30, 1989, and for valuable consideration,
~~STRONG reacquired the MAXPKARMA shares which he had previously
held.
31 . As a f February 14, 1989, A.RH.STRONG learned for the
firs~ time from Ms. Fran Bar~lett., president of HAMILTON-TAFT far
many years, that:
d . Due t.o t.hrea t.s by COSTELLO t.ha't bankr"Jpt.::y ·....ou Id
be init.':'at.ed in order to preserve the st.ock interest. of
MAXP~~ in HAMILTON-TAFT due to the fac~ t.hat ROBERTS had
obt.ained a Temporary Injunct.ion against: MAXPHARMA utilizing
the HAMILTON-TAFT assets to sat.isfy the FIRST ROSENBERG
NOTE, t:he president: of HAMILTON-TAFT caused some personal
funds and approximately $560,000.00 in HAMILTON-TAFT funds
to be t.rans ferred to Gardere & Wynne in Dallas, Texas, for
. the purpose of satisfying the FIRST ROSENEERG NOTE. This

I
P~NTIFFS' ORIGINAL PETITION, APPLICATION POR

FOR ~ORARY AND PERMANENT INJUNCTION, AND
transact:ion was ef fect:ua t:ed in order to (a) protect: t.he
eli e n t. i n t. ere s t. s af HAM I L TON - TAF Tan d (b ) a. v 0 i d the
destruction af HAMILTON-TAFT business as a result of being
involved in a bankrupt.cy.
b. The funds obtained by Gardere & Wynne, as
attorneys for ROBERTS, were then used to fund an escr=""
transac~ion '..,lhereby ROSENBERG afforded ROBERTS an
09por'tunity to "buy back" the HAM!LTON-TAFT st:ock;
c. On February la, 1989, without. notice t.o or
aut:horicy from any of t.he MA.XPH.A.R..~ shareholders, COSTELLO
and ROBERTS encered inco a less than arm' S ~ength
t=ansac~':'on whereby COSTELLO c.aused ~..AXPHARM.A to t=ansfer
all c f r.he shares of HAMILTON-TAfT r.o ROBERTS and then, in
t:.Jrn, ROBERTS forgave the indebtedness of MAXPP...AR1"..A to
b:..~'wf.ILTC~-TA.FT. Thus, as a cesul:. ot :~is transac:.::::n, dnd
·.... L::haut. knowledge co any c£ :.he shareholders cr the
p~blicl.y held MAXPHA.Rl-f..A, MAXPHARl'.A :"ad divested i-:.self of
P-A..'"!!LTON-TAFT to ROBERTS and, ef:ect.::,ely, had no assecs as
of february la, 1989.
]2. On february 14, 1989, AR-""..5TRONG furt:her learned t.hat
ROBER.TS, as of February l~, 1989, :-.ad di.=ecr.ed and ins~ructed
represent.acives of HAMILTON-TAFT to .ire transfer t.o HADIO an
additional 52 million for purposes as yet unknown but ~resumably
to either fur~her assist HAOIO in projec~s in which he is engaged

J

Te.."IPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TF.MPORARY AND PER.HANENT IN.nmCTIOH, AND
APPLICATION POR IMPOSITION OF CONSTRUCTIVE TROST Page 17
and in con~idera~ian for which RADIO will reciproca~e to ROBERTS
by giving ROBERTS financial support. in other transactions; or,
alter:1at.ively, for a "st:.rawman" transfer of funds to ROSENBERG in
order to effect.uace a release of HAMILTON-TAFT s1:ock held as
5 e c ~ r i t Y ian d I ROB ERT 5 has g i ve n ins 'C ru c to ion s for an 0 t. her
Sl,OSO,oao.oo to be wire transferred in accordance with
inst:.=~ct.ions to be given on February 15 or February 16, 1989.
3J . As the out.lined f ac~s reveal, t.he ongoing loot.ing 0 f
1'4..AXPHAR..."iA and it.s primary asset., fl..AM.ILTON-TAFT, had continued
from Janua"ry, 1988, t.hrough at. leas~ February .10, 1989; ~nd,
fur~her I t.o the ext.ent. that. ROBERTS has wrong full y acquired the
~~I~TON-TAFT ent.ity, a const.ruct.ive t=us~ needs to be imposed in
order t.o preserve and prot.ect: the int.erest.s of t.he ~.AXPH.A.RM.A
. shareholders as to whom the HAMILTON-TAFT asset. had been the
pC:":1ary asset. of ~PH.A.R...\f.A prior to its wrongful t.ransfer t.o
Rca::R~S.
DETA1UD FACTUAL BACXGROUND
ACQUISITION OF MAXPHARMA AND RAKILTON-TAFT
J4. HAMILTON-TAFT was incorporated in Cali fornia in 1979
and is in the business of providing tax comput.ing services for
payment and filing of employmen~ tax re~urns. In t.his capacity,
clients of HAMILTON-TAfT pay to HAMILTON-TAFT swns of money
egu-ivalent t.o the tax withholdings required as of respect.ive
,
PLAJNTIFFS' ORIGINAL PETITION, APPLICATION POR
POR TEMPORARY AND PERM.AHENT INJUNCTION, AND
APPLICATION POR IMPOSITION OF CONSTRUCTIVE TRUST Page 18
payroll periods, which said sums HAMILTON-TAfT then holds in
accoun~s (~RAMILTON-TAET CONCENTRATION ACCOUNTS·). In accordance
with the agreements between HAMILTON-TAFT and i-cs clients,
HA."iILTON-TAFT is entitled to invest t.he monies contained in the
HA.'iILTON-TAfT CONCENTRATION ACCOUNTS from the time af receipt
until the time of payment and have the use of the interest earned
thereon (with various variations of such ag=eemen~ existing with
different clients). Prior to the acquisition of HAMILTON-TAfT by

MAXPHAR..'1.A, HA.'iILTON-TAFT had only invest.ed monies from the
H..A.MILTON-TA.fT CONCENTRATION ACCOUNTS in secure invest:.ment.s such
as tonds or treasury notes.
3S. Pr ior to t.he purc~ase of H.A..'1ILTON-TAfT by MAXP:!A.R.'iA,
HA..~ILTaN-TAfT was o..,ned by a wholly-owned affilia.te of C!GNA
Car;oracian. During 1986, and as a resul7. af subscant.ial losses
ex;:e!' :enced in the proper't.y and casual r.y area, CIGNA dec iced co
c~ncer.t.=3ce :cs busi:less port:folio in ir.surance-relaced maC~2rs
and, accordingly, co sell any non-insurance relar.ed ent:l':.':'es,
including without: limitat.ion HAMILTON-TAfT. During early 1987,
praspeccive purchasers of HAMILTON-7AfT included, without
limitation, ADF Corporation and Concrol Dat.a Corporacion.
36. As a mat.ter of coincidence, ~n ~arc~, 1987, ROBERTS met.
Ms. Fran Bar'tlet:t, then President. and CEO of H~"!IL':'CN-TA..FT
("BARTLETT"), on an airplane t.raveling (,0 washingt.on, D.C. As a.
result
,
of discussions about. t.he operations of HAMILTON-TUT,
PLAlNTIFFS' ORIGINAL PETITION, APPLICATION POR

TE...\fPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TE.KPORARY AND PERMANENT INJUNCTION, AND
ROBERTS (a) indicated t.o BARTLETT that:. ROBERTS had the where-
wit.h-all and interest: to acquire HAMILTON-TAFT through a
corpcration known as VISION, which ~OBERTS claimed to cant:rol,
(b) that ROBERTS would be inl:eresced ~n cancinuing the operations
of HA."iILTON-TAFT in the same manner as had previously been
perfor:ned, and (c) ROBERTS would immediacely begin to under1:a.ke
sr.eps necessary to presen~ a proposal to HA."iILTON-TAFT for the
acqu~si~ion by VISION or some other entity cancralled by ROBERTS.

37. Between March I 1987 I and ,july f 1987, ROBERTS conducced
disc~ssions with CIGNA regarding the Fassibility of the purchase
of ~~~ILTCN-TAFT.
38. In July of 1987, VIsro~ and ROBERTS executed a
canf~dent.iality agreement wit.h C:GNA in order to acquire
ir.f:::~at.ion concerning HAMILTON-TAFT. On or a.bout. December 2,
1~8~, CIGNA, K&~ILTON-TAFTJ and HT ~oldings, inc., en~e=ed in~~ d
··~.c .:5nopping agreemen~" so chat CIGUA would r.ot: salic:t HA-'iILTON-
HT Holdings, Inc., was a wholly awned subsidiary of VISION

whic~ had been fo~ed to purchase ~~rLTON-TAFT.
39. Between approximat:.ely August, 1987 f and December, 1987,
ROEER.TS made repeated representations that, through VISION, he
was ~repared to c lose the acquis i t':"::n 0 f HA.'1ILTON-TA.fT; and, on
a~ :east four (4) occasicns closir.g ca~es were set only to be

~hereafter negated due to the inabili~y of ROBERTS to close t.he
~ransact.ion.
,
PLAINTIFPS' ORIGINAL PETITION, APPLICATION POR
FOR TEMPORARY AND PERXANENT INJUNCTION, AND
40. Neither ROBERTS nor VISION were involved in any fashion
with MAXPHARHA from the time of first: contact: with BARTLETT
t.hrough late 1987, at which time discussions with MAXPHAR...IoiA
init.iated.
41. During the period of approximat.ely July 1 1987 I through
lat.e December, 1987, ROBERTS was ar:cempcinq t.o locat.e sources of
financing which would be available co ena.ble him to effect.uate
the acqu is it. io not HAMILTON -TAFT. ROBERTS did not have an
indegendent financial base upon which to close such a cransact:ion.
42. ROBERTS locat.ed ~XPHAR~ as a pot.ent.ial corporate
vehicle through which acquisit.ion of HAMILTON-TAFT could be
effectuat.ed. MAXPHARMA is a publicly awned corporat.ion
ir.cc~orat.ed in t.he State af Tennessee, the shares of which were
being traded an the American Stock Exchange .
..\ 3 . Through a proces s E=rec isely unknown, ROBERTS proceeded
t.o c=nducr. negotiat.ions for the acquisit.icn for ~~p~~ as t~e
corporat.e en~i ty through which ~'"!ILTON-TA..FT would be a.cquired
in ~he following respect.s:
a. Bet,\oreen July, 1987, a.nd December, 1988, and in a
manner present.ly unknown, ROBERTS est.ablished a relar.ionship

wit.h RADIO, a Saudi na~ional of purpor~ed subst.ant.ial wealch
who, addit.ionally, supposedly had banking connecr.ions wit.h a
,
National Bank of Washing~an;

~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR n:KPORARY AND PERMANENT INJUNCTION, AND
b. A concrolling block of st:.ock in MAXPHA.RMA was
owned by PRASAD and, on informacion and belief, PRASAD had a
substant~al loan guaranteed by T. Bert Lance at the National

Bank of Washingt:.on, where HADID had significant influence,
said loan believed to be associated ·Jit.h and const:.ituting
funding for the acquisicion by PRASAD of his incerest:. in
c. Eit.her: as a resulc of sheer coincidence, personal
int:.errelatianship between PRASAD and HADIO, or t.hrough t.he
f~nancial link at. t.he Nat.ional Sank of Washington, ROBERTS
learned t.hat PRASAD '''''as in financial difficulcy with t.he
loan of PRASAD at. t.he' National Bank of Washingt.on;
d. ROBERTS and/ or HADID approached PRASAD wi t.h the
pr:Jposit.ian that. ROBERTS and/or KADID, either individually
::r l::y ar.d t.hrouc;h ccncrolled or aff.:.l':'ated ent.icies, would
acquire a controlling interest in ~~p~~~ and, t.hereaft.er,

utilize !'!.A.XPHARl-'.A as t.he corporat:.e ent.i.ty which would then
acquire HAMILTON-TAFT;
e. The considera~ion con~ernplaced for the acquisicion
by ROBERTS and/or HADID of the int.erest: of PRASAD in
~XPHARM.A included che fact:. chat. (i) favorable t.erms of
ex~ension would be neqociat.ed for PRASAD wi~h ~he National
Bank of Washingt:on, (ii) ROBERTS and HADID would provide

APPLICATION FOR IMFOSITION OF CONSTRUCTIVE TRUST Page 22
personal quaran~ies on the loan of PRASAD with Lhe National
Sank of Washing~on, (iii} HAOlD would be provided a loan of
approximately S3 million from the asset:s af HAMILTON-TAFT,
once it had been acquired, which said funds HAOlD would t:hen
utilize with respect to a convention projec~ in which he was
involved in Aspen,Colorado, and (iv) ROBERTS and/or HADIO
would receive 750,000 shares of ~~P~~.
-i4. In accordanc'e wit.h t.he foregoing, and as evidenced by
the cont.ents of a Schedule 13-0 filed wic~ t.he Securities a.nd
Exchange Commiss ion en behal f 0 f MAXPHARl-f.A by ROBERTS on behalf
of VISION on Decemcer 20, 1987, in November and December 1987,
ROBERTS and HADID execut.ed the i:- personal guarancies to t.he
Nat.ian'll Bank of Washingt.on in favor of PRASAD and ROBERTS, by
and t.hrough VISION, :NC. ("VISION"), a Delaware corporat.ion wit.h
i~~ princi9al place cf business in Dallas, ~allas Couney, Texas,

acq'Ji=ed t.he con:=::lling int:eresc. of ~...AXPHAR?-f.A t:hrough a.n
a.ssig~enc from PRASAD of )3.3% or che cammon Sl:ock of MAXP~~.
At. the time of t.he assignment., PRASAD was t.he Chief Execut.ive
Officer and President. of MAXPHARMA. (As discussed more fully
below', ROBERTS, t.h:-ough his concrol of 'I!SION asser~ed cont:rol
over ~PH.ARJof.A dnd ·..:sed ~..A.XP[-l...a..R.."'tA as an ':':ls'trumenc or cool to
acquire HAMILTON-TAFT. 1
45. Once ROBERTS/ chraugh VISION, had acquired t.he
cont.rolling int.erest. in MAXPHA.RMA, VISION assigned co MAXPH.AR.MA
its
. ,
rl9ht to purchase KAMILTON-TAFT.

46. According t.o - BARTLETT J ROBERTS and COSTELLO met. on an
ai=plane during the early par~ of December, 1987. COSTELLO, who
was the president: for C&H Trucking Company, was att:empt:ing t.o
locate a source of financing to assist him in the purchase of
C'H, which was being sold by its parent:. ROBERTS reached an
agreement with COSTELLO whereby ROBERTS would arrange for
ccsr:::!..LO to be inves'tsd as the Chai~anl president. a.nd CEO af
~P~JULU~, INC., and 'Chairman of ~~ILTON-TAFTJ plus the payment:
af a $1 million bonus, the quid pro quo consideration for which
was (a) the obedience of COSTELLO -ith the desires of ROBERTS
regarding the opera tions af ~PHARl-'..A and HAMILTON-TAFT and (b)
COSTELLO effectuating the acquisition by MAXPHARl-C..A of C&H
Trucking Company.
"'7. RCEERTS advised =epresentat.ives of H.A..."1ILTON-TAFT late
in Cecember, 1987, fer the firs~ time of -=.he intent. of ROBERTS,
by =.nd :.hrough VISION, :0 ut.ilize :-!AXPHAR."'..A as the corpordt.e
-/ehi.cle through which to effec-cuat.e t.he acquisit.ion of the
p~!L:aN-TAFT stock.
48. Furthermore, lat.e in December, 1987, or early in
Jdnuar/, 1988, ROBERTS for 'the first: time proposed 'to HAMILTON-
TAr'!' a financial funding st.ruct.ure orchest.rat.ed by COSTELLO
whereby a "reverse repo" lending 'transaction would be structured,

said "reverse repo~ being cons'tit.ut.ed essent.ially as follows:
P~NTIPPS' ORIGINAL PETITION, APPLICATION FOR

TeKl?ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TI2!FORARY AND peRMANENT INJUNCTION, AHD
a. SS million in cash was t:aken from the HAMILTON-
TAFT CONCENTRATION ACCOUNT FUNDS and depos i t:ed wi th Howard
Weil Labouisse Friedriche Invest;nent Security, 'Inc.,
(~HoWARD WElL-), with which funds HOWARD WEIL then obtained

a. treasury note to be held as security for repayment. of a
promissory note to be executed by MAXPP~ in considerat.ion
for S4.1 million in cash to be paid to CIGNA. Thus, the
MAX PHARMA no t e wa 5 sec ured by treasury bills in t.he
aggregate amount of 5S million owned by HAMILTON-TAFT and
purchased with HAMILTON-TAFT CONC~NTRATION ACCOUNT FUNDS;
b. Although the tocal' purchase price was stated to be
54.1 million, of whic~ 5500,000.00 ftras to be paid on or
about December 30, 1987, and 53.6 million of which was Co be
paid ac the closing of the transac~icn en or about January
29, 1588, an additional 5900,000.00 was funded by t.he
t=ansac~~on and, ultimately, drawn down by ~p~~~ agains~
opera~ing expenses.
49. On or about January 29, 1988, ~PH.ARl'f.A entered into a
stock purchase agreemen~ with the affiliate of CIGNA to purchase
HAMILTON-TAfT. The entire .. reverse r-epo ,. loan trans act.ion
required several hours to consummate wi~h respec~ to the exchange
of funds. Upon conclusion l however, ROBERTS, by and through
,
PLAlNTIPFS' ORIGINAL PETITION, APPLICATION FOR
FOR TEMPORARY AND PERM.ANENT INJUNCTION, AND
conc=olled encities and individuals, including without limitatic
COST::LLQ, had effectively purchased and acquired control 0
HAMILTON-TAFT with the assets and funds of HAMILTON-TAfT.

50. While not directly involved in the transact:ion~
rela tive t.o the acquisit.ion by MAXPHARMA of HAMILTON-TAFT, af
some significance is a transaction between MAXPHARMA and a

corporation known as INTERPHARM, t.o the ext.ent that: t.he
conc~~sion of said transac~:on (a) coincided at or about the time
when :-!AXPHA.RMA, under the new control of ROBERTS was attempting

t.o conclude the acquisition of HAMILTON-TAFT and (b) ttle fact
that. the INTERPHAR.."i transact.ion r:esulted in the forgiveness by

MAX?~~ of Sl,231,500.00 in loans from ~~PHARHA to INTERPHARM,
wit.h respect to which significance is deemed to occur as said
forq:'/'eness of debt. (i) evidences thac MAXPHARHA had a
51;~~:~=ant liability to INTERP~~ deriva~ive from the i~ability
of :'_.l.X?'f-l'.AR1"..A to conswnrnar.e a pre\riously con~racted transacl:.ion
wit:'1 !NTERPHARM and (ii) the extent co which the forgiveness of
t.he indebtedness negacively impacted upon the financial
operations of MAXPHARMA, the outline of transac~ions with respect
t~ which is as follows:
a. In March of 1987 J ~XPHARH.A purchased eight.y
percent: (SO\) of the stock in INTERPHA.RH. At the time 0 f
the sale, PRASAD was INTERPH.A.R.M S I controlling shareholder I
- ~ Pres ident: and CEO. Likewise, PRASAD was also the President
J
PLAlNTIFFS' ORIGINAL PETITION, APPLICATION FOR

TYMPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR T~ORARY AND PER.MANENT INJUNCTION, AND
and CEO af MAXPH.AR..~. In acc:Jrdance wit.h the acquisit:ic
ag-reement, MAXPHARl".A exchanged 487,951 shares of newl:
issued common st.ock of the company on March 31, 1987, fOt
eight.y percent. (BO\) ownership of INT!RPHARM. An additional
521,227 shares of MAXPP~'S common s~ock .as issued on or
about. July 15, 1987, for no additional consideration.
b. INTERPHAR.."l: incurred large losses and proved to be
d sign if ic ant . drain on MAXPHARMA' S available cash. In
Oc t. 0 be r of 1987, ~.AXPHARMA execu t.ed an agreement. for t.he
sale of INTERPHAR..'i back to PRASAD. Pursuant. to t.he
rescission agreement., ~PH.AJUof.A agreed to ret.urn t.o PRASAD
all 144 shares of INTERPHARM st.ock o'WTled by MAXPHA.R.."fA, and
?R.ASAO agreed t.o surrender back to ~PHAR.MA all of t.he
~, 009,178 shares of it.s stock that. PRASAD received in
c:Jnnec:.i..on wit.h the original t.ransac:.':'on. The agreement:
also ::eleased INTERFHARM from repayment. of 51,231,500 in
:oans f=cm MAXPHARMA plus accryed interest..
c. Closing under the rescission agreemen~ occurred on
or about. February 8, 1988. HO\olever, PRASAD failed to
deliver 100,000 shares of MAXPHARMA'S s~ock, which had been
?ledged to American National Bank of Jacksonville, Florida,
as security for cer":ain personal indebt.edness of PRASAD.
Based upon information and belief, PRASAD has still not. made
,. delivery of the 100 1 000 shares of stock to MAXPHARKA.
,
FOR TEXPORARY AND PERKAlfENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTROCTlVE TROST Page 27
~
51. 0 uri n q 1 9 8 8, HL'i I LTON - TA.F T pro v ide d net fun d oS 0 f
approximately $14,510,581.00, constituting loans or transfers of

funds to or for the benefit of individuals or entities con~rolled
by or affiliated with ROBERTS, including without limitation the
fallowing (dates and transac~ions being approximate):
a. 1/31/88: $5 million to HOWARD-WElL. Funds of

HA..~!LTON-TAfT were actually used to enable l"f..A.XP~.A to
pu=c~ase HAMILTON-TAFT. In this transaction, $5 million of
cash was taken from the HAMILTON-TAFT client tax truSt funds
and used to purchase securities which were issued in the
na.me of HAMILTCN-TAFT and, on informacion and belief, were

pledged by COSTELLO act:ing in his capac i ty as Cha irman of
HA~ILTON-TAFT, for the benefit of MAXFH.AR-'iA and held or
pledged by HOWARD-WElL as security for a loan to ~~PHARMA,
54.1 ~illion of which ~as paid to CIGNA for the purchase by

~~X?~ARM.A from CIG~lA of HAMILTON-TAFT, and t:.he =emaining
5900 I 000.00 of which wa.s to be ut:ilized as working capit.al
:~r HAMILTON-TAFT. The remaining S900,OOO.OO was, in fact,
dissipated at. the cont.roi and direction of ROBERTS for the

benefit of ent:ities or affiliat.es cont.rolled by ROBERTS, and
no~ for working capital.
b. 2/26/88: $1 million to HAXPHARMA.

POR ITKPORARY AND PERM.ANENT INJUNCTION, AND
c. 3/8/88: $1 million ~o Hadid Development Co.
d. 3/11/88: $2 million to Hadid Development Co ..
e. 3/23/88: 5815,000.00 to CHRISTIANA, INC.
f . 4/21/88: 52 million to ro International

Corooration. These funds were provided as part: a f a down
payment. Ear t.he acquisit.ion of C&H Nat:.ionwide, Inc" a
t.=ucking company of which COSTELLO had been r.he former
president.. The r.ransact.ian cculd not. close due to che fac~
thar. ROBERTS could noe arrange far financing suff':"::ien'C to
pay far a tract of real estat.e associated wit.h the sale of

the trucking company. Approximately 51,500,000.00 in
::rlnci~al and interest: has been repaid, with t.he present:.
talance on this loan being 5662,000.00.

g. 5/88-10/88: $1 million in manaaement. fees.
During t.he referenced period of time, approximat.ely 51
:ni 11 ion was trans ferred from the accounts 0 f HAMILTON-TAfT
":0 MAXPHARMA for the purpor't.ed purpose of sat.isfying
~anagement. fees and related pur;ort.ed expenses.
J
~~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TE.KPORARY AND PER.M.AHENT INJUNCTION, AND
h. _11/88-12/88: $411,000.00 representing 'transfers
to M.AXPRARMA for operating expenses. The fallowing
amount.s were trans fer=ed frcm HAMILTON-TAFT CONCENTRATION
ACCOUNT FUNDS to l-f..A.XPHARMA for the purpose of ~PH.A,R1o(.A
o~era~ing expenses:
i. 11/9 - 535,000.00;
ii. 11/16 - S22,000.00;
iii. 11/21 - 5228,000.00;
iVa i2/2 Si2,OOO.ao;

v. 12/22 - 57~,OOO.OO;
vi. 12/28 510,000.00.
52. The fund transfers referenced in numerical paragraph
51, sup ra, were all uns ec ured fund t ra ns f ers made from the
~ILTON-TAFT CONCENTRATION ACCOUNT FUNDS.
LAWSUITS
53. On September 13, 1988, ~FH.AR.."!.A, INC. brought suit in
tr.e :"34t.h District Court, Da.llas County, Dallas, Texas (t.he
··~_UPH.A.R...~/ROBERTS SUIT") against VISION, INC., CHRISTIANA ENERGY
CORPORAT ION, MOHaMED A. HADID, and JOHN H. ROBERTS, JR. In
pe~~~nent part the pleadings allege t.he following mat.t.ers:
d. That HADlO and ROBERTS, t.hrough VISION, acquired
common scock of ~..AXPH.AR.'!A sufficient to give chern a
con~rolling in~eresc therein;
PLAINTTFFS' ORIGINAL PETITION, APPLICATION POR

FOR TEMPORARY AND PERMAlfENT INJUNCTION, AND
b. That. 'lISrON and ROBERTS exercised their cont.rol
positions and caused l-I..AXPHARMA to loan to VISION
5625,000.00 as evidenced by two promissory no~es in the
amount af SlOO,OOO.OO and 5525,000.00, each of which
nor.es has come due and is currently in default;
c. T~a~ VISION, HADID, and ROBERTS exercised their con~rol
to cause HAMILTON-TAF'!.', the then wholly-owned
subsidiary·- of MAXPHA.R.MA, :0 loan HADID 53,000,000.00
ev idenced by a promissory not:e given from HAOID to
HA...\'{ILTON-TAFT, which noee has come due and is in
default;
:i. Tha t. ROBERTS and VIS ION caused HMIILTON-TAF'!' to loan
5875,000.00 to CHRISTIANA ENERGY CORPORATION, a company
c::nr.ralled by ROBERTS, as evidenced by a promissory
ncc.a from CHRISr:ANA E~lERGY CORPOR..~TION signed on
::ehalf of CHRISTIANA ENERGY CORPORATION by ROBERTS as
Chair:nan, which not:.e has come due and is current:.ly in

default.;
a. Tha t ROBERTS and VIS ION had breached t.heir : iduc iary
d u -c y not ~ a dis pro po r t: ion ate 1 y pro fit f ra m the
corporation or i~s subsidiaries, by systemat:ically
loo~ing the assets of l"..AXPHARMA a.nd it.s subsidiaries,

TF..MPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PER.MA.NENT INJUNCTION, AND
said loot:ing having consisted :Jf the borrowing of
corporate assets which MAXPKkRMA asser~s the Defendants
cherein never intended to repay;
f. That: the funds loaned to the Defendants therein had
been used by the Defendants therein for t.heir own
personal gain, such as for payment of a Jaguar car and
a ~ersonal home for ROBERTS.
so;. an Ja.nuary. 15, 1989, VISION, a.nd ROBERTS filed a
ccunt:e==laim susta.ined in par~ t:hrcugh t:he Affidavits on file of
JOHN :1. ROBERTS, JR. 1 in t.he ~XPHARz.-..A/ROBERTS SUIT against
MA..X?::_~=t."La.. and t.he CiolO execu t.i ve members af ~PKkRMA I S Board of
Direct.ars, COSTELLO and LITCHFIELD, seeking rescissicn of an
agreement. bet.ween VISION, ROBERTS and l-f..AXPHARl-f..A regarding the
acq~i.si.:'i.on of HA.."ULTON-TAFT by l-f..AXPHA.R-"!A and injunctive relief
aga':':"iS:' ~.AXPHAR.MA,. INC., COSTELLO, and L:LTCHFIELD to resr.rain
~~em ::-::>71 ce!."~ain act.s relat.ing to P..AHILTON-TA.FT dnd ~~PKkRMA's
cwne=snip t.hereof. The councerclaim alleges, among ocher things:
a. That alt.hough MAXP~~ had agreed to award VISION

ar.d R08ERTS opt.ions to acquire 475, 000 shares of ~..AXPHA.RMA
at certain specified prices in exchange for VISION and
ROEERTS' right to purchase Kk~ILTON-TAFT, VISION and ROBERTS
woe:-e not. awarded their opt.:'ons as allegedly agreed to by

TEMPORARYRES~NING ORDER, EX PARTE, APPLICATION
FOR TE..."{PORARY AND PERMANENT INJUNCTION, AND
b. Tha~ COSTELLO, and ocher officers and direc~ors of
~AXPHARMA, may have been "upscreaming" funds ou~ of
HAMILTON-TArT t:o MAXPHARMA in order to pay cenain debts,
abligacions, and operating expenses of MAXPHAR.'"!A, as a
result: 0 f which HAMILTON-TAFT' s st:ock may have been in an
immediace danger of loss and/or diminution in value;
c. Tha~ MAXP~~ and COSTELLO, and/or o~her officers
and cirec~ors of MAXP~~ were in che process of ac~emp~ing
t.o obt.ain and/or fund a loan from Caprock Savings
Associ-acion and in an at::.empt co pledge the stock of
P..A.'iILTON-TMT, which suc:J. act:ions were asser-ced co pose a
pot.ent:ial risk of subst.ant:ial harm, injury, and diminution
value co the HAMILTON-TAFT's stock, as a consequence of
which a Temporary Rest.~aining Order cest:raining ~p~~,
I~IC. and it.s office!:'s and di.=ec~ors, from direc'=ly and
:'ndirec~ly obcaining, acqui=ing I or acherJise t.rans ferring
G:lY =unds, by loan or ocher..,tise, fr::m H.AMILTON-TAFT, and
f ram as signing transferring, pledging or grant:.ing or
a ~-:ernpt:ing to grant to any third-part:y a securi ty int:erest:
in HAMILTON-TAFT st:ock pending a. hearing on the Temporary
rnjunct:ion.
54' . On J anua.ry 19, 1989, a hear ing was he ld on the reques t:
Ear a Temporary Injunct:ion by VISION and ROBERTS in connec~ion
with t.he Counterclaim filed, at. the conclusion of which the Court:
J
P~NTIPFS' ORIGINAL PETITION, APPLICATION FOR
ent.ered an Ord-er that. the request: of VISION and ROBERTS for
Temporary Injunct:ion be grant:ed and chat MAXPHARMA, its officers
and direct.ors be rest:rained and enjoined from direct:ly or
indirect.ly obtaining, acquiring, or ot:herJise tran:sferrinq any
funds by loan or ot.herwise, from HAMILTON-TAFT and from
assigning, t=ansferring, or any ocher enc'.lmbrance in or on the
~~ILTON-TAFT st:ock pending a final t=~al on t:he merits.
55. On January 24, 1989, Patt.i Mont.ague, individually and
as a shareholder of MAXPHAFJ-f.A, INC. ("~ONTAGUE -), brought: suit in
t.he 199th judicial District Court:, Collin Count:y, Texas, against:
COST::LLO, LI'r'CHFIELD, ROBERTS, HADIO, bot.h indiVidually and as
shareholders of MAXPH.A.RMA, INC., HA."!ILTON-TAFT, INC. and VISION,
INC. and joined ~PH.A.RMA, INC., HAMILTON-TAFT, INC. and VISION,
INC. as par~y Defendants (t:he "~ONTAGUE SUIT-). !'!ONTAGUE,
~u=:::~aser :0= considerat:ion of the shares of ARMSTRONG, brought.
the ac:.ion co enjoin and rest.rain the Defendanr.s from cert:ain
ac~s related t:o MAXPHARMA's ownership of HAMILTON-TAFT & COMPANY,
as a wholly-owned subsidiary of MAXPHA.R.MA, alleging in ~aterial
respect:
a. That in July, 1988, MAXPHARMA execuced and
delivered t:a Sta.nley D. Rosenberg its original promissory
nOLe in r.he original princ:'pal amount: of $615,,000.00,
( .. ROSENBERG NOTE") and in order r.o secure the ROSENBERG
,. NOTE, ~XPHARHA executed and delivered to ROSESB£RG a
,
P~NTIFFS' ORIGINAL PETITION, APPLICATION FOR
FOR nKPORARY AND PERMANENT INJUNCTION, AND
security int:eresT:. and lien upon all the shares of Common
stock of HAMILTON-TA.FT, as well as possession of the
HAMILTON-TAFT s~ock;
b. Tha c the ROSENBE RG NOT:: was currencly in de faul t
and as a resulc, the HAMILTON-TAFT stock may' be in Lmmedia~e
danger of loss and/or diminucion in valuej
c. That. MAXPHARMA and CaSTELLO were poceneially
··ups treaming" funds out: of HAMILTON-TAFT to MAXPH.A.RMA in
order to pay cercain debe obligat.ions and operating
expenses;
d. Tha t: M.A.XPHAR.."!A and COSTELLO and/or other off ieers
or directors of MAXP~~ were in ehe process of ac~empt:inq
to obt:ain or fund a. loan from Caprock Savings Associacion
and were potent:ially attempting t.o pledge the stock of
r~~ILTON-TAFT in connec~ion wi~~ said loan;
e. That such c~nduct: warranted imposition of an
injunccion enjoining the Defendanes from aetempt:.ing to
?ledge the HAMILTON-TAFT stock.
57 . On January 24 , 19 B9, a Temporary Res training Order was
grant-ed in the MONTAGUE SUIT. However, on January 26 I 1989,
ROBERTS filed a Plea in Abaeement st.dt.ing that. the counterclaim
asserted by VISION and ROBERTS in ehe ~.AXPHA.R.MA/R08ERTS SUIT was
the same as the claim assert.ed and t:he relief requested in the
,
TEMPORARY RES~NING ORDER, ~X PARTE, APPLICATION
FOR nMPORARY AND PER.MANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OP CONSTRUCTIVE TRUST Page 35
pending MONTAGUE SUIT and that I by virtue of the foregoing I the
Dallas Count.y Court had acquired dominant. jurisdict.ion and the
Collin County case should be abat.ed. ROBERTS a.nd VISION'S Plea
in Abat.emenr. was granted on or about January 27 I 1989, and the
Collin County case was ordered to be consolida~ed with the Dallas
Couney case.
DIveSTMENT OF HAMILTON-TAn STOCX
TO CR ACQOISITIONS, INC.
58. CR ACQUISITIONS was incorporated November 9I 1988, by
aTTELL (the sec retary for ROBERTS) I who is also the Reg ist.ered
Agent for service of process, and which c~~pany has a registered
ad dr e s s af 2 a0 ere see n t:. Co u r~ I Sui t e l 3 7 5 I Da 11as, Te x a s 7' 5 2 Q 1
(the address of ROBERTS). No officers or directors are presently
lisced wit.h resgect: ~o this corporat.ion.
59. On or about. February 10, 1989, in a transact.ion the
details of ·.... h:cn are not. ~resent.ly f'..llly i<nown, t.he ceri:ificat:.es
ar =.:. <; h t. s t. her e t. 0 cf !: he 2, Q59 I a0 0 s hare S 0 f s t. 0 c kin P...AM I LTO N-
T A.fT prey ious 1 y owned by ~XPHARMA -ere t.ra.ns f erred t.o CR
Ac~~isit.ions, wit.h VISION being involved in the transac~ion in a
respect presen~ly unknown.
60. BELL is understood co own approximately twent.y percent
(20\) of CR A.CQUISITIONS, plus various options therein. On
furt:.her informacion and celief I BELL also cont.rols Coms-cocx, a
S u bSl" d'a
.l ry of E·Jl"ng
.... 01"1 , ::::lnd
g has been provl'ding subscantial

POR TEMPORARY AHD PERMANENT INJUNCTION, AND
. ~ . -. -1-----'-- .. 4
financial sypporc and sustenance co ROBERTS (i.e., Nkeeping
ROBERTS a1 i ve ") for a period 0 fat. leas T;. t.wo (2) man t:.hs prior co
February 10, 1989.
61. On or about. February la, 1989, ROBERTS ca.used a
cransaccion co be effec~uaced wherein t.he s~ock of KAMILTON-TAFT
cherecofore owned by MAXP~~ was cransfer=ed co CR ACQUISITIONS.
[ .. 2/10 ~x(PHAR.J.!A/CR ACQUISITIONS HAMILTON STOCK TRANSFER"]
62 . Al though the' det:.ails 0 f :.he MAXPHAR..."'!A/CR ACQUIS ITIONS
~~ILTON-TAFT STOCK TRANSFER are unknown, some of che informacion
which is known is as follows:
a. On February 10, 1989, ROS ENBERG agreed co loan CR
ACQUISITIONS che amount. of S600,OOO.OO const.it.ut.ing t.he
purcha.se price, exercise price and relat.ed coses of the
loan, the proceeds of which CR ACQU!SITIONS has agreed co
pay a purchase 9r ':'ce to VIS leN and an ., exerc is e pr ice" to
HA.MILTON-TA..FT. Additionally J CR ACC:UIS:L:TIONS has ag:=eed t.c
pledge the 2,059,000 shares of Sl:ock purchased by CR
ACQUIS ITIONS (presumably f rom VISiON) to Rosenberg, and
addit.ionally to execut.e a security agreement. in favor of
Rosenberg;
b. VISION, CR ACQUISITIONS, ~JL~ILTON-TAFT, ~p~~,
ROBERTS and Fran Barr:le'Ct. ("BARTLETT-, a California resident
who has been t.he princi~al person managing r:he affairs of
P~HTIFYS' ORIGINAL PETITION, APPLICATION FOR

POR ttKPORARY AND PElUiA..NENT INJUNCTION, AND
APPLICATION POR IMPOSITION OF CONSTROCTlVE TRUST Page 37
.---. -......-..< 4 _ ...._ . _.
HAMILTON-TAFT pursuan~ co che instructions and directions of
ROBERTS and COSTELLO) entered inca an assignment. of option

I
rights, the details of which are unknown;
c. A direct.ors' meet.ing of CR ACQUISITIONS was
convened ac which time R08ERTS, SELL, and a person
ident.ified and known only as "Claire", who is believed to be
a girlfriend or other social acquaintance of ROBERTS
( "CLAIRE") were· made the direc~ors in charge of HAMILTON-

'",,-.
'~T affairs, or affairs with respect. t::l the previous assets
-----.
of HAMlt""l'ON-TAFT. "
63. On Februarr .14, "" "

1989, BART!.ETT advised A.RJof.5TRONG of the
following activit.ies ·..thich had cccur~ed with respect to the
operations of HAMILTON-TAFT:
a. BELt. is the person ..... ho has been des ignated by
RcaERTS as ehe person ·... ho is cver'seeing the present:
~~erations of ~~~!LTON-TAFT;
b. ...At----t.he inst.ruction and dir~':t.ion of ROBERTS, the
sum 0 f S2 mi llion was trans ferred f.:-om the HAMILTON-TAFT
CONCENTRATION ACCOUNT to Amerimac, a corporation cont.rolled
by RADIO. KADIO is believed to be presently outside of the
United Stat.es. It is unknown, but on informat.ion and
belief, the funds transferred to HADID at Ameri.mac are
intended for transfer to some other account;
PLAlNTIPPS' ORIGINAL PETITION, APPLICATION FOR

TEMPORARY RESTRAJNING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PER.KAN'£NT INJUNCTION, AHD
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST Page JB
c. Also on February 14, 1989, ROBERTS stat.ed to
HAMILTON-TAFT staff members that on February 15, "1989, or

t
Fe brua ry 16, 1989 I further direct:ions would be qi ven by
ROBERTS or his designated represent.ative for a transfer of
an addi t iana 1 S 1 , a 5 0, 000 . aa to a des tination and account

presently unknown;
d. Based u~on the expressed concern of BARTLETT
c~ncerning the £....."pr~priety 0 f the distributions which were
being made, and confr:Jnted by :.he insistence of ROBERTS and
3ELL that. the transfers be effect:Iated", BARTLETT resigned.
54. BARTLETT was one 0 f the founding persons of HAMILTON-
TAFT r had been wi th the company for more than ten (10) years,
incl~ding the time period prior to t.he ownership of HAMIL~ON-TAFT
by C:GNA, is acutely knowledgeable of the client: base of
HA~!:'":ON -TAFT, ha 5 es t:abl ished and maincai:led the acc::unr.s of
HA..~!:::JN-TAFT clients prior to febr".lary 10,1989, in a level of
ccn::~ence and trus~, and maintained proper accounting prccedures
at all times during her presence at HAMILTON-TAFT, subject,
part':'cularly, to any restrictions thereon incidental to the
aC~..1isition of cont=ol of rtAMILTON-TAFT by ROBERTS and COSTELLO
as c: Januar/, 198B.
65. The nature of tr.e HAMILTON-TAFT business is such that
the key components or assets of t.he business operations are (1)
inr.eqrity with clients, (2) efficient management and (3) computer
PLAJNTIFFS' ORIGINAL PETITION, APPLICATION FOR

TE.MPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TE.MPORARY AND PER.KA.N"ENT INJUNCTION, AND
APPLICATION POR IMPOSITION OF CONSTROCTrvE TROST Page 39
data bases utilized to properly account: for t.ax payments which
will be due. Thus, the principal asset.s from fa monetary
standpoint are the funds of clients, as t.o which has previously
been expressed it has been the right of HAMILTON-TAFT to invest
properly and utilize interest earned.
66. One of the agreements of H:AMILTON-TAFT during
management 0 f the f ir~ under BARTLETT ·... as that HAMILTON-TAFT
would pay any penalties which ar~se from the failure to properly
and timely pay any tax obligations of clients. In. 1988,
HAMILTON-TAFT paid a sum of S5,000.00 in t~is re~pect based on a
pool of customer funds in ~xcess of S~ billion.- Accordingly,

this attest.s to the proper management of KAHILTON-TAFT under the
auspices of management overseen by BARTLEr~.
67. On February 14, 1989, BARTLEIT advised ARMSTRONG of the
f~i~~~i~g development.s wh~ch had occu~=ed as of that dat.e:
a. Not~ithstanci~g the fact. that ~he true reasons far
the resignation by BARTLETT due to her refusal to perform
improper dis t.r ibu t io ns af funds as directed by BELL and
ROBERTS on February 14, 1989, BELL had announced to
management st.aff at HAMILTON-TAFT ~hat (a) SARTLE:TT was
':aking a long-needed vaca tion, (b) was no longer OJ i th t.he
fir:n and (C) was suffering from drug problems attendant. t.o
emot.ional stress, none of which was accurate:

TEMPORARY RESTRAINING ORDER, EX PARTE, APPLID..TION
FOR ttKPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTROCTI~ TRUST Page 40
b. Emp 1 oyee S 0 f HAMILTON-TAFT are concerned and
fearful of the improper management of the firm which appears
to be ongoing and increasing:
c. We'lls Fargo Bank, one of the principal financial
inst:itutions with which HAMILTON-TAFT has done business in
the pas t , (i ) reported an ove rdra ft of H.A.MILTON-TAFT
acc~unts in the amount of 52.5 million, (ii) upon being told

t hat. BARTLETT wa s no 1 onge r a t HAMILTON-TAFT, contacted
8ARTLETT independen~ly to inquire of the status of accounts,

expressing concern in that regard over the continued banking
o~erations between Wells Fargo and HAMILTON-TAfT, and (iii)
expressed a desire to be provided with some level of
assurance that checks of KAMILTON-TAFT should continue to be
honored.
:0. BARTLETT has advised that several HAMILTON-TAFT clients

have c8ntacted her very =ecent.ly expressing concern over her
absence from the company, and several clienc.s have indicated an
intent:on to terminate their business relations with HAMILTON-
TAFT cue to the recent change in management.
69. The developments of recent events with respect to
depietion of assets fram the HAMILTON-TAFT CONCENTRATION ACCOUNT
FUNDS and the change of management. have (1) confirmed the

TIKPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TE.KPORARY AND PERHA.HENT INJUNCTION, AND
allegations co~~ained in the ~~PHARMA/ROBERTS SUIT and MONTAGUE
SUIT respecting the alleged past conduct and futu,re intent of
ROBERTS with respect to depletion of H.AMILTON-TAFT assets" and (2)
resulted in endangerment of the relations with, or termination of
the relations of, six (6) major clients.
70. On February 15, 1989, ROBERTS and BELL caused $1.5
mi 11 ion to be trans ferLed from the HAMILTON-TAFT CONCENTRATION
ACCOUNT FUNDS to an accoun~ in the name of the Dallas, Texas, law
f:~ of Petit & Martin.
TEXAS SECRETARY OF STATE RECORDS

71. In addition t.o t.he foregoing facts evidencing the
ccmplexit.y and int.eract.ion of acti'Jity among the Defendants and
their proclivity to utilize corporat.e entities, searches of the
data published by the Texas Secretary of State corporace records
c i 'J i 5 ion 5 how s t. he f a 1 2. 0 '"J i ng a f f iIi a t ion s ( i . e ., s e rJ ice as
officer, direct.or or registered agent) of the followin<;
Defendants with the following corporations which are eithe!'
i~corporated or authorized to do business in the State of Texas:
ROBERTS
Standing of
Cor:Joration Name Affiliation Cornoration
Nor~hlake Corporation President Active-not in g'ood

standing
Robercs Interests, Inc. Presidenc/ Inact.ive as of

Director 1/18/88 due to
non-payment 0 f
franchi!e tax

FOR TEKPORAAY AND PERMA.N'ENT INJUNCTION, AND
~*o Plus ~~O, Inc. President Inactive as of
12/01/85 dUF to
non-payment of
franchise tax
Mac=~, Inc. President/ Inactive as of
Regis~ered 1/18/88 due to
Agent non-payment. of
franchise tax
The faust Company President. Active - not in
a f San Antonio good standing
Mac=~ Construction, Inc. Secretary/ Inactive as of
Treasurer 1/20/87 due to
no n- pa yme n to-of
franchise tax
Spor~s Cup, Inc. secretary/ Inact.ive as of
T1:"easurer 1/18/88 due to
Regist.ered non-payment of
Agent franchise tax
Macro Realty, Inc. President/ Inactive as of
Regist.ered 1/18/88 due to
Agent ncn-payment of
f:::'anchise tax
Mac:'::! I:lvestment: President/ Inactive as of
~rGper~ies, Inc. Regist.ered 1/18/88 due to
Agent non-payment. of
franchise tax
Robert.s Aspen Presiden~/ Inactive as of
Proper't.ies, Inc. Registered 1/20/87 due to
Agent non-payment of
franchise tax
JHR ~n~erprise5, Inc. Presidentl Inactive as of
Registered 1/18/88 due to
Agent non-paymen~ of
franchise tax
Downhill Associates, Vice Inactive a! of
Inc. ' President 1/09/89 due to
non-payment of
franchise tax

TEMPORARY RESTRAINING ORDER, ~X PARTE, APPLICATION
FOR TEMPORARY AND PE'RMANENT INJUNCTION, AND
APPLICATION POR IKPOS ITION OF CONSTRUCTIVE TROST Page 43
Ci ty M.ini, Inc. PrE!!iidentl Inactive as of
Registered 1/18/8s due·to
Agent non-payment 0 f
franchise tax
CATTELL
Standing of
Corcoration Name Affiliation Cor;Joration
HT Holdings, Inc. Registered ActiV'e -
Agenc Good Standing
KV Holdings, Inc. Reqistered Active -
Agent: Good Standing
VISION, INC. Registered Inactive as 0 f

Agenc 12/5/88 due to
non-payment of
franchise tax
CR Acquisitions, Inc. Registered Active -
Agent: Good Standing
Nor~hlake Corporacion Secretary Active -
Not in goed standing
Rater~s Interescs, Inc. ~i~ePresident! :naco:ive as of

Sec=etary 1/18/88 due c=:)
non-payment c f
franchise t.ax
~~o Plus ~~o, Inc. Sec roe t.ary I Inacti ve as 0 f
non-payment 0 f
franchise tax
~acro, !nc. Secret.aryl Inactive as of
non-payment. 0 f
franchise tax
The Faust Company Secretary Inactive as of

of San Ant.onio 1/18/88 due to
non-payment: of
franchise tax
P~NTIFPS' ORIGINAL PETITION, APPLICATION POR

TE.MPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR nKPORARY AKD PER1Q.NENT INJUNCTION, AND
Mac~o Realty, Inc. Sec~et.ary/ Inact:ive as 0 f
non-payme~t of
franchise tax
~ac=~ rnves~ment Secretaryl Inacti ve as 0 f
Properr;ies, Inc. Treasurer 1/18/88 due to
non-payment 0 f
franchise tax
Rober'ts Aspen Sec::-etaryl Inact:ive as of
P==pp.rt:ies, Inc. Treasurer 1/20/81 due to
non-payment 0 f
franchise tax
Downhill Associates, Assistant:. Inactive as of
Inc. Sec~et.ary 1/09/89 due to
non-payment 0 i.
franchise tax
Ci~y ~ini, Inc. Vice President./ Inactive as of
Sec=etary 1/18/88 due to
non-payment: 0 f
franchise tax
COSTELLO
Standing of
C =:: ::-:: c rat i c n Name Af:':'liation Comara cion
~.AX:~V.A, INC. Registered Activ'e -
Agent In goad standing
HRC Consultant.s, Inc. President Inactive as of.
1/09/89 due to
non-payment of
franchise tax
PRASAD
Standing of
Cc:-::oration Name Aff:'liation Coroorat.ion
P.S.P. Investment
Co., Inc. President Active I
good st.anding
PLAJNTIPPS' ORIGINAL PETITION, APPLICATION FOR

FOR nKPORARY AND PERJoI...AHENT INJUNCTION, AND
·CONSENT OF BARTLETT TO SERVICE
i2. On Februa ~
AS INJUNCTION MONITOR
16, 1989 ,
,
BARTLETT adv is ed ARMSTRONG tha t
BAR.'!'LETT •.... ould be willing to serve as a Court-appointed monitor
concerning the operations of HAMILTON-TAET in accordance with the
te~s and provisions of any injunctive relief which t:.his Court
mish~ i~pase until such t~e as fur~her protective measures could

be ar:.iculat:.ed and imple!nented concerning the operat:ions -:f
III.
COUNT ONE
Derivative Suit Based Uoon Breach of Fiduciary Duties

By Officers, Directors and Controllina Shareholders
:3. Pursuant to Tex.R.Civ.P. 58, ~~STRONG incorpora~e5 dnd
re=::'!..eges ::y reference numerical paragraphs 1 thrcugh and
-:-..J. The actions and ccnduct of the Oefendant.s as :':J which
~~S7RONG c:Jmplains const~:.ute and manifest an ongoing c=urse and
pa::.e~~ cf conduct, conti~uing through the date of the filing of
Plai:itiffs' Original Petiticn herein, whereby and through which
AR.~s:-~onG is being damaged as a shareholder of MAXPH.A.R}'J.., and as
a ':::uble derivative shareholder of HAMILTON-TAFT, as a
cor,s equence 0 f the means and manner in which the conduc,: 0 f t.he
Defendants as to which complaint is made constitute a breach of

T~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
f iduc iary du tEes owed by 0 f fie ers, directors and ~ontro11ing
shareholders of MAXPHARHA and HAMILTON-TAFT ati all times
per:'':'':1en t hereto as evidenced by the facts set forth herein·.
is. At the time of the ongoing transactions made the basis

of ~his suit and at the present t~e, ARMSTRONG was and continues
to be a record owner of 500 shares of the Defendant MAXPHARHA.
Fu r:.~e!'Jlore, during the ongo ing t= ~ns ac~ions made the :Jas is of
th':'s sui t, ~PHA.R."!A· ~as the parent. corporation and sole owner 0 f
one hundred percenc (100%) of the out.standing shares of P-AHILTON-
TAFT ~hrough at least Februarf 9, 1989.
75. At all times mat.erial and pert.inent heret.o, PRASAD and
CCS7ELLO were the direct.ors and officers of the defendant
cor~orat.ion ~~p~~, and ROBERTS was a controlling shareholder
". As e'J'idenced by the fac:.ual recitat.ions set. for'th
he~eLn, the Defendants have engaged and are engaging in a course
and ?at.tern of conduct constitut:'nq a scheme and ar't':":ice to
unla''''fully deprive, deny or defraud the shareholders of
l"J\.X?F...A.FL"tA of the true and fair value of their respect.ive equity
interests in MAXPHARl-f..A derivat.ive from t.heir shareholder status
the ~ e in, a!l we 11 as de r i vat. i v e =

f c m the rig h t. f u 1 i n t ere s t S 0 f
~.AX?~ARM.A in and to HAMILTON-TAFT as of at least February 9,
1989, by effectuating and causing the dissipation, conversion,

FOR TEKPORARY AND PERHA.NE.NT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTI~ TRUST Page 47
misappropriation, and waste of corporate business opportunit.ies
and corporat.e relationships exist:ing as a result 0 f int.er-
co~?orat.e stock ownership_
i 8. Wit h out 1 im ita t ion, the f act. 5 ass e t for ~ h abo v e
evicence that. ROBERTS, COSTELLO, RADID, BELL, CHRISTIANA, VISION,

CR ACQUIS IT!ONS, MAXPHA1U'..A and a'iILTON-TAFT have bene f i t.ed to
the det.riment of shareholders af ~PHAR..'{A through the above-
aut.l l..:led scheme and artifice to dis s ipa te and ....,as te the capi tal
of ~UPHARJ-f.A and HAMILTON-TAFT as a consequence of t.he series of
loans t.o the various entities and afEiliateg of R08ERTS,
cosr::Lr...o, HADID and BELL, as ",..rell as t.he forqi'Jeness of
incebtednesses to the ext.ent said forgi'Jeness of indebt.edness
c rea t.es inc idents af income, tax liabil i ty and/ or reduc~ion in
asse~s in ~~e form of accounts receivable.
'79. Furt.her wi thout 1 imi ta tion to the Eacts as se~ :or~h
he=~inabove, the evidence reflects that ROBERTS, via ·..-IS~CN as
h is alter ego, caused MAXPH.A.RM.A to loan VIS ION the tot.al amount.
of ~ix Hundred and Twenty Five Thousand and NollOO Dollars
(56:£::,000.00) in March 1988, via t-..IO (2) Promissory Hat.es each of
whic~ were due on June 1, 1988. Although MAXP~.A made ~ritten
de!'r.and on VISION for payment. of bot.h notes, VISION failed and
ref'Jsed to tender payment in principal, while making ~nteregt:
pa~ents; and, on information and belief, has now forgi.'Jen said
indebt.edness.

T'eKPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
POR TEMPOR.A..RY AND PERKANEHT I NJUNCTI ON, AND
•
80. Fur~thermore, and withoUT: limitation to the fact.s

referenced hereinabove, on or abou~ March 8, 198~ HADID
I' ,
ROBERTS, and COSTELLO caused HAMILTON-TAFT to loan HADID the sum

of Three ~~llion and No/lOO Dollars (53,000,000.00) which was due
and payable on or before April 4, 1988. Although written demand
was been made by MAXP~~ on RADIO, the principal amoun~ of the
Note was nOT: been paid; and on infonnation and belief, despite
the fac:. that HAD I 0 was in default under the terms of the Note,
said Not.e was forgiven by MAXPHAR:tA in a transac'ti.on which
damaged the equity interest: of the shareholders of ~PHARMA
s~cck. Thus, KAnID is in default under the terms of the Ho~e.
81. Additionally, upon infot:71a~ion and belief, but: without
1 imi ta tion t:o the facts alleged in det.ail herein, on or about.
Mar::::h 23, 1988, ROBERTS, while act.ing as a controlling
.s h a =- e hal d e r e f ~...AX P HARM and, ci e r i V' a t i 'J' ely 0 f the :. n t: e r ~ s t
:.her-eo f in and to fJ..A..MIL:'ON-TAFT, caused HAMILTON-TAFT :'0 loan
CHR:ST::ANA the sum of Eight Hund=ed Sevent.y Five" Thousand and
No/lOO Dollars ($875,000.00), the Note evidencing wh.ich was
exec u t.ed and de 1 i \Tared by ROBERTS as chairman 0 f CHRISTIANA;
however, upon infomation and belief, CHRISTIANA is merely the
alte!" ago of ROBERTS, aC':ing solely as a conduit for the
per:or:nance of his business interest.s and as a device :0 cause
hant or prejudice to those dealing with it. Despite mul tiple

'reXPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
fOR ~1fi'ORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TROST page 49
demands for payment, no part of the CHRISTIANA Note has ye~ been
paid, and the principal amount of Eight Hundred ,

Seventy Five
Thousand and No/IOO Dollars (5875,000.00), together with in~er~st
thereon from March 23, 1988, remains due and oWing, although
demand has been made: al though, on informa tion and belief,
ROBERTS and COSTELLO may have recencly caused the indebeedness to
be forgiven, as furcher damage to the intere!t.s of the
shareholders in and to the stock of ~.AXPH.AR..'iA and HAHIL:'ON-TAFT,
as ar~i~ulated hereinabove.
82. Also, upon information and belief, but ... ithcut
limitaticn to the allegations set fo=~h herein, on or about ~uly
14, 1988, ~XPHARHA executed and delivered to ROSENBERG its
Promissory Note in the original pr':":Lcipal amount of Six :iundred
and ::'::.een Thousand and No/lOO Dollars {S61S,OOO.OOl ~·h':ch -"'as

5 e ~ t.: =e d by '!'"..... o ~i 11 ion F i f ~ Y Ni n e :- ~c usa nd (2, 0 5 9 , 0 00) 5 h a!" esc f
cc~cn s~cck of HAMILTON-TAFT, whic~ had teen theretocore ~eld by
ROBERTS execu ted and de 1 i'Je!:"ed to ROSENBERG his
personal Guaranty, guarantying the obligations of MAXP~~ under

the FIRST ROSENBERG NOTE. As of December 15, 1988, MAXP~~~ was
in default under the terms of ~he FIRST ROSENBERG NOTE.
RCSE~aERG notified ROBERTS of the default, and R"OSER:'S, upon
info:-:nation and belief aided and abetted by ROSENBERG, has
caused the indebtedness due and owing on the FIRST ROSENBErtG NOTE
to be discharged in such a fashion as to result in the 2,059,000

TE..HPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TE.MPORARY AND PERMANENT INJUNCTION J AND
APPLICATION FOR IMPOSITION OF CONSTROCTlVE TRUST page 50
shares '0 f common stock 0 f H.AMILTON-TAFT prev ious ly held
MAXP~~ to have been transferred to ROBERTS, who now holds
hundred percent (100%) of the HAMILTON-TAFT shares through
en~ity ~hich ROEERTS controls.
83. ~~TRONG would show that such transactions were mere

an attemp~ by the Defendants, acting in concert with one another
or as cont,=olled and influenced by ROBERTS, COSTELLO, PRASAD,
RADIO, VISICN, CHRISTIANA, KEYSTCNE, CR ~CQUISITIONS, ~PHARHA,
H.AMILTGN-TAFT, and BELL, to deplete and dissipate the asset.s of

MAXP~JUL~ and HAMILTON-TAFT in order to gain cont.rol of HAMILTON-
TAF~ as the major asset of ~~p~~ for an amount. of Six Hundred
and Fifteen Thousand and No/lOO Dollars (S615,000.00) I less the
fai~ market value for such stock.
84. ~~STRONG would further and alter~acively show ~~at, at
t::e ~':'::le of the loans and transfe~s of stock alleged herein,

RGeE R:- S , CG5 T:': L L a and H.A D ! D , in: h e i r res pe c t. i v e 0 r .: a rio us
capac:':'':'es as direc'Cor, officer or c:lnt.=olling sharehclder of

~?HAR.."'..A, as alleged herein, were conspiring too dissipate and
loot ~he corporate assets of MAXP~~ and its subsidiaries, and
did so through a scheme of fraud, breaches of their fiduciary and
scat~:cry dut.ies and obligations to :~e shareholders of ~~?~~
and a civil conspiracy, intentionally deceiving MA.X?HARMA,
~~ILTCN-TAFT and their respective Boards of Director~.

nHPORARY RESTRAINING ORDER, EX PARTe, APPLICATION
FOR TEKPORARY AND PERMANENT INJUNCTION, AND
85. Fur-cher and alternatively, and without limitation of
f
the facts as alleged hereinabove, the various Notes were made in
an attempt for RADIO to loot the amount of Three Million and
No/lOO Dollars (S3,OOO,Ooo.aO) from RAMILTON-TAFT and for VISION
to loot Six Hundred Twenty Five Thousand and No/lOO Dollars
(5625,000.00) from MAXPHA.RJof...A in the guise of loans to an officer
~nd direc~or of t.he corporat.i~n, and an alter ego of a
cor~oration controlled by the cent.rolling shareholder, all in
fraud upon the corporations. Upon information and belief,
VISION and HADIO never intended to repay the amounts due
~PH.AR.."'.A and HAMILTON-TAFT. The fIRST ROSENBERG NOTE !,Jas also
an attempt. to loot the sale corporate asse~ of MAXP~~ (to wit:
HA...'1ILTON-TAFT) and to essentially purchase such corporation for
:he amount of Six Hundred Fifteen T:-tousand and No/lOO Dollars
(5515,000.00), not.·",iths~anding the fac~ that the fair and
!:'easonable market value of the 2,059 COO I out-standing shares of
~~ILTON-TAFT so intended for conversion f~~m HAXPHARMA was well
in excess of such amount, so that. the ulti..rnat.e divest:.rnent from
~PHARMA of the HAMILTON-TAFT shares cons-citutes a substantial
damage and injury to ~~PHARMA.
86. ARMSTRONG would fur~her and add:t:onally show that the

Defencant.s breached thei.r fiduciary duties to MAXPHARMA in
receiving, directly or through cont=olled entities or affiliates,

TE.HPOM..RY RESTRAINING ORDER, ex PARTE, APPLICATION
FOR 'ttKPORARY AND P£RHANENT INJUNCTION, AND
personal loans from MAXPHARHA and RA.M.IL'I'ON-TAFT, which the
Defendants never intended to repay, usurpinq corporate
oppor't:unities, and convert:ing the major asset of MAXPHA:RHA for
less than fair market value.
87. AR~STRONG has made no effor't:s to, and should be
relieved from any requirement:, to have t.his sui t brought for the
consideration of the respective 80ards of Directors of ~~p~~
and HAMILTON-TAFT,· since the facts as outlined above clearly
demo ns tra t e :.ha t. any sue h e f for-=. '",ou ld be fu ti le, in that:
ROBERTS, as a controlling shareholder of ~PHARHA and ?~ILTON-
TMT, either directly or derivat.ively arising from the control
e x ere i 5 ed by ROB E RT Sup 0 n per son s whose rv e as 0 f f ice r 0 r
directors of such corporations, and now, upon informat:ion and
be 1 ie f. t.he sale shareholder of P.AMILTON-TAFT, and accordingly
c=nt~ol5 t~e 80ards of Direc:.ars of any ccr;orations or corporat.e
of::ce~s and directors as to ~hich or whom decisions with respect
to =esponse to the allegations con~ained in this Original
Peti~ian c=uld other",ise be resolved than through suit. The
Defendants, would not have taken aCl:.ions against themselves or
ot~er~ise admitted to their conversion of corporate proper~y for
less t~an fair markel: value, breaches 0 f f iduc iary duties, and
fraud in obtaining personal loans :rom the Corpora ticn, wi thcut
ever intending to repay such loans.

~RARY RESTRAINING ORDER, EX PARTE, APPLICATION
POR nKPORARY AND PER.MA.NENT INJUNCTION, AND
8S. The facts as sec forth hereinabove further evidence thE
breach of fiduciary duties owed to the :ninority sha~eholders ot
HAXP~..A including without limitation ARMSTRONG, to the'· extent
that ROBERTS, individually and in collusion and concer~ with the
other Defendants, has effectuated a transfer af the primary asset
of MAXPHARMA (viz., HAMILTON-TAFT) ''''ithout notice of the
int.ention to do so being provided to shareholders and ",olithout
affording shareholders not otherwise exc~~ded from vat.ing on said
mat.ter as a result and consequence of :he existence of a vested

inte~est in the proposed transact.ion ':0 vote on the ·sale or
transfer of the principal asse~ of ~P~JUL~.
89. Based on the foregoing, since t.he Defendants hold the
power to appropriate and distribute the asset:s of ~...A.XPP.ARH.A and
HA~I LTON-TAFT, which AR~STRONG ::-easc:;ably fears :hey will
C:::1 c. inue to do, r-t.AX?P..A.RMA and H.A.."!!~TCN-TMT will cant:inue to be
deprived cf their assets if and to the ex~enc. ROBERTS, COSTELLO,
aELL, HADID, PRASAD, CHRISTIANA, VIS:ON, KEYSTONE, and CR
ACQUISITIONS are nat stopped entirely, thereby causing shares in

both "'~PHARHA and HAMILTON-TAFT, includi~g those shares owned by
~~TRONG, to be greatly depreciated in value or rendered totally
·.Talueless.
90. The future suc::ess of ~..AXPHAR.\I.A and HAMILTON-TAFT,
under management exercising sensible :,usiness judgment and
circumstances following restoration and disgorgement. of assets

TE:KPORARY RESTRAlNING ORDER, ex PA.R'n, APPLICATION
APPLICATION fOR IMPOSITION OF CON5TRUCTI~ TROST Page 54
wrongfully divested, will be successful and will -appreciat:e
accordingly. However,
,
the conduct of the Defendants, including
-'
specifically without limitation ROBERTS, COSTELLO, RADID, SELL,
VISION, CHRISTIANA, KEYSTONE, and Crt ACQUISITIONS, unless now
prevented by injunctive decree, will des~~~y the gro~h prospects
of each of MAXPHARMA and HAMILTON-TAFT, thereby causing
ir=eparable injury to A.RMSTRONG, inci·.. . icually and in right. of
~~?~~ and HAMILTON-TAFT, MAXP~v~ and HAMILTON-TAFT and all

of their shareholders, far ·...hich t.here :'s no adequate remedy at
1aw bee a. use i tis imp 0 s sib 1 e to c: a 1 c u 1 a t. e d ama g e S IN i ~h
specificity.
91 . Fur~hermore, and not by ·... ay 0 f 1 imi ta c ion to ~ther or
addi~ional relief, ARMSTRONG would seek, by way of equitable
injunctiV'e relief from this Cou=~, ·..·h.:.ch would incl:Jde the
escablishmen1: of a construct.i'Je tr:.:s~ ~:> hold in tr.ls't the T"JO
:-filii-on Fi::y Nine Thousand (2,059,COO) shares of P..Al'!.ILTON-
TAFT now held by ROBERTS, direc~ly cr through CR ACQUISITIONS, or

to temporarily restrain the Defendants f:=om transferri.:1g such
stock, if such transfer has not as yet :ranspired, given that
such stock is or was the main asset. of !{AXPHARMA, a.nd was
wrongfully convert.ed for les 5 than fai= market value by the
cont=ollinq shareholder of ~P~~. Also, by way of equitable
relief, ARMSTRONG seeks disgorgement. of HAMILTON-TAFT steck held
P~NTIFFSf ORIGINAL PETITION, APPLICATION FOR

TE.KPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TE.JWORARY AND PERKA.N"fNT INJUNCTION, AND
by ROBERTS or any individual corporation or entity ~it.h which
ROBERTS is affiliaced or associated, that this Court set aside
any such conveyance of the HAMILTON-TAFT stock.
92. ARMSTRONG'S successful prosecu't.ion of this acti.on will
result in a substantial benefit to both ~PHARHA and HAMILTON-
TAFT, and therefore, AlL'{STRONG is en't.i tIed to reimbursement of
expenses, inc ludi..ng reasonable att.orneys' fees. In this
connection, AR~STRdNG would show that. a reasonable fee to
compensate c~e undersigned attorneys for preparation for trial of
this cause in the amount of One Hundred ~~enty-Five Thousand and
No/100 Dollars ($125,000.00) and t.hat. the expenses incurred in
the ~rosecution of this suit are expected to total in excess of
Ten Thousand Dollars (S 10,000. 00), for which further sums
~~S~RONG seeks reccver/.
COUNT TWO
Breach of Fiduciary Dutv
93. Pursuant to Tex.R.Civ.P. 58, ARMSTRONG incorporates and
realleges by reference numerical paragraphs 1 through and
including 72.
94. Due to t~e incorporation cf ~~PHARMA in Tennessee, and
the incorporation of rJL~ILTON-TAFT in California, Defendants must
adhere to the fiduciary duties and responsibilities imposed upon
them as prescribed by Tennessee and California law. The duties

TEKPORARY RESTRAINING ORDER, ex PAR~, APPLI~\TION
FOR TEliPORARY AND PERMANENT INJUNCTION, AND
and responsibilities imposed by Tennessee law would apply not
only to MAXPHARMA, as a Tennes see corporation, but' also as to
HAMILTON-TAFT as a wholly-owned subsidiary of HA..XPHARHA.
5 i mil a r 1 y , the d uti e 5 and res ~ 0 n sib i lit i e s im po sed un d e r
California law would apply not only to HAMILTON-TAFT, as a
California corporat.ion, but: also to ~PHAJUof.A, its controlling
parent corporation.
95. Specificaliy, Defendants, COSTELLO, LITCHFIELD, and
P~SAD have violated those duties and ~esponsibilities imposed
upon them as preser ibed by Tenne!!see Cede A1lnota ted S48 -18-30 1,
in that. while ac~ing as directors of ~PHAR.."!A they did not:
discharge t.heir dut.ies in good faith, nor with the care an
ordinarily prudent. person in a like posit.~on would exercise under
similar ci=c'..lIIlst.ances; and did not. act i.n a manner reasonably
=e 1 i. eved to be in r.he bes t interes t. cf the corpora tion. In
addition, Defendant.s, COSTELLO, LI7CHFI~!..O and PRASAD °Jiolated
Tennessee Code Annotat.ed 548-18-302, i.n that these directors
part:icipated in transactions in which :hey had a conflict of
in:erest bue did not meet the following dut.ies:
a. The material facts of t.he transaction and the
directors or officers interests were noe disclosed or known
to the Board of Di=ectors or committee of the Eoard of
Directors and the Board 0 f Directors or committee did not
authorize, approve or ratify such t.ransactions;

TEXPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
POR TEKPORARY AND PERKAHENT INJUNCTION, AND
b. The mat.erial fac':.s of the transaction and
directors or officers in~eres~s were not disclosed or known
to the shareholders entitled to vote, and they.· d'id not
authorize, approve or ratify t~e transaction; and
c. The transac~ions were unfair to the corporation.
96. Defendant.s COSTELLO, L::'C~F!::LD and PRASAD violat.ed
Tennessee Code Annotated §48-18-3032 (1988) by not follcwing
those requirements set ~orth in suc~ Code as it relates to loans
to directors and officers. Acc==dingly, Defendants COSTELLO,
LITCHFIELD and PRASAD would =e liable for the unlawful
distributions as set forth in Tennessee Code Annotated 548-18-304

(1988). Defendant.s COSTELLO, :":TC:iF!E:L..D and PRASAD violated
Tennessee Code §48-18-403 (19BB) :':1 that they were officers of
~P?'-AJU4'..A but did not: exercise t:-tei..~ cuties in good faith; nor
·... ith the care an crdinarily pruce!"'.t ;:erson in a like position
would exerci.se under similar circ-..:...~s~ances; and did not exercise
thei= duties in a manner r€asonably believed to be in the best

in~erest of the corporation.
97. Additionally, and in -:he alternative, Defendant.s
COSTELLO, LITCHFIELD and PRASAD have -.·iolated California Corp.

Cede §309 with respect ~o ~he dut.~es ot ~ood faith for direct.ors
and officers of California corpora-:ions. These Defendants did

TEKPORARY RESTRAlNING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PER.KA.NENT INJUNCTION, AND
not ac~ in good faith or in a manner ~hich they believed to be in
the best interest of the corporation or its !h~eholders,
including reasonable inquiry, as an ordinarily prudent person in
a like ~osition would use under similar circumstances.
98. Likewise, Defendants violated California Corp. Code
S310. Defendants participated in or were present at a Boar1 of

Di=ec-:crs meet. Lng ..... herein contracts or transactions bet...,een t.he
corporation and one or more of i-:.s Directors, controlling
shareho Ider or 0 f': icers had a rna ter ial financial interest:. The
di~ec~~rs additionally failed to fully disclose or make known the
direc'tors' financi.al interest to the shareholders and seek
approval of the t=ansaction by the shareholders, while excluding
from the vote those shares owned by interested directcrs,
officers of ccnt=alling shareholders. Additionally, upon
i:lf:Jr;:1at:ion and ::el.iei, the Defendant: direccors failed t::::l f:llly
disc~~se thei= in:eres~ in the transaction and par~icipated in a
vote by the Soard of Di=ectors approving such contract: or
transaction while counting the vote of the interested direc:.or,
conc=olling shareholder or officer, and such transaction was not
just and reasonable or for the benefit of the corpor~tion.
99,. Defendano:s, COSTELLO, LITCHF!ELD and PRASAD also

violated California Corp. ~ode §31S, in that they did not follow
t.hose presc=ibeci dut.ies imposed ..... ith respect. to loa.ns t.o or

FOR TEKPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TROST Page S9
guaranties of obligations of direc~ors or officers, or on
security of corporate shares. Specifically, the Def'ndants while
acting as directors and officers of the corporation approved
loans of the corporation to various directors, officers and
c:Jntrolling shareholders without disclosure of the transactions
and approval of the shareholders and/or the directors as required
under California law.
100. The 0 e f eon dan t 5, as dam ina n t a n d / 0 r con t r 0 11i ng
5 h are hal de r 5 a nd / 0 r off ice r 5 and d ire c t. 0 r S 0 f MAX P HA R.."'tA 0 r
ent.ities or indi . . . iduals controlled by or in concert ·,.,ith said
entities or individuals, have a fiduciary responsibilit.y to the
minority shareholders of ~XPHAR~ t.o use their ability to
con~rol ~~PHARMA and its wholly-owned subsidiary, HAMILTON-TAFT,
in a fair, just: and equitable manner. The dominant: and/or
C8:1c:-olling shareholders and/or off':'cers and directors of
~~r~~~ may not use t~eir power to control corporat.e act.i~i~ies
to benefit themselves alone or in a manner detrimental to the
minority shareholders of MAXP~~.
101. Defendants have breached thei:=- fiduciary duty by
sysr.ematically looting the assets of ~PHARHA and itg wholly-
o\o.l1ed subsidiary, HAMILTON-TAfT. ~hat looting consisted of the
borrowing and/or misappropriation of corporate assets which
Plaintiffs believe Defendant.s never intended to repay, and which
were misappropr ia t.e through the knowing and intentional use of
P~NT!FFS' ORIGINAL PETITION, APPLICATION FOR

•
fraudulent. misrepresentations. In addition, Defendants,

f
COSTELLO, LITCHFIELD and PRASAD failed properly to disc::harge
their duties as directors and/or officers in MAXPH.A.fUI...A. Such
duties included, but. are not limited to, the dut.y to act in good
faith and with the care an ordinarily prudent person in a like
position would exercise under similar circumst.ances and in a
manner he reasonably l:elieves to be in the best interest: of the
cor;=oration. Defendant.s COSTELLO, LITCHFIELD and PRASAD did not
meet these st.andards and breached their fiduciary duties to
Plaint.iffs ~PHAR...U.A and A..FJof-STRONG, both individually and as a
shareholder of ~~PPJUl~. Furt.hermore, these Defendants breached

their fiduciary duties, in :hat they participat.ed in transactions
concerning the corporation in which a director or officer of the
cor;:oration had a direct. or indirec-:: interest. COSr2:LLO,
LITC:::IELD and PRASAD breached their fic.uciary duties, Ln that
the material fact.s of :he transactions concerning VISION,
CHRISTIANA, ROBERTS, and HAD! 0_ -were not'. disc losed or knoown t.o t.he
shareholders ent.itled t.o vote. In addition, these shareholders
did not authorize, appro\re or ratify such transactions. !n
addition, such transactions were unfair to the corporation.
Lastly, Defendant.s breached their fiduciary duties because they
had an indirect:. int.erest: in the transactions stated above, and
such indirect. interests were not made known to the shareholders

~RARY RESTRAINING ORD2R, EX PARTE, APPLICATION
FOR nKPORARY AND PERKAHEJIT INJUNCTION, AND
i
entitled to vote in MAXFHARMA. As a direct and proximate result,
the Plaintiffs have suffered actual damages in e~ce5s of 514
million for which Plaintiffs seek recovery.
102. By vir~ue of the willfull and malicious fraudulent acts
of the Defendants and their breach of thei~ fiduciary duties owed
c:y ':ohern to the Plaintiffs and it.s subsidiaries, Plaintiffs are
e!ltitled to recover exemplary damages. P lainti f fs show tha t an
award of substantial exemplar! damages is necessary to serJe as a
det=iment to such unconscionable conduct. Accordingly,
Plaintiffs hereby seek recovery of exemplarj damages in an amount
in excess of the minimum ju~isdic~ional l~its of the Court.
COUNT THREE
Consoiracy
103. Pursuant. ~o Tex.R.Civ.P. 58, AR.'l-5TP.ONG incorporates and
=e~lleges by reference numerical paragraphs 1 t.hrough and 72.
L04. De fendants ent.ered int.o a conspiracy to diminish the
'.ral'.Je of Plaintiff AR.."tSTRONG'S invest.:nent in MAXPHARHA and also
entered into a conspiracy to loot the assets of MAXPHARMA and its
who lly-owned subs idiary, HAMILTON-TAFT, for the personal g~in 0 f
Plaintiffs, all to the damage and detr:-rnent of MAXFHARl"'..A and to
Ail"'!STRONG, both individually and as a shareholder of l'f..AXPHAR.MA.
Defendant.s acted in a CO!tUTlon design in concerted action to loot

the assets of MAXP~~ and its subsidiaries. This common design
was carried out in overt acts by Defendants through

TEMPORARY RESTRAlNING ORDER, EX PARTE, APPLICATION
POR TEMPORARY ANTI peRMAN"eNT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTTVE TRUST Page 62
systematically making personal loans to Defendants. In addition,
Defendants I common designs were carried out. in ov,r1; acts by
divestment and alienation from MAXPRARMA of HAMILTON-TAfT_shares
and forgiveness of no~es payable. Defendants' actions caused the
val ue 0 f ARMSTRONG'S shares in MAXPHARHA to dec 1 i ne . In
addi tion, De fendan ts I actions caused damage and detriment: to
~.AX?H.AR-'{A and its subsidiary in an amount: in excess of the
minimal jurisdiction~.of this Cour~.
105. Specifically, pursuant to Tennessee common law, the
Defe~dants committed a civil conspiracy to diminish .the value af

P1a i n t. iff A Rl-f..5TRONG • S inves t:nent. in MAXPHA.R.MA and to looe. the
assets of ~~PHARMA and its wholly-owned subsidiary ~~ILTON-TAFT
for personal gain, in that the Defendants conspired to commit an

unlawful pur?ose, that of looting the assets of ~~p~~ and its
51..:::5 id':'ary, or sought to accomplish a legitimate purpose by
uniat,,;ful means, in that the Defendants conspired to c::mrnit. an
un~awiul ~urpcse, that of looting the assetS of ~~p~~ and its
subsidiary, HAMILTON-TAFT, for personal gain, in that the
Defendants conspired to commit an unlawful purpose, that of
loo~ing the assets of MAXPHARMA and its subsidiary, or sought to

acc::mplish a legitimate purpose by unlawful means, in ·.riolating
t.he Tennessee corporate law and acted in a concert of action,
cc~~it.ting overt ac~s and for a common design.

FOR ttMPORARY AND PERHANEHT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTrvE TRUST Page 63
106. In addition and in the alternative, the Defendants
ccmrnitted a civil conspiracy under California law, fn agreeing

and conspiring and combining to do a civil wrong, that of
conspiring to loot. the assets of MAXPH.AJUI.A and its wholly-owned
subs idiary J HAMILTON-TAFT, for personal gain of the Def endants I
all to the damage and detriment: of MAXPHARMA and Plaintiff
~~TRONG in violating California corporate laws regarding loans

to officers, direct.ors anc cont.rolling shareholders wit.hout. the
specific approval of the shareholders or non-int.erested
di=ectors I and by other.. . ise looting the corporat.ion and paying
exorbitant. salaries and bonuses of officers, direct.ors arid
controlling sha.reholders, all to the damage and detri.rnenr. of
XAX?~~, KAMILTON-TAYT and ARMSTRONG.
COUNT FOUR
Fraud
107. ?ursuant t.~ Tex.R.Civ.P. 58, ~~STRONG incorporat.es and
realleges :Jy reference numerical paragraphs 1 through and
including 106.
108. As set for~h above, Defendants committed fraud pursuant.
to Tennessee common la~, in committing fraudulent acts, omissions
and concealments which involved a breach of their legal and
equitable duties, that as directors, officers and controlling
shareholders of M.AXPHAR.M.A" and/or breached the trust. and/or

TEMPORARY RESTRA1NING ORDER, EX PARTE, APPLICATION
FOR tt.KPORARY AND PERMANENT INJUNCTION, AH'O
confidence placed upon such Defendan~s as director~, officers and
ccn~rolling shareholders of MAXPHAlUC'..A, which re!lultf!d in injury
to ~AXPHARMA and ARMSTRONG, both individually and as a
shareholder of l"'-A.XPHAR.."i.A. Specifically, Defendant.5, through
va rio usa c ~ s, s Y5 t em a tic a 11 y 100 ted the co rpo r a ~ e ass e t 5 0 f
~XPHARM.A. and its subsidiary, HAMILTON-TAFT resulting in an
undue a~d unconscien~ious advan~age being taken of !-!A.XPf-:..A..RJ-f...A,
HA1-!ILTON-TAFT and AR~STRONG, both individually and as a
shareholders of MAXPHARJ-f...A. All such aCl:S, omissions and
c::mcealmenl:.s resulted in injury to the Plain~iffs in excess o~
t~e minimal jurisdictional limi ts of this Cour~.·
r09. Additionally under Tennessee law, the Defendants
ccmmitted actual fraud, ,,",hereby by their act.s, omissions and
c:=:""cealments, they systematically looted the corporate assets of
~.I_~X?!iAR~ and its subsidiary, HAMILTON-TAFT, and intentionally
c::::1cea led their actions, thereby inducing and caus ing the
rerna ining 0 f fleers, direcr;ors and shareholders 0 f ~PHAR...1 {A not
t:J ac"=., all to the injury of ~PHARMA, HAMILTON-TAFT and
Plaint.iff ARMSTRONG, both individually and on behalf af
110. In the alternative and in addition, the Defendants
committed a fraud under California laW', in that the material
misrepresentations regarding their aC1:S and omissions regarding
va~:ous loans to direct.ors, officers and controlling shareholders

FOR ttMPORARY AND PERMANENT INJUNCTION, AND
cf ~..A.X?HARMA, making false representations and conce'aling such
I
loans ·,.;hich resulted in the looting of the assets of l-"-A.XPHARMA
and its subs idiary, HAMILTON-TAFT, and in violat.ion of their
fiduciary dut.ies, failing to disclose such fraudulent acts, with
knowledge of such fraud, with the intent to cause the inducement
and reliance of the shareholders of MAXP?.ARMA, to rely upon the
good :aith act.ions of t.he Defendants, and upon ~hich the
shareholders of l"..AXPHARHA... did rely, =esulting in damage to
~..AXPHAR."'.A, HAMILTON-TAFT and A.RMSTRONG, ~ot.h individually and as
a shareholder of MAXPF~, in an amount in excess of the minLmal
j~risd:c~~onal limits of this Caur~.
~:i. By vir~ue of the willful and malicious fraudulent. acts
of the Defendants and their breach of the fiduciary duties owed
cy the~ to the Plaintiffs and thei= subsiciaries, Plaint~ffs are
e~:.i':.':ed t.o r-eccver exem;J1ar"l damages. Plaint.if:s would show
t~at. a~ award of substantial exemplary damages is necessary to
serve as a dec.errent t.o such unconscionable conduct..
Ac=~rc~~gly, Plaintiffs hereby seek recovery of exemplary damages
i:1 an ~ount in excess of the minimal jurisdictional li.!nics of
the C-:::.l!'~.
::~. In addition, t.~e Defendants tliolaced Tennesse~ Code
Annotat.ed S48-22-102, in selling, leasing, exchanging or
ot~er~lse disposing of all or subs~antially all of the assets of
~~PHA~~ ocher than in the usual and regular course of business,
PLAINTIPFS' ORIGINAL PETITION, APPLICATION fOR

tt.'U'ORARY RESTRAINING ORDER, EX PARm, APPLICATION
FOR TEMPORARY AND PERMANENT INJUNCTIon, AND
•
in failing to propose and present to all of the shareholders of
lI...AXPHARJoI..A for a vote the proposed dispos ition 01 MAXPHARHA' 5

~
shares in H.A.MILTON-TAFT. Specifically, the Board of Directors
failed to recommend the proposed transaction to the shareholders
or other~ise communicate such transaction to the shareholders to
allew the shareholders to vote on approval of such transaction.

Addi.~ianally, the corporat:cn failed to not.ify each shareholder
of a proposed shareholder's meeting with requisite notice, in
or::er ta cons ider the sale, lease, exchange or ot.her dispas i tion
af ~he HAMILTON-TAFT stock. Accordingly, the sale is void and

t~.e Defendants breached their fiduciary duty to all of the
shareholders of ~p~~ pursuant to 548-22-102 of the Tennessee
C::ce Annot.at.ed.
comrr PIVE
Plaintiffs' Entitlement to Injunctive Relief
~13. Pursuant to Tex.R.Civ.P. 58, ~~TRONG incorporates and
real!.eges by reference numerical paragraphs 1 through and
incl.uding 112.
114. Plaintiffs would show t.hat Defendants have entered into
a c~urse of conduce which has syste~atically looted the co~orate
assecs of MAXPHARMA and its subsidiary, H.AliILTON-TAFT. In

adci-:':"on, the looting of the corporate as!et.!! hag been done by
way a f loans made to the De fendants for the Oefendan~.!!' personal

uses and by way of divestment from MAXPHARMA of its principal
asset (viz., HAMILTON-TAFT).
PLAINTIPFS' ORIGINAL PETITION, APPLICATION FOR

T~RARY RESTRAINING ORDER, EX PARTE, APPLICATION
POR TEMPORARY AND PE~ INJUNCTION, AND
115. The con d u c t oft h e De fen dan t s, e i the r. in the i r
capacities as officers, directors, shareholders,' controlling
persons, and encities or individuals in aid and concert thereof,
as manifest and evident thrcugh the concerted course of conduct
since January, 1988, through and including the present, to loot
and rape the assets of MAXPHA..RM.A through a process ,-,hereby the

pr~~ary asset of MAXPHARMA (viz., HAMI~7CN-TAFT) has been first
caused to reckless-1y disburse funds :::-om the HA.'iILTON-TAFT
CGNC£NTRATION ACCOUNT FUNDS and, thereai~er, to permit its shares

t:l be di'lested and alienated from ~PP.AR.."1A, combined with thl:!
failure of the Defendants in their capac:ties as set for~h above

to ?roperly account and protect for the interest of MAXPP~~ and
H.A1'!ILTON-TAFT, patent.ly eStablishes t.he need for impos ition by
t~e Ccur~ of injunctive relief, par~icularly in view of previous

al:=gatians which have been asserted in c~her litigation, none of
·... hi::~ has successfully impaired the Jngoing deliberate and
wlllfall plan and scheme as demonstrated herein.

116. Plaintiffs accordingly show 'that the MAXPHAR."'!A stock
is i.n immediate danger of loss and/or diminution in value by
reason of the conduct on the par~ of the Defendants. The conduct
on ~ehalf of Oefendan~s as set for~h herein poses a c lear and
i~~diate threat of substant.ial harm, injury and diminution and
value to the HAMILTON-TAFT st:.ock, as ~ell as to the ~PH.A.RMA

POR ITKPORARY AND PERKANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST Paqe 68
stock. The potential loss, harm and injury cannot b~ accurately
measured; therefore, Plaintiffs are without an adequAte remedy at
law. rf the Defendants are not restrained and enjoined from
obtaining funds, by loan or ot.herwise from MAXPHAR..1ofA and/or
HAMILTON-TAFT, and are not enjoined from attempting to pledge

~PPJUl~ or HAMILTON-TAFT stock, they will continue to take such
act.i-ons which are detrimental and damaging to MAXPH..AR1-''}' and
A..R."!.STRONG, bach indiVidually and as a shareholder of ~PHARHA,
i.ncluding without limitation rendering disgorgement and

re?lacement to be impossible to implement or remedial measure to
rest:ore and preser..re ~PH.ARMA and HAMIL:'ON-TAFT and t:J.e equity
interests of shareholders therein. Such damages and injuries are
cont.i-nuing and to a large degree are incalculable. Plaintiffs
have no adequate remedy at law.

~H=:REFORE, PRE~ISES CONS IOEREO, :!AXPHARMA and AR..'"!STRONG,
bot~ incividually and as a shareholder cf ~~PHARMA, respec~:ully
~ray tha~ ~he Court:
1. Enter an order directing t.hat t.he Clerk of this Cour-c.

shall forthwith issue a Temporary Restraining Order, to continue
i:1 effect until the conclusion af the hearing on the Temporary
rnj~nc~ion hereinafter set, or until furt.her Order of this Court,

rest.raining and enjoining Defendant.s, their officers, agents,
ser-.·ant.s, employees, and attorneys, and those persons in active

TEMPORARY R..ES'I'RAlNING ORDER,
EX PARTE, APPLICATION
FOR nKPORARY AND PERMANENT INJUNCTION, AND
----
concert or participation with such persons or entities who
receive actual notice of the Temporary Restraininq I Order, from
the :allowing:
a. Directly or indirectly obtaining, acquiring or
other.,-ise transferring, whether by loan or otherwise,
singularly or in combination, any funds or assets of VISION,
CR ACQUIS ITIONS, HAMILTON-TA..F~ and/or MAXPHARHA including
',.,.i thou t limitat.ion the HAMIL:'CN-TAFT CONCENTRATION ACCOUNT
FUNDS or any funds or assets cist=ibuted from HAMILTON-TAFT
to any of the Defendants s':"nce December 15, 1988 (the'
., FUNDS") other than in the normal and ordinary course of
business and for adequate consideration: and
b. Directly or indirectly assigning, transferring,
pledging or granting or attempting to grant to any third
t=a=t.y any security int.erest, :'ien, mortgage or any other
En~ of encumbrance on the s~=ck of either MAXP~~ and/or
~~~ILTON-TAFT and/or on the FUNDS.
c. Mandator i1y requiring t:hat: any of the De fendant.s
involved with the distributicn at any time since December
15, 1988, of monies from the HAMILTON-TAFT CONCENTRATION
ACCOUNT for any purpose other ~han the payment of client tax
matters, including without limitation in re~pect thereto the
distributions made on February 14 and February 15, 1989, in
the amoants of 52 million and 51.5 million, respectively, be

TEMPORARY RESTRAINING ORDER, ex PARTE, APPLICATION
POR TEMPORARY AND PERHAHEN1.' INJUNCTION, AND
required to reverse said transac~ions and restore the funds
,
to the HAMILTON-TAFT CONCENTRATION ACCOUNT until further
order of the Court:
d. Mandatorily requiring that. any of the Defendants

involved with the sale or transfer on or about February la,
1989, of any shares of KAMILTON-TAFT stock from ~~PHAR¥A to
any o~her of the Defendants ~~cluding without limitat.ion CR

A.CQUISITIONS, . or third-par-:y individuals or entities be
required to reverse said transactions and restore any such

HAMILTON-TAFT stock to MAXP~~ un~il further or=er of the
Court;
e. Altering, modifying, destroying, concealing,
relocat.ing from their normal location, or in any otherJise
irnpai=ing the discoverabiii:y of any of the records or

documents of the Defendants relat.ive to the receipt or
transfer of any asset.s or ?r=:perty since January 1, 1988,
fro m MA XP HARMA 0 r HAM I L TON - T AFT , inc 1 u din g wit. h 0 U t
limitation in respect thereto any funds distributed from the
HAMILTON-TAFT CONCENTRATION ACCOUNT or the st.ock regis~ers
of MAXP~~ or HAMILTON-TAFT, but not by way of limitation
in respect t.heret.o, particula~ly with respect. to accounting
records evidencing t:te distribution of any funds to any of
the Defendant.s and any enti:y or individual associat.ed or
affiliated ~ith or controlled by any of the Defendant.s.

FOR T"eXPORARY AND PERHAHENT INJUNCTION, AND
2. Defendants be cited to appear and !lhow cause and that
,
upon hearing, a Temporary Injunction be issued enjoining and
restraining Defendant.s their agents, at.t:orneys, representatives
from directly or indirectly obtaining, acquiring or othe~Jise
trans fer=inq any funds-, by loan or other-rise, from MAXPH.AR.MA
and/or HAMILTON-TAFT and from assigning, transferring I pledging
or g~anting, or attempting to grant. to any third party a securi:y
in t.eres t., 1 ien, me rtgage, or ather enctL"':'tbrance on the MAXPHARJof.A
stock and/or HAMILTON-TAFT st.ock pending a hearing on tl1e
Pe~anent Injunction;
J. That Defendants be cited t.o a;:pear and ans'''''er herein
and that upon final trial hereof eno:er a Judgment. against:
Defendant.s, jointly and severally, for actual and ccnsequential
damages f:;r the violation of ~hei= fiduciary duties t~
Plaincif:s;
"'. :udgment: against Defendant.s, jcintly and severally, for
ac~ual and consequential damages arising cut of Defendancs' civil
cons~iracy against Plaintiffs:
5. Judgment against Defendants for actual and
consequenc.ial damages result.ing from the willfull and :nalicious
fraudulent. conduct. of Defendants:

POR TEKPORARY AND PERMANENT INJUNCTION, AND
6. Judgment against Defendants, jointly and sev~rally, for
exemplary damages resul tinq from Defendants' fraJdulent acts,
civil conspiracy, and breach of ~heir fiduciarf duties· againsl:

Plaintiffs;
7. Attorneys' fees in a reasonable amount as dete~ined by
the Cour'C.
8. Costs of suit;
9. Interest after Judgment as provided by law from the
date of Jucgment until paid;
10. Such other and further =,=1ief to which Plainl:iffs may
be justly entitled.
Respec~fully submitted.
C;:::DWIN, CARLTON , MAX"J'lELL
I~~~\ill.l--
By:
~~
DAVID N. EVERETT
Bar Card No. 06745:00
JOHN C. BUSH
Bar Card No. 034962~O
3300 NCNB Plaza
901 Main Street
Oallas, Texas 75202-]714
(214) 939-4400
A~ORNEYS FOR PLAINT!F'!'

CONNIE C. ARMSTRONG
PLAJNTIFFS' ORIGINAL PETITION, APPLICATION FOR

TEKPORARY RESTRA..INING ORDER, EX PARTE, APPLICATION
FOR TE.KPORARY AND PERKA.HEHT INJUNCTION, AND
VERIFICATION
STATE OF TEXAS S
S
COUNTY OF DALLAS §
BEFORE ME, the undersigned Notary Public, on this day
personally appeared CONNIE C. ARMSTRONG, known to me, who being
duly sworn on his oath deposed and said that he is over the age
of twenty one (21 ) years, 0 f sound mind and competent to make
this Affidavit; that he has read the above and foregoing
Plaintiffs Original Petition, Application for Temporary
Restraininq Order, Ex Parte, Application for Temporary and
Permanent Injunction, and Application for Imposition of
Cons tructive Trust, and that based on his review of pertinent
filings by MAXPHARMA in the form of 10-Q'5, 13-D's, lO-K's, and
similar securities filings, as well as conversations with
COSTELLO and BARTLETT, as further augmented by pleadings filed in
the MAXPHARMA/ROBERTS SUIT, and including without limitation in
respect thereto the proceedings with regard to injunctive relief
conducted therein and testimony provided pursuant theret:o, in
conjunction with his personal knowledge, the facts contained in
this Petition are within his personal knowledge and are true and
correct. ·1
" ,
/ ."
,/ I , I
/ ~ ."~ , '-- -6' .. ...t::".
eONNIE C. ARMSTRONG.
//

TE..MPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PERKAHEHT INJUNCTION, AND
SUBSCRIBED AND SWORN TO BEFORE ~, by CONNIE C. ~~TRONG on
this /~z::l.L day of FebruaryJ 1989, to certify which wit'hess my
hand and official seal of office.
NOTARY ~UBLIC IN AND FOR

T~E STATE OF TEXAS
~fPed/P~inted Name of Notary:
~y C~mmis5ion Expires:

APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TROST Page 7S
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CASE SUMMARY
PROCEDURAL POSTURE:
OVERVlEW:
OUTCOME:
CORE TERMS:
LexisNexislRI Headnotes
COUNSEL:
JUDGES:
OPINION BY:
OPINION:
176 B.R. 895, "; 1995 Bankr. LEXIS 45, ~;

SHEPARD'~
32 CoWer Bankr. Cas. 2d (MB) 1727; 26 Bankr. Ct. Dec. 665
In re HAMILTON TAFT & COMPANY, Debtor. FREDERICK S. WYLE, Trustee of Hamilton Taft & Company, Plaintiff, VS.
HOWARD, WElL, LABOUISSE, FRIEDRICHS INCORPORATED, a Louisiana corporation; HOWARD WElL FINANCIAL
CORPORATION, a Louisiana corporation; and LEGG MASON, INC., a Maryland corporation, Defendants.
Chapter 11, No, 91-3-1077-TC, Adv. No. 93-3-121-TC
UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
176 B.R. 895; 1995 Bankr. LEXIS 45; 32 Collier Bankr. Cas. 2d (MB) 1727; 26 Bankr. Ct. Dec. 665; 32 Oil & Gas Rep. 1727
January 18, 1995, Decided

January 19, 1995, FILED
CASE SUMMARY
PROCEDURAL POSTURE: Chapte~ II bankruptcy trustee brought an aC1:ion to recover, a! a fraudulent conveyance, transfer! mad" by
defendant pursuant t.o a reverse repurchase agreement used to facilitate Co leverag~d buy cut under 11 U.S_C.S, § 546{e:.
OVERVlew; Chapter 11 ban~rup[cy tru~~ee brought an aCLion to recover. es c fraudulent conveyance [ransf~r~ mad~ by defendant
j
pursuan~ (~ C reverse r~purcha5~ cgreement used to tacjli~ate leveraged bUyou!. The ~ourt held that the Ban~rup[cy Cede ICodel,
l' U.S.C.S. § 546lel, prevented t.ruste~ trom recm,oerin9 such transfers. ThE: transaction in which debt.or sold a trea'!;ury bill to
defendant u!te~ agreeing LO repurchase the bi11 came within the broad definition of settlement payment under ~ht Cooe, 11 U.S.C.S.§
546(e!, defining settj.ernent payment as an}' transfer of cash or secu=it.ies c:ompletinQ G securitie.s tI"ansactlon. Fur-t.hern,ore, even
:if defendant knew that transactiofl was pert of C: leverogeri buyout~ the transact:ion could not. be recovered c!: g fraudulent
transfer because th~ (Dd~, § ~46(e)f barred recover, of settlement payments more [han one year pre-petition irrespective of
':Jefendant"'s mental sr,atf"!. The co~rt a150 hf!ld that the Cod~, 11 U.S.C.S. §544(bl , deprived trustee of ~tanjing :;0 assert ~ clainl for
aiding end cbetting a fraudulent transfer.
OUTCOMe: The Bankruptcy Code barred trustee's fraudulent transfer action. The transaction ~here debto~ sold defendant a treasury
bill after ilgceeln9 Co repurchasl:' th~ bill came wit.hit; the Bankrupr.q.' Cooe'!; definit.1on of sett]em~nt pa}"ment. Even If d~fendant
Knew that ~n~ ~ransactio" wa~ ~art of Q ie~eraged buyout, no reccvery was possible b~cause the Bankruptcy Cede barred se~tlemenl
pa~~ent recovery one year po~:-petition.
CORE TERMS: repo, settlement payment, stockbroker, commodity, broker, aiding and abetting, shareholder, transferred,
settlement, fraudulent conveyance, summary judgment, handling, fraudulent transfer, stock, forward contract, clearing,
merchant, reverse repurchase agreement, repurchase agreement, present action, prepetition, undisputed. repurchase. buy.
dealer, chain, legislative history, cause of action, insolvent, defraud
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HN1Summary judgment lS properly granted when there is no genulne issue of mater1al f~ct and the moving party is entJ~led La
± Judgment as a matter uf laM.
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Limitations on Trustee's Power
HN2 See the Bankruptcr Code. 11 U.S.C.S, § 546 (e) .
±
HN3 Congress enacted Bankruptcy Code, 11 U,S.C.S. § 546 (e). to protect thl;< nau.on' 5 financial markets from the instability caused by
± the reversal of settled securitles transact lOriS .
HN4 Repos and Reverse Repos are securities transactions covered by Bankruptcy Code. 11 U.S.C.S § 546 (e) .
!
HN51n a Repo arrangement, the dealer sell~ specified 5ecuritle~ to =
purchaser, but also agrees to repurchase the securi~ies
+ later at the original price, plus an agreed upon additional amount usually representing interest on the original pu~chase
~ price. A Reverse Repo basically is the reverse: the dealer buys securIties and agrees to resell the securities to the seller
in the future. Reverse Repos can function as a loan. The seller receives cash for the securities, but must repurchase the
securities in the future at the same price. Thus. the securities sold to the dealer can be viewed as being colla~eral far a
loan.
Bankruptcy LaW> Case Administration> Examiners. Officers & Trustees> Limitations on Trustee's Power
HN6 Whether a transaction is a Repo or Reverse Repo covered under BanJ:ruptcy Code, 11 U.S.C.S. § 546 Ie l, is HI be governed by an
± objective test.
HN7 Severa 1 courts have also held tha t Bankruptcy Code, 11 V.S.C_S. § 546 (e ~, cover~ unusual as well as rou tine securities
± t ransa C"tions.
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Umitations on Trustee's Power
HNBThe Bankruptcy Code, 11 U.S.C.S.&546(e), does not caver only Repcs and Reverse Repos; it covers all types of secu::-ities
± transactions. The Bankruptcy Code, 11 U.S.C.S. § 546 (e), includes ;: transfer of securities that completes any securities
t ransa etion.
Bankruptcy Law> Liquidations> Clearing Banks, Commodity Brokers & Stockbrokers
HN9 See the BanKruptcy Code, 11 U.S.C.S. § 741 (8) .
±
Bankruptcy Law> Case Administration> Examiners. Officers & Trustees> Limitations on Trustee's Power
HN20A settlemen~ payment clearly includes a transfer of securities that completes a securities trans3ctlOr..
±
HN21Settlement payment includes any transfer of cash or securities toward completion of a securities transaction.
±
HN12 See the Sankruptq Code. 11 U.S.C.S. § 546 (f1 .
±
Bankruptcy Law> Case Administration> Commencement> General Overview
HN13 See the Eankruptcy Code, 11 U.S.C.S. § 101 (4Ill.
±
HN14Thf' Bankruptcy Code ICode), 11U.S.C.S §546(f), wa!O int.ended to supplement rather than narrow Code, 11U.S.C,S.§546Ie), and a
± defendont thc;!. qualifies under Code, 11U.S,C.S.§546(el, as i":. 5toc~.broker need not quality under Cede, 11U.S,C.S.G546(fl. as a
repc participant.
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Fraudulent Transfers> Constructively Fraudulent
Transfers
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Fraudulent Transfers> Elements
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Fraudulent Transfers'> Intent
HU15Thf' Bankruptcy Code, 11 U_S.C.S, § 546 (e}, cont.ains c; limite~ el".cep~ion fo:- cases lnvolv.lnr;Y actual fraUd. Ttl", st.atute does nDt
.., b"r actious brOl:aht under the Bankruptcy Code, 11 U.S.C.S, § 548 (a) {i I, which allows", trustee tu recover c transfer mad(; wi thH,
~, Dne year before the petitlon :late with actual intent to hInder, delaj'. or defraud cre::iitc's. The Ban!;ruptq' Code, 11 U.S.C.S. §
546 (e), does ba::::- actions brought under the Bankruptcy Code, "U.S.C S. § 544 (using state fraudulent com/eyance statutes) ttl
reccve:- transfers made mere that; cn(! year prepetitiClJ ...itr, actucl int~nt tt: hinde:, delay, Dr :Jt'fraud cn:dirors.
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Bankruptcy Law> Bankruptcy Crimes

HN16Californi2 courts per~it c credltor to r~cover civii damage~ from those who conspire to transfer property of a debtor to
± hinder, oelay, or defraud credltOrs.
Bankruptcy Law> Bankruptcy Crimes

Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Duties & Functions> Reorganizations
Real Property Law> Purchase & Sale> Fraudulent Transfers
HN17A debtor's banr.ruptcy trustee is not authorized to pursue every ac~ion that credirors of th~ debtor might pursue.
±
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Voidable Transfers> Unsecured Creditors
Bankruptcy Law> Claims> Allowance
HN1.8 See the Bankruptcy Code, 11 U.S.C.S. § 544 (bl .
±
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Fraudulent Transfers> General Overview
Estate, Gift & Trust Law> Trusts> Trustees> Duties & Powers> General Overview
trusLee's pDwer to avoid fraudulent trDnsfers does not enable a trusLee to recover damages for aiding and abetting c
±
HN19A
fraudulent transfer.
COUNSEL: [-1] J. Michael Kelly, Esq., COOLEY GODWARD CASTRO, San Francisco, CA, OF COUNSEL.
Thomas K. Potter, Ill. Esq., JONES, WALKER, WAECHTER, POITEVENT, CARRERE & DENEGRE, New Orleans, LA,
Counsel for Defendants, Howard, Weil, LaBouisse, Friedrichs Incorporated; Howard WeiI Financial Corporation; and Legg
Mason, Inc.
L.J. Chris Martiniak, Esq., FELDMAN, WALDMAN & KLINE, San Francisco, CA, Counsel for Plaintiff, Frederick S. Wyle,
Trustee.
JUDGES: Thomas E. Carlson, United States Bankruptcy Judge
OPINION BY: Thomas E. Carlson
OPINION: [·897] OPINION
Thomas E. Carlson, Bankruptcy JUdge.
The principal question in this case is whether section 546(e) of the Bankruptcy Code bars a trustee from recovering as a
fraudulent conveyance transfers made by a stockbroker pursuant to a reverse repurchase agreement used to facilitate a
leveraged buyout. I conclude that there are no genuine issues of material fact and that section 546(e) bars trustee's action,
and therefore grant summary judgment for defendant.
FACTS
The material facts are not in dispute. On December 3D, 1987, MaxPhanna, Inc. paid Connecticut General Corporation
(CIGNA) $ 500,000 for an option entitling it to purchase stock of Debtor Hamilton Taft & Company [....2] (Debtor) from
CIGNA for $ 4,100,000. MaxPharma could exercise the option only through January 29,1988. The $ 500,000 option price
was applicable to the purchase price, but was otherwise non-refundable. MaxPharma was unable to find a lender willing to
arrange financing through a "stock loan," whereby Debtor's stock would be used as collateral to secure the loan. Defendant
Howard, Weil, Labouisse, Friedrichs Incorporated (Defendant) informed MaxPharma that it did not make "stock loans," but
could lend money with a treasury hill as security by performing a reverse repurchase transaction.
On January 28, 1988, Debtor wired $ 5.0 million to Defendant. On January 29, 1988, Defendant used approximately $ 4.9
million of those funds to purchase for Debtor a gO-day T-Bill having a face value of $ 5.0 million. On the same day, Debtor
sold the T-Bill back to Defendant for $ 4.1 million, subject to a reverse repurchase agreement, under which Debtor agreed to
repurchase the T-Sill in 90 days for the sale price plus interest.
What happened to the $ 4.1 million is contested by the parties. Debtor's chapter 11 trustee (Trustee) contends that the $ 4.1
million was transferred directly to MaxPharrna immediately [**3] upon sale of the T-Bill. Defendant claims that it credited
Debtor's account for $ 4.1 million, and that those funds were subsequently wired to MaxPharma. For the purpose of the
present motion, I accept Trustee's version of the facts. It is undisputed that Debtor transferred the funds to MaxPharma at
the request of Debtor and that MaxPharma used $ 3.6 million to purchase Debtor's stock from CIGNA.
When the 90-day repurchase agreement matured, Debtor rolled over its obligation into new T-Bills and later into T-Notes. In
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January 1989, Debtor directed Defendant to sell the T-Notes and apply the proceeds to satisfy uebtor's obligation under the
reverse repurchase agreement.
Creditors filed an involuntary chapter 11 petition against Debtor on March 20, 1992. Trustee was appointed on March 26.
1992. An order for relief was entered on May 31,1992. Trustee filed the present action on March 26, 1993. ~e
contends that the transaction involving Debtor. Defendant, and MaxPharrna was in substance a leveraged buyout (LBO), in
which MaxPharma used Debtor's funds to_purchase CIGNA's stock in Debtor. Trustee further contends that the transaction
rendered Debtor insolvent-and that the LBO therefore r4] constituted a fraudulent conveyance. In the present action,
Trustee seeks to recover, pursuant to California Civil Code sections 3439.04 and 3439.05 and Bankruptcy Code section
544, the value of the $ 5.0 million T-Bill transferred from Debtor to Defendant on January 29, 1988, or the $ 4.1 million
proceeds of the sale of that T-Bill that were transferred from Defendant to MaxPharma the same [*'898] day. n1 Trustee and
Defendant filed cross motions for summary judgment.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n1 Trustee previously filed a similar action against CIGNA. That action was settled by the parties before trial.
- - - - - . - - - - - - End Footnotes- - - - - - - - - - - - - •
DISCUSSION
Standard for SummaI)' Judgment
HNl+"Summary judgment is properly granted when there is no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law." Clipper Exxpress v. Rocky Mountain Motor Tariff Bureau. Inc.. 690 F.2d 1240.1250
(9th Cir. 1982), cert. denied, 459 U.S. 1227. 75 L. Ed. 2d 468. 103 S. Ct. 1234 (1983). [....5]
II
Section 546(e) Defense
Defendant contends that Trustee's action is barred under section 546(e) of the Bankruptcy Code. That section provides:
HNZ.notwithstanding sections 544, 545, 547, 548(a}(2), and 548(b) of this title, the trustee may not avoid a
transfer that is a margin payment, as defined in section 101(34),741(5), or 761(15) of this title, or settlement
payment, as defined in section 101(35) or 741(8) of this title, made by or to a commodity broker, forward contract
merchant. stockbroker, finanCial fnstitution, or securities clearing agency, that is made before the commencement
of the case, except under section 548(a)(1) of this title.
11 U.S.C. § 546(e). HN3'tCongress enacted section 546(e) "to protect the nation's financial markets from the instability
caused by the reversal of settled securities transactions." Kaiser Steel Resources. Inc. v. Jacobs. 110 BankL 514, 522 (D.
Colo. 1990). affd, 913 F.2d 846 (10th CiL 1990) (citation omitted). Trustee does not contest many of the elements of the
section 546(e) defense: that Defendant is a stockbroker, that the [**6] T-Bill transferred was a security, and that the present
action is brought under section 544. Trustee contends that section 546(e) does not apply. however, because: (i) the
transaction was not a true repurchase agreement (Repo). (ii) the transfer of the T-Bill to Defendant was not a "settlement
payment," (iii) the present transaction is governed by section 546(f}. and (iv) section 546(e) should not be applied to LBOs.
A. Whether Transaction a True Repo
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Defendant characterizes its transaction with Debtor as a reverse repurchase agreement (Reverse Repo). HN~The Ninth
Circuit has held that Repos and Reverse Repos are securities transactions covered by section 546(e). In re Comark. 971
F.2d 322. 325 (9th Cir. 1992) (Comark I); In re Comark. 145 Bankr. 47, 52-53 (Bankr. 9th Cir. 1992) (Comar\< II). HNS'tThe
Ninth Circuit has described the characteristics of Repos and Reverse Repos as follows.
In a Repo arrangement, the dealer sells specified securities to a purchaser, but also agrees to repurchase the
securities later at the original price, plus an agreed upon additional amount usually representing interest on the
original [**7] purchase price. A Reverse Repo basically is the reverse: the dealer buys securities and agrees to
resell the securities to the seller in the future. Reverse Repos can function as a loan. The seller receives cash for
the securities, 'but must repurchase the securities in the future at the same price. Thus. the securities "sold" to the
dealer can be viewed as being collateral for a loan.
Comarlc l, 971 F.2d at 323 (footnote omitted). Accord 11 U.S.C. § 101(47).
Trustee contends that the transaction between Defendant and Debtor was not a true Reverse Repo, but rather was a sham
used to conceaTthe fact that Debtor's funt~s were being used to fund an LBO. Trustee notes that Debtor used $ 5.0 rnlmon
cash-tobuya-T-=Biil,-the'r;Tmmedialely sold the T-Bill subject to the Reverse Repo, leaving itself essentially in the place it
started. Because there was no net borrowing of funds, which is the essential characteristic of a Reverse Repo, Trustee
argues, the transaction is not entitled to protection under section 546(e). This argument is unpersuasive.
[*899] First, the transaction constituted a Reverse Repo in the objective sense. [-8) Debtor sold a T-Bill to Defendant and
agreed to repurchase it again later for the sale price plus interest. HN6f:Whether a transaction is a Repo or Reverse Repo
covered under section 546(e) is to be governed by an objective test. See Comark II, 145 Bankr. at 53. Courts have noted
that there are several varieties of genuine Repo transactions. See Bevill, Bresler & Schulman Asset Management Corp. v.
Spencer Sav. & Loan Ass'n, 878 F.2d 742,746 (3rd Cir. 1989); Comark II, 145 Bankr. at 50 n.6. HN7+Several courts have
also held that section 546(e) covers unusual as well as routine securities transactions. See Comark I. 971 F.2d at 326;
Kaiser Steel Corp. V. Charles Schwab & Co.! Inc.! 913 F.2d 846.849 n.6 (10th Cir. 1990) (Kaiser I); In re Kaiser Steel Corp.!
952 F.2d 1230. 1238-40 (10th CiL 1990), cert. denied, 120 L. Ed. 2d 887,112 S. Ct. 3015 (1992) (Kaiser II).
Second, whether or not it was a conventional Reverse Repo, the transaction between Defendant and Debtor [-9] was
clearly a securities transaction. Section 546(e) HNBidoes not cover only Repos and Reverse Repos; it covers all types of
securities transactions. "Section 546(e) ... includes a transfer of securities that completes any securities transaction."
Comark 1/, 145 Bankr. at 52. The transaction between Debtor and Defendant in substance reduces to the following. Debtor
purchased a T-Bill from Defendant then sold it back to Defendant. Whatever else it was, this transaction was a transfer of
securities. See Kaiser II. 952 F.2d at 1239-40 (transfer of securities that is part of LBO is a securities transaction covered by
section 546(e».
B. Whether Transfer a "Settlement Paymenf'
Trustee argues that the transfers involving Defendant are not protected under section 546(e) because they do not constitute
settlement payments. "Settlement payment" is defined in section 741 (8) of the Bankruptcy Code.
HN9+"Settlement payment" means a preliminary settlement payment, a partial settlement payment, an interim
settlement payment, a settlement payment on account.. a final settlement payment, or any other similar payment
commonly used in L*10] the securities trade.
11 U.S.C. § 741(8). The Ninth Circuit has construed the term very broadly.
HN1C1'tWe now join with the Third and Tenth Circuits and broadly define the term settlement payment. A
settlement payment clearly includes a transfer of securities that completes a securities transaction.
Comark I. 971 F.2d at 326 (citation omitted). Accord Comark II. 145 Bankr. at 52.
~--- ~ ---
Trustee first.. argues that the initial transfer of the T-Bill to Defendant
-".,~. .
was not a,.- settlement
~ ~ - - ,._- --- .- payment
'" ,-'"
because
.-
-~ ~... '""
it did not
. ,.... ..
_-~ ~;_._~~
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complete the Reverse Repo. ~his argument ,is whollY. une~~..!!.~~tve. The clear thrust of both Comark I and Comark II is that
HN11 "settlement payment" includes any tr~nsfer of cash or securities toward completion of a securities transaction. See
t
Comark I, 971 F.2d at 326; Comark II. 145 Bankr. at 52. To hold that section 546(e) does not apply to the initial transfer of
securities to a broker handling a Reverse Repo would eviscerate section 546(e) and frustrate Congress's intent in enacting
it, by leaving the broker open to suit [-11J for doing nothing more than handling a securities transaction for the debtor. n2
- - - - - - - - - - ~ - - - Footnotes - - - - - - - - - - - - - - -
n2 Trustee contends that Defendant's expert witness testmed that the initial transfer of the T-Bill to Defendant was not a
settlement payment. This argument fails for two reasons. First, the relevant historical facts are undisputed. The application
of section 546(e) to those facts is question of law, not a question of fact subject to expert testimony. See Comark l. 971 F.2d
at 324-25. Second, Trustee mischaracterizes the testimony of Defendant's expert, Dr. Marcia L. Stigum. Dr. Stigum's
testimony, taken as a whole, supports a finding that the initial transfer of the T-Bill was a settlement payment. Plaintiff failed
to submit affidavits controverting that testimony.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
Trustee next ar~~ that the transfer to MaxPhanna of the $ 4.1 million proceeds of the sale of the T-Bill was not a
~~~.~~Y..m~!!.t~~~.Y§~ ~t,-e..p~y.mW~-'J9l rn~cte.!qJ:)~btor, the other party to the Reverse Repo. infS"argument is
frivolous. [-12].!!.l.s ["'gOO] ~ndisput~~t!l_a!!b~.BJ.n.d.~we[e transferred to Ma,xPharma at th~.,d_i[e~_oru~f Q~~~or. In directing
payment of the sale proceeds f()""MaxPharmai-Qebtor e~~rt~d dominion ()Y~f th~.f!Jnqs ~nd used th~m fqr,~.s. o~ pu.r~,q!;~,s.
Thus, from the viewpoint of Defendant, payment to MaxPharma constituted payment to Defendant, and fulfilled De/en'dant's
obligation under the first leg of ttie Reverse Repo. n3
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n3 Trustee's separate statement of undisputed facts asserts that Debtor's instructions to Defendant to transfer the proceeds
to MaxPharma were not property authorized by Debtors board and were therefore ultra vires. The facts asserted by Trustee
dearly establish that the instructions were made with at least apparent authority, and that Debtor implicitly ratified the
transaction after the fact. Moreover, Trustee raise no ultra vires argument in the memoranda filed in support of his motion for
summaI)' judgment or in opposition to Defendant's motion for summary judgment.
~ - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
c. Must Defendant Satisfy Section 546(f}?

Trustee [-13] argues that section 546(f) governs Repo transactions and that Defendant is not entitled to protection under
that statute. Section 546(f) provides:
HN12+notwithstanding sections 544, 545, 547, 548(a)(2), and 54B(b) of this title, the trustee may not avoid a
transfer that is a margin payment, as defined in section 741 (5) or 761 (15) of this title, or settlement payment, as
defined in section 741 (8) of this title, made by or to a repo participant, in connection with a repurchase agreement
and that is made before the commencement of the case, except under section 548(a)(1) of this title.
11 U.S.C. § 546(f). Section 101 (46) defines "repo participant" as follows:
HN1~"repo participant" means an entity that, on any day during the period beginning 90 days before the date of
the filing of the petition, has an outstanding repurchase agreement with the debtor;
11 U.S.C. § 101(46).
Trustee argues that section 546(f) governs, because it is the more specific statute, expressly addressing Repo transactions.
Trustee argues that Defendant is not protected under section 546(f) , because any Reverse Repo transaction between [-14]
Defendant and Debtor closed more than 90 days prepetition, and Defendant is therefore not a "repo participant" under
section 101 (46).
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Both the statutory language and legislative history indicate that section 546(f) was intended to address Repo transactions
not already covered by section 546(e) rather than to narrow the application of 546(e). Section 546(e) protects only a
"commodity broker, forward contract merchant, stockbroker, financial institution. or seculities clearing agency." Section
546(f) protects additional participants in certain Repo transactions. The legislative history to section 546(1) states in relevant
part:
the proposed amendments are intended to afford participants in the repo market the same treatment with respect
to the stay and avoidance provisions of the Code that Public Law 97-222 explicitly provided stockbrokers,
securities dearing agencies, commodity brokers and forward contract merchants in connection with securities
contracts, commodity contracts and forward contracts.
S. Rep. No. 65, 98th Cong., 1st Sess. 45, 49 (1983). The same legislalive history states dearly that section 546(e) continues
to protect stockbrokers engaged in Repo transactions. [**15]
These amendments are not intended, however, to affect the status of repos Involving securities or involving
commodities as securities contracts, commodity contracts, or forward contracts, and their consequent eligibility for
similar treatment under other provisions of the Code, such as the provisions giving protection to stockbrokers,
securities clearing agencies, commodity brokers, and forward contract merchants for liquidation and setoff in
respect of securities contracts, commodity contracts or forward contracts.
Id. See also Comark II. 145 Bankr. at 52-53. In summary, section 546(f) HN1~twas intended to supplement rather than
narrow section 546(e), and a defendant that qualifies under 546(e) as a stockbroker need not qualify under section 546(f) as
a repo participant.
[*901] O. Is there an LBO Exception to Section 546(e)1
Trustee argues that 546(e) should not be interpreted to protect a stockbroker involved in a securities transaction that
implements an LBO, relying on Lippi v. City Bank, 955 F.2d 599 (9th Cir. 1992), Kendall v. Sorani. 151 Bankr. 1012 (Bankr.
N.D. Cal. 1993), and Wieboldt Stores Inc. v. Schottenstein, 131 Bankr. 655 (N.D. Ill. 1991). [-16] Trustee contends that
this LBO exception to section 546(e) applies with special force in the present case, because Defendant knew Debtor was
rendered insolvenl by the transaction. Trustee's argument is not supported by the authorities cited.
Trustee's reliance on Wieboldt is misplaced. That case held that section 546(e) did not preclUde a fraudulent conveyance
action against shareholders whose shares were purchased in an LBO. In the present action, Trustee seeks recovery not
from former shareholders, but from a stockbroker that transferred certain securities as a part of the LBO. The Wieboldt court
carefully noted that its holding did not leave the stockbroker handling the LBO open to suit. The court acknowledged that the
purpose of section 546(e) was to protect brokerage finns, and then stated:
in the instant case, however, requiring the [shareholders] to return to the Trustee payments they received ...
poses no significant threat to those in the clearance and settlement chain.
Wieboldt. 131 Bankr. at 664 (footnote omitted). The court also quoted with approval the following excerpt from the law
review article it had preViously cited [-17] in holding that section 546(e) does not protect selling shareholders,
"Neither the system of guarantees nor the solvency of participants in the chain is threatened by a legal order in
which payments to the shareholders by their brokers are subject to recovery by a trustee in bankruptcy. Thus,
while the flows of funds to and between financial intermediaries in the clearance and settlement chain must be
protected in order to insure the stability of those systems. funds flowing from the intermediaries to the
shareholders do not require protection, and section 546(e) should therefore not apply."
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[d. at 664 n.11 (quoting Neil M. Garfinkel, Note, No Way Out: Section 546(e) Is No Escape for the Public Shareholder of a
Failed LBO, 1991 Colum. Bus. L. Rev. 51. 61-63).
The Tenth Circuit has held that there is no LBO exception to section 546(e). That court has applied section 546(e) to bar
recovery both from the brokerage handling the transfer of shares in an LBO, see Kaiser I, and from the selling shareholders,
see Kaiser II. The court noted that the plain language of section 546(e) covers LBOs as well as more conventional securities
transactions {-181 and reasoned flit would be an act of judicial legislation to establish such a limitation." Kaiser to 913 F.2d
at 850.
In short, only Wieboldt supports any LBO exception to section 546(e), but even that case does not permit an action against
the stockbroker handling the securities transactions involved in the LBO.
Trustee's reliance on Lippi and Kendall is equally misplaced. In each of those cases, the plaintiff sought recovery from the
bank that financed the LBO. In neither case did section 546(e) even arguably apply, and neither opinion mentions that
statute.
Finally, assuming arguendo that Defendant knew the Reverse Repo was part of an LBO and that the LBO rendered Debtor
insolvent, such knowledge does not bar application of section 546(e). Section 546(e) HNlstcontains a limned exception for
cases involving actual fraud. The statute does not bar actions brought under section 548(a)(1) of the Bankruptcy Code,
which allows a trustee to recover a transfer made within one year before the petition date with actual intent to hinder, delay,
or defraud creditors. Section 546(e) does bar actions brought under section 544 (using state fraudulent conveyance [-19]
statutes) to recover transfers made more than one year prepetition with actual intent to hinder, delay, or defraUd creditors.
Thus, it is clear Congress intended to prohibit recovery of "settlement payments" received by stockbrokers- mare than one
year prepetition, irrespective of the stockbroker's mental state. Because the transfers at issue here [-902) occurred more
than one year prepetition and Trustee's action is brought under section 544, Defendant's knOWledge about the LBO and its
effect on Debtor is irrelevant.
lit
Aiding And Abetting
Trustee asserts that even if his action to avoid the transfers to Defendant are barred by section 546(e), he may recover
damages from Defendant under state law on the theory that Defendant aided and abetted the fraudulent LBO. Trustee
argues that liability for damages for aiding and abetting a fraudulent transfer is not barred by section 546(e). Defendant
argues that Trustee's aiding and abetting theory fails because: (i) Trustee failed to plead it as a separate claim for relief; (ii)
no such cause of action exists under California law; (iii) Trustee lacks standing to assert such a cause of action; and Ov) any
such cause of action is barred by [**20] section 546(e). I determine that the Trustee lacks standing to assert the aiding and
abetting daim.
a debtor to
HNl GtCalifomia courts permit a creditor to recover civil damages from those who conspire to transfer property of
hinder, delay, or defraud creditors. See Taylorv. S & M Lamp Co., 190 Cal. Apo. 2d 700,706.12 Cal. Rptr. 323 (1961);
Hickson v. Thielman, 147 Cal. APD' 2d 11,15,304 P.2d 122 (1956). HN1JtAdebtor's bank~_to.:mJ~e,b.owever, is not
authorized to pursue every action that creditors of the debtor might pursue. Cf. In re Ozark Restaurant Eguipmenr-C-o~:-liic..
816 F.2d 1222~12i6~31r'{8th Cli-:),>cert.aeniea~-484U.S: 84B"n987):A1rustee's only authority to assert creditors state-law
causes of action related to fraudulent conveyances is found in section 544(b) of the Bankruptcy Code. n4 That section only
permits the trustee to avoid a fraudulent transfer.
HN1BtThe trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the
debtor that is voidable under applicable I~11 law by a creditor holding an unsecured claim that is allowable under
502 of this title or that is not allowable only under section 502(e) oflhis title.
11 U.S.C. § 544(b) (emphasis added). The Ninth Circuit has squarely held that HlVl9fa trustee's power to avoid fraudulent
transfers does not enable a trustee to recover damages for aiding and abetting a fraudulent transfer.
- - - - - - - - - - - - - - Footn otes - - - - - - - - - - - - - - -
n4 Section 548 of the Bankruptcy Code creates a federal cause of action for recovery of a fraudulent conveyance. Trustee
cannot use section 548, however, because that statute only permits avoidance of transfers made within one year of the
petition date. It is undisputed that all transfers to Defendant occurred more than one year before the bankruptcy petition was
filed.
8 of9 9/1812006 1 I :00 AM

LeX1SNeXIS oy t.-reOll t.-ara - UOl.:wm::m
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
The Act carefully speaks of conveyances of property as being "null and void," and authorizes suit by the trustee to
"reclaim and recover such property or collect its value." The actions legislated against are not "prohibited"; those
persons [~2] whose actions are rendered "null and void" are not made "liable"; and terms such as "damages"
are not used. The legislative theory is cancellation, not the creation of liability for the consequences of a wrongful
act.
Elliott v. Glushon. 390 F.2d 514, 516 (9th Cir. 1967) (footnote omitted).
In short. Trustee's only authority to bring slate-law claims of creditor's is section 544(b) , and section 544(b) does not
authorize Trustee to assert a claim for aiding and abetting a fraudulent transfer.
CONCLUSION
Bankruptcy Code section 546(e)-bars Trustee's fraudulent transfer action against Defendant Trustee lacks standing to sue
Defendant for aiding and abetting a fraudulent conveyance. Accordingly, I grant summary judgment in favor of Defendant.
Date: 1-18-95
Thomas E. Carlson
United States Bankruptcy Judge

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KeyClte - 176 B.R. 895

History
(Showing 6 documents)
.n
Direct History
re Hamilton Taft &. Co., 176 B.R. 895, 32 Collier Bankr.Cas.2d 1727, 26 Bankr.Ct.Dec. 665
(Bankr.N.D.Cal. Jan 19, 1995) (NO. 91-3-1077-TC, 93-3-121-TC)
Affirmed by
H In re Hamilton Taft & Co., 196 B.R. 532 (N.D.Cal. Oct 12, 1995) (NO. C 95-1612-51)
Judgment Affirmed by
PIn re Hamilton Taft & Co., 114 F.3d 991, 30 Bankr.Ct.Dec. 1236, Bankr. L. Rep. P 77,405, 97 Cal. Daily
Op. Servo 4410, 97 Daily Journal D.A.R. 7369 (9th Cir.(Cal.) Jun 11, 1997) (NO. 95-17058)
Court Documents
Appellate Court Documents (U.S.A.)
C.A.9 Appellate Briefs

IN RE HAMILTON TAFT & COMPANY, Debtor. Frederick S. Wyle, Trustee of Hamilton Taft & Company,
Plaintiff-Appellant, v. HOWARD, Howard Weil, Labouisse, Friedrichs Incorporated, a Louisiana corporation;
Howard Weil Financial Corporation, a Louisiana corporation; and Legg Mason, Inc., a Maryland
corporation, Defendants-Appellees., 1996 WL 33489911 (Appellate Brief) (C.A.9 Feb. 20, 1996) Opening
Brief of Appellant Frederick s. Wyle, Trustee of Hamilton Taft &. Company (NO. 95-17058)
Plaintiff-Appellant v. HOWARD, Weil, Labouisse, Friedrichs Incorporated, a Louisiana corporation, Howard
Weil Financial Corporation; and Legg Mason, Inc., a Maryland corporation, Defendants-Appellees., 1996
WL 33489913 (Appellate Brief) (C.A.9 Mar. 21, 1996) Original Brief of Defendant-Appellee Howard,
Weil, Labouisse, Friendrichs, Inc. (NO. 95-17058)
Plaintiff-Appellant, v. Howard, Howard WElL, Labouisse, Friedrichs Incorporated, a Louisiana corporation;
Howard Weil Financial Corporation, a Louisiana corporation; and Legg Mason, Inc., a Maryland
corporation, Defendants-Appellees., 1996 WL 33489912 (Appellate Brief) (C.A.9 Apr. OS, 1996) Reply
Brief of Appellant Frederick s. Wyle, Trustee of Hamilton Taft &. Company (NO. 95-17058)
Negative Only I Citing References
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KeVCite - 176 B.R. 895 -;I.J 7, t1 :T. y"
Citing References
(Showing 41 documents)
Positive Cases (U.S.A.)
.1.* * *: Discussed
In re Hamilton Taft & Co., 114 F.3d 991, 992+, 30 Bankr.Ct.Dec. 1236, 1236+, Bankr. L. Rep. P
77,405, 77405+, 97 Cal. Daily Op. Servo 4410,4410+,97 Daily Journal DAR. 7369, 7369+ (9th
Cir.(Cal.) Jun 11, 1997) (NO. 95-17058) " HN: 1,2,4 (B.R.)
** Cited
P 2. In re Gandy, 299 F.3d 489, 496, 48 Collier Bankr.Cas.2d 895, 895, Bankr. L. Rep. P 78,709, 78709
(5th Cir.(Tex.) Jul 22, 2002) (NO. 02-50185)
3. In re Mark Industries, Inc., 110 F.3d 69, 69 (9th Cir.(Cal.) Mar 20, 1997) (Table, text in WESTLAW,-NO.
95-55712)
P4. Forum Ins. CO. V. Devere Ltd., 151 F.Supp.2d 1145, 1149 (C.D.Cal. Jan 02, 2001) (NO. CV 97-9386
NM RCX) HN: 8 (B.R.)
P 5. In re Hechinger Investment Co. of Delaware, 274 B.R. 71, 98 (D.Del. Feb 20, 2002) (NO. 99-2283,
CIV.A.OO-840-RRM) " HN: 5 (B.R.)
H 6. In re National Forge Co., 344 B.R. 340, 371 (W.D.Pa. ]un 09, 2006) (NO. CIV.A. 04-21 ERIE) " HN:
1 (B.R.)
c 7. In re Lucas Dallas, Inc., 185 B.R. 801, B05, 34 Collier Bankr.Cas.2d 1095, 1095, 27 Bankr.Ct.Dec.
955, 955, 95 Daily Journal DAR. 12,382, 12382 (9th Cir.BAP (Cal.) Aug 17, 1995) (NO.
NC-94-2055-HVR, 93-4562 AN, NC-94-2116-HVR, 91-46079 IN) " HN: 8 (B.R.)
8. ]n re Sia, 2006 WL 2472995, *12 (Bankr.D.Hawai'j Aug 25, 2006) (NO. 98-04912, ADV. 00-00102)
Secondary Sources (U.S.A.)

H 9. Right of creditor to recover damages for conspiracy to defraud him of claim, 11 A.L.RAth 345, §10+
(1982) HN: 4 (B.R.)
10. s 6:12. Fraudulent conveyance attacks -- Cases, SECACQMERG 5 6:12, s 6:12+ (2006) HN: 1,5
(B.R.)
11. Bankruptcy Service Lawyers Edition s 31:254, s 31:254. Leveraged buyouts (2006) HN: 6 (B.R.)
12. Bankruptcy Service Lawyers Edition s 32:208, 5 32:208. Generally (2006) HN: 1,4,5 (B.R.)
13. Bankruptcy Service Lawyers Edition 5 32:210, s 32:210. Congressional intent (2006) HN: 1,5 (B.R.)
14, Bankruptcy Service Lawyers Edition s 32:213, s 32:213. What constitutes "settlement payment" --
Particular determinations -- Reverse repo's (2006) HN: 1,5 (B.R.)
c 15. CJS Conspiracy 5 49, s 49. Defrauding creditors (2006) HN: 7 (B.R.)
c 16. DERIVATIVES AND REHYPOTHECATION FAILURE: IT'S 3 :00 P.M., DO YOU KNOW WHERE YOUR
COLLATERAL IS?, 39 Ariz. L. Rev. 949, 1001 (1997)
I of 4 9/1412006 10:52 AM
t<..eYLlle KeSUIl
c 17. LEVERAGED BUYOUTS AND FRAUDULENT CONVEYANCES: YET ANOTHER Ln.JDATE, 7 J. Bankr. L. &
Prac. 315, 333 (1998) HN: 6 (B.R.)
c: 18. FORWARD CONTRACTS, BANKRUPTCY SAFE HARBORS AND THE ELECTRICITY INDUSTRY, 51 Wayne
L. Rev. 49, 106 (2005) HN: 3 (B.R.)
19. ACQUISITION FINANCING, 754 PU/Comm 385, 449 (1997) HN: 1,5 (B.R.)
20. ACQUISITION FINANCING, 739 PLI/Comm 367, 427 (1996) HN: 1,5 (B.R.)
21. SPECIAL BANKRUPTCY CODE PROTECTIONS FOR DERIVATIVE AND OTHER CAPITAL MARKET
TRANSACTIONS, 721 PU/Comm 95, 114 (1995) HN: 1,5,6 (B.R.)
22. SECURITIES, FORWARD AND COMMODITY CONTRACTS AND REPURCHASE AND SWAP AGREEMENTS
UNDER U.S. INSOLVENCY LAWS, 721 PLl/Comm 401, 410+ (1995) HN: 1,2,4 (B.R.)
Court Documents
Appellate Court Documents (U.S.A.)
Appellate Petitions, Motions and Filings .

2.3. Wyatt R. HASKELL, Petitioner, v. PWSHOLDING CORPORATION, Bruno's Inc., Foodmax of Mississippi,
Inc., A.F. Stores Inc., Br Air, Inc., Foodmax of Georgia, Inc., Foodmax of Tennessee, Inc., Foodmax Inc.,
Lakeshore Foods, Inc., Bruno's Food Stores, Inc., Georgia Sales Company, SSS Enterprise, Inc.,
2003) Petition for Writ of Certiorari (NO. 02-1134) *: *

Respondents., 2003 WL 21698608, *21698608+ (Appellate Petition, Motion and Filing) (U.S. Jan 29,
HN: 6 (B.R.)
Appellate Briefs
24. In re: PWS HOLDING CORPORATION, BRUNO'S, INC., Food Max of Mississippi, Inc., A.F. Stores, Inc.,
Br Air, Inc., Food Max of Georgia, Inc., Food Max of Tennessee, Inc., Food Max, Inc., Lakeshore Foods,
Inc., Bruno's Food Stores, Inc., Georgia Sales Company, and SSS Enterprise, Inc., Debtors, Wyatt R.
HASKELL, Appellant., 2001 WL 34095042, *34095042+ (Appellate Brief) (3rd Cir. Aug 28, 2001) Brief of
Appellant (NO. 01-1462) ** HN: 6 (B.R.)
25. In The Matter Of: Joe Alvin ANDREWS, Sr., Debtor. CADLE COMPANY, Appellant, v. WHATABURGER OF
ALICE, INC.; M. Louise Andrews; Kathy A. Reese; George P. Braun; Herbert E. Pounds, Jr.; Joe Alvin
Andrews, Jr.; Michael Boudloche; Joe Alvin Andrews, Sr., Appellees., 2001 WL 34353904, *34353904+
(Appellate Brief) (5th Cir. Nov 07, 2001) Appellant's Brief (NO. 01-40807) • • HN: 3 (B.R.)
26. THE CADLE COMPANY, Plaintiff-Appellant, v. WHATABURGER OF ALICE, INC.; M. Louise Andrews;
Kathy A. Reese; Herbert E. Pounds, Jr.; George P. BraLIn; and Joe Alvin Andrews, Jr.,
Defendants-Appellees., 1998 WL 34114582, *34114582+ (Appellate Brief) (5th Cir. Jul 09, 1998) Brief of
Appellant (NO. 98-50368) *: * HN: 6 (B.R.)
27. FORUM INSURANCE COMPANY, Plaintiff/Appellant, v. DEVERE LIMITED; Harrington Trust Limited, As
Trustee for the Ogaps Trust; Ephraim P. Kranitz; Thomas Comparet; Kranitz Comparet & Sarrow, P.c.;
Jerome Eglin; Ayk, Inc.; Otw Investments; and Jeja Investments, Defendants/Appellees., 2002 WL
32120536, *32120536+ (Appellate Brief) (9th Cir. Aug 20, 2002) Reply Brief of Appellant Forum
Insurance Company (NO. 02-55053) *-;: y
2B. FORUM INSURANCE COMPANY, Petitioner/Appellant, v. DEVERE LIMITED; Harrington Trust Limited, As
Jerome Eglin; Ayk, Inc.; Otw Investments; and Jeja Investments, Defendants/Appellees., 2002 WL
32120535, *32120535+ (Appellate Brief) (9th Cir. Jul 20, 2002) Brief of Appellee Jerome Eglin (NO.
02-55053) "* *
*:
29. FORUfv1 INSURANCE COMPANY, Plaintiff/Appellant, v. DEVERE LIMITED; Harrington Trust Limited, As
Jerome Eglin; Ayk, Inc.; otw Investments; and Jeja Investments, Defendants/Appellees., 2002 WL
20f4 9/1412006 J0:52 AM

KeyLlLe KeSUIl UUl-'.I/""'.CUJU•• 4.1 u.Wl::::suavv."",USSIJn.. t;;y"--'llt...IJ.-,It,,,lClU.j..VfJ; c1U"U'~:JPU'IU-J u... .•.
32120534, *32120534+ (Appellate Brief) (9th Cir. Jun 11, 2002) Brief of Appellant Forum Insurance
Company (NO. 02-55053) ***
30. Robert B. BURNS, Plaintiff-Appellant, v. James BALDWIN, et aI., Defendants-Appellees., 2002 WL
32116680, *32116680+ (Appellate Brief) (9th Cir. May 30, 2002) Appellant's Opening Brief (NO.
02-55116) ,., • • HN: 6,7 (B.R.)
31. In re THRIFTY OIL CO., a California Corporation; Golden West Refining Company, a California
Corporation; Cluj Distribution Company, a California, Corporation; Benzin Supply Company, a California
Corporation; and Golden West Distribution Company, a California Corporation, Debtors, THRIFTY OIL CO.,
Appellant, v. BANK OF AMERICA NATIONAL TRUST & Savings Association, Appellee., 2000 WL 33981185,
*33981185+ (Appellate Brief) (9th Cir. Dec 18, 2000) Appellant's Reply Brief (NO. 00-56159) *" *
HN: 2,4 (B.R.)
32. In re: THRIFTY OIL CO., a California corporation; Golden West Refining Company, a California
corporation; ClUj Distribution Company, a California corporation; Benzin Supply Company, a corporation;
and Golden West Distribution Company, a California corporation, Debtors. THRIFTY OIL CO., Appellant, v.
BANK OF AMERICA NATIOI\lAL TRUST & SAVINGS ASSOCIATIOI\l, Appellee" 2000 WL 33978038,
*33978038+ (Appellate Brief) (9th Cir. Nov 15, 2000) Appellee's Brief (NO. 00-56159) "
2,4,5 (B.R.)
HN: * **
33. In re: THRIFTY OIL CO., a California corporation; Golden West Refining Company, a California
corporation; CLUJ Distribution Company, a California corporation; Benzin Supply Company, a corporation;
and Golden West Distribution Company, a California corporation, Debtors. THRIFTY OIL CO., Appellant, v.
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, Appellee., 2000 WL 34017800,
*34017800+ (Appellate Brief) (9th Cir. Nov 14, 2000) Appellee's Brief (NO. 00-56159) "
HN: 1,2,5 (B.R.)
* * "* *
34. IN RE HAMILTON TAFT & COMPANY, Debtor. Frederick S. Wyle, Trustee of Hamilton Taft & Company,
PlaintIff-Appellant v. HOWARD, Well, Labouisse, Friedrichs Incorporated, a Louisiana corporation, Howard
Weil Financial Corporation; and Legg Mason, Inc" a Maryland corporation, Defendants-Appellees., 1996
,,* * *
WL 33489913, *33489913+ (Appellate Brief) (9th Cir. Mar 21, 1996) Original Brief of
Defendant-Appellee Howard, ... (NO. 95-17058) HN: 4 (B.R.)
Trial Court Documents (U.S.A.)
Trial Motions, Memoranda and Affidavits

35. Diane MANN, as Trustee for the Estate of LeapSource, Inc.; Christine V. Kirk; Thomas F. Gilman; Indu
Gupta; Kimberly C. Hartmann; Julie B. McCollum; Kelly A. Powers; Bobby D. Scott; and Patricie E. Walker,
Plaintiffs, v. GTCR GOLDER RAUNER, L.L.c.; a Delaware limited liability company; GTCR Fund VI, L.P., a
Delaware limited partnership; GTCR VI Executive Fund, L.P, a Delaware limited partnership; GTCR
Associates VI, a Delaware general partnership; Michael Makings;, 2006 WL 1183016, *1183016 (Trial
*
Motion, Memorandum and Affidavit) (D.Ariz. Mar 10, 2006) Motion for Summary Judgment on (1)
Contract ••• (NO. CIV-02-2099-PHX-RCB)
36. Robert B. BURNS, Plaintiff, v. James P. BALDWIN, et ai" Defendants., 2000 WL 34631826,
*34631826+ (Trial Motion, Memorandum and Affidavit) (CD.Cal. Sep 11, 2000) Plaintiff's
Memorandum of Points and Authorities .•. (NO. SACVOO-0249AHS, ANX) *: *
37. IN RE: 3DFX INTERACTIVE, INC., a California corporation, Debtor, Ein: 77-0390421 Carlyle Fortran
Trust, a Maryland real estate investment trust, Plaintiff, v. NVIDIA CORPORATION, a Delaware
corporation; Nvidia Us Investment Company, f/k/a Titan Acquisition Corp. No.2, a Delaware corporation;
3dfx Interactive, Inc., a California corporation, Jen-Hsun Huang, an individual; James C Gaither, an
indiVidual; A. Brooke Seawell, an individual; William J. Miller" 2005 WL 2868911, *2868911+ (Trial
Motion, Memorandum and Affidavit) (N.D.Cal. Oct 17, 2005) Opposition of Carlyle Fortran Trust to
3dfx ••. (NO. 05-00427JW) • •
38. In re: P.R.T.C., INC, Braunstein International Corporation, Debtors, Gregory A. Akers, Trustee, and
Harold S. Taxel, Trustee, Plaintiffs, v. David Troy Braunstein, Christina Braunstein, Braunstein De Mexico,
3 of 4 9/14/2006 10:52 AM
KeyCile Result http://creollcard,west!aw,com!K.eycne/Derault.Wl'!autoresponct= Y& ...
S.A. De C.V., BIC Technologies, Inc., Solution Technology Group, LLC, Solution Technology De Mexico,
Almacen De Computadoras, Rosenbaum & Diehl, a Professional Corporation, Keith A. Rosenbaum, Duckor,
Spradling, & Metzger, a Professional Corporation, and, 2002 WL 32955064, *32955064 (Trial Motion,
Memorandum and Affidavit) (S.D.Cal. Jan 02, 2002) Memorandum of Points and Authorit:ies in
Support a •• (1\10. OOCV2307-H, JFS) *: "*
39. In Re: ENRON CORP., et aI., Debtors. Enron Corp., Plaintiff, v. J.P. Morgan Securities, Inc., et al.,
Defendants. Enron Corp., Plaintiff, v. Mass Mutual Life Insurance Co., et aI., Defendants., 2005 WL
3038836, *3038836+ (Trial Motion, Memorandum and Affidavit) (S.D.N.Y. Aug 01, 2005) Memorandum
of Law in Support of Lehman's Motion ••• (NO. 01-16034, AJG) ** HN: 1,3 (B.R.)
40. GREAT AMERICAN UFE INSURANCE COMPANY, Plaintiff, v. Katharine Shaw Wallace THOMPSON,
**
Defendant., 2006 WL 1442021, *1442021 (Trial Motion, Memorandum and Affidavit) (S.D.Ohio Apr 25,
2006) Reply in Support of Plaintiff1s Emergency Motion ••• (NO. 104CV815)
41. In re: John SASSER, Debtor; In re Mayflower Transit, LLC, Plaintiff, v. John Sasser, Defendant., 2002
**
WL 32931587, *32931587 (Trial Motion, Memorandum and Affidavit) (Bankr.E.D.Cal. Jun 03, 2002) Reply
to Opposition of Chapter 7 Trustee1s ••• (NO. 02-10300A-11)
Full History I Negative Only
re) 2006 West I Accessibility Information THOIVISON
*'
VVEST
40f4 9/14/2006 10:52 AM

William J. Perlstein (WP 1073)
Craig Goldblatt (CO 6793)
Jonathan E. Paikin (JP 7599)
Caroline Rogus (CR 6931)
WIL1v£ER CUTI..ER PICKERING LLP
2445 M Stree~ N.W.
Washington, DC 20037
Telephone: (202) 663-6000
Facsimile: (202) 663-6363
Attorneys for Amici Curiae

International Swaps and Derivatives Association, Inc.,
Securities Industry Association, and The Bond Market Association
UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK
.~-----------------------------------------------------------x
In re Chapter 11
Case No. 01-16034 (AJG)
ENRON CORP., et al.,
Jointly Administered
Debtors.
------------------------------------------------------------- x
ENRON CORP., Adv. No. 03-93383 (AjG)
Plaintiff,
v.
LEHMAN BROTHERS FINANCE SA., et at,
Defendants.
------------------------------------------------._--_.------- x
MEMORANDUM OF LAW OF INTERNATIONAL SWAPS AND DERIVATIVES
ASSOCIAnON, INC., SECURITIES INDUSTRY ASSOCIATION, AND TIlE BOND
MARKET ASSOCIATION AS AMICUS CURIAE IN SUPPORT OF DISMISSAL OF
ADVERSARY PROCEEDING
TABLE OF CONTENTS
Page
TABLE OF AUTHORITffiS ii
PRELIl\1IN'ARY STATEMENT _ 1
STATEMENT OF INTEREST 3
STATUTORY, FACTUAL AND PROCEDURAL BACKGROUND 5
I. SECTION 546(e) PROTECTS PAYMENTS MADE UNDER OTC

EQUITY DERIVATIVES CONTRACTS FROM PREFERENCE AND
FRAUDULENT CONVEYANCE ACTIONS 13
A. The Transfers Are Protected "Settlement Payments" In The

Forward Contracts Trade 14
B. The Transfers Are Protected "Settlement Payments" In The

Securities Trade 16
II. SECTION 546(g) PROTECTS PAYMENTS MADE IN CONNECTION

WITH OTC DERIVATIVES TRANSACTIONS FROM PREFERENCE
AND FRAUDULENT CONVEYANCE ACTIONS 18
m. 5TATE LAW CLAIMS THAT CIRCUMVENT THE PROTECTIONS

AFFORDED TO THE FINANCIAL MARKETS BY TIlE FEDERAL
BANKRUPTCY LA W5 ARE PREEMPTED 23
CONCLUSION 27
TABLE OF AUTHORITIES
CASES
Page(s)
Bessette v. Avco Financial Services. Inc., 230 F.3d 439 (lst Cir. 2000) 25
Bevill. Bresler & Schulman Asset Management Corp. v. Spencer Savings & Loan
Ass'n, 878 F.2d 742 (3d Crr. 1989) 7,8,9, 17
Century Glove. Inc. v. Iselin (In re Century Glove), 151 B.R. 327 (Bankr. D. Del.
1993) 25
Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992) 25
Cox v. Zale Delaware, Inc., 239 F.3d 910 (7th CiT. 2001) 25
Curtin v. Port Authority, 183 F. SUpPa 2d 664 (S.D.N.Y. 2002) 24
Diamante v. Solomon & Solomon, P.C., No. I:99CVI339 (FJSIDRH), 2001 WL

1217226 (N.D.N.Y. Sept. 18, 2001) 26
In re Comark, 971 F.2d 322 (9th Crr. 1992) 17
In re Hamilton Taft & Co., 176 B.R. 895 (Bankr. N.D. Cal.), aff'd, 196 B.R. 532
(N.D. Cal. 1995), affd, 114 F.3d 991 (9th Cir. 1997) 17, 18
In re Hechinger Investment Co. of Delaware, 274 B.R. 71 CD. Del. 2002) 16, 17, 24-25, 26
In re Interbulk, Ltd., 240 B.R. 195 (Banlcr. S.D.N.Y. 1999) 9,20
In re Nation, 236 B.R. 150 (S.D.N.Y. 1999) 24
In re Olympic Natural Gas Co., 294 F.3d 737 (5th CiT. 2002) 14
In re Resorts International, Inc., 181 F.3d 505 (3d Cir. 1999) 17
International Shoe Co. v. Pinkus, 278 U.S. 261 (1929) 24
Kaiser Steel Corp. v. Charles Schwab & Co., 913 F.2d 846 (lOth Cir. 1990) 7, 17, 18
Kaiser Steel Corp. v. Pearl Brewing Co., 952 F.2d 1230 (lOth Crr. 1991) 17
MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910 (9th Cir. 1996) 25
Penn Terra Ltd. v. Department of Environmental Resources, 733 F.2d 267 (3d
Cir. 1984) 25
Pereira v. First North American National Bank, 223 B.R. 28 (N.D. Ga. 1998) 25
ii
PertusD v. Ford Motor Credit Co., 233 F.3d 417 (6th Cir. 2000) 25-26
Thrifty Oil Co. v. Bank of America National Trust & Savings Ass'n, 322 F.3d
1039 (9th Crr. 2003) 9, 10
SEC NO~ACTION LETTERS
Chicago Rd. Options Exchange, SEC No-Action Letter, Fed. Sec. L. Rep.'
79,665 (Feb. 22, 1991) 20, 21
Goldman. Sachs & Co., SEC No-Action Letter, 2003 WL 22358822 (Oct. 9,
2003) 20
Goldman, Sachs & Co., SEC No-Action Letter, 1999 wr,-I2440I8 (Dec. 20,
1999) 20
STATUTES
7 U.S.C. § Ia(4) 15
11 U.S.C. § 101(25) 14, 15, 16
11 U.S.C. § IOl(5IA) 14
11 U.S.C. § 10I(53B) passim
11 U.S.C. § 546(e) passim
II U.S.C. § 546(g) passim
11 U.S.C. § 547 5
11 U.S.C. § 548 5
11 U.S.C. § 548(a)(1)(A) 13
11 U.S.C. § 550 5
11 U.S.C. § 741(8) 17
11 U.S.C. § 761(8) _ 15
15 U.S.C. § 78 et seq 6, 22
III
1982 Amendments to Bankruptcy Code, Pub. L. No. 97-222, 96 Stat. 235 7, l3
1984 Amendments to Bankruptcy Code~ Pub. L. No. 98-353, 98 Stat. 2706 9
1990 Bankruptcy: Swap Agreements and Forward Contracts, Pub. L. No. 101-
311,104 Stat. 267 11
Commodity Futures Modernization Act of2ooo, Pub. L. No. 106-554,114 Stat.

2763 21-22
LEGISLATIVE MATERIALS
H.R. Rep. No. 97-420 (1982), available a11982 WL 25042 7, 13,16
H.R. Rep. No. 101-484 (1990), available at 1990 WL 92539 passim
S. Rep. No. 98-65 (1983) 8, 9
S. Rep. No. 101-285 (1990), available at 1990 WL 259288 passim
Bankruptcy Treatment ofSwap Agreements and Forward Contracts: Hearing on

H.R. 2057 and B.R. 1754 Before the Subcommittee on Economic and
Commercial Law of the House Committee on the Judiciary, 101st Congo 1
(1990) 6
Financial Contract Netting Improvement Act of 2001, H.R. 11, 107tll Congo
(2001) 22
Interest Swap: Hearing on S. 396 Before the Subcommittee on Courts and

Administrative Practices ofthe Senate Convnittee on the Judiciary, 10 1st
Congo 1 (1989) lO~ 11, 19
136 Congo Rec. S7535 (1990) 6, 12
136 Congo Rec. S7536 (1990) 11, 18
:MISCELLANEOUS
2000 Enron Corp. 10-K. available at

http://www.sec.gov/Archives/edgar/data/I02440l/000102440101500010/
OOOl024401-01-500010.txt 12
Collier on Bankruptcy t]i 560.02 (15th ed. 2003) 20
iv
William J. Perlstein (WP 1073)
Craig Goldblatt (CG 6793)
Jonathan E. Paikin (JP 7599)
Caroline Rogus (CR 6931)
WILMER CUTLER PICKERING
HALE AND DORR LLP
2445 M Street, N.W.
Washington, DC 20037
Telephone: (202) 663-6000
Facsimile: (202) 663-6363
Attorneys for Amici Curiae

International Swaps and Derivatives Association, Inc.,
Securities Industry Association, and The Bond Market Association
UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK
~---~---------------------------------~---~----------------~~x
In re Chapter 11
Case No. 01..16034 (AJG)
ENRON CORP., et ala,
Jointly Administered
Debtors.
..-------
~------~---------------------------------------~---~- x
ENRON CORP.,
Plaintiff, Adv. Pro. No. 03-93373 (AJG)
v.
UBSAG
and
UBS SECURITIES LLC, flk/a UBS

WARBURG LLC (a/k/a UBS WARBURG),
Defendants.
------------------------------------------------------------- x
MEMORANDUM OF LAW OF INTERNATIONAL SWAPS AND DERIVATIVES
ASSOCIAnON, INC., SECURITIES INDUSTRY ASSOCIAnON, AND THE BOND
MARKET ASSOCIATION AS AMICI CURIAE IN SUPPORT OF DEFENDANTS'
MOTION FOR SUMMARY JUDGMENT
T ABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ii
PRELI1vIIN"ARy STATEMENT _ 1
STATEMENT OF INTEREST 2
STATUTORY, FACTIJAL AND PROCEDURAL BACKGROUND _ 5
I. SECTION 546(e) PROTECTS PAYMENTS MADE UNDER aTC

EQUITY DERIVATIVES CONTRACTS FROM PREFERENCE AND
FRAUDULENT CONVEYANCE ACTIONS 12
A. The Transfers Are Protected "Settlement Payments" In The

Forward Contracts Trade 13
B. The Transfers Are Protected "Settlement Payments" In The

Securities Trade 15
II. SECTION 546(g) PROTECTS PAYMENTS MADE IN CONNECTION

WITH OTe DERIVATIVES TRANSACTIONS FROM PREFERENCE
AND FRAUDULENT CONVEYANCE ACTIONS 17
III. STATE LAW CLAIMS mAT ClRCUMVENT THE PROTECTIONS

AFFORDED TO TIIE FINANCIAL MARKETS BY TIlE FEDERAL
B.ANKR.UPfCY LAWS ARE PREEMPTED 23
CONCLUSION 27
TABLE OF AUTHORITIES
CASES
Page(s)
Bessette v. Avco Financial Sen;icest Inc., 230 F.3d 439 (lst Cir. 2000) _ 25
Bevill. Bresler & Schulman Asset Management Corp. v. Spencer Savings & Loan
Ass'n, 878 F.2d 742 (3d Cir. 1989) 7,8, 16
Century Glove, Inc. v. Iselin (111 re Century Glove)~ 151 B.R. 327 (Bania. D. Del.
1993) 25
Cipollone v. Liggett Group, Inc., 505 U.S. 504 (l992) 25
Cox v. Zale Delaware, Inc., 239 F.3d 910 (7th Cir. 2001) 25
Curton v. Port Authority. 183 F. Supp. 2d 664 (S.D.N.Y. 2002) 24
Diamante v. Solomon & S%mon t p.e., No. 1:99CV1339 (FJSfDRH)t 2001 WL

1217226 (N.D.N.Y. Sept. 18. 2001) 25
In re Comark. 971 F.2d 322 (9th Cir. 1992) 17
In re Hamilton Taft & Co., 176 B.R. 895 (Bankr. N.D. Cal.), affd, 196 B.R. 532
(N.D. Cal. 1995), aff'd, 114 F.3d 991 (9th Cir. 1997) 15, 18
In re Hechinger Investment Co. of Delaware, 274 B.R. 71 (D. Del. 2002) 16-17.24, 25,26
In re Interbulk, Ltd" 240 B.R. 195 (Bankr. S.D.N.Y. 1999) 9, 20
In re Nation, 236 B.R. 150 (S.D.N.Y. 1999) 24
In re Olympic Natural Gas Co., 294 F.3d 737 (5th CiT. 2002) 14
In re Resorts International, Inc., 181 F.3d 505 (3d CiT. 1999) 16
International Shoe Co. v. Pinkus, 278 U.S. 261 (1929) 23
Kaiser Steel Corp. v. Charles Schwab & Co., 913 F.ld 846 (lOth CiT. 1990) 6, 16, 17
Kaiser Steel Corp. v. Pearl Brewing Co., 952 F.2d 1230 (lOth Cir. 1991) 16
MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910 (9th Cir. 1996) 25
Penn Terra lJd. v. Department of Environmental Resources, 733 F.2d 267 (3d
Cir. 1984) 24
Pereira v. First North American National Bank, 223 B.R. 28 (N.D. Ga. 1998) 25
11
PertuSD v. Ford Nlotor Credit Co., 233 F.3d 417 (6th Cir. 2000} 25
Thrifty Oil Co. v. Bank of America NatiolUll Trust & Savings Ass 'n, 322 F.3d
1039 (9th Cir. 2003) 9
SEC NO-ACTION LETTERS
Chicago Bd. Options Exchange. SEC No-Action Letter, Fed. Sec. L. Rep. i
79,665 (Feb. 22, 1991) 20
Goldman, Sachs & Co., SEC No-Action Letter, 2003 WL 22358822 (Oct. 9,
2003) 20
Goldman, Sachs & Co., SEC No-Action Letter. 1999 WL 1244018 (Dec. 20,
1999) 20
STATUTES
7 U.S.C. § la(4) 14
11 U.S.C. § 101(25) 14, 15
11 U.S.C. § IGI(5IA) 13
11 U.S.C. § 101{53B) 18, 20,21
11 U.S.C. § 546(e) passim
il U.S.C. § 546(g) passim
11 U.S.C. § 547 5
11 U.S.C. § 548 5, 13
11 U.S.C. § 550 5
11 U.S.C. § 741(8) 16
11 U.S.C. § 761(8) 14
15 U.S.C. § 78 et seq 6, 21
1982 Amendments /0 Bankruptcy Code, Pub. L. No. 97-222,96 Stat. 235 7, 13
iii
•
FELDMAN, WALDMAN & KLINE
A Professional Corporation
2 ;ATRICIA S. MAR
L.J. CHRIS MARTINIAK
3 2700 Russ Building
235 Montgomery street
4 San Francisco, CA 94104
Telephone: (415) 981-1300
5
Attorneys for Trustee
6 Frederick S. Wyle
7
a UNITED STATES BANKRUPTCY COURT

9 NORTHERN DISTRICT OF CALIFORNIA
10 In re ) BANKRUPTCY NO. 91-31077 LK
)
11 HAMILTON TAFT & COMPANY, ) Chapter 11
)
12 Debtor. )
-----------------)
13 )
FREDERICK S. WYLE, Trustee in ) Adversary Proceeding
14 Bankruptcy of Hamilton Taft' & ) No.
Company, )
15 )
plaintiff, )
16 )
v. )
17 )
CONNIE C. ARMSTRONG, JR.; )
18 THE REMINGTON COMPANIES, INC.; }
WINTHROP REALTY COMPANY; CCA )
19 HOLDINGS, INC.; CCAJ CORPOR- )
ATION; CHASE DEVELOPMENT CORP.; }
20 CHAYSON MORTGAGE AND INVESTMENT )
COMPANY; CAL-PACIFIC MANAGEMENT )
21 CORP.; C.R. ACQUISITIONS; DEI, )
INC.; DRESONER FINANCIAL )
22 MANAGEMENT CORPORATION; DRESDNER )
ENTERPRISES, INC.: DRESDNER )
23 ,PETROLEUM, INC.; H.T. INTER- )
NATIONAL, INC.; SUISSE TEXAS, )
24 INC.; KNIGHTSBRIDGE COMPANIES, )
INC.: and KNIGHTSBRIDGE GUARANTY )
25 COMPANY, }
I Defendants. )
26 ----------------}
A Professional corporation
2 PATRICIA S. MAR
] 2700 Russ Building
San Francisco, CA 94104
Telephone: (415) 981-1300
5
6 Frederick s. Wyle
B UNITED STATES BANKRUPTCY COURT
9
NORTHERN DISTRICT OF CALIfORNIA
10
In re ) BANKRUPTCY NO. 91-31077 LK
)
HAMILTON TAFT & COMPANY, Chapter 11
i' Debtor.
)
)
)
12
---~-------------)
)
1]
Bankruptcy of Hamilton Taft & N0"Q---
9~ 81 tK
1.1
Company,
IS
CO~INT FOt)
Plaintiff, ) 1. Recovery of Fraudulent
) Transfer Pursuant to
16
v. ) 11 U.S.C. § 548 and
) California Civil
17
CONNIE C. ARMSTRONG, JR.; ) Code § 3439
THE REMINGTON COMPANIES, INC.; ) 2. Constructive Trust
18
WINTHROP REALTY COMPANY; CCA - ) 3. Turnover of Property
HOLDINGS, INC.; CCAJ CORPOR- ) or the Estate Under
J9
ATION; CHASE DEVELOPMENT CORP.; ) 11 U.S.C. § 542
CHAYSON MORTGAGE AND INVESTMENT ) 4. Injunction
20
COMPANY; CAL-PACIFIC MANAGEMENT ) 5. Conversion
CORP.; C.R. ACQUISITIONS; DEI, ) 6. Breach of Fiduciary
21
INC.; DRESDNER FINANCIAL ) Duties
MANAGEMENT CORPORATION; DRESDNER ) 7. Breach of Contract
22 ENTERPRISES, INC.; DRESDNER )
PETROLEUM, INC.: H.T. INTER- ) (II ~ J,t.M:J~K ~~
23 NATIONAL, INC.; SUISSE TEXAS, )
INC.; KNIGHTSBRIDGE COMPANIES, ) ~) t1;,)/u.f/~
2.1 INC.; and KNIGHTSBRIDGE GUARANTY )
COMPANY, )
25 Defendants. )
26 -----------------)
Plaintiff Frederick s. Wyle, Trustee, alleges as
2 follows:
J THE PARTIES
4 1. Plaintiff is the duly appointed and acting trustee
5 in this case.
6 2. Hamilton Taft & Company, Inc. ("the Debtor") is a
7 California corporation with its principal place of business in San
8 Francisco, California.
9 3• Plaintiff is informed and believes and thereon
10 alleges that defendant Connie C. Armstrong, Jr. ("Armstrong") is
11 the chairman and sole shareholder of the Debtor, and is a resident
12 and citizen of the State of Texas.
13 4. Plaintiff is informed and believes and thereon
14 alleges that defendant The Remington Companies, Inc. ("Remington")
15 is a Texas corporation with its principal place of business in
16 Dallas, Texas, and is owned or controlled by, and affiliated with,
l7 Armstrong and his affiliated entities.
I a 5. Plaintiff is informed and believes and thereon
19 alleges that defendant Winthrop Realty Company ("Winthrop") is a
20 Texas corporation with its principal place of business in Dallas,
21 Texas, and is owned or controlled by, and affiliated with,
22 Armstrong and his affiliated entities.
2] 6. Plaintiff is informed and believes and thereon
2J alleges that defendant CCA Holdings, Inc. (nCCA Holdings n ) is a
25 Texas corporation with its principal place of business in Dallas,

'!
26
C~PLAINT -2-
Texas, and is owned or controlled by, and affiliated with,
2 Ar~strong and his affiliated entities.
] 7. Plaintiff is informed and believes and thereon
alleges that defendant CCAJ Corporation ("CCAJ") is a Texas
5 corporation with its principal place of business in Dallas, Texas,
6 and is owned or controlled by, and affiliated with, Armstrong and
7 his affiliated entities.
B 8. Plaintiff is informed and believes and thereon
9 alleges that defendant Chase Development Corp. ("Chase
10 Development") is a Texas corporation with its principal place oE
!1
business in Dallas, Texas, and is owned or controlled by, and
r2
affiliated with, Armstrong and his affiliated entities.
13
9. Plaintiff is informed and believes and thereon
alleges that defendant Cal-Pacific Management Corp. ("Cal-

1.4
Pacific") is a Texas corporation with its principal place of

15
16
17
18
alleges that defendant Chayson Mortgage and Investment Company
19
("Chaysonn) is a Texas corporation with its principal place of
20
21
22
23
alleges that defendant C.R. Acquisitions, Inc. ("C.R.
24
Acquisitions") is a Texas corporation with its principal place of
25
26
C[)04PLAINT -J-
2 affiliated with, Armstrong. and his affiliated entities.
J 12. Plaintiff is informed and believes and thereon

alleges that defendant DEI, Inc. (HDEI") is a Texas corporation
with its principal place of b~siness in Dallas, Texas, and is
5
6
owned or controlled by, and affiliated with, Armstrong and his
7
affiliated entities.
8
13. Plaintif: is informed and believes and thereon
9
alleges that defendant suisse Texas, Inc. (HSulsse Texas U ) is a
10
Texas corporation with its principal place of business in Dallas,
Ir
Texas, and is owned or controlled by, and affiliated with,
Armstrong and his affiliated entities.
f2
13
alleges that defendant H.T. International is an entity owned or
1.11
controlled by, and affiliated with, Armstrong and his affiliated
15
entities.
16
17
alleges that defendants Dresdner Enterprises, Inc., Dresdner
IB
Petrole~, Inc., and Dresdner Financial Management Corporation
\9
(collectively "Dresdner") are Texas corporations with their
20
principal place of business in Dallas, Texas, and are owned or
21
controlled by, and affiliated with, Armstrong and his affiliated
22
entities.
23
U
alleges that defendants Knightsbridge Companies, Inc. and
25
Knightsbridge Guaranty Company (collectively "Knightsbridge") are
26
CC»4PlAINT -4-
Texas corporations with their principal place of business in
2 Dallas, Texas, and are owned or controlled by, and affiliated
3 with, Armstrong and his affiliated entities.
4 17. Defendants Remington, Winthrop, CCA Holdings, CCAJ,
5 Chase Development, Cal-Pacific, Chayson, C.R. Acquisitions, DEI,
6 Suisse Texas, H.T. International, Dresdner and Knightsbridge will
7 sometimes-collectively be referred to as the "Armstrong
8 Companies."
9
JURISDICTION AND VENUE
10
18. This is an adversary proceeding brought pursuant to
\1 Bankruptcy Rule 7001, 11 U.S.C. §§541(a), 542, 544, and 548.
12
19. This Court has jurisdiction of this adversary
13
proceeding pursuant to 28 U.S.C. §§151, 157, and 1334. Venue is
1<1
proper pursuant to 28 U.S.C. §1409.
20. This adversary proceeding is a core proceeding

15
pursuant to 28 U.S.C. §157 and this court may enter a final
16
jUdgment herein.
17
GENERAL ALLEGATIONS
18
19
alleges that an involuntary bankruptcy petition was filed against
20
the Debtor on March 20. 1991. Prior to filing the petition, the
2\
Debtor operated as a tax deposit and payment service. The
22
plaintiff, the Chapter 11 Trustee in this case, was appointed on
23
March 26, 1991. The Debtor, by and through the Trustee, continues
24 -,
to operate a payroll tax deposit and payment service.
26
CCf4PLAII4T -5-
22. Plaintiff is informed and believes and thereor.
2 alleges that Armstrong is an insider of the Debtor. A.rmstrong ',,:3=.
3 the sole shareholder and chairman of the Debtor from March 19a9,
J when he purchased the Debtor, until the petition was filed.
5 Armstrong owns or controls all of the Armstrong Companies.
C 23. On various different dates over the period in which
7 Armstrong controlled the Debtor large sums of money belonging to
B the Debtor were transferred directly or indirectly to various of
9 the Armstrong Companies, including without limitation Dresdner,
10 Remington, Knightsbridge, and Winthrop. for example, Debtor's
II
books and records show that (a) in January and February of 1991
12
approximately $11,000,000 was transferred from Debtor directly to
IJ
Knightsbridge, (b) Debtor's funds were transferred to an account
111
at Merrill Lynch which were then transferred to Bank One in Dallas
and then transferred to Knightsbridge, and (c) on numerous dates

15
in 1990 funds were transferred from Debtor to the Merrill Lynch
16
17
account and then "invested" in various of the Armstrong Companies
such as Dresdner, Remington, Winthrop, and Knightsbridge. Such

\B
trans fers-- from Debtor' directly or indirectly to Armstrong
19
companies will be referred to herein as HAffiliate Transfers H.
20
24. All, or virtually all, of the Affiliate Transfers
21
came from funds being held by ~btor for payment of tax
22
~bl~gations of Debtor's clients.
2]
25. In October 1990, the internally prepared financial
statements of the Debtor show an intercompany receivable of

25
$68,800,000 which evidences that the total Affiliate Transfers
26
C~PLAINT -6-
were at least in that amount. Plaintiff and Plaintiff's
2 accountant have searched the files of Debtor and questioned ~~e
] relevant staff of Debtor, but have found no collateral, securi~j
d agreements, notes, or interest payments relating tG these
5 transfers.
6 26. In 1990, Debtor's internally prepared financial
7 documents reflect short term indebtedness owed by Knightsbridge to
8 Debtor in an amount of $8,175,021.55 reflecting apparent transfers
9 in approximately that amount from Debtor to Knightsbridge.
10 Plaintiff and Plaintiff's accountant have searched the files of
11 Debtor and questioned the relevant staff of Debtor, but have found
12
no notes, agreements, interest payments, collateral or security
13
relating to such transfers.
\ Ii
27. Plaintiff is informed and believes and alleges on
15
that basis that Armstrong caused the Affiliate Transfers to be
16
made.

17
that basis that some of the funds comprising the Affiliate
18
Transfers were further distributed from the initial recipient
19
company to one or more other companies among the Armstrong
20
21
Companies.

22
that basis that large sums of money ostensibly advanced by one or
23
more of the Armstrong companies were used (a) to purchase, rent or
2d
lease real property, goods or services for the personal use and/or
25
enjoyment of Armstrong, (b) to make investments or acquisitions
26
C~PLAINT -7-
for the benefit of Armstrong, (c) to make 1 arge gi fts, dona t ie,.s .
2 or contributions at the direction and for the benefit of
] Annstrong, (d) for a fund to protect against litigation or ci·.;il
a or criminal liability of Armstrong, or (e) for other purposes fer
5 the direct of indirect benefit of Armstrong.
6 30. Plaintiff is informed and believes and alleges on
7 that basis that the Armstrong Companies that advanced large sums
8 of money referred to in SUbparagraph E immediately above (a) were
9 not sufficiently profitable to generate such sums on their own
10 operations, and (b) were the recipients of large sums of money
11 directly or indirectly from Debtor as part of the Affiliate
12 Trans fers .
}3 31. Plaintiff has been informed of and believes the
\4 following and on that basis alleges:
IS a) Some or all of the Armstrong Companies that
16 received Affiliate Transfers were not profitable and that some of
17 the funds received from Debtor were used to pay operating expenses
18 of the recipient Affiliate Company.
19 b) Upon obtaining control of the Debtor,
20 Armstrong wired approximately $2 million from the Debtor to the
11 holding company for some of the Armstrong Companies. out of these
12 funds, Armstrong retired a $600,000 note which the prior owners of
23 the Debtor had executed to Mr. Stanley Rosenberg and that
211 Armstrong had agreed to pay as the "price" for buying the Debtor.
25 c) In July, 1989, Armstrong transferred
26 approximately $3 million of funds belonging to the Debtor to
C~PLAH/f -8-
Dresdner Enterprises, Inc., a company which formerly owned the
2 Debtor and is currently owned by Armstrong.
J d) In August, 1989, Armstrong transferred $7
million of the Debtor's money to an account of Dresdner
5 Enterprises, Inc. in order to purchase a shopping center that
6 Armstrong or one of the Armstrong Companies was buying.
7 e) In February, 1990 Armstrong transferred
B approximately $10 milli~n of the Debtor's funds to Winthrop for
9 purchase of a showpiece ranch of about 2,000 acres for Armstrong's
10 personal residence. A loan in the amount of approximately S6.~
Ir million was booked to Armstrong, who gave a deed of trust on the
12 property to Winthrop. Winthrop in turn assigned the deed of trust
13
to the Debtor. Portions of the SlO million from the debtor were
also used for improvements on Armstrong's ranch, including abou~

14
15
$2.4 million spent on a cutting horse arena, and for prepaid
Ib
interest on Armstrong's note.
17
f) In October 1990, the $68,800,000 intercompany
receivable was divided into two obligations. One obligation is

18
19
shown on the books of Debtor as a long-term "bond" in the amount
of $57 million. The other obligation is shown on the books of

20
Debtor as "affiliated notes" and a "long term debt" of $11.8
2'
million from Winthrop to the. Debtor. No repayment of these
22
intercompany receivables has been found by Plaintiff to be shown
23
on Debtor's books.
24
g) On an unkncwn date, Armstrong transferred some
25
$J million of the Debtor's funds into one of the Armstrong
26
C""PLAINT -9-
Cornpanies--Oresdner Petroleum--to purchase oil and gas leases i~
the name of Dresdner Petroleum.
) h) Armstrong personally used funds believed ~o
4 ~ave come from the Debtor for unauthorized purposes. For example,
5 Armstrong purchased a Jaguar automobile for $105,000, and a Rolls
6 Royce for $135,000, at charity events. He also purchased a BMW
,, for $J6,000 for a vice-president of Debtor, christine Grernbling
8
using Debtor's funds. He contributed hundreds of thousands of
9
dollars to political campaigns. He was drawing a salary of some
10
$21,000 every two weeks--Dver $500,000 a year--from his various
11 entities Which were, in turn, drawing funds for operating expenses
from Debtor. He rented a suite at the Mark Hopkins Hotel in

12
San Francisco for approximately $160,000 per year. On infonnation
13
and belief, all the funds for these purchases and expenses were
14
diverted from the Debtor.
15
i) In December 1988, the Debtor had on its books
16
a series of unsecured illiquid loans to its then sole shareholder,

17
MaxPharrna, Inc. or affiliates of MaxPharma, Inc. These ill iquid
\8
affiliate loans amounted to approximately $14 million. Additional
19
affiliate loans were thereafter made, increasing that amount. At
20
the time Armstrong purchased the Debtor in March 1989, there were
21
approximately $14-18 million of affiliate loans on the Debtor's
22
books. The purchase by Armstrong closed on March 29, 1989. On
23
April 10, 1989, an Armstrong Affiliate, Dresdner Enterprises,
24
Inc., purchased the $18.9 million of intercompany receivables for
25
a note which was backed up by approximately $1.5 million worth of
26
CQHPLAINT -10-
collateral. Hence, on behalf of the Debtor, Armstrong a~par=~L::
~ had a period of time in which it could have sued MaxPharma's
] affiliates for this $18.9 million of receivables. Instead, one
J the Armstrong Companies at Armstrong's direction, bought out th8se
5 receivables for notes having questionable value.
6 j ) After Armstrong acquired the Debtor, the
7 Debtor became the primary source of funding for all Armstrong's
B Dallas operations. The Armstrong Companies required some $400,000
9 a month in operating costs--almost $5 million a year--apart from
10 any operating costs incurred by the Debtor itself. The funds for
II
such operating costs were obtained from the Debtor.
11
k) In March 1991 Armstrong invested SJ,OOO,OOO to
13
acquire ~arker Automotive.
lJ
1) Armstrong caused Debtor's funds to be
transferred to the Armstrong companies by various methods,

\5
including the following: One of the Debtor's employees would
16
write checks payable to federal, state or local taxing authorities

\7
on behalf of the Debtor's clients. Those checks would be
1B
processed through the Debtor's computer, and this would
\9
automatically create a ledger entry reflecting that the check had
20
been issued. This ledger entry was necessary so that on the books
21
of the Debtor and other app~opriate financial documents, it would
appear as if the check had actually been written. After the check
23
had been processed in this manner, the Debtor had another employee
physically pull such checks before thE! were mailed or deposited

25
in a federal depository bank. Instead of transmitting such checks
26
CQHPlAfNT -11-
to the taxing authorities, Debtor would physically hold the c~e~~:3
2 for an average of three months, until the next quarter. At
J end of the. three-month period, the Debtor would then void the
original held-back check. A new "good" check would be issued
5 covered by SUfficient new funds. The new funds were obtained
6 through diversion of clients' funds. A new check would be issued
7 to the authorities, and this new check would have to be held, thus
8 repeating the process.
9
rn) Armstrong's Dallas staff prepared a weekly
10
cash summary projecting the Armstrong Companies' cash needs for
II
the next several months. If t t : cash flow showed that the
entities would soon run out of funds, Armstrong would transfer the
12
Debtor's funds to the Dallas office. These funds were then
13
distributed to whichever Armstrong Companies needed them.
1d
COUNT ONE
15
(Recovery of Fraudulent Transfer Pursuant to § 548
and California Civil Code §§ 3439.04 and 3439.05)
16
32. Plaintiff realleges and incorporates by reference
17
Paragraphs 1 through 31.

\B
33. To the extent that the claims herein arise pursuant
to Bankruptcy Code Section 544(b), plaintiff is asserting the

20
rights of all of the unsecured creditors with an unsecured claim
21
allowable in the bankruptcy case, which were creditors at the time
22
of the complained of transac~ions.
23
34. Armstrong has caused current assets of the Debtor
24
to be transferred to defendants without adequate or fair, and
25
26
Ce»o1PLA llolT -12-

often without any consideration, while retaining all of t~e
2 liabilities of the Debtor.
] 35. The transfers of assets from the Debtor to the
defendants were made while the Debtor was insolvent and for less
5 than a reasonably equivalent value.
6 36. By reason of the foregoing, the said transfers are
7 voidable pursuant to § 548(a) (2) of the Bankruptcy Code,
8 California Civil Code § 3439.05, and Bankruptcy Code § 544(b).
9
37. The transfers of assets from the Debtor to the
10 defendants caused the Debtor to become insolvent and were made for
less than a reasonably equivalent value.

" 38. By reason of the foregoing, the transfers are
12
I]
voidable pursuant to section 548(a) (2) of the Bankruptcy Code,
California civil Code § 34J9,05, and Bankruptcy Code § 544(b).

Id

\5
defendants were made while the Debtor was engaged in business or a
16
transaction for which its remaining property was an unreasonably
17
small capital and were made for less than a reasonably equivalent
18
value.
19
40. By reason of the foregoing, the transfers are
20
voidable pursuant to § 548(a) (2) of the Bankruptcy Code,
2I
California civil Code § 3439.04 and Bankruptcy Code § 544(b).
n
21
defendants were made without receiving reasonably equivalent value
2.1
in exchange for the transfers, and the Debtor intended to incur,
25
26
C~PLA1NT -1]-
•
or believed or reasonably should have believed that it wculd
2 incur, debts beyond its ability to pay as they became due.
] 42. By reason of the foregoing, the transfers are
voidable pursuant to California civil Code § 3439.04 and § 544(t)
5 of the Bankruptcy Code.
6 43. The transfers of assets from the Debtor to ~he
7 defendants were made while the Debtor intended to incur debts
8 beyond its ability to pay as such debts matured and for less than
9 a reasonably equivalent value.
10
II
voidable pursuant to § 548(a) (2) of the Bankruptcy Code.

12
I]
defendants were made with actual intent to hinder, delay or
IJ
defraUd the Debtor's creditors.

\5
voidable pursuant to § 548(a) (1) of the Bankruptcy Code,
16
California civil Code § J4J9.04 and § 544(b) of the Bankruptcy

17
Code.
18
WHEREFORE, plaintiff prays for relief as set forth
19
hereinbelow.
20
COUNT TWO
21 (Constructive Trust)
22
23
paragraphs 1 through 46, inclusive.
24
48. By vir~ue of the wrongful acts described above,
25
defendants have been unjustly enriched and hold the Debtor's funds
26
COHPlAINT -14-
•
belonging to the Debtor's estate, and any proceeds of those f~~~s,
:2 as well as any assets received from or acquired with money
] received from the Debtor, as constructive trustees for the benef~~
of the Debtor's estate.
5 WHEREFORE, plaintiff prays for relief as set forth
6 hereinbelow.
7 COUNT THREE
(Turnover of Property Pursuant to § 542)
8
9 49. Plaintiff realleges and incorporates by reference
10 Paragraphs 1 through 48, inclusive.
11 50. Prior to the filing of the petition, the Debtor
t2
transferred its property to defendants. Such property consisted
13
of money and other property which is property of this estate, as
14
set forth hereinabove.
51. The property of the estate referred to in the

15
preceding paragraph, or proceeds of such property, is now in the
16
possession of the Defendants. Defendants have failed and refused
17
to surrender such property, or the proceeds thereof to the
18
trustee.
19
20
hereinbelow.
2I
COUNT FOUR
22 (Injunction)
23
24
25
26
CC»olPlAIWT -15-
53.
•
Plaintiff is entitled to injunctive relief pur5~3~:
2 to Bankruptcy Rules 7001(7) and 7065, Bankruptcy Code § 105 ~~d
3 F.R.C.P. §65, restraining defendants from destroying or other~is2
disposing or altering the property of the estate, and other
5 documents and information in defendants' possession, custody or
6 control concerning the use and transfer of the Debtor's funds.
1 Plaintiff is also entitled to injunctive relief ordering
8 defendants to immediately turn over to plaintiff all property of
9 the estate in defendants' possession, custody or control and to
iO
refrain from dissipating, transferring, or encumbering assets or
11
funds received from the Debtor or acquired with the Debtor's
12
assets or funds.
\3
14
hereinbelow.
COc-NT FIVE
15
(Conversion)
16
,7
54. Plaintiff real leges and incorporates by reference

18
55. By virtue of the acts set forth in paragraphs 2]
19
through 31 hereinabove, Armstrong has converted assets of the
20
Debtor and by such conversion has greatly damaged Debtor.
21
22
hereinbelow.
23
24
25
26
CCfolPlAINT -16-
•
COUNT SIX
(Breach of Fiduciary Duties)
2
J 56. ilaintiff realleges and incorporates by referens~
4 paragraphs 1 through 55, inclusive.
5 57. As chairman of Debtor, Armstrong at all relevant
6 times owed fiduciary duties to Debtor.
7 58. By virtue of the acts and conduct set forth in
8 paragraphs 23 through 31 hereinabove, Armstrong has breached his
9 fiduciary duties owed to the Debtor in ~hat he has knowingly
10 entered into numerous conflicts of interest, has engaged in self-
11 dealing to the detriment of the Debtor, has failed to act in the
12 best interests of the Debtor, has failed to control and manage the
13 assets of Debtor in a prudent manner, and has misappropriated
14
assets of the Debtor, and has by such breaches of fiduciary duty
caused great damage to the Debtor.

15
16
hereinbelow.
17
COUNT SEVEN
IS
(Breach of contract)
19

20
21
60. According to the books and records of the Debtor,
22
the Armstrong Companies have obligations totaling $68.8 million to
2]
the Debtor under junk bonds, promissory notes or other
obligations. On information and belief, interest on such notes

25
and obligations due to the Debtor has not been paid by the
26
CCt\PlAlllT -17-
·. •
companies owing such obligations in violation of the terns and
2 conditions thereof and therefore are in breach of such
3 obligations.
61. Debtor has performed all obligations on its part t~
5 be performed except those excused by the conduct of defendants or
6 by virtue of other causes.
7 WHEREFORE, plaintiff prays for relief as follows:
8 1. For an injunction restraining defendants from
? dissipating, transferring, or encumbering assets or funds received
10 from the Debtor or acquired with the Debtor's assets or funds.
Il
2. For an injunction or order requiring defendants to
12
surrender the property of the estate, or the proceeds thereof, to
13
the Trustee, and to render an accounting to the court for the
1<1
disposition by defendants of such property.
3. for the imposition of a constructive trust on

15
plaintiff's funds and any proceeds of those funds in defendants'
\6
possession, custody or control and on any assets in defendants'

17
possession, custody or control received from or acquired wi~~

18
money received from the Debtor.
19
4. For judgment against defendants for an accounting
20
of all payments and transfers of the Debtor's property by
21
defendants to the extent such transfers were fraudulent.
22
5. For an order avoiding all transfers to the
'23
defendants to the extent such transfers were fraudulent.
24
25
26
CCtlPl>. Ill! -18-

6. For a judgment in the total amount avoided, a~j ---
2 an order directing payment of such amount by defendants to
J plaintiff, plus interest thereon at the legal rate.
J 7. For compensatory damages according to proof.
5 8. For exemplary damages in a sum sufficient to dete~
6 defendants from similar conduct in the future.
7 9. For such other and further relief as this Court
deems appropriate.
8
9 Dated: tj;kI2/ 177/

10
11
12 BYqylu;, ;~
L.~. Chris Martiniak
13
Frederick S. Wyle
14
15
16
17
18
19
20
21
22
23
24
2S
26
CCl4PLAIHT -19-
•
2 ;ATRICIA S. MAR
J 2700 Russ Building
4 Francisco, CA 94104
San
Telephone: (415) 981-1300
5
6 Frederick S. Wyle
8 UNITED STATES BANKRUPTCY COURT

9 NORTHERN DISTRICT OF CALIFORNIA
10 In re ) BANKRUPTCY NO. 91-31077 LK
)
II HAMILTON TAFT & COMPANY, ) Chapter 11
)
12 Debtor. )
13 ----------------))
IJ Bankruptcy of Hamilton Taft- & ) No.
Company, )
15 )
Plaintiff, )
16 )
v. )
17 )
CONNIE c. ARMSTRONG, JR.; )
18 THE REMINGTON COMPANIES, INC.: )
WINTHROP REALTY COMPANY: CCA )
19 HOLDINGS, INC.; CCAJ CORPOR- )
ATION; CHASE DEVELOPMENT CORP.; )
20 CHAYSON MORTGAGE AND INVESTMENT )
COMPANY; CAL-PACIFIC MANAGEMENT }
21 CORP.; C.R. ACQUISITIONS; DEI, )
INC.; DRESDNER FINANCIAL )
22 MANAGEMENT CORPORATION: DRESDNER )
ENTERPRISES, INC.; DRESDNER }
23 ,PETROLEUM, INC.; H.T. INTER- )
NATIONAL, INC.; SUISSE TEXAS, )
24 INC.: KNIGHTSBRIDGE COMPANIES, )
INC.: and KNIGHTSBRIDGE GUARANTY }
25 COMPANY, )
I Defendants. )
26 ~---------------}
u.s. Departmen. ~C Justice
Federal Bureau of InveStlgatlOn
In Reply I Ploa-se Refer 1;0 450 Golden Gate Avenue

Ftle No San Francisco, California 94102
September 23, 1988
Mr. Joseph P. Russoniello

united states Attorney
Northern District of california
450 Golden Gate Avenue
Box 36055
San Francisco, California 94102
Attention: Mr. Flay Dawson
Assistant u. S. Attorney
Re: I~~~ ......~ _
PRESIDENT, dba
HAMILTON TAFT AND COMPANY,
SAN FRANCISCO, CALIFORNIA;
UNKNOWN SUBJECTS I dba
MAX FHARMA, INCORPORATED,
200 CRESCENT COURT, SUITE 1375,
DALI.AS TEXAS;
POSSIBLE WIRE FRAUD
Dear Mr. Russoniello: b -: i:
Referenced conference between Assistant U.s. Attorney

(AUSA) Michael Yamaguch~ and Special Agent (SA) I I
on September 14, 1988.
This letter is to confino. the above referenced
conference in which SA I I
delineated the details of the
allegation and the results or his investigation to date regarding
captioned matter. AUSA Mike Yamaguchi indicated based on what
was presented to him as well as his examination of documentation
pertinent to the captioned matter, there was insufficient
1 - Addressee
/1 - San FranClSCO ((196A-2868)
RES/bfa
(2 )
Mr. Joseph P. Russoniello
evidence to support a violation of federal law at this time and

he would therefore decline prosecution. AUSA Yamaguchi added if
.
~
further information could be obtained regarding the allegations /
.'
---
presented, he would reconsider his opinion.
Based on AUSA Yamaguchi's declination, our office will
close its investigation into the captioned matter.
Very truly yours,
RICHARD W. HELD
Special Agent in Charge
b7C::
By: I f
Superv~sory Speclal Agent
2*
( I2IJII199j)
FEDERAL BUREAU OF INVESTIGATION
Precedence: PRIORITY Date: 02/10/1997
To: San FranClSCO Attn: SA Will Hatcher
From: Sacramento
Contact: IA 1"'-- ....
Approved By:
t ., .-.
; ,'I~
Drafted By: _- .....1 epg
Case ID #: 196D-SF-93255 (Pend~ng)
Title: CONNIE CHIP ARMSTRONG, JR.;

I IFormerly dba
HAMILTON-TAFT COMPANY
FBW (D); MF; ITSP
00: SF
synopsis: Caples of FD-302s and inserts enclosed from Sacramento

flle 196B-1364.
Reference: 196D-SF-93255 Serial 124
Enclosures: FD-302 of Ion 2/19/86

·FD-302 of Ion 3/12/86
FD-302 of Ion 5 /23/86
FD-302 of Ion 6/19/8 6
Insert at ~uaene Oreaon from 5/1 4 - 6/18/86
FD-302 of Ian 6/2 5/86
FD-302 of Ion 8/7/86
FD-302 of I,on 9/17/86
FD-302 of Ion 3/31/8 7
FD-302 of Ion 3 /25/87
FD-302 of Ion 4/7/8 7
Details: A review of closed Sacramento flle 196B-1364 revealed

the above enclosed FD-302s and inserts .
••

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/ ....

CCNNIE C. ~~STRONG, § IN THE DISTRICT COURT

PLAINTIFFS' ORIGINAL PETITION, APPLICATION FOR

~c T~£ HONORABLE JUCGZ OF SAID COURT:

COM.ES NOW, CCNN r E C. ARMSTRONG ( .. A.R-'!STRONG - ), Indi v iduall y

PLAINTIFFS' ORIGINAL PETITION, APPLICATION FOR

Pet.~tion, Application for Temporarj Res~raining Order, Ex Par~e,

Applicat:ion for Temporary and Permanent. rnjunct.ion, and

Applicat.ion for ImposiT:ion of Const:=uc~ive Trust., respeccfully

shc~s the Cour~ in suppor~ t.hereof as follows:

1. ?laint.:'::, ,A.R..~STRCUG, is an indi'/idual and shareholder

cr >!..;X;:i.A.R.'-!A, INC., residing in Dallas C:Junt:y, Texas.

2. DeEendant, LAWRENCE B. COSTELLO ("COSTELLO") t is an

indivicual resid:ng in Da~las Caunt.y, Texas, and is current.ly the

President. of ~~XP~~~~~, INC. COSTE~~O may be served wit.h pr~cess

her e i:l by s e !:"v in g h i 1T1 at his p r inc i ? a 1 ? 1 ace a f bus in e s s 10 cat 2 d

dt. 200 C=escent Ccu=~, Suite 1300, Dallas, Texas 75201.

:: 2 : -2 n c: a. r. ': , C. ~'\j' AY~ IE L : T c: :::: :: =: :. J ( .. LITCHF ! :: L => " ), :.. 5 an

l.:-,,::':".":';:uc2. :-esid':'~.g ~:1 Oklahcrna City, Ckl.ahcma, and is c:l===ntly

~lcce of business in Dallas, Dallas County, Texas. ROBERTS may

<0= d~ his =esidence at: 3737 Pot.omac, Dallas, Dallas Count.y,

5. Defendant, ~OH~\f.ED A. HADrD ("HADIO·), at. a.ll t.imes

mat.e!"ial herei.n, has engaged in business in the Stat.e of Texas,

as ~cre par~icularly described below. HAOID does nat. maint.ain a

~eqular place of business or residence in the Stat.e of Texas, and

1:1 -:!".i s cause. !'I_""DID is not. a =esident. of the Stat.e of Texas.

T~e causes of ac-::cn asser~ad herein arose from or are connect.ed

',.;i:.:: ?u~~osei!Jl ac:.£ ccmmi:.:.ed by HADID in Texas because P..ADID

en:.e=ed int.:J a t=r::missory ~ot.e while in Callas, Dallas Ccunt.y,

C:::":':-'.:.y, ':'=x~s. ~D:Q'S breach of his dut.y to ~ay the p=omissory

Fe=::.::n '",ho ::as (d) facili.cated che acquisit.ion ty ROEER.TS of

C:::-'.:'=:Jl over JR. ?S. PRASAD, (b) through effecr.uat.ion of

mc='i.:~c=.tions co the lending agreement.s bet.·",een DR. P.S. EJRASAD

a:1c- :.ne Nat.ional Sank of ~ashing-r.:Jn, as ;.Jell as having received

=-=-:.~.!:::'CN-TAf:' & c.:. C8NCENTRATION n.CCOUNT ,UNDS as a =esu I t o E

:-.':'5 .::::nt.i:1ui:-.g inter-est. in ~A..AXPP..A.R..\(.A. Acc~rdingly, ~ID may be

C':':'E:S by s.;!!:":i.ng t.he Secrec.,ary of Stat.e of Texas provi.ded t.ha.t.

PLAINTIFFS' ORIGINAL PETITION, APPLICATION FOR

addres s at 1300 N. 17th Streec, Suite 1100, Rosslyn, Virginia

6. Defendant., DR. P. S. PRASAD ( .. PRASAD" ) J was a t a l l cimes

material hereto and is believed t.o cur:=ent:ly be a member of the

Beard. of Direccors of ~.AXPHARMA and, at all times material

here in / has engaged in bus iness in Dallas County, Texas / as more

par~ic~larly desc=~bed below. PRASAD does not. mainr.ain a place

of =egular business ~n Texas and has no agent. on whom service of

dsser~ed herein arese from or dre connect:ed with c.he purposeful·

dC~S comrnit~ed by PRASAD in Texas because (a) he has facilitaced

through his original conduct in assist-ing ROBERTS ~o acquire

~~~p~~~~~ as a cor?orac.e shell through ~hich t.o acquire ~~~ILTON-

:'.~_::' =.r.c' ::-.erea::er dissipace the asset.s of fV.}!ILTON-T.~fT/ ant

di':"':"gence c.he fiducia.ry duc.ies of a direct-or and con't.rolling

shareholder of ~?H..A.RJ-f.A, as more fully descr.:.bed below is che

basis of Plaintiff's cause of action. According 1 Y , De f e ndan t.

PR.ASAD, may be cited by serving t.he Secret:ary of State of Texas

~=:::'lided that. the ci~at:ion and pet.i:.ion are forwarded co PRASAD' 5

p=:. .... ci.;;al place of business, KEYSTONE FINANCIAL CORPORATION,

400 (Jest. Fifch Street., Greenville, Nort.h Carolina 27834, by

ce~~ified mail, return receipt. requesr.ed.

wit:h cit.at.ion a.t. her principal place of business, 200 Crescent:

Cour~, Suit.e 1375, Dallas, Dallas County, Texas iSlOt.

8. Defendant, MAXFHARMA, INC. {"MAXPHARMA"}, is a

of Tennessee and duly au'thorized t:o t=ansact business in t.he

Stat.e of ':'axas, and . may be served '''/it.h cit.at:ic:l by serring it.s

regi.s~c:!:'ed aqent:, i:..,.;WRENCE 3. COST::UO, at 200 Crescenc Cour1:,

President. of XP~, INC. COSTEO may be served wit.h pr~cess

~p~~~ as a cor?orac.e shell through ~hich t.o acquire ~~~ILTON-

~;e :~e Scace cf Texas an whcm service Cl:at.lon may be made