pages from filed complaint

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IN THE CIRCUIT COURT OF THE STATE OF OREGON6

FOR THE COUNTY OF MULTNOMAH7

RAMZY HATTAR, Case No.8

Plaintiff, COMPLAINT9

(Injunctive Relief for Breaches ofFiduciary Duty and of Agreements)10 v.

KURT HUFFMAN, an individual; RICKGENCARELLI, an individual; LARDOHOLDINGS LLC; and LARDO BAKERY LLC,

Amount of Claim: Injunctive Relief toEnforce Sale of $1.6 Million

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NOT SUBJECT TO MANDATORYARBITRATIONDefendants.13

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15Plaintiff alleges:

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17In or about 2012, Plaintiff Ramzy Hattar ("Plaintiff), Defendant Kurt Huffman

("Defendant Huffman") and Defendant Rick Gencarelli ("Defendant Gencarelli") undertook to

form a business enterprise intended to establish restaurant locations featuring the Lardo brand

and recipes. Lardo recipes had previously been featured at a popular food cart business operated

in Portland, Oregon, by Defendant Gencarelli.

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23As is customary in the restaurant business, each location established, though featuring the

same name and recipes, was to be established as a separate business entity. In mid-2012, in

accordance with the custom, Plaintiff and Defendants Huffman and Gencarelli organized

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- COMPLAINT

KEIX, ALTERMAN & RUNSTEIN, L.L.P.

Attorneys at Law

520 SW Yamhill, Suite 600

Portland, OR 97204

Telephone (503) 222-3531Facsimile (503) 227-2980

00246081

12/21/2015 12:47:03 PM15CV34155

1 ChefStable—Lardo LLC, an Oregon limited liability company, in order to establish a Lardo

2 restaurant on S.E. Hawthorne Boulevard in Portland, Oregon. In late 2012, they organized

3 ChefStable—Lardo DT LLC, another Oregon limited liability company, in order to establish a

4 Lardo restaurant on S.W. Washington Street in Portland, Oregon.

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The Operating Agreements for the two companies contained substantially identical

7 provisions. They provided that Plaintiff was a 10 percent member in return for his contribution

8 of $50,000.00 and for his future promotion and marketing of the restaurants. They provided that

9 Defendant Gencarelli was a 45 percent member in return for his services. And, they provided

1 0 that Defendant Huffman was a 45 percent member in return for his services.

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4.11

Both Operating Agreements provided further as follows:Right to Manage. Each member shall have an equal right to

participate in the day-to-day management of the Company. Themembers may delegate primary responsibility for particularbusiness matters among themselves from time to time as theydetermine appropriate. A member holding delegated responsibilityas to any matter shall be the agent of the Company for such mattersand shall solely exercise the authorities given to that member forsuch purposes.

Salaries. The salaries and other compensation of the members, ifany, shall be fixed from time to time by a unanimous vote by themembers.

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19 Allocation of Net Profit or Loss. After giving effect to thespecial allocations [relating to allocations required by Treasuryregulation], the net profit or net loss of the Company for any fiscalyear, and all items of income, gain, loss, deduction or credit andany other allocations not otherwise provided for in this agreement,shall be allocated among the members in accordance with theirrespective Ownership Interests.

The members may amend or repeal the provisions of thisAgreement by unanimous agreement set forth in writing or byaction taken at a meeting of members called for that purpose. ThisAgreement may not be amended or repealed by oral agreement ofthe members.

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- COMPLAINT

Kell, Alterman & Runstejn, L.L.P.

Attorneys at Law


Portland, OR 97204

Telephone (503) 222-353 1

Facsimile (503) 227-298000246081

5.1

ORS chapter 63 also governs the companies, and it contains the following provisions:2

3 63.155 Duties and standard of conduct. (1) The only fiduciaryduties a member owes to a member-managed limited liabilitycompany and its other members are the duty of loyalty and theduty of care set forth in subsections (2) and (3) of this section.

(2) A member's duty of loyalty to a member-managed limitedliability company and its other members includes the following:

(a) To account to the limited liability company and hold for it anyproperty, profit or benefit derived by the member in the conductand winding up of the limited liability company's business orderived from a use by the member of limited liability companyproperty, including the appropriation of a limited liability companyopportunity;

(b) Except as provided in subsections (5) and (6) of this section, torefrain from dealing with the limited liability company in a manneradverse to the limited liability company and to refrain fromrepresenting a person with an interest adverse to the limitedliability company, in the conduct or winding up of the limitedliability company's business; and

(c) To refrain from competing with the limited liability companyin the conduct of the business of the limited liability companybefore the dissolution of the limited liability company.

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17 (4) A member shall discharge the duties to a member-managedlimited liability company and the other members under this chapteror under any operating agreement of the limited liability companyand exercise any rights consistent with the obligation of good faithand fair dealing.

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6.20

In the fall of 2013, the parties took steps to establish a third Lardo restaurant on North

Williams Avenue in Portland, Oregon ("Lardo North"). Without the knowledge or consent of

Plaintiff, Defendants Huffman and Gencarelli organized a third Oregon limited liability company

by the name of Lardo Bakery LLC, in which they combined the Lardo North operations with a

separate business, Phillippe's Breads. Despite the agreement and representation of Defendants

Huffman and Gencarelli that Plaintiff was investing and participating in an enterprise intended to

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- COMPLAINT

Kell, AltERMAN & RUNSTE1N, L.L.P.

Attorneys at Law


Portland, OR 97204


00246081

1 establish Lardo locations wherever the three members determined they may succeed, Defendants

2 Huffman and Gencarelli organized Lardo Bakery LLC in a manner which entirely excluded

3 membership and participation by Plaintiff, thus appropriating for themselves an opportunity of

4 the business owned by all three parties. At the time of fonnation Defendants Gencarelli and

5 Huffman also allowed third-parties to invest in Lardo Bakery LLC without consulting or

6 advising Plaintiff of their intent to do so.

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At some time unknown to Plaintiff during 2014, and without the knowledge or consent of

9 Plaintiff, Defendants Huffman and Gencarelli converted over $200,000 from the funds of

10 ChefStable—Lardo LLC and ChefStable—Lardo DT LLC for their own use, including funding

1 1 the combined activities of Lardo North and Philippe's Bread. When discovered, they

1 2 represented to Plaintiff that the funds were "guaranteed payments." They had no authority,

1 3 however, to authorize payments or compensation to members without the consent of Plaintiff,

14 and their doing so violated the express provisions of the companies' Operating Agreements.

1 5 Defendants used the funds from ChefStable—Lardo LLC and ChefStable—Lardo DT LLC to

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pay debts of Lardo Bakery, LLC.16

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In or about June 2014, in a further effort to exclude Plaintiff from the business, and

without the knowledge or consent of Plaintiff, Defendants Huffman and Gencarelli purported to

amend the Articles and Operating Agreements of ChefStable—Lardo LLC, and ChefStable—

Lardo DT LLC by falsely reporting to the Oregon Secretary of State that the members

unanimously agreed to change the companies from member-managed to manager-managed, and

they further falsely reported that Kurt Huffman was the sole member/manager.

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9.24

In or about April 2014, Defendants Huffman and Gencarelli, in an effort to further

exclude Plaintiff from the benefits of the enterprise, and in breach of their agreement with and

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- COMPLAINT

Kell, Alterman & Runstein, L.L.P.

Attorneys at Law

520 SW Yamhill, Suite 600Portland, OR 97204

Telephone (503) 222-3531FACSiMfLE (503) 227-2980

00246081

1 representations to Plaintiff, organized a fourth Oregon limited liability company by the name of

2 Lardo Holdings, and they provided that they, and not Plaintiff, were the sole members of Lardo

3 Holdings LLC. Thereafter, they purported to transfer all of the intellectual property of Lardo,

4 including its name, brand, trademark rights, and recipes away from the restaurant companies

5 organized under the original agreement of the members and to a company owned and controlled

6 only by Defendants Huffman and Gencarelli.

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When Plaintiff discovered the events described by paragraphs 6 to 9, above, he

9 complained to the other two members and demanded that they comply with their agreements,

1 0 and that they correct their breaches of the Operating Agreements and of Oregon law. They

1 1 refused to do so, however, except upon unacceptable conditions which required Plaintiff to

12 waive certain of his rights under the agreements.

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11.13

Paragraphs 4.3.1 and 4.3.2 of the ChefStable—Lardo LLC Operating Agreement, and

paragraphs 5.3.1 and 5.3.2 of the ChefStable—Lardo DT LLC Operating Agreement provide as

follows:

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4.3.1 [5.3.1] In the event of a split of votes (ten percent (10%) ofthe Ownership Interests in favor and ninety percent (90%) of theOwnership Interests opposed OR forty-five percent (45%) of theOwnership Interests in favor and fifty-five percent (55%) of theOwnership Interests opposed) on any matter requiring a vote (a"deadlock"), the members shall first attempt to resolve thedeadlock through negotiating in good faith for a period of two (2)weeks. After the expiration of the 2 week negotiation period, amember of the Ownership Interests (the "Offeror") may deliver tothe other member(s) which holds the other Ownership Interests(the "Offeree(s)") an offer in writing stating a cash purchase price(the "Total Purchase Price") attributable to one hundred percent(100%) of the Ownership Interests in the Company, on the basis ofwhich the Offeror is willing to purchase the Ownership Interestthen owned by the Offeree(s) (the "Offer"). The Offeree(s) thenshall be obligated either:

(a) to purchase the Ownership Interests of the Offeror in theCompany for cash at a price equal to the amount that the Offerorwould receive if all of the assets of the Company were sold for the

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- COMPLAINT

KELL, ALTERMAN & RUNSTE1N, L.L.P.

Attorneys at Law


Portland, OR 97204


00246081

Total Purchase Price; or

(b) to sell to the Offeror the Ownership Interests of the Offeree(s)in the Company for cash at a price equal to the amount that theOfferee would receive if all of the assets of the Company were soldfor the Total Purchase Price.

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4.3.2 (5.3.2] The Offeree(s) shall give written notice of suchelection to the Offeror within thirty (30) days after receipt of theOffer. Failure of the Offeree(s) to give the Offeror notice that theOfferee(s) has made an election under Section 4.3.1(a) within such30 day period shall be conclusively deemed to be an election underSection 4.3.1(b). The closing of a purchase pursuant hereto shallbe held at a mutually acceptable place and on a mutuallyacceptable date not sooner than ninety (90) days nor more than onehundred and eighty (1 80) days after expiration of the 30 day periodfollowing receipt of the Offer. At such closing, the selling memberor group shall assign to the purchasing member the applicableOwnership Interests free and clear of all liens and encumbrances ofany nature whatsoever, and shall execute all other documents thatmay be reasonably necessary or advisable to effectuate thetransactions contemplated hereby, and the purchasing membershall pay the purchase price in accordance with Section 7.5. Allrecording and transfer costs shall be borne by the purchasingmember.

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12.14

In September 2015, in an effort to resolve the disputes, and in accordance with the

provisions of the Operating Agreements, Plaintiffs attorney wrote to the attorney for Defendants

Huffman and Gencarelli inviting them to meet in good faith to resolve the deadlocks of the

members. They did meet, thereafter, on or about October 6, 2015. They were unable to resolve

the deadlocks at the meeting, but Defendants Huffman and Gencarelli offered to propose further

terms of resolution in writing. Nothing from them was forthcoming, however. A true copy of

Plaintiffs attorney's letter of September 28, 2015, which proposed the resolution meeting is

attached hereto as Exhibit 1 .

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13.23

On October 26, 2015, in accordance with the deadlock resolution provisions of the

Operating Agreements, Plaintiff sent to the attorney for Defendants Huffman and Gencarelli an

offer in writing stating a cash purchase price of 100 percent of the companies, free of debt and

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- COMPLAINT

KELL, ALTERMAN & RUNSTEIN, L.L.P.

Attorneys at Law


Portland, OR 97204


00246081

contingent debt, in the amount of $900,000 for ChefStable—Lardo LLC, and $700,000 for1

2 ChefStable—Lardo DT LLC. The written offer allowed Defendants Huffman and Gencarelli the

3 option to purchase Plaintiffs proportional interests in the companies on those tenns under

4 subsection (a), or to sell their own proportional interests in the companies to Plaintiff on those

5 terms under subsection (b). In the event Defendants Huffman and Gencarelli failed to give

6 Plaintiff written notice of their election within 30 days after receipt, the Operating Agreements

7 provide that they shall be conclusively deemed to have elected under subsection (b), i.e. an

8 election to sell their interests to Plaintiff. A true copy of Plaintiff s attorney's letter of October

9 26, 201 5, is attached hereto as Exhibit 2.

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Defendants Huffman and Gencarelli failed to give written notice of an election within 30

days of receipt of Plaintiff s offer. Accordingly, on November 30, 2015, Plaintiffs attorney

wrote to Defendants Huffman's and Gencarelli's attorney, acknowledging his clients' election to

sell membership interests in the companies to Plaintiff and proposing an escrow to accommodate

the transfer. A true copy of Plaintiff s attorney's letter ofNovember 30, 201 5 is attached hereto

as Exhibit 3.

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Defendants Huffman and Gencarelli, however, have denied and refused their obligation

to sell their interests in the companies to Plaintiff. They continue to operate the companies, and

the Defendant companies, without participation by Plaintiff, and they are stonewalling Plaintiff

and withholding all information about the affairs of the companies, the Defendant companies,

and about the continuing affairs of Lardo restaurants. Defendants have breached the tenns of the

Operating Agreements for ChefStable—Lardo LLC and ChefStable—Lardo DT LLC.

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Plaintiff has no adequate remedy at law.25

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- COMPLAINT

KELL, ALTERMAN & RUNSTEIN, L.L.P.

Attorneys at Law


Portland, OR 97204

Telephone (503) 222-3531

Facsimile (503) 227-298000246081

17.1

Paragraph 1 1.3 of the ChefStable—Lardo LLC Operating Agreement, and paragraph 12.3

3 of the ChefStable—Lardo DT LLC Operating Agreement provide that in the event of any action

4 for injunctive relief, the party substantially prevailing shall be entitled to costs and attorney fees

5 as determined by the judge.

WHEREFORE, Plaintiff prays for judgment and decree as follows:

(a) Ordering and directing Defendants Huffman and Gencarelli to assign and convey

8 to Plaintiff all of their membership interests in ChefStable—Lardo LLC and ChefStable—Lardo

9 DT LLC in accordance with paragraphs 4 and 5, respectively, of their Operating Agreements,

1 0 and in accordance with the terms and conditions of Exhibit 3 to this Complaint;

(b) For a preliminary injunction directing Defendants Huffman and Gencarelli to turn

12 over to Plaintiff the management and control of all affairs of ChefStable—Lardo LLC and

1 3 ChefStable DT LLC to Plaintiff during the pendency of this action;

(c) In the alternative to section (b), for a preliminary injunction prohibiting

1 5 Defendants Huffman and Gencarelli from distributing any funds of ChefStable—Lardo LLC, and

16 ChefStable—Lardo DT LLC, except for salaries, expenses and supplies incurred in the normal

1 7 course of business, and further prohibiting Defendants Huffman and Gencarelli from using any

1 8 funds or assets of the companies in the defense of this action, and ordering them to provide to

1 9 Plaintiff complete, accurate and timely infonnation regarding the affairs and operation of the

20 companies, including, without limitations, all daily, weekly and monthly banking and expense

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(d) For a judgment and decree ordering Defendants Huffman and Gencarelli to

convey to Plaintiff a 10 percent interest in Lardo Holdings LLC, Lardo Bakery LLC, and in any

other business entity operating a Lardo location with full rights of participation in management,

and with Operating Agreements governing these entities on terms and conditions substantially

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- COMPLAINT

KELL, ALTERMAN & RUNSTE1N, L.L.P.

Attorneys at Law


Portland, OR 97204

Telephone (503) 222-353 1

Facsimile (503) 227-29800024608!

identical to the Operating Agreements of ChefStable—Lardo LLC and ChefStable—Lardo DT1

2 LLC;

(e) For a declaration that ChefStable—Lardo LLC and ChefStable—Lardo DT LLC,

4 Lardo Bakery LLC, and any other entity organized by Defendants Huffman or Gencarelli, and

5 Plaintiff owning or operating any Lardo restaurant location shall equally have all rights to the

6 Lardo name, trademark rights, recipes, and related Lardo intellectual property, free of any claim

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or right of Lardo Holdings LLC;7

(f) For Plaintiff s costs and reasonable attorney fees incurred herein; and

(g) For such other or further relief as may be just.

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Dated this 21st day of December, 2015.11

12 KELL, ALTERMAN & RUNSTEfN, L.L.P.

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14s/Dennis SteinmanDennis Steinman, OSB #954250

Scott J. Aldworth, OSB #1 13123Telephone: (503) 222-3531Fax: (503)227-2980

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[email protected] Attorneys for Plaintiff

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18Trial Attorney: Dennis Steinman

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- COMPLAINTKELL, ALTERMAN & RUNSTEIN, L.L.P.

Attorneys at Law


Portland, OR 97204

Telephone (503) 222-353 1

Facsimile (503) 227-298000246081

pages from filed complaint

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