17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 1 of 20

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION

IN RE: § CASE NO. 17-10785

§
GATSBY’S MEN WEAR, LLC §
§
DEBTOR § CHAPTER 11

GATSBY’S MEN WEAR, LLC §

§
PLAINTIFF, § ADVERSARY NO.
§
VS. §
§
CAPITAL STACK, LLC §
§ (Estimated Time: 8 Hours)
and §
§
ACH CAPITAL, LLC §
§
DEFENDANTS. §
§

Complaint to Determine Extent, Validity, and Priority of Lien; to Avoid and

Recover Transfers Pursuant To 11 U.S.C. §§ 547, 548;
to Recover Damages Pursuant to Applicable Law;
for Declaratory Relief; and Objection to Claim

Gatsby’s Men Wear, LLC, ("GATSBY’S") and debtor-in-possession in the above-

captioned Chapter 11 case, by and through its undersigned attorney, files this adversary

complaint (the “Complaint”) against defendants CAPITAL STACK, LLC and ACH

CAPITAL, LLC and alleges as follows:

Jurisdiction and Venue

1. This adversary proceeding arises out of the bankruptcy case of the Debtor

and is commenced pursuant to sections 541 through 550 of title 11 of the United States
17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 2 of 20

Code (the “Bankruptcy Code”) and Rules 3007 and 7001 of the Federal Rules of

Bankruptcy Procedure (the “Bankruptcy Rules”).

2. This Court has jurisdiction over this adversary proceeding pursuant to 28

U.S.C. 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).

3. Venue is proper in this Court pursuant to 28 U.S.C. § 1409 in that the

Debtor’s bankruptcy case is pending in this judicial district.

4. The Court has constitutional authority to enter a final judgment regarding

the extent, validity and priority of the parties’ liens, the amount of preferential payments

received by the Defendants, and the allowed amount of Defendant’s claim. Plaintiff

consents to the entry of final orders and judgment by this Court and if the Court

determines it cannot enter a final judgment without the consent of the parties, Plaintiff

requests that the Court enter proposed findings of fact and conclusions of law pursuant

to Fed. R. Bankr. P. 9033.

Parties

5. Plaintiff, GATSBY’S, is debtor and debtor-in-possession. Plaintiff may be

served with pleadings and process in this Adversary Proceeding through its undersigned

counsel.

6. Defendant, ACH CAPITAL, LLC (“ACH CAPITAL, LLC”), is New York

limited liability company with a principal place of business located at 11 Broadway,

Suite 814, New York, New York 10004, and may be served with process by any manner

of service authorized by Bankruptcy Rule 7004.

7. ACH CAPITAL was, at all relevant times, a Broker, a Predatory Lender

and/or an apparent or actual agent of CAPITAL STACK, LLC, originating, funding

and/or servicing loans to Merchants including the Debtor.

17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 3 of 20

8. Defendant, CAPITAL STACK, LLC (“CAPITAL STACK”), is a New York

limited liability company with a principal place of business located at 11 Broadway, Suite

814, New York, New York 10004. CAPITAL STACK may be served with process by any

manner of service authorized by Bankruptcy Rule 7004. (CAPITAL STACK, LLC and

ACH CAPITAL, LLC are collectively referred to as the “CAPITAL STACK Defendants”).

CAPITAL STACK has filed Claim No. 1, a copy of which is attached hereto as Exhibit “A”,

and incorporated by reference. CAPITAL STACK claims that such proof of claim is fully

secured. According to the claim form, the basis for perfection in a UCC-1 filed on June

16, 2017, ten days before the entry of the order for relief in this case.

The Debtor

9. GATSBY’S is in the business of selling and tailoring men’s wear clothing.

Debtor operates two retail stores. The company was formed on March 26, 2013 and has

been operating profitably in The Hill Country Galleria since inception.

10. Debtor decided to expand into the Barton Creek Mall in late 2016 and

executed a Lease with Simon Properties (Texas) LP for space in Barton Creek Mall on

September 17, 2016. The Lease required the Debtor pay monthly base and additional

rent averaging approximately $46,000 per month. Sales projections at Barton Creek

proved to be too high and the Barton Creek location began hemorrhaging cash. The

lease has been modified and the rent is reduced to approximately $18,000 per month

and the store is now marginally profitable.

11. Debtor took out an SBA loan through JPMorgan Chase Bank in May, 2016,

to finance tenant finish out and for operating capital to purchase inventory for the

Barton Creek location. The loan is secured with a blanket lien on all of the debtor’s

assets.
17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 4 of 20

12. Debtor’s sole member, Larry Claybough, contributed over $100,000 in

additional capital to fund the Barton Creek losses and was eventually successful in

negotiating a reduced rent. He applied for additional SBA financing to secure working

capital to continue operations until sales increased. The Debtor believed the loan

request would be approved but approval was delayed for several months.

13. Left with no other conventional financing options, the Debtor unwittingly

entered into a series of usurious, short-term loans with several predatory lenders, the

egregious terms of which left the Debtor without sufficient cash to fund operations and

all but ensured its demise.

The CAPITAL STACK Loan Structure

14. This matter arises from two short term, usurious interest rate loans

obtained by the Debtor that were brokered, originated and/or serviced by the

Defendants.

15. In a typical alternative lending transaction, an independent loan broker

refers certain small business merchants unable to qualify for financing from traditional

sources to alternative, specialty business lenders that originate, fund and/or service

short term small business loans known as “Merchant Cash Advances” or “Merchant

Loans.” Unlike traditional loans, these transactions are in reality predatory loans that

require repayment of principal plus interest at usurious rates through ACH withdrawals

made every business day, commencing immediately, until paid in full.

16. In an attempt to avoid characterization as a loan subject to state usury

laws, predatory lenders typically disguise these advances and loans as factoring

transactions. They are characteristically papered as a non-recourse “purchase” of the

Merchant’s future cash receipts or collections on receivables and/or funded through a

17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 5 of 20

federally chartered bank exempt from state law in a “rent a charter” scheme. In

substance, however, these transactions that, in addition to the daily ACH withdrawals,

require the borrower to pledge its assets as collateral provide a guaranty and/or execute

a confession of judgment to ensure repayment, are in every conceivable way usurious

loans. Often, as in this case, the borrowers have no accounts receivables to sell, and in

reality there is nothing for the lender to purchase.

17. Pursuant to the CAPITAL STACK Contract No. 1 and other applicable

agreements with CAPITAL STACK dated February 28, 2017 (collectively, the “CAPITAL

STACK Loan Documents”), CAPITAL STACK purportedly: (a) purchased 15% of the

Debtor’s Future Receivables in an amount arbitrarily determined to be $56,000.00 for a

“purchase price” of $40,000; (b) was authorized to initiate daily ACH withdrawals from

the Debtor’s bank account until the purchased amount was paid in full; and (c) was

granted a security interest in and a lien on all of the Debtor’s assets (the “CAPITAL

STACK Security Interest”). Pursuant to their provisions, the CAPITAL STACK Loan

Documents are to be governed and construed by the laws of the state of New York. A

copy of CAPITAL STACK Contract No. 1 is attached hereto as Exhibit “B” and

incorporated by reference.

18. JPMorgan Chase Bank was unaware and did not consent to the sale of

future receivables.

19. CAPITAL STACK Contract No. 1 was serviced by ACH CAPITAL and

funded by CAPITAL STACK, LLC. Pursuant to CAPITAL STACK Contract No. 1,

CAPITAL STACK effectively loaned the Debtor $40,000.00 for which the principal and

$16,000.00 in interest (the “CAPITAL STACK Stated Interest”) were to be repaid over

approximately 3 months through equal ACH withdrawals from the Debtor’s account in
17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 6 of 20

the amount of $888.89 for 63 consecutive business days.

20. In addition to the CAPITAL STACK Stated Interest, the Debtor was also

required to pay origination and funding fees of $1,156.00 to CAPITAL STACK. Although

identified as fees, the CAPITAL STACK fee is, in substance, additional interest under the

CAPITAL STACK Loan (the “CAPITAL STACK Interest”).

21. Debtor made the contractually required payments on the CAPITAL STACK

Loan No. 1 from March 2, 2017 through May 30, 2017 totaling $56,888.96.

22. Debtor simultaneously took a second loan from CAPITAL STACK, Contact

No. 2. Pursuant to the CAPITAL STACK Contract No. 2 and other applicable

agreements with CAPITAL STACK dated February 28, 2017 (collectively, the “CAPITAL

STACK Loan Documents”), CAPITAL STACK purportedly: (a) purchased 15% of the

Debtor’s Future Receivables in an amount arbitrarily determined to be $56,000.00 for a

“purchase price” of $40,000; (b) was authorized to initiate daily ACH withdrawals from

the Debtor’s bank account until the purchased amount was paid in full; and (c) was

granted a security interest in and a lien on all of the Debtor’s assets (the “CAPITAL

STACK Security Interest”). Pursuant to their provisions, the CAPITAL STACK Loan

Documents are to be governed and construed by the laws of the state of New York. A

copy of CAPITAL STACK Contract No. 2 is attached hereto as Exhibit “C” and

incorporated by reference.

23. CAPITAL STACK Contract No. 2 was originated by ACH CAPITAL and

funded by CAPITAL STACK. Pursuant to the CAPITAL STACK Loan, CAPITAL STACK

effectively loaned the Debtor $40,000.00 for which the principal and $16,000.00 in

interest (the “CAPITAL STACK Stated Interest”) were to be repaid over approximately

5.5 months through equal ACH withdrawals from the Debtor’s account in the amount of
17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 7 of 20

$444.44 for 126 consecutive business days.

24. In addition to the CAPITAL STACK Stated Interest, the Debtor was also

required to pay origination and funding fees of $1,156.00 to CAPITAL STACK. Although

identified as fees, the CAPITAL STACK fee is, in substance, additional interest under the

CAPITAL STACK Loan (the “CAPITAL STACK Interest”).

25. Debtor made the contractually required payments on the CAPITAL STACK

Loan No. 2 from March 2, 2017 through June 12, 2017 totaling $31,110.80.

26. The total cash provided to the Debtor from the two predatory loans is

$77,678.00. The total payments made toward principal and interest on the predatory

loans is $87,999.76. CAPITAL STACK filed Proof of Claim No. 1 in Debtor’s bankruptcy

case asserting a secured claim in the amount of $23,555.88 as of the date of filing.

27. Therefore, from the 102-day (3 months, 10 days) period between March 2,

2017 through June 12, 2017; according to the CAPITAL STACK POC, Debtor repaid the

entire $77,678.00 borrowed from CAPITAL STACK, paid $10,321.76 in interest, and still

owes CAPITAL STACK $23,555.88. The effective APR charged in the two usurious loan

transactions is well in excess of 200%.

28. Despite the fact that Debtor sells all its merchandise for cash (cash, check

or third-party credit card,) and does not generate accounts receivable in the ordinary

course of business; and, although marketed to and accounted for by the Debtor as a

loan, the CAPITAL STACK Defendants, to avoid state usury laws and regulations,

papered the transaction as a factoring contract in which there was purportedly a

“purchase and sale” of a “specified percentage” of the Debtor’s future accounts, contract

rights and other obligations arising from the payment of monies from the Debtor’s

customers (“Future Receivables”).

17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 8 of 20

29. Despite its form, however, the CAPITAL STACK transactions were, in

substance and every conceivable way, loans in which the Debtor borrowed funds at

criminally usurious interest rates, based on the following factors:

a. The Debtor was required to submit a credit application and to a credit

check before entering into the CAPITAL STACK Loans;

b. The CAPITAL STACK Loans were underwritten based on an

assessment of the Debtor’s creditworthiness;

c. CAPITAL STACK required the execution of a Confession of Judgment

and a personal guaranty from the Debtor’s principal;

d. The payments to CAPITAL STACK were neither determined nor paid

based on any future receivables of the Debtor;

e. Before making the loans, CAPITAL STACK neither sought nor

requested any statements or information regarding the Debtor’s

customers and/or past or future receivables;

f. The underwriting decision was not in any way based on an analysis of

the Debtor’s customers and/or past and future receivables;

g. Notwithstanding its entitlement to only a specified percentage of funds

constituting Future Receivables, CAPITAL STACK required daily ACH

withdrawals to be made, and in the same amount, regardless of the

source of funds in the Debtor’s bank account;

h. Requiring the Debtor to authorize the daily ACH withdrawals

regardless of the amount and the source of the funds in the Debtor’s

account, requiring a personal guaranty, requiring a security agreement,

and requiring a confession of judgment renders the transaction a full

17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 9 of 20

recourse loan notwithstanding any contentions to the contrary;

i. The CAPITAL STACK Defendants made no attempt to collect

receivables owed by the Debtor’s customers directly instead relying

exclusively on the daily specified – amount ACH withdrawals

regardless of the sources generating such funds;

j. Instead of calculating and collecting the specified percentage of Future

Receivables as set forth in the CAPITAL STACK Loan Documents, the

CAPITAL STACK Defendants deducted a sum certain from the Debtor’s

bank account through ACH withdrawals every business day;

k. The “specified percentage” of 15% is a farce whose only purpose is to

mask the unconscionable and usurious interest and fees;

l. The CAPITAL STACK Defendants did not acquire title or possession, or

assume the risk of loss inherent in ownership of, the Future

Receivables;

m. The CAPITAL STACK Loan Documents include a purported and overly

broad security agreement that is inconsistent with the transfer of

ownership of the Future Receivables;

n. The CAPITAL STACK Loan Documents include a confession of

judgment that is inconsistent with a non-recourse transaction;

o. The CAPITAL STACK Loan Documents do not contemplate or require

that the proceeds from Future Receivables be segregated or placed in a

separate account;

p. CAPITAL STACK marketed the transaction as a loan.

q. The Debtor was required to reimburse the CAPITAL STACK

17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 10 of
20

Defendants for any losses they incurred in connection with the

CAPITAL STACK Loan; and

r. The Debtor’s and, upon information and belief, the CAPITAL STACK

Defendants’ accounting records treat the transaction as a loan.

UCC-1 Filings on the Petition Date

30. The following liens were filed of record with the Texas Secretary of State

on the Petition Date:

a. JPMorgan Chase Bank filed UCC Financing Statement No.

160015177684 on May 10, 2016;

b. CHTD Company filed UCC Financing Statement No. 160027986009 on

August 25, 2016;

c. CAPCALL, LLC filed UCC Financing Statement No. 170018759846 on

June 1, 2017;

d. Capital Stack filed UCC Financing Statement No. 170020596949 on

June 16, 2017;

e. Corporation Service Company, as Representative for EBF Partners,

filed UCC Financing Statement No. 170020600915 on June 16, 2017;

f. Ace Funding Source, LLC filed UCC Financing Statement No.

170020673864 on June 16, 2017;

g. Kash Capital filed UCC Financing Statement No. 170020807409 on

June 19, 2017;

First Count
Avoidance of the CAPITAL STACK Lien

31. Plaintiff re-alleges and incorporates by reference the allegations set forth
17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 11 of
20

in the preceding paragraphs as if fully set forth herein.

32. On June 16, 2017, CT Lien Solutions, as agent for CAPITAL STACK, filed a

UCC-1 Financing Statement (the “CAPITAL STACK UCC-1”) with the State of Texas with

respect to the CAPITAL STACK Security Interest. The date of the CAPITAL STACK

agreement with the Debtor is after the perfection of the JPMorgan Chase Bank security

interest in accounts.

33. The UCC-1 upon which CAPITAL STACK relies upon to support its secured

claim became perfected by way of recording within ninety (90) days prior to the filing of

the Petition for Relief by Debtor.

34. Pursuant to the provisions of Section 547 (b) of the Bankruptcy Code,

Debtor may avoid the transfer of an interest of the debtor in property to or for the

benefit of a creditor, on account of an antecedent debt owed before such transfer was

made, made while the debtor was insolvent, made within ninety (90) days before the

date of the filing of the Petition for Relief, and which enables such creditor to receive

more than it would receive in a hypothetical Chapter 7 case.

35. CAPITAL STACK Loan No. 1 and No. 2 were made on February 28, 2017.

36. CAPITAL STACK was required to file a financing statement under

applicable law to perfect its liens. Because no timely filed financing statements were

filed by CAPITAL STACK to perfect the liens granted in the CAPITAL STACK Security

Agreements in the UCC collateral, the CAPITAL STACK Lien in the UCC Collateral was

unperfected on the Petition Date. Accordingly, the CAPITAL STACK lien in the UCC

Collateral is avoidable as hereinafter set forth.

37. Because the CAPITAL STACK Lien in the UCC Collateral is unperfected, it

would be voidable by a hypothetical creditor of the Debtors that extended credit to the
17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 12 of
20

Debtors on the Petition Date and that obtained, at such time, and with respect to such

credit, either (i) a judicial lien on all property on which a creditor on a simple contract

could have obtained such a judicial lien; or (ii) an execution against the Debtors that was

returned unsatisfied on the Petition Date.

38. Accordingly, the Debtor on behalf of the estate can avoid the CAPITAL

STACK Lien, pursuant to section 544(a) of the Bankruptcy Code, with respect to the

UCC Collateral, and the CAPITAL STACK Lien so avoided is automatically preserved for

the benefit of the estate, pursuant to section 551 of the Bankruptcy Code. In addition,

because the CAPITAL STACK Lien in the UCC Collateral is unperfected, the transfers of

the security interests in the UCC Collateral would be deemed to have occurred, for

purposes of section 547 of the Bankruptcy Code, immediately before the Petition Date.

See 11 U.S.C. § 547(e)(2)(C). As such, the transfers of such security interests would be

deemed to be transfers of interests of the Debtors in property, to or for the benefit of a

creditor or creditors, for or on account of antecedent debt, made while the Debtors were

insolvent, within the ninety day period preceding the Petition Date, that enabled

CAPITAL STACK to receive more than it would have received if the Debtor’s case was a

case under Chapter 7 of the Bankruptcy Code, such transfers had not been made, and

CAPITAL STACK had received payment of its debt to the extent provided by the

provisions of the Bankruptcy Code.

39. Accordingly, the Debtor on behalf of the estate can avoid the CAPITAL

STACK Lien, pursuant to section 547(b) of the Bankruptcy Code, with respect to the

UCC Collateral, and the CAPITAL STACK Lien so avoided is automatically preserved for

the benefit of the estates, pursuant to section 551 of the Bankruptcy Code.

40. Debtor is continuing its examination of, among other things, the extent,
17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 13 of
20

validity, perfection, and priority of the CAPITAL STACK Lien. To the extent that the

Debtor discovers additional information regarding the validity, perfection or priority of

the CAPITAL STACK Lien, the Debtor reserves its right to supplement or amend this

Complaint to the extent it deems necessary and proper.

WHEREFORE, the Debtor respectfully requests that (1) judgment be afforded to

it against CAPITAL STACK for the avoidance of the CAPITAL STACK Lien with respect

to the UCC Collateral, and preservation of such CAPITAL STACK Lien with respect to

the UCC Collateral for the benefit of the estate, pursuant to sections 544(a), 547(b) and

551 of the Bankruptcy Code; and (2) the Court grant such other and further relief as is

necessary and appropriate.

Second Count
CAPITAL STACK Defendants’ Conversion of JPMorgan Chase’s Collateral

41. Plaintiff re-alleges and incorporates by reference the allegations set forth

in the preceding paragraphs as if fully set forth herein.

42. Debtor took out an SBA loan through JPMorgan Chase Bank in May, 2016,

to finance tenant finish out and for operating capital to purchase inventory for the

Barton Creek location. Debtor executed a U.S. Small Business Administration

Promissory Note, Business Loan Agreement, Commercial Security Agreement, and UCC

Financing Statement (the "Existing Agreements") with JPMorgan Chase Bank, N.A.

relating to the loan.

43. Debtor granted a security interest to JPMorgan Chase Bank, N.A. in all

Inventory, Chattel Paper, Equipment and General intangibles; whether now owned or

acquired later; all accessions, additions, replacements, and substitutions relating to any

of the foregoing; all records of any kind relating to any of the foregoing; all proceeds
17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 14 of
20

relating to any of the foregoing (including insurance, general intangibles and other

account proceeds) (the "Prepetition Collateral").

44. A true and correct copy of the Commercial Security Agreement is attached

hereto as Exhibit “D” and incorporated by reference. The security interest granted was

perfected by the filing a JPMorgan Chase Bank UCC-1 Financing Statement on May 10,

2016, attached hereto as Exhibit “E” and incorporated by reference. The JPMorgan

Chase Bank claim and security status is listed and acknowledged in the Debtor’s

Schedule D and is supported by Proof of Claim No. 9 filed by JPMorgan Chase Bank on

August 31, 2017, in the amount of $476,148.21 as of the date of filing.

45. Debtor asserts that, as of the Petition Date, the CAPITAL STACK Liens

granted in the CAPITAL STACK Loan Documents is a disputed 4th priority lien in and

upon certain of the Debtor’s assets.

46. JPMorgan Chase Bank has a prior filed security interest covering all of the

Debtor’s accounts, and rights to payment etc. and has priority in the accounts under the

Uniform Commercial Code. When there are two competing security interests in the

same collateral, the first perfected security interest takes priority over another perfected

security interest in the same collateral. See Texas UCC 9-322(a). A perfected security

interest follows the sale of collateral unless the secured party authorizes the sale of the

accounts free of its lien. See UCC 9-315(a) JPMorgan Chase Bank did not authorize the

sale of the accounts to CAPITAL STACK free and clear of its lien on the accounts.

Therefore, JPMorgan Chase Bank’s perfected security interest survives and follows the

accounts sold to CAPITAL STACK.

47. JPMorgan Chase Bank is entitled to recover the funds paid to CAPITAL

STACK pre-petition by the Debtor.

17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 15 of
20

48. CAPITAL STACK has collected at least $77,678.00 of the Debtor’s funds

under the Contract from the Debtor that was JPMorgan Chase Bank’s collateral.

CAPITAL STACK has wrongfully converted those funds which should have been paid to

JPMorgan Chase Bank.

WHEREFORE, Plaintiff respectfully requests the entry of a judgment against the

CAPITAL STACK Defendants for judgment in the amount of $77,678.00 for damages

resulting from the wrongful conversion of paid to and converted by CAPITAL STACK

pre-petition on behalf of JPMorgan Chase Bank.

Third Count
Avoidance and Recovery of Preferential Transfers
(11 U.S.C. §§ 547 And 550)

49. Plaintiff re-alleges and incorporates by reference the allegations set forth

in the preceding paragraphs as if fully set forth herein.

50. Prior to the Petition Date, the Debtor transacted business with the

CAPITAL STACK Defendants, on account of which the Debtor was indebted to the

CAPITAL STACK Defendants.

51. The Debtor made the CAPITAL STACK 90-Day Payments during the

Preference Period to or for the benefit of CAPITAL STACK and/or the other CAPITAL

STACK Defendants.

52. Each of the CAPITAL STACK 90-Day Payments constitutes a transfer of an

interest of the Debtor in property.

53. The CAPITAL STACK 90-Day Payments were made to or for the benefit of

the CAPITAL STACK Defendants, unsecured creditors of the Debtor at the time such

transfers were made.

54. The CAPITAL STACK 90-Day Payments were for or on account of an

17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 16 of
20

antecedent debt owed by the Debtor before such transfers were made.

55. Each of the CAPITAL STACK 90-Day Payments were made while the

Debtor was insolvent.

56. The CAPITAL STACK 90-Day Payments enabled the CAPITAL STACK

Defendants to receive more than they would have received had such transfers not been

made and the CAPITAL STACK Defendants received payment to the extent allowed

under the Bankruptcy Code.

57. Based on the foregoing, the Plaintiff is entitled to avoid the CAPITAL

STACK 90-Day Payments pursuant to section 547 of the Bankruptcy Code.

58. The CAPITAL STACK Defendants are the initial transferees of the

CAPITAL STACK 90-Day Payments, the entities for whose benefit the CAPITAL STACK

90-Day Payments were made, or the immediate or mediate transferees of the initial

transferee receiving the CAPITAL STACK 90-Day Payments.

59. Based on the foregoing, the Plaintiff is entitled to recover the value of the

CAPITAL STACK 90- Day Payments from the CAPITAL STACK Defendants pursuant to

section 550 of the Bankruptcy Code.

60. During the Preference Period, the Debtor made transfers to or for the

benefit of the CAPITAL STACK Defendants on Loans 1 and 2 collectively in the

aggregate amount of $64,444.26 (collectively, the “CAPITAL STACK Loan Payments”).

61. The CAPITAL STACK Loan Payments were made by ACH, check, wire

transfer or other means from accounts owned by the Debtor, and are detailed on the

schedule attached hereto as Exhibit “F” and incorporated herein by reference.

WHEREFORE, the Plaintiff respectfully requests the entry of a judgment against

the CAPITAL STACK Defendants avoiding the CAPITAL STACK 90-Day Payments in an
17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 17 of
20

amount not less than $64,444.26 and awarding the Plaintiff costs, pre- and post-

judgment interest and such other relief the Court deems equitable and just.

Fourth Count
Fraud

62. Plaintiff realleges and incorporates by reference the allegations set forth in

the preceding paragraphs as if fully set forth herein.

63. The CAPITAL STACK Defendants knowingly and falsely represented to the

Debtor that the CAPITAL STACK Loan was a purchase of Future Receivables in an

attempt to circumvent New York’s state usury laws.

64. The CAPITAL STACK Defendants knowingly and falsely represented the

value of the Future Receivables to the Debtor by setting it arbitrarily based on the

Debtor’s ability to make daily ACH withdrawals and not on any evaluation, assessment

or analysis of the Debtor’s customers or past or expected future receivables.

65. The Debtor, to its detriment, reasonably relied upon the knowingly false

representations made by the CAPITAL STACK Defendants.

66. WHEREFORE, the Plaintiff respectfully requests the entry of a judgment

against the CAPITAL STACK Defendants in an amount to be determined at trial and

awarding the Plaintiff costs, pre- and post-judgment interest and such other relief the

Court deems equitable and just.

Fifth Count
Usury, Unjust Enrichment and Disgorgement

67. Plaintiff realleges and incorporates by reference the allegations set forth in

the preceding paragraphs as if fully set forth herein.

68. Pursuant to the Loan Documents, the CAPITAL STACK Loan is subject to

the laws of the State of New York.

17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 18 of
20

69. The Debtor was absolutely required to repay the principal of the CAPITAL

STACK Loan plus interest.

70. The CAPITAL STACK Defendants did not purchase, dedicate toward the

payment of the monies loaned or in any way assumed the risks of nonpayment of, the

Future Receipts or the Future Receipts.

71. Although disguised as a sale of the Future Receipts and the Future

Receivables, the CAPITAL STACK Loan was in substance, and in all material respects, a

loan.

72. The CAPITAL STACK Loan and its respective Loan Documents set forth a

collateralized loan transaction subject to New York usury laws.

73. In connection with the Loan, the CAPITAL STACK Defendants charged a

criminally usurious interest rate under New York law exceeding 25%.

74. The CAPITAL STACK Loan is usurious per se.

75. Through the CAPITAL STACK Loan, the CAPITAL STACK Defendants

each willfully intended to enter into a criminally usurious transaction with the Debtor.

76. By exceeding the criminal usury cap, the CAPITAL STACK Loan and all

associated transactions thereto are void pursuant to section 5-511 of the New York

General Obligations Law.

77. The CAPITAL STACK Defendants were unjustly enriched through the

receipt of the CAPITAL STACK Payments.

78. As a matter of equity and public policy, the CAPITAL STACK Defendants

should not be permitted to receive any amounts in connection with the CAPITAL STACK

Loan.

79. WHEREFORE, the Plaintiff respectfully requests the entry of a judgment

17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 19 of
20

against the CAPITAL STACK Defendants: (a) declaring that the CAPITAL STACK Loan

is a loan, criminally usurious and void under applicable law and or as a matter of public

policy; (b) directing the CAPITAL STACK Defendants to repay the CAPITAL STACK

Transfers to the Estate; and (e) awarding the Plaintiff costs, pre-judgment and post-

judgment interest and such other relief the Court deems equitable and just.

WHEREFORE, in the alternative and to the extent the CAPITAL STACK Loan is

determined to constitute a sale of Future Receivables and not a loan, the Plaintiff

respectfully requests the entry of a judgment against the CAPITAL STACK Defendants,

jointly and severally, in the amount of $77,678.00 and awarding the Plaintiff costs, pre-

and post-judgment interest and such other relief the Court deems equitable and just.

Sixth Count
Disallowance of Claims
(11 U.S.C. § 502(d))

80. Plaintiff re-alleges and incorporates by reference the allegations set forth

in the preceding paragraphs as if fully set forth herein.

81. To the extent the Defendants are found liable for any of the transfers

subject to avoidance and recovery as alleged herein, any claims the Defendants may

assert against the Estate pursuant to section 502(h) of the Bankruptcy Code or

otherwise must be disallowed unless and until the Defendants pay the Estate the

amount of such liability.

WHEREFORE, the Plaintiff respectfully requests the entry of a judgment

disallowing any claims held by the Defendants against the Estate and awarding such

other relief the Court deems equitable and just.

Objection to Claim

82. Pursuant to Bankruptcy Rule 3007(b), the Debtor may include an

17-01099-tmd Doc#1 Filed 12/19/17 Entered 12/19/17 13:23:39 Main Document Pg 20 of
20

objection to a claim in an adversary proceeding.

83. The Debtor objects to Claim No. 1 of CAPITAL STACK, for the reasons set

forth in this complaint.

Reservation of Rights

84. To the extent permitted under applicable law or by agreement, Plaintiff

reserves the right to assert additional claims or causes of action against any third party

relating to the subject matter of this adversary proceeding or otherwise.

85. During the course of this adversary proceeding, the Plaintiff may learn

(through discovery or otherwise) of additional avoidable and recoverable transfers made

to the Defendants other than those identified herein. Because he intends to avoid and

recover any and all transfers made by the Debtor to the Defendants as permitted under

applicable law, the Plaintiff reserves the right to: (a) amend this Complaint to include

and identify additional transfers, information regarding the claims for relief herein,

claims or causes of action and/or information regarding or modifications to the name of

the Defendants; and (b) have any such amendments relate back to this Complaint.

Dated: December 19, 2017

Respectfully submitted,

FRED E. WALKER, P.C.

/s/ Fred E. Walker

Fred E. Walker / 20700400
Kimberly L. Nash / 24043840
609 Castle Ridge Road, Suite 220
Austin, TX 78746-6578
(512) 330-9977 phone
(512) 330-1686 fax
Attorneys for Debtor & Debtor in Possession