Frisking the Complaint

As most of you know by now, there is quite a scandal brewing involving the lefty talk radio network known as Air America, in which the Gloria Wise Boys and Girls Club of New York is accused of improperly "loaning" the network almost $900,000 which was never repaid. From the very beginning of this story, Michelle Malkin and Brian Maloney have been breaking the news at it happens. At one point, I followed this story down every alley and around every corner - a summary of my work thus far can be found here.

Unfortunately, then, school started again, sucking away my every free moment and most of the mental energy required to post quality material. However, with some of the recent revelations about another lawsuit that Air America is facing, I have decided to frisk through the complaint that Multicultural Radio Broadcasting (MRB) filed against the principal owners of Air America and see what's what. I hope that, as Pejman has opportunity, he will contribute his own thoughts to mine.

Now, for those who are unfamiliar with the civil procedure system, the complaint in a lawsuit is really just the first shot fired in what is sometimes a very long battle. According to the Federal Rules of Procedure, a lawsuit has to begin with a complaint, which has to provide a "short and plain statement of the claim showing that the pleader is entitled to relief." The FRCP even has a "form" which shows how ridiculously simple these complaints are required to be (it's about three sentences long). So, legally, all you are trying to do with your complaint is serve notice that the party you are suing is getting sued, and why.

You're really not even required to make your claims logically consistent, or exclusive to one line of argument, so frequently lawyers will just throw a whole bunch of crap into their complaints and throw it all against the wall in the hopes that at least some of it will stick. Your basic goal, from a legal standpoint, is that you want to state some facts that, if true, would entitle you to legal relief - because if you don't, your complaint might get dismissed.

However, complaints also serve a more strategic value - which is that, if you are trying to get a settlement, you might also load your complaint with a bunch of facts that prove that your case is, indeed, legitimate, and that prove that you have some pretty good knowledge that the defendant is screwed, so that when the defendant's lawyers read through the complaint, they will go to the defendant and ask, "Are these things true? Because if they are, we need to settle." I get the sense from this complaint that, in alleging fraudulent conveyance, they are trying to impress the defendants with their knowledge of all the shady financial deals that they have been involved in.

Paragraphs 1-25 as discussed here involve jurisdiction. The plaintiffs (for reasons, at this point, known only to them) have filed this suit in state court, rather than federal. From what I can see from their complaint, diversity jurisdiction would certainly apply, and they could potentially have filed in federal. However, for (I presume) strategic reasons, they have filed in state court, and thus are establishing the grounds for the court to hear this case, as per paragraphs 23 and 24.

Paragraphs 26-46 outline the facts of the existence of the debt itself. When Air America (Radio Free America) began broadcasting, they apparently leased airtime on two of MRB's stations in Chicago and Los Angeles. The complaint contains a lot of information about the finances of Air America, through which MRB is seeking to prove that Air America was insolvent - that they knew that they were insolvent, and yet they continued to accrue debt they knew they could not pay. You might guess that legally, this is a big no-no. Again, if you as an individual intentionally accrue a bunch of debt with the full knowledge that you intend to file bankruptcy in the near future, the court will generally exempt all that debt from your bankruptcy settlement and force you to pay your creditors in full. I'm not sure because I'm utterly unfamiliar with corporate law, but I'd imagine the same principle applies to corporations.

A couple of the allegations here are damning in the sense that they are ridiculously easy to prove, and quite potentially felonious. For instance, from paragraphs 39-40:

<blockquote>After receiving written notices of default from Multicultural and an opportunity to cure, Radio Free America tendered a $156,000 check in payment of amounts owed under the Chicago agreement. That check was returned for insufficient funds. Radio Free America executives later candidly admitted that they had stopped payment on the check.</blockquote>

Whoops. Aside from the considerations this has for the civil complaint at hand, this activity is felonious - if it can be proved that 1) they knew, in the first place, that the check would not clear and 2) they intended for MRB to rely on the payment of this check to their detriment. 2) is virtually a given in this circumstance - if you write a check to someone for $156,000 - anyone, even a large corporation, will be induced to reliance. Especially given that the check was issued in an attempt to extend broadcasting of Air America over MRB's airwaves, thereby creating detriment from the loss of income they might have received from having, you know, someone who was able to pay leasing their airwaves. So, the contractual issue, to me, is pretty clear. If it is also clear that they knew in the first place that the funds were insufficient, a criminal case could also be forthcoming for fraud and other issues.

Following this, MRB reached settlement with Air America over the continued usage of their airwaves - part of which was the payment of this $156,000. Given that this payment was never received (as MRB alleges), the settlement was never consummated.

The really damaging information in this complaint, however, is in paragraphs 47 through 84 - these are the paragraphs establishing "fraudulent conveyance" - alleging that Air America engaged in a shell transfer of their assets from the company Progress Media to the new corporation Piquant LLC, composed of pretty much the same investors as those from Progress Media. What is very interesting to me is all the information about David Goodfriend, and what he is alleged to have known and informed the defendants of. It seems to me, from reading this complaint, that it's very likely that Mr. Goodfriend sat down at some point and had a chat with some of the lawyers of MRB. If this case goes to trial, and Goodfriend testifies to the truthfulness of half of what is alleged in this complaint - and further that he took these repeated and extreme steps to warn the good folks at Air America that what they were doing was fraudulent and illegal, this could very well become the kind of case in which a message verdict is sent.

And, in the final straw, 85-89 point out that MRB has still not been paid the judgment in a court case that they've already won against these folks.

Now, here is my final conclusion to all of this (fully realizing that I am coming to this party really late by blogging standards). As I said at the beginning of this post, complaints often times have a bunch of stuff that lawyers throw in there in hopes that some of it will eventually stick at the trial, so it's difficult to put much stock in the truthfulness of a complaint - however, given the past behavior of the Drobnys (et al.) thus far in this case, we have no reason whatsoever to disbelieve that any of the allegations contained herein are not true. Further, given the incredible specificity and falsifiability of these allegations, some of which are clearly scandalous in nature (if untrue), it seems unlikely that a lawyer includes them without some kind of verifiable evidence, at the risk of running afoul of FRCP Rule 11 (Lawyer sanctions). I think that the bounced check allegation in particular is pretty cut and dried.

The complaint in question is stamped May 24, 2005. According to various rules that apply based upon how you are finally served with the complaint, you generally have either 20, 60, or 90 days to respond to a complaint with either a response or any number of motions to dismiss/request clarifications. All of those deadlines have passed. Methinks that its time for this blogger to put in a call to the New York County court and see what's what when it comes to this lawsuit. More information as it becomes available.

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