Case 2:15-cv-06633-CAS-AJW Document 184 Filed 08/08/16 Page 1 of 19 Page ID #:6527

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Jeffrey N. Pomerantz1 Esq. (CA Bar No. 143717)

Jeffr~y L. Kandel (CA Bar No. 115832)
PACHULSKI STANG ZIEHL & JONES LLP
10100 Santa Monica Boulevard, 13th Floor
Los Angeles, CA 90067
Telephone: 310-277-6910 I Facsimile: 310-201-0760
E-mail: jpomerantz@pszjlaw.com; jkandel@pszjlaw.com
James W. Walker (admitted Rro hac vice)
Cameron A. Welch (admitteopro hac vice)
Eric S. Latzer (admitted pro hac vice)
COLE SCHOTZ P.C.
2515 McKinney Avenue, Suite 1350
Dallas, TX 75201
Telephone: 469-557-9390 I Facsimile: 469-533-0361
E-mail: jwalker@coleschotz.com; cwelch@coleschotz.com; elatzer@coleschotz.com
Attorneys for Plaintiff The
Wimbledon Fund, SPC (Class TT)

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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WESTERN DIVISION

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THE WIMBLEDON FUND, SPC (CLASS

TT),
Plaintiff,

C.D. Cal. Case No. 2:15-cv-6633CAS-AJWx

vs.

OPPOSITION TO MOTION TO
DISMISS FILED BY JEROME
SWARTZ [DOC. N0.174];
MEMORANDUM OF POINTS
AND AUTHORITIES IN SUPPORT
THEREOF

DAVID BERGS TEINd JEROME

SWARTZ AARON RUNFELD;
KIARASH JAM; GRAYBOX LLC
INTEGRATED ADMINISTRATION;
EUGENE SCHER AS TRUSTEE OF
BERGSTEIN TRUS~ and CASCADE
TECHNOLOGIES CuRP.,
Defendants.

Hearing:
Date: August 29, 2016
Time: 10:00 a.m.
Location:Crtrm 5, Second Floor
312 N. Spring Street
Los Angeles, CA 90012-4701
Trial date: October 24,2017

Case 2:15-cv-06633-CAS-AJW Document 184 Filed 08/08/16 Page 2 of 19 Page ID #:6528

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TABLE OF CONTENTS

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MEMORANDUM OF POINTS AND AUTHORITIES ................................................ !

I.
PRELIMINARY STATEMENT ................................................................ !
II.

THE FUND HAS ASSERTED VIABLE VEIL PIERCING CLAIMS

UNDER TEXAS LAW.............................................................................. 3

III.

THE FUND'S CLAIMS ARE NOT SUBJECT TO RULE 9(B) .............. 5

IV.

THE FUND'S CLAIMS AGAINST SWARTZ ARE SUFFICIENTLY

PLEADED REGARDLESS OF WHAT PLEADING STANDARD
APPLIES .................................................................................................... 7

V.

CONCLUSION ........................................................................................ 14

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TABLE OF AUTHORITIES

Page(s)

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CASES

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ABC Arbitrage v. Tchuruk, 291 F.3d 336 (5th Cir. 2002) .............................................. 6
Bhatia v. Dischino, No. 3:09-cv-1086-B, 2011 WL 3820825 (N.D. Tex.
Aug. 29, 2011) ......................................................................................................... 10

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Bollore S.A. v. Imp. Warehouse, Inc., 448 F.3d 317 (5th Cir. 2006) .............................. 3
Dinsdale v. AD Telamerica Inc., No.3: 14-CV-3427-B, 2015 WL
1757473 (N.D. Tex. Apr. 17, 2015) ........................................................................... 5

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In re Hot-Hed, Bankr. No. 11-35208-H3-7, Adv. No. 13-3107,2014 WL

2919340 (S.D. Tex. June 26, 2014) ........................................................................... 5

JNS Aviation, Inc. v. Nick Corp., 418 B.R. 898 (N.D. Tex. 2009) ................................ .4

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Lincoln Gen 'l Ins. Co. v. US. Auto Ins. Servs., Inc., No. 3:07-CV-1985B, 2009 WL 1174641 (N.D. Tex. Apr. 29, 2009) ............................................ 6, 7, 15

Lucas v. Tex. Indus., Inc., 696 S.W.2d 372 (Tex. 1984) ................................................ 5

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Newell v. Moran Towing Corp., No. 2-09-cv-00058 (TJW), 2009 WL

3157475 (E.D. Tex. Sept. 28, 2009) ......................................................................... .4

Ogbonna v. USPLabs, LLC, No. EP-13-CV-347-KC, 2014 WL 2592097

(W.D. Tex. June 10, 2014) ......................................................................................... 4

Pacific Maritime Freight, Inc. v. Foster, 2010 WL 3339432 (S.D. Cal.

Aug. 24, 2010) ........................................................................................................... 7

The Richards Group, Inc. v. Brock, No. 3:06-CV-0799-D, 2007 WL

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700896 2007 WL 700896 .......................................................................................... 3

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Rimade Ltd. v. Hubbard Enters., 388 F.3d 138 (5th Cir. 2004) ..................................... 3

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In re Ritz, 513 B.R. 510 (Bankr. S.D. Tex. 2014) ........................................................... 5

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In re Ryan, 443 B.R. 395 (Bankr. N.D. Tex. 2010) .......................................... 3, 4, 9, 14

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SSP Partners v. Gladstone Investments (USA) Corp., 275 S.W.3d 444

(Tex. 2009) ................................................................................................................. 8
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Thomas v. Bible, 983 F.2d 152 (9th Cir. 1993) ............................................................... 7

W. Horizontal Drilling, Inc. v. Jonnet Energy Corp., 11 F .3d 65 (5th Cir.
1994) .......................................................................................................................... 3

Weston Group, Inc. v. Sw. Home Health Care, LP, No. 3:12-CV-1964-G,
2014 WL 940329 (N.D. Tex. Mar. 11, 2014) .................................................. 5, 6, 14
Wilson v. Davis, 305 S.W.3d 57 (Tex. App.-Houston [1st Dist.] 2009,
no pet.) ........................................................................................................................ 5

RULES

Fed. R. Evid. 201 ..................................................................................................... 13, 14

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Fed. R. Civ. P. 9(b) ........................................................................................... 3, 5, 6, 15

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Fed. R. Civ. P. 12(b)(6) .......................................................................................... passirn

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STATUTES

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28 U.S.C. 1404(a) ......................................................................................................... 3

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Tex. Bus. Orgs. Code Ann. 21.223 ..................................................................... .4, 5, 6

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Tex. Bus. Orgs. Code Ann. 21.233(a)(2), (b) ....................................................... .4, 14

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Tex. Bus. Orgs. Code 1.002(1) .................................................................................... 5

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Texas Tax Code 171.309 .............................................................................................. 7

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MEMORANDUM OF POINTS AND AUTHORITIES

P1aintiffThe Wimbledon Fund, SPC (Class TT) (the "Fund" or "Plaintiff') files

this Opposition to the Motion to Dismiss Plaintiffs Amended Complaint (Doc. No.

174) filed by Defendant Jerome Swartz ("Swartz"). 1

I.
PRELIMINARY STATEMENT.

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Swartz is the alter ego of a sham entity that bears his name -- Swartz IP
Services Group ("Swartz IP" or "SIP"). As detailed in the Amended Complaint,
Swartz and his cohorts, defendants David Bergstein ("Bergstein"), Aaron Grunfeld
("Grunfeld"), and Kiarash Jam ("Jam") (collectively, the "Co-Defendants")/ utilized
Swartz IP to perpetrate a fraud which resulted in the disappearance of $17.7 million
invested in the Fund. Bergstein, Jam, and Grunfeld --like Swartz now-- moved to
dismiss the Fund's veil-piercing claims for failure to state a claim under Rule
12(b)(6). Their motion was denied. [June 13, 2016 Order, Doc. No. 151]. Swartz's
similar motion deserves the same fate.
The Amended Complaint contains substantial allegations regarding Swartz IP
and Swartz's role in his company's fraudulent investment scheme. It explains, for
instance, how Swartz and Bergstein discussed forming a Texas entity shortly before
Swartz IP (a Texas entity) was formed. Swartz and Bergstein specifically agreed,
during their discussion, that such entity would bear Swartz's name to avoid conflict
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The Fund originally filed the Amended Complaint against Swartz, David
Bergstein, Aaron Grunfeld, and Kiarash Jam in The Wimbledon Fund, SPC (Class TT)
v. Bergstein, Case No. 2:16-cv-2287-CAS-AJW, in the Southern District ofTexas (the
"Texas Action"). The Texas Action was transferred to this Court on April1, 2016.
[Transfer Order, Texas Action, Doc. No. 64]. Thereafter, this Court granted the
Fund's unopposed motion to consolidate the Texas Action with this case.
[Consolidation Order, Doc. No. 134]. The Consolidation Order provides that the
Amended Complaint filed in the Texas Action is the operative pleading as to the
claims brought against Swartz, Bergstein, Grunfeld, and Jam. With the exception of
the Amended Complaint, unless otherwise indicated, this brief refers to documents
filed in Case No. 2:15-cv-06633-CAS-AJW.
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Swartz and the Co-Defendants are referred to collectively herein as
"Defendants."
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with Bergstein's pre-existing creditors. The Amended Complaint identifies Swartz as

one of Swartz IP's two shareholders and further explains how, during the course of

Swartz IP's fraudulent scheme, Swartz received documents concerning the Fund and

copies of the operative note purchase agreement and reference notes, through which

Swartz IP attempted to legitimize the Fund's "investment." The Fund has also

detailed how Swartz benefited financially from Swartz IP's scheme: (i) he received a

direct payment from Bergstein while the Fund's investment was being dissipated; (ii)

an entity for which Swartz serves on its advisory board received a fraudulent transfer

of the Fund's investment; and (iii) Swartz was a party, and received payments

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pursuant, to a "consulting agreement" entered into with defendant Integrated

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Administration, an entity controlled by Bergstein and Jam which received $2 million

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in fraudulent transfers as a result of Swartz IP's scheme. In addition, strangers to

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Swartz IP, like the Fund, were led to believe that Swartz had an active role in Swartz

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IP and provided financial support to the company. Specifically, as alleged in the

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Amended Complaint, Swartz -- a man famous for inventing the bar code -- personally

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participated in at least one meeting with the Fund's investment managers, leading

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them (and others) to believe that Swartz IP was a legitimate entity when, in fact, it was

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not. The Amended Complaint further notes that Swartz IP's name changed, to

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eliminate reference to Swartz. Not coincidentally, and tantamount to an admission of

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guilt, the name change was not made after Swartz "discovered" the existence of the

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Fund's note purchase transaction with Swartz IP, but rather shortly after the Fund's

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investments were entirely dissipated as a result of that sham transaction.

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Swartz attempts to distance himself from Swartz IP's and the Co-Defendants'

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wrongdoing by mischaracterizing and ignoring the Fund's well-pleaded allegations.

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In essence, Swartz claims that the "full truth ... lies outside the Amended

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Complaint's allegations" while at the same time arguing that the Fund should not be

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entitled to any discovery concerning the so-called "full truth" of this case. Swartz

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apparently would like this Court to simply "take him at his word." Swartz, moreover,
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tries to frame the allegations in the Amended Complaint to fit his own self-serving

narrative, in an effort to portray himself as an unwitting participant in a fraudulent

scheme perpetrated by an entity to which he just happened to lend his name, and

which resulted in payments to him and his affiliate entity.

In reality, the Fund has articulated plausible veil-piercing claims against

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Swartz, including the who, what, when, where, why, and how of Swartz IP's

fraudulent scheme and Swartz's relationship to the scheme. Because the allegations in

the Amended Complaint concerning Swartz are more than sufficient under both Rule

9(b) 3 and Rule 12(b)(6), Swartz's motion to dismiss should be denied.

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II.

THE FUND HAS ASSERTED VIABLE VEIL PIERCING CLAIMS

UNDER TEXAS LAW.
As a threshold matter, Swartz concedes that Texas law governs the Fund's veil-

piercing claims. [Swartz's Motion to Dismiss Plaintiffs Amended Complaint

("Motion"), Doc. No. 174 at 12-13 ("Following a [28 U.S.C.] Section 1404(a)
transfer, the law of the transferor forum (Texas, in this case) continues to apply.")].
Under Texas law, there are three broad categories pursuant to which a court
may pierce the corporate veil: (i) the corporation is the alter ego of the individual; (ii)
the corporation is used for illegal purposes; and (3) the corporation is used as a sham
to perpetrate fraud. In re Ryan, 443 B.R. 395,405 (Bankr. N.D. Tex. 2010) (quoting

Rimade Ltd. v. Hubbard Enters., 388 F.3d 138, 143 (5th Cir. 2004); W Horizontal
Drilling, Inc. v. Jonnet Energy Corp., 11 F.3d 65, 67 (5th Cir. 1994)).
An individual is considered an alter ego of a corporation under Texas law
"'when there is such unity between corporation and individual that the separateness of
the corporation has ceased and holding only the corporation liable would result in
injustice."' The Richards Group, Inc. v. Brock, No. 3:06-CV-0799-D, 2007 WL
700896, at *4 (N.D. Tex. Mar. 7, 2007) (quoting Bollore S.A. v. Imp. Warehouse, Inc.,

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As explained below, the Fund does not believe that Rule 9(b) governs this
motion. Regardless, the Fund's pleading satisfies the heightened pleading standard
under that rule.
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448 F.3d 317, 325 (5th Cir. 2006)). Factors relevant to whether the alter ego doctrine

applies are as follows:

. . . [T]he total dealings of the corporation and the
individual, including the degree to which corporate
formalities have been followed and corporate and individual
property have been kept separately, the amount of financial
interest, ownership and control the individual maintains over
the corporation, and whether the corporation has been used
for personal purposes.

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Id.; Newell v. Moran Towing Corp., No. 2-09-cv-00058 (TJW), 2009 WL 3157475, at
*2 (E.D. Tex. Sept. 28, 2009). "All of the aforementioned factors are potentially
relevant; no single factor is sufficient or necessary." Ogbonna v. USPLabs, LLC, No.
EP-13-CV-347-KC, 2014 WL 2592097, at *9 (W.D. Tex. June 10, 2014) (citations
omitted).
The sham to perpetrate doctrine is a separate doctrine, focusing on the use of
the corporate entity as a cloak for fraud or illegality to work an injustice:
[T]exas courts take a flexible, fact-specific approach
focusing on equity. The variety of shams is infinite and the
purpose of the doctrine should not be thwarted by adherence
to any particular theory of liability.
Thus, sham to
perpetrate fraud is a less definite approach to piercing the
corporate veil that essentially entails a showing that the
corporate structure was used unfairly in an attempt to
defraud others for the benefit of the principal.

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In re Ryan, 443 B.R. at 406 (quotations omitted) (quoting and citing JNS Aviation,

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Inc. v. Nick Corp., 418 B.R. 898, 907 (N.D. Tex. 2009)).

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The Texas Business Organizations Code imposes an additional, "actual fraud"

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requirement when a claimant seeks to pierce the corporate veil relating to a

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corporation's contractual obligation. See Tex. Bus. Orgs. Code Ann. 21.233(a)(2),

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(b)). 4 "'Actual fraud' requires dishonesty of purpose or intent to deceive,' but is not

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The section applies to shareholders, owners, and "any affiliate ... of the
corporation." Tex. Bus. Orgs. Code Ann. 21.223. ""Affiliate" means any person
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the same as the common law tort of fraud." Dinsdale v. AD Telamerica Inc., No.

3:14-CV-3427-B, 2015 WL 1757473, at *4 (N.D. Tex. Apr. 17, 2015) (quoting In re

Ritz, 513 B.R. 510,538 (Bankr. S.D. Tex. 2014)) (denying motion to dismiss veil-

piercing claims). The claimant is not required to prove that the defendant "personally

made misrepresentations" to it "to have engaged in actual fraud." Id. Contractual

liability is the most common scenario under which courts have disregarded the

corporate entity under Texas law. Wilson v. Davis, 305 S.W.3d 57, 69 (Tex. App.-

Houston [1st Dist.] 2009, no pet.) (citing Lucas v. Tex. Indus., Inc., 696 S.W.2d 372,

375 (Tex. 1984)).

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III.

THE FUND'S CLAIMS ARE NOT SUBJECT TO RULE 9(B).

Swartz summarily concludes that the Fund's veil-piercing claims are subject to

the heightened pleading standard of Rule 9(b ). [Motion, Doc. No. 174 at 11 ("Since
Wimbledon's substantive alter ego claim requires a showing of 'actual fraud' with
'dishonesty of purpose or intent to deceive,' Rule 9(b) further requires that
Wimbledon 'must state with particularity the circumstances constituting fraud[.]")].
What Swartz fails to mention, however, is that in the Fifth Circuit, "[t]here is a
split of authority with respect to the interpretation of the pleading requirements of
Section 21.223 [(under which "actual fraud" is required to pierce the corporate veil for
contractual liability)]." In re Hot-Hed, Bankr. No. ll-35208-H3-7, Adv. No. 133107, 2014 WL 2919340, at *5 (S.D. Tex. June 26, 2014) (finding sufficient
allegations, but not identifying the applicable pleading standard).
The more reasoned approach, as established by the Northern District of Texas,
is to evaluate a Section 21.223 claim under Rule 12(b)(6), not 9(b). See Weston

Group, Inc. v. Sw. Home Health Care, LP, No. 3:12-CV-1964-G, 2014 WL 940329, at

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who controls, is controlled by, or is under common control with another person."
Tex. Bus. Orgs. Code 1.002(1 ). The section applies as equally to directors and
officers as it does to shareholders if the directors and officers perpetrated an actual
fraud for their direct personal benefit. See Tex. Bus. Orgs. Code Ann. 21.223;
Dinsdale, 2015 WL 1757473, at *4.
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*2 (N.D. Tex. Mar. 11, 2014). The district court in Weston Group refused to apply

the Rule 9(b) heightened pleading standard to a veil-piercing claim because-- as

Swartz concedes, [Motion, Doc. No. 174 at 15] --"the requirements for showing

actual fraud [under Section 21.223] are less burdensome than those for establishing

fraud." !d. at *4 (emphasis added). According to the court:

Although the language of Rule 9(b) confines its

requirements to claims of fraud, the requirements of the rule
apply to all cases where the gravamen of the claim is fraud
even though the theory supporting the claim is not
technically termed fraud. However, as will be discussed
below, the requirements for showing actual fraud are less
burdensome than those for establishing fraud. Since actual
fraud requires showing 'dishonesty of purpose or intent to
deceive,' establishing actual fraud is controlled by 9(b )' s
guideline that 'malice, intent, knowledge, and other
conditions of a person's mind may be alleged generally.'
Therefore, the plaintiff's complaint will be evaluated under
Rule 12(b)(6), not Rule 9(b).

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[Id. at *2 (citations and quotations omitted) (denying motion

to dismiss veil-piercing claim)].

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This analysis holds true here where the Fund must show "dishonesty of purpose
or intent to deceive." Because Rule 9(b) is not applicable, the Court should evaluate
the Fund's claims under Rule 12(b)(6). Of course, even if Rule 9(b) is deemed
applicable, its requirements would be relaxed because the facts relating to Swartz IP's
fraudulent investment scheme are within the exclusive knowledge of Swartz IP's
directors, officers, shareholders, and agents-- like Swartz. See Lincoln Gen 'l Ins. Co.
v. U.S. Auto Ins. Servs., Inc., No. 3:07-CV-1985-B, 2009 WL 1174641, at *6 (N.D.

Tex. Apr. 29, 2009) (citing ABC Arbitrage v. Tchuruk, 291 F.3d 336, 350 (5th Cir.
2002)).

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IV.

THE FUND'S CLAIMS AGAINST SWARTZ ARE SUFFICIENTLY

PLEADED REGARDLESS OF WHAT PLEADING STANDARD
APPLIES.
The Fund's claims should survive Swartz's motion to dismiss regardless of

whether they are evaluated under Rule 12(b)( 6) or Rule 9(b ). As this Court
recognized when it denied the Co-Defendants' similar motions to dismiss, the
Amended Complaint contains detailed allegations regarding both Swartz IP and
Defendants, including Swartz. [June 13, 2016 Order, Doc. No. 151 at 9].

The Court's decision denying the Co-Defendants' motions to dismiss is

instructive and applies equally to Swartz. Specifically, as this Court previously held,
the Amended Complaint "sets forth several allegations suggesting that SIP was a
sham entity and that defendants failed to abide by corporate formalities." [June 13,
2016 Order, Doc. No. 151 at 9]. For instance, the Court noted as follows:

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Wimbledon alleges that SIP was formed as a Texas
corporation, but never had a physical address in Texas. [Am.
Compl.] ,-r 11. Wimbledon further alleges that SIP had no
independent assets separate from those of Bergstein, Swartz,
Grunfeld, and Jam and that these defendants funded SIP on
an as-needed basis using assets from their personal bank
accounts. Id. ,-r,-r 12-13. And, Wimbledon alleges that, on
February 8, 2013, the Texas Secretary of State forfeited
SIP's certificate of formation pursuant to section 171.309 of
the Texas Tax Code. Id. ,-r 38.

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[June 13, 2016 Order, Doc. No. 151 at 9 (emphasis added)].

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The Court concluded that these allegations, "[t]aken together," suggest that

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Defendants "failed to operate SIP with a sufficient degree of separateness." [June 13,

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2016 Order, Doc. No. 151 at 9 (citing Pacific Maritime Freight, Inc. v. Foster, 2010

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WL 3339432, at *6 (S.D. Cal. Aug. 24, 2010) ("The identification of the elements of

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alter-ego liability plus two or three factors has been held sufficient to defeat a 12(b)(6)

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It bears noting that the Fund's allegations of fraud may be pleaded on

information and belief, see Lincoln Gen 'l Ins. Co., 2009 WL1174641, at *6 (citations

omitted).
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motion to dismiss.")]. The law of the case doctrine instructs that Swartz should be

bound by this Court's finding that Defendants "failed to operate SIP with a sufficient

degree of separateness." See Thomas v. Bible, 983 F.2d 152, 154 (9th Cir. 1993)

("Under the [law of the case] doctrine a court is generally precluded from

reconsidering an issue that has already been decided by the same court, or a higher

court in the identical case.").

This Court further held, in denying the Co-Defendants' motions to dismiss, that

the Fund "has alleged facts which demonstrate that piercing the corporate veil is

necessary to avoid an inequitable result." [June 13, 2016 Order, Doc. No. 151 at 9].

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According to the Court:

Wimbledon asserts that it invested nearly $18 million with
SIP relying, at least in part, on the moving defendants'
representations that the SIP Notes [as defined below] were a
legitimate investment and that they would "preserve and
maintain" SIP's "separate corporate existence" [Am. Comp.]
~ 17. In reality, however, Wimbledon alleges that the
moving defendants failed to observe corporate formalities
and transferred nearly all of Wimbledon's investment to
entities and individuals with which the moving defendants
held close ties. Similarly, Wimbledon alleges that, on at
least one occasion, Bergstein misrepresented to Wimbledon
the net equity in SIP's bank accounts. Id. ~ 45. These
allegations constitute the sort of "conduct amounting to bad
faith [that would] make[ ] it inequitable for the [moving
defendants] to hide behind the corporate form."
[June 13, 2016 Order, Doc. No. 151 at 9 (citing SSP Partners v. Gladstone

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Investments (USA) Corp., 275 S.W.3d 444, 454 (Tex. 2009) ("We disregard the

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corporate fiction ... when the corporate form has been used as part of a basically

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unfair device to achieve an inequitable result [including] when the fiction is used as a

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means of perpetrating fraud ... ")].

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The Amended Complaint contains other allegations, in addition to those

highlighted in this Court's June 13, 2016 Order, which demonstrate that Swartz IP
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was a sham entity and that Defendants -- including Swartz -- failed to abide by

corporate formalities. For instance:

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Swartz IP never did any legitimate business.

Compl., ~ 11];

[Am.

Swartz IP was controlled entirely by Defendants.

[Am. Compl., ~~ 12, 14];

To obtain $17.7 million from the Fund, Swartz IP

used a Note Purchase Agreement (the "NPA") containing
numerous misrepresentations indicating that Swartz IP was a
legitimate business and that the NPA and the related
reference notes (the "SIP Notes") were a legitimate
investment. [Am. Compl., ~~ 16, 18];

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Within a few months, the Fund's fraudulently

obtained investments were entirely dissipated to Defendants
and entities controlled by and/or operated for Defendants'
benefit. [Am. Compl., ~~ 19-35, 57];

For example, approximately $2.2 million was

transferred from Swartz IP's Wells Fargo bank account
through separate, in-person withdrawals. [Am. Compl., ~
34].

After the funds were dissipated, Swartz IP's name

changed to obscure Swartz's involvement. [Am. Compl., ~
47];

Swartz IP routinely failed to pay its debts.

Compl., ~~ 14, 38, 58-59]; and

[Am.

Swartz IP ignored the Fund's redemption requests.

[Am. Compl., ~ 36].
These allegations, taken together with the ones this Court relied on in denying
the Co-Defendants' motions to dismiss, more than sufficiently support highly
plausible claims that Swartz is the alter ego of Swartz IP. In short, the allegations
demonstrate that Swartz IP was a sham entity and that Defendants failed to abide by

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corporate formalities. See In re Ryan, 443 B.R. at 406.

Rather than acknowledge the detailed allegations in the Amended Complaint

and this Court's decision denying the Co-Defendants' motions to dismiss, Swartz

argues that the Fund failed to allege "specific" facts supporting an alter ego claim

against Swartz. Swartz is mistaken.

As a preliminary matter, when alleging fraud, "[m]ultiple defendants' conduct

may be lumped together if the plaintiffs allegations elsewhere designate the nature of

the defendants' relationship to a particular scheme and identify the defendants' role,"

see Bhatia v. Dischino, No. 3:09-cv-1086-B, 2011 WL 3820825, at *12 (N.D. Tex.

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Aug. 29, 2011) (citation omitted). Here, the Fund's allegations concerning Swartz

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sufficiently demonstrate Swartz's connection to, and involvement with, Swartz IP's

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fraudulent investment scheme, particularly at this preliminary stage of the case. As

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alleged in the Amended Complaint:

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In November 2010, Swartz and Bergstein discussed

forming a Texas entity together which would bear Swartz's
name to shield the company from Bergstein's then-existing
creditors. It is undisputed that entity -- Swartz IP -- was
formed shortly thereafter and Swartz was a shareholder.
[Am. Compl., ~~ 49, 52];

In November 20 11, Swartz received the NPA and the

SIP Notes before they were executed. [Am. Compl., ~53];

At the same time, Swartz met with the Fund's

investment managers in person. Yet, Swartz did not request
that Swartz IP change its name or disavow his involvement
with Swartz IP. [Am. Compl., ~54];

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Instead, as if admitting guilt, Swartz IP's name was

ultimately changed to eliminate reference to Swartz after the
Fund's investments were entirely dissipated in the spring of
2012. [Am. Compl., ~~ 19, 30, 47];

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Swartz received a direct payment from Bergstein

while the Fund's investments were being dissipated. [Am.
Compl., ~ 57];

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An entity on which Swartz serves on the advisory

board received a fraudulent transfer of the Fund's
investment. [Am. Compl., ~ 23]; and

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Swartz IP' s bank records indicate that there were also

"withdrawals in branch," [Am. Compl., ~ 34], and Swartz
was one of Swartz IP's two shareholders, [Am. Compl., ~~
42,52,55].

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Swartz recognizes that this Court "must accept" as true these allegations, "as
well as reasonable inferences to be drawn from those allegations." [Motion, Doc. No.
174 at 12]. Nevertheless, he urges the Court to do the opposite: Swartz cherry picks
allegations from the Amended Complaint and demands that they be construed based
on Swartz's fanciful version of the facts unsupported in the record.
For example, Swartz discounts Bergstein's "represent[ation] to a potential
investor that Swartz was part of his investment group and a 'long time partner."'
[Motion, Doc. No. 174 at 19]. Swartz claims this allegation should be disregarded
because it "alleges conduct by Bergstein, not Dr. Swartz, and says nothing about
[Swartz IP]." [Motion, Doc. No. 174 at 19]. However, this allegation-- when
construed in a light favorable to the Fund -- supports the Fund's theory that strangers
to Swartz IP were led to believe that Swartz had an active role in Swartz IP and
provided financial support to the company. In particular, Swartz met, in person, with
the Fund's investment managers the day after he received the NPA and the SIP Notes
and led them to believe that he was involved with Swartz IP to give the entity an air of
legitimacy.
Swartz similarly discounts allegations concerning Bergstein's and Swartz's
discussions regarding investment opportunities and their plan to form an entity (of
which Swartz would be a sixty-six percent owner) which would use Swartz's name to

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avoid conflict with Bergstein's creditors. [Motion, Doc. No. 174 at 18]. This

allegation does not evidence mere "conduct" by Bergstein. Rather, it evidences

Swartz's involvement with the creation of the fraudulent entity which stole $17.7

million from the Fund.

Swartz also emphasizes that the Amended Complaint contains insufficient

allegations demonstrating Swartz's "conduct" as it relates to Swartz IP's fraud. [See

generally Motion, Doc. No. 174 at 17-24]. As explained above, however, the detailed

allegations in the Amended Complaint undermine Swartz's argument and evidence

Swartz's personal involvement. Moreover, counsel for Grunfeld raised a similar

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argument at the hearing concerning Grunfeld' s motion to dismiss. Counsel argued, at

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the hearing, that the Amended Complaint "contains relatively few allegations

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specifically referring to Grunfeld" and, therefore, "Wimbledon has failed to state a

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claim for alter ego liability against Grunfeld." [See June 13, 2016 Order, Doc. No.

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151 at 8 n.3]. This Court, however, expressly rejected Grunfeld's argument in its

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decision denying the Co-Defendants' motions to dismiss. According to the Court:

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[W]hen viewed in their totality, the allegations in the Alter

Ego Complaint are sufficient to state a claim for alter ego
liability against all of the moving defendants. In particular,
the Alter Ego Complaint alleges that all of the moving
defendants, including Grunfeld, failed to operate SIP in
accordance with corporate formalities. Moreover, the Alter
Ego Complaint sets forth, in great detail, a series of
purportedly improper transfers from SIP's bank accounts to
the bank accounts of defendants Bergstein and Jam.
Wimbledon alleges that Grunfeld was the sole director of
SIP at the time of these transfers and facilitated or
participated in at least some of the transfers. The Court
finds that, when viewed together, these allegations are
sufficient to state a claim for alter ego liability against
Grunfeld, at least for purposes of a motion pursuant to Rule
12(b)(6).

[See June 13, 2016 Order, Doc. No. 151 at 8 n.3 (emphasis
added)].
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Grunfeld was not a shareholder of Swartz IP and Grunfeld never met with the

Fund's investment manager on the eve of the execution of the NPA and SIP Notes.

Swartz is and did. Thus, this Court should similarly reject Swartz's argument that the

Amended Complaint omits allegations sufficiently connecting Swartz to Swartz IP's

scheme. Again, there are multiple allegations in the Amended Complaint, from which

it can be inferred that Swartz was aware of and participated in Swartz IP's scheme. At

a minimum, there are numerous allegations regarding the who, what, when, where,

why and how of Swartz's involvement with Swartz IP's scheme. This Court should

not countenance Swartz's attempt to summarily absolve himself from wrongdoing,

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particularly at this early stage of the case.

Swartz's motion, moreover, is particularly inappropriate in light of the Fund's

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previous submission -- filed in opposition to the motion to dismiss Swartz filed in the

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Texas Action6 --explaining how Swartz is a party to a so-called "Consulting

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Agreement" entered into with Integrated Administration ("Integrated") in May 20 12.

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[Consulting Agreement, Texas Action, Doc. No. 55-18]. 7 Integrated-- an entity

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controlled by Bergstein and Jam -- is a defendant in the Fund's fraudulent transfer

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action. [Am. Compl., Doc. No. 105 ~ 21]. Pursuant to the Consulting Agreement,

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Swartz and Jam, on behalf of Integrated, agreed that Swartz would ostensibly provide

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"consulting services" for Integrated. [Consulting Agreement, Texas Action, Doc. No.

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55-18]. In exchange for those services, Integrated agreed to pay Swartz $20,000 per

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month. [Consulting Agreement, Texas Action, Doc. No. 55-18 at 9]. The Consulting

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Agreement also compensates Swartz for "Prior Services" provided by Swartz to

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Following transfer of the Texas Action, this Court denied as moot Swartz's
previous motion to dismiss "to the extent it challenge[d] jurisdiction and venue" and
"decline[d] to reach[,]" without prejudice to Swartz refiling his motion, "the portions
of the motion asserting that plaintiff has failed to state a claim for relief." [June 21,
2016 Order, Case No. 2:16-cv-02287-CAS-AJW, Doc. No. 86 at 1].
7

The Court should also take judicial notice of the Consulting Agreement, which
Swartz introduced in his motion to dismiss. See Fed. R. Evid. 201.

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Bergstein "or his affiliated entities[.]" [Consulting Agreement, Texas Action, Doc.

No. 55-18 at 6, 8 (emphasis added)]. The Consulting Agreement, moreover, states

that Integrated and SIP shared the same "business address" in Santa Monica,

California. [Compare NPA, Texas Action, Doc. No. 41-17 at WF1965, 14,

WF1966, 16, with Consulting Agreement, Texas Action, Doc. No. 55-18 at 6, 18].
The Consulting Agreement evidences Swartz's involvement with Swartz IP's

fraudulent scheme and, in particular, Defendants' reliance on "insider transactions" to

perpetrate their fraud. 8 Indeed, in connection with Swartz IP's fraudulent

investment scheme, Integrated received from Swartz IP sixteen fraudulent transfers

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totaling approximately $2 million of the Fund's investment monies. [Am. Compl.,

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Doc. No. 105 ~ 21]. Thus, while Swartz IP was victimizing the Fund through its

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investment scheme, Swartz was receiving money from an entity that was benefiting

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from Swartz IP's scheme. The Consulting Agreement demonstrates why, at a

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minimum, the Fund should be able to proceed with discovery in this case.

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V.

CONCLUSION.
The allegations in the Amended Complaint and the Consulting Agreement, of

which this Court should take judicial notice, support plausible veil-piercing claims
against Swartz. Swartz was a shareholder of Swartz IP; he was involved in the
formation of Swartz IP; Swartz IP was named after Swartz to avoid conflict with
Bergstein's pre-existing creditors; Swartz received copies of the documents that
Swartz IP utilized in perpetrating its fraud; he financially benefited from Swartz IP's
8

The Fund has previously demonstrated -- in its application seeking a

preliminary injunction against Graybox LLC -- the relative sophistication of the
fraudulent investment scheme in which Swartz IP used insider transactions to create
the appearance of reasonably equivalent value for the fraudulent transfers of the
Fund's investments from Swartz IP's bank accounts to separate entities controlled by
Defendants and operated for their benefit. To the extent necessary, the Fund
respectfully requests that the Court take judicial notice of its prior orders (Doc. Nos.
56, 70, 82) granting the Fund's preliminary injunction motion and denying Graybox
LLC's motion to dismiss in the pre-consolidation fraudulent transfer lawsuit (2: 15-cv06633-CAS-AJW). See Fed. R. Evid. 201.

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scheme; and strangers were led to believe that Swartz had an active role and provided

financial support to Swartz IP. See Tex. Bus. Orgs. Code Ann. 21.233(a)(2), (b)); In

re Ryan, 443 B.R. at 406; The Richards Group, Inc., 2007 WL 700896, at *4. Based

on these and other allegations in the Amended Complaint, Swartz's motion to dismiss

should be denied. See, e.g., Weston Group, Inc., 2014 WL 940329, at *5 (applying

Rule 12(b)(6) and denying motion to dismiss veil piercing claims); see also Lincoln

Gen 'l Ins. Co., 2009 WL 1174641, at *6-8 (applying Rule 9(b) and denying motion to

dismiss veil-piercing claims).

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Dated: August 8, 2016

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PACHULSKI STANG ZIEHL & JONES LLP

-andCOLE SCHOTZ P. .

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. Walker (admitted pro hac vice)

r A. Welch (admitted pro hac vice)
Eri . Latzer (admitted pro hac vice)
Attorneys for Plaintiff,
The Wimbledon Fund, SPC (Class TT)

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CERTIFICATE OF SERVICE

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I hereby certify that a true and correct copy of the foregoing document was sent
to all counsel of record in this consolidated lawsuit via CM/ECF on this the 8th day of
August 20 16.

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