Preview
1 Bryan L. Saalfeld - 243331
BSaalfeld@mpbf.com
2 Thomas F. Mazzucco - 306681
TFMazzucco@mpbf.com
3 MURPHY, PEARSON, BRADLEY & FEENEY
580 California Street, Suite 1100
4 San Francisco, CA 94104-1001
Telephone: (415) 788-1900
5 Facsimile: (415) 393-8087
6 Attorneys for Defendant
FP TRANSITIONS, LLC
7
8
SUPERIOR COURT OF THE STATE OF CALIFORNIA
9
COUNTY OF MONTEREY
10
11
INDEPENDENT FINANCIAL GROUP, LLC, Case No.: 21CV001264
12 on its own behalf and as assignee of Adolfo
Artalejo; Rod Belton and Nancy Belton; James DEFENDANT FP TRANSITIONS’ CROSS-
13 Cornelius and June Cornelius; John Favero and COMPLAINT FOR (1) IMPLIED
Philayna Favero; Ray Moncada and Vinnie EQUITABLE INDEMNITY; (2)
14 Moncada; Sheryl Peck; Juanita Stoddard; Ron NEGLIGENT MISREPRESENTATION; (3)
Taylor and Hazel Taylor; Jane Beery; Joy TORT OF ANOTHER; (4)
15 Chandler; John Day; Sim Granoff and Virginia DECLARATORY RELIEF; AND (5)
Lott; Gretchen Jackson; William Miller and CONTRIBUTION
16 Sharon Miller; Darryl Prudden; Carolyn Rice;
John Romero and Sandy Romero; Bennie Hill
17 and Lynda Hill; Ellen Koskinen; George Lynch Action Filed: April 15, 2021
and Helen Lynch; Mathew Panziera and Jamie Trial Date: None Set
18 Panziera; and Tom Sgheiza and Mary Sgheiza,,
19 Plaintiff,
20 v.
21 FP TRANSITIONS, LLC and DOES 1-50,
INCLUSIVE,
22
Defendants.
23
24
25
26
27
28
-1-
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1
FP TRANSITIONS, LLC,
2
Cross-Complainant,
3
v.
4
INDEPENDENT FINANCIAL GROUP, LLC,
5 David Marshall, Marshall Wealth Management
Group and ROES 1-25, INCLUSIVE,
6
Cross- Defendants.
7
8
9
Defendant and Cross-Complainant FP TRANSITIONS. LLC (hereinafter “Cross-Complainant”
10
or “FP Transitions”) alleges as follows:
11
INCORPORATION BY REFERENCE
12
1. On April 16, 2021, Plaintiff INDEPENDENT FINANCIAL GROUP, LLC (“IFG”) on
13
Its Own Behalf and as Assignee of Assignors1 filed a Complaint in this court and this matter: Independent
14
Financial Group, LLC, on Its Own Behalf and as Assignee of Adolfo Ar, et al. vs. FP Transitions, LLC,
15
Case No. 21CV001264. On April 26, 2021, Plaintiff filed its First Amended Complaint. FP Transitions
16
demurred to the First Amended Complaint to which the court sustained the demurrer as to the negligent
17
misrepresentation cause of action. Plaintiff filed its Second Amended Complaint on November 18, 2021.
18
FP Transitions again demurred as to the negligent misrepresentation cause of action. The Court sustained
19
that demurrer without leave to amend. The allegations of the Second Amended Complaint are expressly
20
denied by this Cross-Complainant. The Second Amended Complaint is hereby incorporated into this
21
Cross-Complaint by reference, solely for the purpose of showing the nature of the claims made therein
22
and to identify the parties.
23
THE PARTIES
24
2. Defendant and Cross-Complainant FP Transitions, LLC is a corporation existing under
25
1
26 Assignors to IFG collectively are Adolfo Artalejo, Rod and Nancy Belton, James and June Cornelius, John
and Philayna Favero, Ray and Vinnie Moncada, Sheryl Peck, Juanita Stoddard, Ron and Hazel Taylor, Jane
27 Beery, Joy Chandler, John Day, Sim Granoff and Virginia Lott, Gretchen Jackson, William and Sharon
Miller, Darryl Prudden, Carolyn Rice, John and Sandy Romero, Bennie Hill and Lynda Hill, Ellen Koskinen,
28 George Lynch and Helen Lynch, Matthew Panziera and Jamie Panziera, and Tom Sgheiza and Mary
Sgheiza .
-2-
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 the laws of the State of Oregon and is a named defendant in this action. Founded in 1998 in Lake Oswego,
2 Oregon, FP Transition, LLC works directly with financial advisers, broker-dealers, custodians and
3 insurance providers to develop and implement business transition systems and procedures. As part of
4 these services, FP Transitions provides a central online marketplace for clients to engage and locate
5 potential buyers. In doing so, FP Transitions is not a broker itself, and expressly informs its clients to
6 consult their attorney and CPA for additional information and due diligence regarding any sale or
7 purchase of financial advisory businesses.
8 3. Cross-Complainant is informed, believes, and thereon alleges that Plaintiff and Cross-
9 Defendant Independent Financial Group, LLC (“IFG”) is a business entity existing under the laws of the
10 State of California. Cross-Complainant is informed and believes, IFG is both a Registered Investment
11 Adviser registered with the United States Securities and Exchange Commission as well as a
12 FINRA/SIPC member broker-dealer firm headquartered in San Diego, California. IFG currently has over
13 600 advisors throughout the United States.
14 4. Cross-Complainant is informed, believes, and thereon alleges that Cross-Defendant
15 David T. Marshall (“Marshall”), CRD No. 2843252, was both a Registered Representative of IFG as
16 well as an Investment Advisor Representative of IFG. As a Registered Representative and Investment
17 Advisor Representative of IFG, Marshall was responsible for the accounts of the Assignors prior to the
18 sale his financial services business, Marshall Wealth Management Group (“MWMG”) to Perry Santillo.
19 5. Cross-Complainant is informed, believes, and thereon alleges that Cross-Defendant
20 Marshall Wealth Management Group (“MWMG”) is presently inactive, however, at all relevant times
21 was a limited liability corporation existing under the laws of the State of California, with its principal
22 place of business located in Monterey, California. MWMG, during its operation, was authorized to
23 conduct business in the State of California.
24 6. Cross-Complainant is informed, believes, and thereon alleges that Assignors Adolfo
25 Artalejo, Rod and Nancy Belton, James and June Cornelius, John and Philayna Favero, Ray and Vinnie
26 Moncada, Sheryl Peck, Juanita Stoddard, Ron and Hazel Taylor, Jane Beery, Joy Chandler, John Day,
27 Sim Granoff and Virginia Lott, Gretchen Jackson, William and Sharon Miller, Darryl Prudden, Carolyn
28 Rice, John and Sandy Romero, Bennie Hill and Lynda Hill, Ellen Koskinen, George Lynch and Helen
-3-
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 Lynch, Matthew Panziera and Jamie Panziera, and Tom Sgheiza and Mary Sgheiza (collectively
2 “Assignors”) all brought claims against IFG.
3 7. Subsequent to the transaction, Cross-Complainant became informed, believes, and
4 thereon alleges that Perry Santillo (“Santillo”) owned or controlled various entities including: First
5 Nationale Solution, LLC; United RL Capital; Percipience Global Corporation; and Middlebury
6 Development. These entities sold notes to investors as part of a Ponzi scheme that fraudulently netted
7 over $115 million nationwide. Santillo has pled guilty to felony charges and admitted to defrauding
8 investors around the country. Santillo has been sentenced to 210 months in federal prison.
9 8. The true names and capacities of Cross-Defendants, ROES 1 through 25, inclusive, are
10 unknown to Cross-Complainant, who therefore sues them by such fictitious names. Cross-Complainant
11 will seek leave of Court to amend this Cross-Complaint to insert the true names and capacities of the
12 fictitiously named Cross-Defendants when their names have been ascertained. Cross-Complainant is
13 informed, believes, and thereon alleges that each Cross-Defendant designated as “ROE” is legally
14 responsible in some manner for the acts, occurrences, damages and liabilities alleged in this Cross-
15 Complaint, and actively and proximately caused and contributed to the various injuries and damages
16 referred in this Cross-Complaint.
17 9. Cross-Complainant is informed, believes, and thereon alleges that at all times mentioned
18 in this Cross-Complaint, each Cross-Defendant was the agent, partner, employee, joint venture, and/or
19 subcontractor of each of the remaining Cross-Defendants, and were at all times mentioned, acting within
20 the course and scope of said agency and employment. Cross-Complainant further alleges that ROES 1
21 through 25, inclusive, are an at all times mentioned, were either individuals, sole proprietorships,
22 partnerships, registered professionals, corporations, or other legal entities which were licensed to do and
23 were doing business in the County of Los Angles, State of California.
24 GENERAL ALLEGATIONS
25 10. On March 23, 2015, Cross-Defendant Marshall, an agent of Plaintiff and Cross-
26 Defendant IFG first signed a Listing Engagement Agreement with Defendant and Cross-Complainant
27 FP Transitions LLC to use FP Transitions’ marketplace to sell his MWMG business. Marshall signed a
28 second Listing Engagement Agreement with Defendant and Cross-Complainant FP Transitions LLC to
-4-
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 use FP Transitions’ marketplace on February 24, 2016. In signing this Listing Engagement Agreement,
2 David Marshall declared that he agreed to all terms and conditions of the agreement. Relevant terms of
3 the Listing Engagement Agreement agreed to by Marshall are:
4 (1) FP Transitions will act at all times in the capacity of “serving the
deal.” We do not act as an advocate for either side. FP Transitions is
5 compensated for providing a central marketplace, under the terms set
forth below…
6
(10) You understand and agree that we do not provide tax or legal
7 advice. We recommend that you have all documents and information
carefully reviewed by your own professional counsel.
8
(11) Any controversy or claim arising out of or relating to this
9 agreement, or the breach thereof, shall be settled and resolved by
binding arbitration before one arbitrator in Portland, Oregon,
10 conducted under the commercial rules and procedures of the
American Arbitration Association in accordance with the Federal
11 Arbitration Act, 9 US Code Sections 1-16. The substantive law of
Oregon will determine the interpretation of this agreement. Each
12 party shall be responsible for its own attorney fees. Costs and
arbitration fees shall be paid by the losing party...
13
(13) Limitations of Liability. Any liability of FP Transitions arising
14 out of any services provided hereunder shall not exceed the total of
(A) the listing fee for one year and (B) the fees paid by you under this
15 agreement. In no event shall FP Transitions be liable for any
incidental, punitive or consequential damages, including without
16 limitation, loss of revenue.
17 11. As part of every transaction and listing engagement, sellers are provided with a Due
18 Diligence Checklist. Marshall, as the seller of Marshall Wealth Management Group, Inc., was provided
19 with an FP Transitions Due Diligence Checklist to inform him of recommended due diligence steps and
20 procedures he should take. At the very beginning of the Due Diligence Checklist, FP Transitions states:
21 NOTE: Both buyer and seller should perform due diligence on the
other party. This checklist is not a complete list, but is intended to
22 cover some of the more common steps other buyers and sellers have
taken. Every transaction is unique and the due diligence process must
23 be adapted to the situation by the buyer and seller. Please consult your
attorney and CPA for additional information and due diligence steps.
24
12. Also included in the four-page Due Diligence Checklist is a section titled “LICENSING
25
/ REGULATORY INFORMATION.” This section provides bullet pointed recommendations to the
26
seller and buyer of performing their due diligence on the other party of the transaction. The bullet pointed
27
material states in whole:
28
-5-
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 Obtain a copy of the current Form U-4 for seller (and buyer) and all employees,
2 Form ADV if applicable, along with proof of filing. Confirm filing status and any
3 disciplinary history using FINRA’s on-line verification process.
4 Review copies of all seller’s (and buyer’s) securities and business licenses and
5 permits.
6 Determine the date of the peer review, or last regulatory audit conducted by state,
7 federal or self-regulatory agencies, and review deficiency letters and any related
8 correspondence. Request information pertaining to resolving any deficiencies.
9 Review any correspondence from customers or suppliers relating to complaints or
10 disputes about seller’s (and buyer’s) practices.
11 Obtain copies of each report or other document filed with governmental agencies
12 that have regulatory power over seller (and buyer).
13 Obtain a description of all litigation, administrative proceedings, governmental
14 investigations, or inquiries, pending or threatened against, or involving seller (and
15 buyer) or any subsidiary.
16 If the other party has a regulatory, legal, compliance, or other issue, then you must
17 investigate such matter(s) and determine ifit is prudent to proceed. This is each
18 party’s responsibility.
19 As evidenced in the LICENSING / REGULATORY INFORMATION of the Due Diligence
20 Checklist provided to Marshall, it was his duty, and as agent of IFG, to conduct due diligence on any
21 potential purchasers, including Perry Santillo, Jr. and to thoroughly investigate all buyer’s securities and
22 business licenses and permits, filing status and any disciplinary history using FINRA’s on-line
23 verification process, and any other regulatory, legal, compliance, or other issues the buyer may have.
24 13. On April 4, 2016, Jeanie O’Reilly Northcutt of FP Transitions provided Marshall with
25 the names of four potential buyers of MWMG to review. Four days later, Marshall responded to Ms.
26 O’Reilly Northcutt, writing that he liked three of the four potential buyers, including Santillo. Ms.
27 O’Reilly Northcutt promptly provided Marshall with the phone numbers of the three potential buyers
28 liked and reviewed by Marshall and wrote that she had told each of the three that David Marshall would
-6-
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 be calling them.
2 14. On April 13, 2016, Marshall and Santillo signed a Non-Binding Term Sheet for Purchase
3 of Assets.
4 15. On July 7, 2016, after over 15 months of listing MWMG in FP Transitions marketplace,
5 and after over three months of discussions and negotiations with Santillo, Marshall entered into a contract
6 to sell MWMG, and signed the Listing Asset Purchase Agreement for the sale of MWMG to Santillo for
7 the purchase price of $675,000.00.
8 16. On July 15, 2016, eight days after Marshall signed the Listing Asset Purchase Agreement,
9 Marshall emailed Ms. O’Reilly Northcutt informing her that his “BD” (broker dealer) needed “a lot more
10 background of Perry and his reps and their Bix (sic) Plan before” the broker dealer would approve the
11 deal. Marshall informed Ms. O’Reilly Northcutt that he thought Santillo had worked everything out with
12 his broker dealer, but the broker dealer had not even started. Marshall stated that the deal was “dead
13 until my BD gives the all clear signal.” Ms. O’Reilly Northcutt responded to Marshall writing, “We
14 can close this at your pace. […] Let me know if you have any questions or concerns and if you need me
15 to do anything.” On July 17, 2016, Marshall replied to Ms. O’Reilly Northcutt writing in part that his
16 “BD (sic) has to complete background checks on everyone involved and approve them as well as a formal
17 biz (sic) plan from Perry.”
18 17. On July 18, 2016, Marshall emailed Ms. O’Reilly Northcutt of FP Transitions, “Thanks
19 for the VM. We’ll get it together. Perry, my IFG, and myself are working on some things.”
20 18. On August 4, 2016, Marshall emailed Ms. O’Reilly Northcutt with his and IFG’s approval
21 of the sale. Specifically, Marshall wrote, “See below both IFG's approval and my comments to Perry. I
22 am with Dave Fischer at the IFG national conf as I type, and can get further approval, but I think the
23 comments below ‘But overall if you want it to work we will get it thru I'm sure’, I think that pretty well
24 says it.”
25 19. This August 4, 2016, email also contained forwarded correspondence between Marshall
26 and Santillo, and Marshall and IFG Managing Director David Fischer. Marshall’s email forwarded
27 Fischer writing, “I’m comfortable with the Reps and the initial business plan. Obviously we will have to
28 look at the ultimate deal terms to approve of the deal. But overall if you want it to work we will get it
-7-
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 thru I'm sure.”
2 20. On or about August 10, 2016, escrow closed on the sale of MWMG from David Marshall
3 to Perry Santillo, after over three weeks of Marshall and IFG vetting and performing background checks
4 on Santillo and his business associates.
5 21. Cross-Complainant is informed, believes, and thereon alleges that IFG is the registered
6 investment adviser and broker-dealer. Investment advice is given by the registered investment adviser’s
7 investment adviser representatives (“IAR”) and registered representatives (“RR”) – i.e. Marshall and
8 whomever of Santillo’s associates IFG decided to allow onto its platform. MWMG provided facilities
9 and services to Marshall in his capacity as an investment adviser representative and registered
10 representative of IFG. The structure of the Sale Agreement was that Marshall personally, as a
11 credentialed advisor, assigned his professional goodwill, an intangible asset, to MWMG, which MWMG
12 then sold to Santillo. Notwithstanding, the duty of an advisor to a client remains with the investment
13 adviser representative and registered representative and his or her registered investment adviser and
14 broker-dealer.
15 22. Per the terms of the listing agreement between only FP Transitions and Marshall, the role
16 of FP Transitions expressly excluded the vetting of potential buyers. The ultimate decision and due
17 diligence in finding a bona fide buyer remained at all times with Marshall and MWMG, not FP
18 TRANSITIONS. Section XV(E) of the Asset Purchase Agreement states in relevant part:
19 Buyer and Seller acknowledge by signing below that FP Transitions
does not conduct due diligence on the Seller’s practice and takes no
20 responsibility for any claims that may arise between Buyer and Seller
following the Closing of this transaction.
21
22 See Asset Purchase Agreement, Section XV(E).
23 23. Additionally, as Marshall acknowledges in writing, it was Marshall, himself, who was
24 performing due diligence on Santillo as a buyer. Marshall unambiguously informed Jeanie O’Reilly
25 Northcutt and Santillo that his broker dealer (IFG) needed a lot more background of Santillo and his reps
26 and their business plan before the broker dealer would approve the deal and that the deal was dead until
27 his broker dealer gave the “all clear signal.” Marshall further declared his “BD (broker dealer) has to
28 complete background checks on everyone involved and approve them as well as a formal biz plan from
-8-
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 Perry.” The decision as to Santillo as the buyer was made by Marshall and MWMG, following their own
2 due diligence and assistance from their broker dealer IFG, not FP Transitions. At all times the duty to
3 investigate remained with Marshall and IFG. IFG assumed the duty investigate, vet and perform due
4 diligence in the underlying transaction by becoming actively involved in the approval of the terms and
5 structure of the deal. According to representations by Marshall, IFG’s approval of the terms and structure
6 of the deal was required. Marshall stated that he would not consummate the transaction if IFG did not
7 find the purchaser suitable, if the investments were not kept on IFG’s platform, or if those Investment
8 Adviser Representatives were not added to IFG’s platform. Without IFG’s blessing or approval of this
9 deal, Marshall would not have gone through with the transaction.
10 24. Although FP Transitions was under no obligation to perform due diligence, FP
11 Transitions was unaware at the time of anything that made Santillo an unsuitable buyer or of any of the
12 schemes Santillo pleaded guilty to several years later.
13 25. Following the sale of MWMG, the misconduct of IFG’s own agents, the Investment
14 Adviser Representative and Registered Representatives supervised by IFG on its own platform, caused
15 the alleged losses to the Assignors, not FP Transitions.
16 FIRST CAUSE OF ACTION
17 (Implied Equitable Indemnity against all Cross-Defendants)
18 26. Cross-Complainant repeats and re-alleges paragraphs 1 through 25, inclusive, of the
19 Cross-Complaint as though fully set forth.
20 27. On or about August 4, 2016, Cross-Complainant provided central online marketplace and
21 transactional services to Marshall for the sale of MWMG to Perry Santillo. Jeanie O’Reilly Northcutt
22 was the Listings Director in charge of this file at FP Transitions and worked to serve the deal as between
23 David Marshall and ROES 1 through 25, inclusive in the sale of MWMG to Santillo. IFG and Assignors,
24 were not an intended third-party beneficiary of the transaction.
25 28. At or near the time of the alleged incident, Cross-Defendants Marshall, MWMG, IFG,
26 and ROES 1 through 25, inclusive, agreed to undertake due diligence, in connection with the transaction
27 pursuant to the Due Diligence Checklist and Asset Listing Agreement given by FP Transitions, including
28 agreement that Marshall, MWMG, and ROES 1 through 25, inclusive, would perform due diligence
-9-
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 before approval of any buyer that Marshall as agent of IFG deemed suitable for the purchase MWMG
2 before closing. Cross-Defendants owed Defendant a duty of due care and diligence in the performance
3 of these services and failed to do so.
4 29. Cross-Defendants Marshall, MWMG and IFG, and ROES 1 through 25, inclusive, agreed
5 to indemnify FP Transitions.
6 30. Cross-Complainant is informed, believes, and thereon alleges that Cross-Defendants
7 Marshall, MWMG, and ROES 1 through 25, inclusive, failed to perform their duties under the Asset
8 Listing Agreement and other documentation provided by FP Transitions in researching and investigating
9 any purchaser of MWMG before the close of the transaction.
10 31. Defendant is informed and believes and thereon alleges that thereafter IFG was negligent
11 and/or careless in and about the matters alleged in the Complaint, including, but not limited to, IFG’s
12 own failure to properly supervise, control, vet, or monitor its own agents, Investment Advisory
13 Representatives and Registered Representatives following the closing of the subject sale of by Marshall
14 of Marshall Wealth Management Group to Perry Santillo. Defendant is informed and believes and
15 thereon alleges that IFG undertook a duty to investigate for itself and its own benefit because itwas
16 taking two or more new advisors onto its platform.
17 32. Specifically, Cross-Complainant is informed, believes, and thereon alleges that Cross-
18 Defendants IFG, Marshall and MWMG breached their duty to both Assignors and FP Transitions by
19 failing to perform due diligence and investigation relating to the sale of MWMG to Santillo.
20 33. Cross-Complainant is informed, believes, and thereon alleges that at or near the time of
21 the alleged Marshall-to-Santillo transaction closed, Cross-Defendants Marshall, IFG and MWMG and
22 ROES 1 through 25, inclusive, may have erroneously represented that Marshall and IFG had conducted
23 due diligence, found Santillo and his colleagues as suitable buyers of MWMG’s assets, suitable
24 Investment Adviser Representatives and registered representatives of IFG, and approved the sale of
25 MWMG’s assets to Santillo.
26 34. Cross-Complainant is informed, believes, and thereon alleges that due to Cross-
27 Defendants Marshall, IFG and MWMG, and ROES 1 through 25, inclusive conduct, error and/or
28 omission, subsequent to the closing of the transaction between Marshall and Santillo, Assignors began
- 10 -
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 investing with Santillo and his colleagues, who were admitted to IFG’s platform as Investment Advisory
2 Representatives and Registered Representatives upon no recommendation from FP Transition. These
3 agents of IFG later convinced Assignors to transfer their existing investments into entities and investment
4 vehicles that Santillo and his colleagues controlled.
5 35. IFG was the registered investment advisor and broker dealer and as such it had the duty
6 to supervise its investment adviser representatives and registered representatives. Cross-Complainant is
7 informed, believes, and thereon alleges that IFG’s ADV Part 3 specifically tells the account holders that
8 the investment adviser representatives and registered representatives can only sell products approved by
9 IFG. IFG is directly and vicariously liable for the acts of its own agent advisors and in failing to properly
10 supervise them.
11 36. Cross-Complainant is informed, believes, and thereon alleges that it is in no way
12 responsible for the damages alleged in Plaintiffs’ Second Amended Complaint. However, if Cross-
13 Complainant is found responsible under the law for any of the allegations in this action, Cross-
14 Complainant is informed, believes, and thereon alleges that the conduct, in whole or in part, of Cross-
15 Defendants, and each of them, caused or contributed to the occurrences of the acts and/or omissions
16 alleged in Plaintiff’s Second Amended Complaint.
17 37. As a result of the initiation of the above-captioned proceeding and the Complaint against
18 FP Transitions filed within it, FP Transitions has been required to defend against the Assignor Plaintiffs’
19 and Cross-Defendant’s claims and has incurred and will continue to incur expenses for investigation,
20 legal costs, and legal fees, the full amount of which has not yet been ascertained.
21 38. By reason of the foregoing allegations, if Assignors recover judgment against Cross-
22 Complainant, Cross-Complainant is entitled to a judgment, over and against the Cross-Defendants, and
23 each of them for their percentage of Assignors’ judgment against Cross-Complainant, incurred by reason
24 of negligence of the Cross-Defendants, and each of them, in addition to reasonable attorneys’ fees
25 according to proof at trial.
26 SECOND CAUSE OF ACTION
27 (Negligent Misrepresentation against all Cross-Defendants)
28 39. Cross-Complainant repeats and re-alleges and reincorporates by reference paragraphs 1
- 11 -
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 through 38, of this complaint as though fully set forth herein.
2 40. Marshall and IFG represented to FP Transitions that Marshall and IFG had conducted due
3 diligence, found Santillo and his colleagues as suitable buyers of MWMG’s assets, suitable Investment
4 Adviser Representatives and registered representatives of IFG, and approved the sale of MWMG’s assets
5 to Santillo. Marshall had told FP Transitions that he and IFG, his broker dealer, would not consummate
6 the deal until they had completed due diligence on Santillo, his businesses and colleagues. Marshall and
7 IFG spent multiple weeks in late July and early August allegedly performing this due diligence. Again,
8 on August 4, 2016, Marshall emailed Ms. O’Reilly Northcutt with his and IFG’s approval of the sale.
9 Specifically, Marshall wrote, “See below both IFG's approval and my comments to Perry. I am with
10 Dave Fischer at the IFG national conf as I type, and can get further approval, but I think the comments
11 below ‘But overall if you want it to work we will get it thru I'm sure’, I think that pretty well says it.”
12 41. Marshall and IFG’s representations that Marshall and IFG had conducted due diligence,
13 found Santillo and his colleagues as suitable buyers of MWMG and suitable to be representatives of IFG,
14 and approved the sale of MWMG to Santillo were not true.
15 42. Marshall and IFG had no reasonable grounds for believing the representation was true
16 when Marshall and IFG made it.
17 43. Marshall and IFG intended that FP Transitions rely on this representation that Marshall
18 and IFG had conducted due diligence, found Santillo and his colleagues as suitable buyers of MWMG
19 and suitable to be representatives of IFG, and approved the sale of MWMG to Santillo. FP Transitions
20 had informed Marshall and thereby IFG, that Marshall and IFG were required to conduct due diligence
21 on any potential buyer before FP Transitions would move any potential transaction forward.
22 44. FP Transitions reasonably relied on Marshall and IFG’s representation that Marshall and
23 IFG had conducted due diligence, found Santillo and his colleagues as suitable buyers of MWMG and
24 suitable to be representatives of IFG, and approved the sale of MWMG to Santillo.
25 45. FP Transitions’ reliance on Marshall and IFG’s representation was a substantial factor in
26 causing FP Transitions’ harm in that FP Transitions would not have served the deal any further.
27 46. As a direct and proximate result of Cross-Defendants’ misrepresentations, FP Transitions
28 has sustained damages in an amount according to proof, within the jurisdictional limits of this Court.
- 12 -
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 THIRD CAUSE OF ACTION
2 (For Damages — Third Party Tort Of Another against all Cross-Defendants)
3 47. FP Transitions realleges and reincorporates by reference paragraphs 1 through 46, of this
4 complaint as though fully set forth herein.
5 48. Cross-Complainant is informed, believes, and thereon alleges that the alleged losses of
6 the account holders stems from IFG’s failure to meet its statutory duties under the Securities Act of 1933
7 and Investment Company Act of 1940 to supervise its investment advisor representatives and registered
8 representatives.
9 49. Based on the conduct, misrepresentations and wrongdoing of Cross-Defendants IFG and
10 its registered representative Marshall and MWMG, the sale of MWMG to Santillo was consummated,
11 and FP Transitions have been required to bring this claim against Cross-Defendants IFG, Marshall and
12 MWMG, incurring attorney’s fees in connection therewith.
13 50. The tortious conduct of Cross-Defendants IFG, Marshall and MWMG has forced FP
14 Transitions to incur the expense of pursuing this action against IFG.
15 51. Cross-Defendants IFG, Marshall and MWMG is liable to FP Transitions for the damages
16 alleged in this Cross-Complaint under the third party tort of another theory, as discussed and set forth in
17 Prentice v. North American Title Guarantee (1963) 59 Ca1.2d 618: “A person who through the tort of
18 another has been required to act in protection of its interest by bringing or defending an action against a
19 third party is entitled to recover compensation for the reasonable necessary loss of time, attorney’s fees,
20 and other expenditures thereby suffered or incurred.”
21 52. As a direct, proximate, and foreseeable result of the tortious conduct as alleged, FP
22 Transitions has been damaged in that FP Transitions has suffered and incurred loss of time, attorney’s
23 fees, and other expenditures in defending itself in this action and other actions, bringing this cross-
24 complaint, and have further been damaged as set forth in this Cross-Complaint.
25 FOURTH CAUSE OF ACTION
26 (Declaratory Relief against all Cross-Defendants)
27 53. Cross-Complainant repeats and re-alleges paragraphs 1 through 52, inclusive, of the
28 Cross-Complaint as though fully set forth herein.
- 13 -
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 54. A dispute has arisen, and an actual controversy now exists between Cross-Complainant
2 and Cross-Defendants, and each of them, concerning their respective rights and duties, in that Cross-
3 Complainant contends that itis entitled to indemnity from Cross-Defendants by virtue of theory of
4 implied equitable indemnity and/or express indemnity.
5 55. A declaration of rights is necessary and appropriate at this time in order that Cross-
6 Complainant may ascertain its rights and duties because no adequate remedy, other than a prayed for,
7 exists by which the rights of the parties may be determined.
8 FIFTH CAUSE OF ACTION
9 (Contribution against all Cross-Defendants)
10 56. Cross-Complainant repeats and re-alleges paragraphs 1 through 55, inclusive, of the
11 Cross-Complaint as though fully set forth.
12 57. By reason of the foregoing allegations, Cross-Complainant will be damaged to the extent
13 that it must pay any sum, or any sum in excess of its proportionate amount of liability, if any, assessed
14 by the trier of fact.
15 58. Accordingly, if Cross-Complainant is held liable for any part of the claims asserted
16 against it,Cross-Complainant is entitled to equitable contribution by Cross-Defendants, and each of
17 them, proportioned to each Cross-Defendant’s share of liability, so that Cross-Complainant may avoid
18 payment of any sum to Plaintiffs, or any other party, or any sum in excess of Cross-Complainant’s
19 proportionate share of liability, if any, in this action.
20 PRAYER
21 Wherefore, Cross Complainant prays for judgment against Cross Defendants, and each of them,
22 as follows:
23 A. For damages according to proof;
24 B. For consequential and incidental damages;
25 C. For pre-judgment interest as permitted by law;
26 D. For declaratory relief, as requested above;
27 D. For costs of suit, including reasonable attorney’s fees; and
28 E. For indemnity and contribution for all damages, losses, costs, sustained by this action;
- 14 -
DEFENDANT FP TRANSITIONS CROSS-COMPLAINT
1 E. For such other and further relief as this Court may deem just and proper.
2
3 DATED: April 28, 2022
Preview
1 Bryan L. Saalfeld - 243331 BSaalfeld@mpbf.com 2 Thomas F. Mazzucco - 306681 TFMazzucco@mpbf.com 3 MURPHY, PEARSON, BRADLEY & FEENEY 580 California Street, Suite 1100 4 San Francisco, CA 94104-1001 Telephone: (415) 788-1900 5 Facsimile: (415) 393-8087 6 Attorneys for Defendant FP TRANSITIONS, LLC 7 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 COUNTY OF MONTEREY 10 11 INDEPENDENT FINANCIAL GROUP, LLC, Case No.: 21CV001264 12 on its own behalf and as assignee of Adolfo Artalejo; Rod Belton and Nancy Belton; James DEFENDANT FP TRANSITIONS’ CROSS- 13 Cornelius and June Cornelius; John Favero and COMPLAINT FOR (1) IMPLIED Philayna Favero; Ray Moncada and Vinnie EQUITABLE INDEMNITY; (2) 14 Moncada; Sheryl Peck; Juanita Stoddard; Ron NEGLIGENT MISREPRESENTATION; (3) Taylor and Hazel Taylor; Jane Beery; Joy TORT OF ANOTHER; (4) 15 Chandler; John Day; Sim Granoff and Virginia DECLARATORY RELIEF; AND (5) Lott; Gretchen Jackson; William Miller and CONTRIBUTION 16 Sharon Miller; Darryl Prudden; Carolyn Rice; John Romero and Sandy Romero; Bennie Hill 17 and Lynda Hill; Ellen Koskinen; George Lynch Action Filed: April 15, 2021 and Helen Lynch; Mathew Panziera and Jamie Trial Date: None Set 18 Panziera; and Tom Sgheiza and Mary Sgheiza,, 19 Plaintiff, 20 v. 21 FP TRANSITIONS, LLC and DOES 1-50, INCLUSIVE, 22 Defendants. 23 24 25 26 27 28 -1- DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 FP TRANSITIONS, LLC, 2 Cross-Complainant, 3 v. 4 INDEPENDENT FINANCIAL GROUP, LLC, 5 David Marshall, Marshall Wealth Management Group and ROES 1-25, INCLUSIVE, 6 Cross- Defendants. 7 8 9 Defendant and Cross-Complainant FP TRANSITIONS. LLC (hereinafter “Cross-Complainant” 10 or “FP Transitions”) alleges as follows: 11 INCORPORATION BY REFERENCE 12 1. On April 16, 2021, Plaintiff INDEPENDENT FINANCIAL GROUP, LLC (“IFG”) on 13 Its Own Behalf and as Assignee of Assignors1 filed a Complaint in this court and this matter: Independent 14 Financial Group, LLC, on Its Own Behalf and as Assignee of Adolfo Ar, et al. vs. FP Transitions, LLC, 15 Case No. 21CV001264. On April 26, 2021, Plaintiff filed its First Amended Complaint. FP Transitions 16 demurred to the First Amended Complaint to which the court sustained the demurrer as to the negligent 17 misrepresentation cause of action. Plaintiff filed its Second Amended Complaint on November 18, 2021. 18 FP Transitions again demurred as to the negligent misrepresentation cause of action. The Court sustained 19 that demurrer without leave to amend. The allegations of the Second Amended Complaint are expressly 20 denied by this Cross-Complainant. The Second Amended Complaint is hereby incorporated into this 21 Cross-Complaint by reference, solely for the purpose of showing the nature of the claims made therein 22 and to identify the parties. 23 THE PARTIES 24 2. Defendant and Cross-Complainant FP Transitions, LLC is a corporation existing under 25 1 26 Assignors to IFG collectively are Adolfo Artalejo, Rod and Nancy Belton, James and June Cornelius, John and Philayna Favero, Ray and Vinnie Moncada, Sheryl Peck, Juanita Stoddard, Ron and Hazel Taylor, Jane 27 Beery, Joy Chandler, John Day, Sim Granoff and Virginia Lott, Gretchen Jackson, William and Sharon Miller, Darryl Prudden, Carolyn Rice, John and Sandy Romero, Bennie Hill and Lynda Hill, Ellen Koskinen, 28 George Lynch and Helen Lynch, Matthew Panziera and Jamie Panziera, and Tom Sgheiza and Mary Sgheiza . -2- DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 the laws of the State of Oregon and is a named defendant in this action. Founded in 1998 in Lake Oswego, 2 Oregon, FP Transition, LLC works directly with financial advisers, broker-dealers, custodians and 3 insurance providers to develop and implement business transition systems and procedures. As part of 4 these services, FP Transitions provides a central online marketplace for clients to engage and locate 5 potential buyers. In doing so, FP Transitions is not a broker itself, and expressly informs its clients to 6 consult their attorney and CPA for additional information and due diligence regarding any sale or 7 purchase of financial advisory businesses. 8 3. Cross-Complainant is informed, believes, and thereon alleges that Plaintiff and Cross- 9 Defendant Independent Financial Group, LLC (“IFG”) is a business entity existing under the laws of the 10 State of California. Cross-Complainant is informed and believes, IFG is both a Registered Investment 11 Adviser registered with the United States Securities and Exchange Commission as well as a 12 FINRA/SIPC member broker-dealer firm headquartered in San Diego, California. IFG currently has over 13 600 advisors throughout the United States. 14 4. Cross-Complainant is informed, believes, and thereon alleges that Cross-Defendant 15 David T. Marshall (“Marshall”), CRD No. 2843252, was both a Registered Representative of IFG as 16 well as an Investment Advisor Representative of IFG. As a Registered Representative and Investment 17 Advisor Representative of IFG, Marshall was responsible for the accounts of the Assignors prior to the 18 sale his financial services business, Marshall Wealth Management Group (“MWMG”) to Perry Santillo. 19 5. Cross-Complainant is informed, believes, and thereon alleges that Cross-Defendant 20 Marshall Wealth Management Group (“MWMG”) is presently inactive, however, at all relevant times 21 was a limited liability corporation existing under the laws of the State of California, with its principal 22 place of business located in Monterey, California. MWMG, during its operation, was authorized to 23 conduct business in the State of California. 24 6. Cross-Complainant is informed, believes, and thereon alleges that Assignors Adolfo 25 Artalejo, Rod and Nancy Belton, James and June Cornelius, John and Philayna Favero, Ray and Vinnie 26 Moncada, Sheryl Peck, Juanita Stoddard, Ron and Hazel Taylor, Jane Beery, Joy Chandler, John Day, 27 Sim Granoff and Virginia Lott, Gretchen Jackson, William and Sharon Miller, Darryl Prudden, Carolyn 28 Rice, John and Sandy Romero, Bennie Hill and Lynda Hill, Ellen Koskinen, George Lynch and Helen -3- DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 Lynch, Matthew Panziera and Jamie Panziera, and Tom Sgheiza and Mary Sgheiza (collectively 2 “Assignors”) all brought claims against IFG. 3 7. Subsequent to the transaction, Cross-Complainant became informed, believes, and 4 thereon alleges that Perry Santillo (“Santillo”) owned or controlled various entities including: First 5 Nationale Solution, LLC; United RL Capital; Percipience Global Corporation; and Middlebury 6 Development. These entities sold notes to investors as part of a Ponzi scheme that fraudulently netted 7 over $115 million nationwide. Santillo has pled guilty to felony charges and admitted to defrauding 8 investors around the country. Santillo has been sentenced to 210 months in federal prison. 9 8. The true names and capacities of Cross-Defendants, ROES 1 through 25, inclusive, are 10 unknown to Cross-Complainant, who therefore sues them by such fictitious names. Cross-Complainant 11 will seek leave of Court to amend this Cross-Complaint to insert the true names and capacities of the 12 fictitiously named Cross-Defendants when their names have been ascertained. Cross-Complainant is 13 informed, believes, and thereon alleges that each Cross-Defendant designated as “ROE” is legally 14 responsible in some manner for the acts, occurrences, damages and liabilities alleged in this Cross- 15 Complaint, and actively and proximately caused and contributed to the various injuries and damages 16 referred in this Cross-Complaint. 17 9. Cross-Complainant is informed, believes, and thereon alleges that at all times mentioned 18 in this Cross-Complaint, each Cross-Defendant was the agent, partner, employee, joint venture, and/or 19 subcontractor of each of the remaining Cross-Defendants, and were at all times mentioned, acting within 20 the course and scope of said agency and employment. Cross-Complainant further alleges that ROES 1 21 through 25, inclusive, are an at all times mentioned, were either individuals, sole proprietorships, 22 partnerships, registered professionals, corporations, or other legal entities which were licensed to do and 23 were doing business in the County of Los Angles, State of California. 24 GENERAL ALLEGATIONS 25 10. On March 23, 2015, Cross-Defendant Marshall, an agent of Plaintiff and Cross- 26 Defendant IFG first signed a Listing Engagement Agreement with Defendant and Cross-Complainant 27 FP Transitions LLC to use FP Transitions’ marketplace to sell his MWMG business. Marshall signed a 28 second Listing Engagement Agreement with Defendant and Cross-Complainant FP Transitions LLC to -4- DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 use FP Transitions’ marketplace on February 24, 2016. In signing this Listing Engagement Agreement, 2 David Marshall declared that he agreed to all terms and conditions of the agreement. Relevant terms of 3 the Listing Engagement Agreement agreed to by Marshall are: 4 (1) FP Transitions will act at all times in the capacity of “serving the deal.” We do not act as an advocate for either side. FP Transitions is 5 compensated for providing a central marketplace, under the terms set forth below… 6 (10) You understand and agree that we do not provide tax or legal 7 advice. We recommend that you have all documents and information carefully reviewed by your own professional counsel. 8 (11) Any controversy or claim arising out of or relating to this 9 agreement, or the breach thereof, shall be settled and resolved by binding arbitration before one arbitrator in Portland, Oregon, 10 conducted under the commercial rules and procedures of the American Arbitration Association in accordance with the Federal 11 Arbitration Act, 9 US Code Sections 1-16. The substantive law of Oregon will determine the interpretation of this agreement. Each 12 party shall be responsible for its own attorney fees. Costs and arbitration fees shall be paid by the losing party... 13 (13) Limitations of Liability. Any liability of FP Transitions arising 14 out of any services provided hereunder shall not exceed the total of (A) the listing fee for one year and (B) the fees paid by you under this 15 agreement. In no event shall FP Transitions be liable for any incidental, punitive or consequential damages, including without 16 limitation, loss of revenue. 17 11. As part of every transaction and listing engagement, sellers are provided with a Due 18 Diligence Checklist. Marshall, as the seller of Marshall Wealth Management Group, Inc., was provided 19 with an FP Transitions Due Diligence Checklist to inform him of recommended due diligence steps and 20 procedures he should take. At the very beginning of the Due Diligence Checklist, FP Transitions states: 21 NOTE: Both buyer and seller should perform due diligence on the other party. This checklist is not a complete list, but is intended to 22 cover some of the more common steps other buyers and sellers have taken. Every transaction is unique and the due diligence process must 23 be adapted to the situation by the buyer and seller. Please consult your attorney and CPA for additional information and due diligence steps. 24 12. Also included in the four-page Due Diligence Checklist is a section titled “LICENSING 25 / REGULATORY INFORMATION.” This section provides bullet pointed recommendations to the 26 seller and buyer of performing their due diligence on the other party of the transaction. The bullet pointed 27 material states in whole: 28 -5- DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 Obtain a copy of the current Form U-4 for seller (and buyer) and all employees, 2 Form ADV if applicable, along with proof of filing. Confirm filing status and any 3 disciplinary history using FINRA’s on-line verification process. 4 Review copies of all seller’s (and buyer’s) securities and business licenses and 5 permits. 6 Determine the date of the peer review, or last regulatory audit conducted by state, 7 federal or self-regulatory agencies, and review deficiency letters and any related 8 correspondence. Request information pertaining to resolving any deficiencies. 9 Review any correspondence from customers or suppliers relating to complaints or 10 disputes about seller’s (and buyer’s) practices. 11 Obtain copies of each report or other document filed with governmental agencies 12 that have regulatory power over seller (and buyer). 13 Obtain a description of all litigation, administrative proceedings, governmental 14 investigations, or inquiries, pending or threatened against, or involving seller (and 15 buyer) or any subsidiary. 16 If the other party has a regulatory, legal, compliance, or other issue, then you must 17 investigate such matter(s) and determine ifit is prudent to proceed. This is each 18 party’s responsibility. 19 As evidenced in the LICENSING / REGULATORY INFORMATION of the Due Diligence 20 Checklist provided to Marshall, it was his duty, and as agent of IFG, to conduct due diligence on any 21 potential purchasers, including Perry Santillo, Jr. and to thoroughly investigate all buyer’s securities and 22 business licenses and permits, filing status and any disciplinary history using FINRA’s on-line 23 verification process, and any other regulatory, legal, compliance, or other issues the buyer may have. 24 13. On April 4, 2016, Jeanie O’Reilly Northcutt of FP Transitions provided Marshall with 25 the names of four potential buyers of MWMG to review. Four days later, Marshall responded to Ms. 26 O’Reilly Northcutt, writing that he liked three of the four potential buyers, including Santillo. Ms. 27 O’Reilly Northcutt promptly provided Marshall with the phone numbers of the three potential buyers 28 liked and reviewed by Marshall and wrote that she had told each of the three that David Marshall would -6- DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 be calling them. 2 14. On April 13, 2016, Marshall and Santillo signed a Non-Binding Term Sheet for Purchase 3 of Assets. 4 15. On July 7, 2016, after over 15 months of listing MWMG in FP Transitions marketplace, 5 and after over three months of discussions and negotiations with Santillo, Marshall entered into a contract 6 to sell MWMG, and signed the Listing Asset Purchase Agreement for the sale of MWMG to Santillo for 7 the purchase price of $675,000.00. 8 16. On July 15, 2016, eight days after Marshall signed the Listing Asset Purchase Agreement, 9 Marshall emailed Ms. O’Reilly Northcutt informing her that his “BD” (broker dealer) needed “a lot more 10 background of Perry and his reps and their Bix (sic) Plan before” the broker dealer would approve the 11 deal. Marshall informed Ms. O’Reilly Northcutt that he thought Santillo had worked everything out with 12 his broker dealer, but the broker dealer had not even started. Marshall stated that the deal was “dead 13 until my BD gives the all clear signal.” Ms. O’Reilly Northcutt responded to Marshall writing, “We 14 can close this at your pace. […] Let me know if you have any questions or concerns and if you need me 15 to do anything.” On July 17, 2016, Marshall replied to Ms. O’Reilly Northcutt writing in part that his 16 “BD (sic) has to complete background checks on everyone involved and approve them as well as a formal 17 biz (sic) plan from Perry.” 18 17. On July 18, 2016, Marshall emailed Ms. O’Reilly Northcutt of FP Transitions, “Thanks 19 for the VM. We’ll get it together. Perry, my IFG, and myself are working on some things.” 20 18. On August 4, 2016, Marshall emailed Ms. O’Reilly Northcutt with his and IFG’s approval 21 of the sale. Specifically, Marshall wrote, “See below both IFG's approval and my comments to Perry. I 22 am with Dave Fischer at the IFG national conf as I type, and can get further approval, but I think the 23 comments below ‘But overall if you want it to work we will get it thru I'm sure’, I think that pretty well 24 says it.” 25 19. This August 4, 2016, email also contained forwarded correspondence between Marshall 26 and Santillo, and Marshall and IFG Managing Director David Fischer. Marshall’s email forwarded 27 Fischer writing, “I’m comfortable with the Reps and the initial business plan. Obviously we will have to 28 look at the ultimate deal terms to approve of the deal. But overall if you want it to work we will get it -7- DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 thru I'm sure.” 2 20. On or about August 10, 2016, escrow closed on the sale of MWMG from David Marshall 3 to Perry Santillo, after over three weeks of Marshall and IFG vetting and performing background checks 4 on Santillo and his business associates. 5 21. Cross-Complainant is informed, believes, and thereon alleges that IFG is the registered 6 investment adviser and broker-dealer. Investment advice is given by the registered investment adviser’s 7 investment adviser representatives (“IAR”) and registered representatives (“RR”) – i.e. Marshall and 8 whomever of Santillo’s associates IFG decided to allow onto its platform. MWMG provided facilities 9 and services to Marshall in his capacity as an investment adviser representative and registered 10 representative of IFG. The structure of the Sale Agreement was that Marshall personally, as a 11 credentialed advisor, assigned his professional goodwill, an intangible asset, to MWMG, which MWMG 12 then sold to Santillo. Notwithstanding, the duty of an advisor to a client remains with the investment 13 adviser representative and registered representative and his or her registered investment adviser and 14 broker-dealer. 15 22. Per the terms of the listing agreement between only FP Transitions and Marshall, the role 16 of FP Transitions expressly excluded the vetting of potential buyers. The ultimate decision and due 17 diligence in finding a bona fide buyer remained at all times with Marshall and MWMG, not FP 18 TRANSITIONS. Section XV(E) of the Asset Purchase Agreement states in relevant part: 19 Buyer and Seller acknowledge by signing below that FP Transitions does not conduct due diligence on the Seller’s practice and takes no 20 responsibility for any claims that may arise between Buyer and Seller following the Closing of this transaction. 21 22 See Asset Purchase Agreement, Section XV(E). 23 23. Additionally, as Marshall acknowledges in writing, it was Marshall, himself, who was 24 performing due diligence on Santillo as a buyer. Marshall unambiguously informed Jeanie O’Reilly 25 Northcutt and Santillo that his broker dealer (IFG) needed a lot more background of Santillo and his reps 26 and their business plan before the broker dealer would approve the deal and that the deal was dead until 27 his broker dealer gave the “all clear signal.” Marshall further declared his “BD (broker dealer) has to 28 complete background checks on everyone involved and approve them as well as a formal biz plan from -8- DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 Perry.” The decision as to Santillo as the buyer was made by Marshall and MWMG, following their own 2 due diligence and assistance from their broker dealer IFG, not FP Transitions. At all times the duty to 3 investigate remained with Marshall and IFG. IFG assumed the duty investigate, vet and perform due 4 diligence in the underlying transaction by becoming actively involved in the approval of the terms and 5 structure of the deal. According to representations by Marshall, IFG’s approval of the terms and structure 6 of the deal was required. Marshall stated that he would not consummate the transaction if IFG did not 7 find the purchaser suitable, if the investments were not kept on IFG’s platform, or if those Investment 8 Adviser Representatives were not added to IFG’s platform. Without IFG’s blessing or approval of this 9 deal, Marshall would not have gone through with the transaction. 10 24. Although FP Transitions was under no obligation to perform due diligence, FP 11 Transitions was unaware at the time of anything that made Santillo an unsuitable buyer or of any of the 12 schemes Santillo pleaded guilty to several years later. 13 25. Following the sale of MWMG, the misconduct of IFG’s own agents, the Investment 14 Adviser Representative and Registered Representatives supervised by IFG on its own platform, caused 15 the alleged losses to the Assignors, not FP Transitions. 16 FIRST CAUSE OF ACTION 17 (Implied Equitable Indemnity against all Cross-Defendants) 18 26. Cross-Complainant repeats and re-alleges paragraphs 1 through 25, inclusive, of the 19 Cross-Complaint as though fully set forth. 20 27. On or about August 4, 2016, Cross-Complainant provided central online marketplace and 21 transactional services to Marshall for the sale of MWMG to Perry Santillo. Jeanie O’Reilly Northcutt 22 was the Listings Director in charge of this file at FP Transitions and worked to serve the deal as between 23 David Marshall and ROES 1 through 25, inclusive in the sale of MWMG to Santillo. IFG and Assignors, 24 were not an intended third-party beneficiary of the transaction. 25 28. At or near the time of the alleged incident, Cross-Defendants Marshall, MWMG, IFG, 26 and ROES 1 through 25, inclusive, agreed to undertake due diligence, in connection with the transaction 27 pursuant to the Due Diligence Checklist and Asset Listing Agreement given by FP Transitions, including 28 agreement that Marshall, MWMG, and ROES 1 through 25, inclusive, would perform due diligence -9- DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 before approval of any buyer that Marshall as agent of IFG deemed suitable for the purchase MWMG 2 before closing. Cross-Defendants owed Defendant a duty of due care and diligence in the performance 3 of these services and failed to do so. 4 29. Cross-Defendants Marshall, MWMG and IFG, and ROES 1 through 25, inclusive, agreed 5 to indemnify FP Transitions. 6 30. Cross-Complainant is informed, believes, and thereon alleges that Cross-Defendants 7 Marshall, MWMG, and ROES 1 through 25, inclusive, failed to perform their duties under the Asset 8 Listing Agreement and other documentation provided by FP Transitions in researching and investigating 9 any purchaser of MWMG before the close of the transaction. 10 31. Defendant is informed and believes and thereon alleges that thereafter IFG was negligent 11 and/or careless in and about the matters alleged in the Complaint, including, but not limited to, IFG’s 12 own failure to properly supervise, control, vet, or monitor its own agents, Investment Advisory 13 Representatives and Registered Representatives following the closing of the subject sale of by Marshall 14 of Marshall Wealth Management Group to Perry Santillo. Defendant is informed and believes and 15 thereon alleges that IFG undertook a duty to investigate for itself and its own benefit because itwas 16 taking two or more new advisors onto its platform. 17 32. Specifically, Cross-Complainant is informed, believes, and thereon alleges that Cross- 18 Defendants IFG, Marshall and MWMG breached their duty to both Assignors and FP Transitions by 19 failing to perform due diligence and investigation relating to the sale of MWMG to Santillo. 20 33. Cross-Complainant is informed, believes, and thereon alleges that at or near the time of 21 the alleged Marshall-to-Santillo transaction closed, Cross-Defendants Marshall, IFG and MWMG and 22 ROES 1 through 25, inclusive, may have erroneously represented that Marshall and IFG had conducted 23 due diligence, found Santillo and his colleagues as suitable buyers of MWMG’s assets, suitable 24 Investment Adviser Representatives and registered representatives of IFG, and approved the sale of 25 MWMG’s assets to Santillo. 26 34. Cross-Complainant is informed, believes, and thereon alleges that due to Cross- 27 Defendants Marshall, IFG and MWMG, and ROES 1 through 25, inclusive conduct, error and/or 28 omission, subsequent to the closing of the transaction between Marshall and Santillo, Assignors began - 10 - DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 investing with Santillo and his colleagues, who were admitted to IFG’s platform as Investment Advisory 2 Representatives and Registered Representatives upon no recommendation from FP Transition. These 3 agents of IFG later convinced Assignors to transfer their existing investments into entities and investment 4 vehicles that Santillo and his colleagues controlled. 5 35. IFG was the registered investment advisor and broker dealer and as such it had the duty 6 to supervise its investment adviser representatives and registered representatives. Cross-Complainant is 7 informed, believes, and thereon alleges that IFG’s ADV Part 3 specifically tells the account holders that 8 the investment adviser representatives and registered representatives can only sell products approved by 9 IFG. IFG is directly and vicariously liable for the acts of its own agent advisors and in failing to properly 10 supervise them. 11 36. Cross-Complainant is informed, believes, and thereon alleges that it is in no way 12 responsible for the damages alleged in Plaintiffs’ Second Amended Complaint. However, if Cross- 13 Complainant is found responsible under the law for any of the allegations in this action, Cross- 14 Complainant is informed, believes, and thereon alleges that the conduct, in whole or in part, of Cross- 15 Defendants, and each of them, caused or contributed to the occurrences of the acts and/or omissions 16 alleged in Plaintiff’s Second Amended Complaint. 17 37. As a result of the initiation of the above-captioned proceeding and the Complaint against 18 FP Transitions filed within it, FP Transitions has been required to defend against the Assignor Plaintiffs’ 19 and Cross-Defendant’s claims and has incurred and will continue to incur expenses for investigation, 20 legal costs, and legal fees, the full amount of which has not yet been ascertained. 21 38. By reason of the foregoing allegations, if Assignors recover judgment against Cross- 22 Complainant, Cross-Complainant is entitled to a judgment, over and against the Cross-Defendants, and 23 each of them for their percentage of Assignors’ judgment against Cross-Complainant, incurred by reason 24 of negligence of the Cross-Defendants, and each of them, in addition to reasonable attorneys’ fees 25 according to proof at trial. 26 SECOND CAUSE OF ACTION 27 (Negligent Misrepresentation against all Cross-Defendants) 28 39. Cross-Complainant repeats and re-alleges and reincorporates by reference paragraphs 1 - 11 - DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 through 38, of this complaint as though fully set forth herein. 2 40. Marshall and IFG represented to FP Transitions that Marshall and IFG had conducted due 3 diligence, found Santillo and his colleagues as suitable buyers of MWMG’s assets, suitable Investment 4 Adviser Representatives and registered representatives of IFG, and approved the sale of MWMG’s assets 5 to Santillo. Marshall had told FP Transitions that he and IFG, his broker dealer, would not consummate 6 the deal until they had completed due diligence on Santillo, his businesses and colleagues. Marshall and 7 IFG spent multiple weeks in late July and early August allegedly performing this due diligence. Again, 8 on August 4, 2016, Marshall emailed Ms. O’Reilly Northcutt with his and IFG’s approval of the sale. 9 Specifically, Marshall wrote, “See below both IFG's approval and my comments to Perry. I am with 10 Dave Fischer at the IFG national conf as I type, and can get further approval, but I think the comments 11 below ‘But overall if you want it to work we will get it thru I'm sure’, I think that pretty well says it.” 12 41. Marshall and IFG’s representations that Marshall and IFG had conducted due diligence, 13 found Santillo and his colleagues as suitable buyers of MWMG and suitable to be representatives of IFG, 14 and approved the sale of MWMG to Santillo were not true. 15 42. Marshall and IFG had no reasonable grounds for believing the representation was true 16 when Marshall and IFG made it. 17 43. Marshall and IFG intended that FP Transitions rely on this representation that Marshall 18 and IFG had conducted due diligence, found Santillo and his colleagues as suitable buyers of MWMG 19 and suitable to be representatives of IFG, and approved the sale of MWMG to Santillo. FP Transitions 20 had informed Marshall and thereby IFG, that Marshall and IFG were required to conduct due diligence 21 on any potential buyer before FP Transitions would move any potential transaction forward. 22 44. FP Transitions reasonably relied on Marshall and IFG’s representation that Marshall and 23 IFG had conducted due diligence, found Santillo and his colleagues as suitable buyers of MWMG and 24 suitable to be representatives of IFG, and approved the sale of MWMG to Santillo. 25 45. FP Transitions’ reliance on Marshall and IFG’s representation was a substantial factor in 26 causing FP Transitions’ harm in that FP Transitions would not have served the deal any further. 27 46. As a direct and proximate result of Cross-Defendants’ misrepresentations, FP Transitions 28 has sustained damages in an amount according to proof, within the jurisdictional limits of this Court. - 12 - DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 THIRD CAUSE OF ACTION 2 (For Damages — Third Party Tort Of Another against all Cross-Defendants) 3 47. FP Transitions realleges and reincorporates by reference paragraphs 1 through 46, of this 4 complaint as though fully set forth herein. 5 48. Cross-Complainant is informed, believes, and thereon alleges that the alleged losses of 6 the account holders stems from IFG’s failure to meet its statutory duties under the Securities Act of 1933 7 and Investment Company Act of 1940 to supervise its investment advisor representatives and registered 8 representatives. 9 49. Based on the conduct, misrepresentations and wrongdoing of Cross-Defendants IFG and 10 its registered representative Marshall and MWMG, the sale of MWMG to Santillo was consummated, 11 and FP Transitions have been required to bring this claim against Cross-Defendants IFG, Marshall and 12 MWMG, incurring attorney’s fees in connection therewith. 13 50. The tortious conduct of Cross-Defendants IFG, Marshall and MWMG has forced FP 14 Transitions to incur the expense of pursuing this action against IFG. 15 51. Cross-Defendants IFG, Marshall and MWMG is liable to FP Transitions for the damages 16 alleged in this Cross-Complaint under the third party tort of another theory, as discussed and set forth in 17 Prentice v. North American Title Guarantee (1963) 59 Ca1.2d 618: “A person who through the tort of 18 another has been required to act in protection of its interest by bringing or defending an action against a 19 third party is entitled to recover compensation for the reasonable necessary loss of time, attorney’s fees, 20 and other expenditures thereby suffered or incurred.” 21 52. As a direct, proximate, and foreseeable result of the tortious conduct as alleged, FP 22 Transitions has been damaged in that FP Transitions has suffered and incurred loss of time, attorney’s 23 fees, and other expenditures in defending itself in this action and other actions, bringing this cross- 24 complaint, and have further been damaged as set forth in this Cross-Complaint. 25 FOURTH CAUSE OF ACTION 26 (Declaratory Relief against all Cross-Defendants) 27 53. Cross-Complainant repeats and re-alleges paragraphs 1 through 52, inclusive, of the 28 Cross-Complaint as though fully set forth herein. - 13 - DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 54. A dispute has arisen, and an actual controversy now exists between Cross-Complainant 2 and Cross-Defendants, and each of them, concerning their respective rights and duties, in that Cross- 3 Complainant contends that itis entitled to indemnity from Cross-Defendants by virtue of theory of 4 implied equitable indemnity and/or express indemnity. 5 55. A declaration of rights is necessary and appropriate at this time in order that Cross- 6 Complainant may ascertain its rights and duties because no adequate remedy, other than a prayed for, 7 exists by which the rights of the parties may be determined. 8 FIFTH CAUSE OF ACTION 9 (Contribution against all Cross-Defendants) 10 56. Cross-Complainant repeats and re-alleges paragraphs 1 through 55, inclusive, of the 11 Cross-Complaint as though fully set forth. 12 57. By reason of the foregoing allegations, Cross-Complainant will be damaged to the extent 13 that it must pay any sum, or any sum in excess of its proportionate amount of liability, if any, assessed 14 by the trier of fact. 15 58. Accordingly, if Cross-Complainant is held liable for any part of the claims asserted 16 against it,Cross-Complainant is entitled to equitable contribution by Cross-Defendants, and each of 17 them, proportioned to each Cross-Defendant’s share of liability, so that Cross-Complainant may avoid 18 payment of any sum to Plaintiffs, or any other party, or any sum in excess of Cross-Complainant’s 19 proportionate share of liability, if any, in this action. 20 PRAYER 21 Wherefore, Cross Complainant prays for judgment against Cross Defendants, and each of them, 22 as follows: 23 A. For damages according to proof; 24 B. For consequential and incidental damages; 25 C. For pre-judgment interest as permitted by law; 26 D. For declaratory relief, as requested above; 27 D. For costs of suit, including reasonable attorney’s fees; and 28 E. For indemnity and contribution for all damages, losses, costs, sustained by this action; - 14 - DEFENDANT FP TRANSITIONS CROSS-COMPLAINT 1 E. For such other and further relief as this Court may deem just and proper. 2 3 DATED: April 28, 2022