Miscellaneous: GOLDEN PACIFIC BANK, N.A. VS. BILLFLOAT, INC. ET AL

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                                SUPERIOR COURT OF CALIFORNIA
COUNTY OF SAN FRANCISCO

Document Scanning Lead Sheet
Jan-11-2016 8:41 am

Case Number: CGC-16-549804

Filing Date: Jan-11-2016 8:32
Filed by: TJ MOROHOSHI

Juke Box: 001 Image: 05227036
COMPLAINT

GOLDEN PACIFIC BANK, N.A. VS. BILLYFLOAT, INC. ET AL

001005227036

Instructions:
Please place this sheet on top of the document to be scanned.- SUM-100
SUMMONS = ©2” Francisco County Superié
(CITACION JUDICIAL)
wore Pama or se cou eta cout Ocal
“BILLFLOAT, INC. RYAN GILBERT, SEAN OMALLI CLFBK ot a E OqURT Superior Cour es

inclusive

YOU'ARE BEING SUED BY PLAINTIFF:
(LO ESTA DEMANDANDO EL DEMANDANTE):
GOLDEN PACIFIC BANK, N.A.

NOTICE! You have been sued, The count may decide againet you without your being heard uniess you respon

You have 30 CALENDAR DAYS after this summons and legal papers are served on you to file a written response at this court and have a copy
served on the plaintiff, A letter or phone call will not protect you. Your writen reapanse must be in propet lege! form Ht yau want she court fo rear your
case. Thare may be a court form that you can use for your response. You can find these court forms and more information at the California Courts
Online Self-Help Center (www. courtinfo.ca.gov/selfhelp), your county law library, of the courthouse nearest you. If you cannot pay the filing fee, sek
the court clark fot foe watver form. you do not fle your response on tine, you may lose the case by default, and your wages, Money, and property

lay be taken without further waming from the

(www. courtinto.ca. , of by youl
coats on any settlement or arbitration award of 0,000 or more in e civil cave. The courts tan must be paid before the court wil dismiss the cane,
SAVISO! Lo hen demendado. ‘Sina responde dentro de 30 dias, (8 corte puede decidir en su contra sin escuchar su version. Les /a informacion a

continuacion.

Tiane 30 DIAS DE CALENDARIO despude de que le entrequen esta ciackin y papelas legsles pare presentay uns respuesta por escrito en este
corte y hacer que se entregue una copia ei demandants. Una: 0 una Hemeda ‘no fo protegen. Su respuesta por escrito tiene que estar
Gn fecmato lagal comrecto or desea que procoser su caso on ecorte Ee ne ra recat eey Soa tnd tear ara ca magnae
Puede ‘aver de if

The ame Sand adivess of he cout
(El nombre y direccién de la corte es}:
Sacramento County Superior Court ¢ G C -
720 Ninth Street :
Sacramento, CA 95814

The name, address, and telephone number of plaintiff's stomey. of plaintiff without an attomey, is:

(El nombre, la direccién y ef numero de teléfono de! abogado dei demandante, o de! demandante que no tiene abogado, es}:
Bruce A. Scheidt and Ilene Goldstein Block; Tel. No.: 916-321-4500
KRONICK, MOSKOVITZ, TIEDEMANN & GIRARD

400 Capitol Mall, 27" Floor, Sacramento, CA 95814

CATE’ OCT - 2 2015 (Secreto

(For proof of service of this summons, use Proof of Service of Summons (form POS-010).)

(Para prueba de entrega de esta citation use el formulario Proof of Service of Summons, (POS-010)).
NOTICE TO THE PERSON SERVED: You are served

1. () a8 an individual defendant.

2. (Jas the person sued under the fictitious name of (specify):

3. (lon behalf of (specify):

under: — [[] CCP 416.10 (corporation) CCP 416.60 (minor)
CCP 416.20 (defunct corporation) CCP 416.70 (conservatee)
CCP 416.40 (assaciation or partnership) CCP 416.90 (authorized person)
OD ather (specity): :

4. by personal delivery on (date):

‘Form Adopted for Mancatcry Uve SUMMONS
SUME100 [Rev. July 1, 2009),oe rN AH ® YN

N= oO

13

:

a

* -«LED/ENDORSED

OCT - 2 206

BRUCE A, miecom State Bar No. 155088 :

it

ILENE OLDSTEIN BLOCK, State Bar No. 115455
ibloci ig.com

KRONICK, ‘MOSKOVITZ, TIEDEMANN & GIRARD —
A Professional Corporation

By: J. Baker
7 DEPUTY CLERK

400 1 27™ Fi
{00 Capitol Cilliornie toot 4 San Francisco County Superior Court
Telephone: (916) 321-4500 . : JAN 11.2016

Facsimile: (916) 321-4555
“Attomeys for Plaintiff : one OF OF abe COURT
GOLD! PACIFIC BANK, NA. Deputy Clark
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SACRAMENTO

GOLDEN PACIFIC BANK, N.A.,
Plaintiff,
v.

BILLFLOAT, INC., RYAN GILBERT, SEAN
O'MALLEY, and DOES 1-50, inclusive,

COMPLAINT FOR DAMAGES AND
Defendants. INJUNCTIVE RELIEF

Plaintiff GOLDEN PACIFIC BANK, N.A. herein alleges:
, Oo
‘THE PARTIES AND VENUE

1 GOLDEN PACIFIC BANK, N.A. (hereinafter "GOLDEN PACIFIC BANK" or
"Plaintiff") is and at al} times herein mentioned was a national bank chartered and supervised by
the Office of the Comptroller of the Currency, and is qualified to do business in the State of
California, with its principal place of business in the City of Sacramento; State of California.

2. Plaintiff. is informed and believes and thereon alleges that Defendant BILLFLOAT,
INC. ("BILLFLOAT") is organized under the laws of the state of Delaware, with its principal

Midi

Mu“

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,¢ COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEF -oo Ia AH & WwW DN

place of business in the City and County of San Francisco, California. Plaintiff is informed and
believes and thereon alleges that BILLFLOAT operates under the fictitious business name "Better
Finance."

3. Plaintiff is informed and believes and thereon alleges that Defendant SEAN
O'MALLEY ("O'MALLEY") is an individual who at all times herein mentioned, was
BILLFLOAT's co-founder and President.

4, Plaintiffis informed and believes and thereon alleges that Defendant RYAN
GILBERT ("GILBERT") is an individual who at all times herein mentioned, was BILLFLOAT's
co-founder and Chief Executive Officer,

5. The names and capacity of Defendants sued herein as DOES 1 through 50,
inclusive, whether individual, corporate, associate or otherwise, unknown at this time and,
therefore, GOLDEN PACIFIC BANK sues said Defendants by fictitious names. GOLDEN
PACIFIC BANK will amend this Complaint to allege the true names and capacities of said
fictitiously named Defendants when the same has been ascertained, GOLDEN PACIFIC BANK
is informed and believes and thereon alleges that each of the fictitiously named Defendants, at all
times herein mentioned, was in some manner responsible for the debts and wrongful acts alleged
herein, ,

6. Venue is proper in the County of Sacramento, State of California, as each and
every written contract on which this action is based, as alleged herein, was entered into and was to
be performed in the County of Sacramento. . :

7 O™MALLEY and GILBERT co-founded BILLFLOAT to launch an online

consumer lending program through a software platform that it owned. However, BILLFLOAT's
online consumer lending program proved unsuccessful and it was abandoned.

8 ‘Undeterred by its initial failure, BILLFLOAT then pursued a more ambitious goal:
to be the number one online marketplace for Small Business Administration ("SBA") loans by
leveraging its software platform to provide a faster and more efficient method for businesses to

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COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEF_

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obtain SBA loans than were offered by traditional brick-and-mortar banks. However,
BILLFLOAT owned only software; it did not have the knowledge or experience required to do
SBA lending. Moreover, BILLFLOAT could not originate and fund loans itself; it required a
national bank from which to leverage its technology platform to provide fast and affordable SBA
loans to small businesses across America.

9. GOLDEN PACIFIC BANK, a traditional brick-and-mortar bank, was an
opportunistic target in O'MALLEY's and GILBERT’s goal to make BILLFLOAT into a disruptive
force in online banking. GOLDEN PACIFIC BANK is and at all times relevant was a national ”
bank chartered by the Office of the Comptroller of the Currency ("OCC"). It also had core
competencies in general banking operations and regulatory matters, and SBA lending operations,
compliance rules and regulatory matters, and enjoyed important relationships with OCC, Federal
Reserve Bank and SBA regulators.

10, GILBERT and O'MALLEY approached Golden Pacific Bank with the promise of a
business "partnership" in which BILLFLOAT would leverage its technology platform through
GOLDEN PACIFIC BANK‘s core competencies in general lending and SBA lending operations
and regulations, and using GOLDEN PACIFIC BANK as its primary funding vehicle to provide
fast and affordable SBA loans to small businesses across America. GILBERT and O'MALLEY
informed GOLDEN PACIFIC BANK that BILLFLOAT owned Tights to a software platform and
asked if GOLDEN PACIFIC BANK would share in the development costs to enable
BILLFLOAT's software to efficiently and effectively originate, evaluate and market SBA loans to
small businesses through an online platform. In exchange for the shared economics, GILBERT
and O'MALLEY offered GOLDEN PACIFIC BANK the prospect of being BILLFLOATs
“preferred banking partner" and "technology partner" with respect to small business lending
products and services BILLFLOAT would offer using its software platform.

11. Under their clever guise of a promised business partnership, GILBERT and
O'MALLEY concocted a scheme to manipulate GOLDEN PACIFIC BANK to share its
knowledge of SBA lending and create and expand a decision-making matrix on BILLFLOAT's
software platform that could be applied toall types of small business Joan products, After tricking

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COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEFCo oe ra NW FY WD

GOLDEN PACIFIC BANK into creating and growing the technology, and sharing in the costly
economics of launching new online SBA lending program, GILBERT and O'MALLEY perfected
their scheme by discarding GOLDEN PACIFIC BANK after it helped to create the new online
lending program. :
i.
THE NEGOTIATIONS — PROMISES MADE a

' 12, For many months in 2013, the parties negotiated the terms of the joint development
of technology that combined BILLFLOAT’s software platform with GOLDEN PACIFIC BANK's
knowledge and experience of evaluating, processing, underwriting and approving small business
loans created and funded under the SBA 7(a) Loan Program. GILBERT and O'MALLEY
initially sought a "joint venture.” Although BILLFLOAT's proposal of a "joint venture" was
rejected because of regulatory concems, GILBERT and O'MALLEY promised GOLDEN
PACIFIC BANK that GOLDEN PACIFIC BANK and BILLFLOAT would jointly own the
intellectual property which they would jointly develop and finance into an online design to apply
GOLDEN PACIFIC BANK's decision-making criteria to process more accurate, rapid and
efficient evaluation, underwriting and marketing of SBA 7(a) Program Loans.

13, GILBERT and O'MALLEY further promised GOLDEN PACIFIC BANK that
Plaintiff would have "most favored nation” status with respect to any future small business lending
products or services that BILLFLOAT would offer.

, , IV.
THE DEAL

- 14. Onor about November 6, 2013, GOLDEN PACIFIC BANK and BILLFLOAT
entered into a "Software License, Maintenance, and Support Agreement” ("License Agreement"),
a tme and correct copy of which is attached as Exhibit 1 and incorporated herein by reference.
The License Agreement gives GOLDEN PACIFIC BANK a license to use BILLFLOAT's
software, called the "BillFloat Electronic Loan Investigation and Evaluation Framework System"
(or the "BELIEF System") for GOLDEN PACIFIC BANK's “business purposes.” Under terms of
the License Agreement, BILLFLOAT agreed that GOLDEN PACIFIC BANK "shall have the

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COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEF© oe YAW Pw DN

right of first refusal to provide the financing required for any future small business lending
products or services [BILLFLOAT] plans to offer that are projected to yield at least $500,000 in
net profit per year," including “products and services that include sharing revenue or profit or
making some other type of payment to a third party provider." (See, License Agreement, § 16.)

15. On or about December 5, 2013, GOLDEN PACIFIC BANK and BILLFLOAT
entered into a "Joint Marketing and Joint Technology Improvement Agreement (“Joint Marketing
and Technology Agreement"), a true and correct copy of which is attached as Exhibit 2 and
incorporated herein by reference. The parties mistakenly failed to remove the word "Draft" from
each page of the executed written contract; however, the Joint Marketing and Technology :
Agreement was fully executed by the parties intended to be the final expression of the parties’
understanding of their agreement. ‘ :

16, _ Under the terms of the Joint Marketing and Technology Agreement, GOLDEN
PACIFIC BANK agreed, inter alia, to share in the marketing and business development costs of a
“Joint Technology” that was jointly owned and which provided a “unique combination of
particular underwriting criteria for assessing applications for small business loans." (See, Exhibit
A of the Joint Marketing and Technology Agreement; see also, § 2.1 of the Joint Marketing and
Technology Agreement.) As condition precedent to imposing an obligation on GOLDEN
PACIFIC BANK to share in the marketing and business development costs, BILLFLOAT was
required to propose a "plan" to maintain and operate, improve or increase the value of the Joint
Technology and related "SmartBiz" trademark to market their jointly developed smal! business
lending products. (See, Joint Marketing and Technology Agreement, §§ 4.2, 1.8.) In addition,
BILLFLOAT promised GOLDEN PACIFIC BANK " ‘most favored nation’ status with respect to
any future small business lending products or services BillFloat may offer to or through a
depository institution." (See, Joint Marketing and Technology Agreement, § 3.1.) The "most:
favored nation" status required BILLFLOAT to "negotiate in good faith with [GOLDEN PACIFIC
BANK} to jointly offer new small business and other lending products developed by BillFloat."
(id.) Se
a“

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17. At all times relevant, lenders were not required to take collateral for foans up to
$25,000 under the SBA 7(a) Loan Program. However, collateral was and is required for SBA 7(a)
loans over $25 000 and up to $350,000. It was agreed and understood by BILLFLOAT and
GOLDEN PACIFIC BANK when negotiating and entering into the Joint Marketing and
Technology Agreement that any loans with materially different underwriting criteria would be a
“future small business lending produce or service” which would have to be offered by
BILLFLOAT to GOLDEN PACIFIC BANK pursuant to section 3.1. The parties to the Joint
Marketing and Technology Agreement understood and agreed that the decision-making matrix
initially developed by GOLDEN PACIFIC BANK and loaded onto BILLFLOAT's software
platform for evaluating an SBA loan of $25,000 would be materially different when additional
collateral and/or underwriting criteria were changed; each would become a different small
business lending product which would have to be offered to GOLDEN PACIFIC BANK. This.
was a materiel fact on which GOLDEN PACIFIC BANK agreed to execute the Joint Marketing
and Technology Agreement.

18. Separate and apart from BILLFLOAT's software, GOLDEN PACIFIC BANK and
BILLFLOAT collaboratively developed Joint Technology which they both own. The Joint
Technology provides a method for applying certain underwriting criteria for small business
lending. BILLFLOAT's software simply provided the code to efficiently read and process the
underwriting criteria. However, it was GOLDEN PACIFIC BANK that taught BILLFLOAT how
to design the underwriting criteria, and the unique weighting of the criteria, from which to asses
applications for smal] business loans on BILLFLOAT's software in a manner that meets
underwriting standards for SBA 7(a) Loan Program while increasing the speed of the origination, -
evaluation and closing of the loans. Exhibit A attached to the Joint Marketing and Technology
Agreement provides a summary description of the unique combination of the underwriting criteria
developed by GOLDEN PACIFIC BANK for SBA 7(a) loans. GOLDEN PACIFIC BANK's
experience and knowledge in SBA lending and its development of the unique combinations of
underwriting criteria for assessing applications for sinall business loans, and the weighting of
those factors into a decision-making matrix, permitted BILLFLOAT's to enter the online lending

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COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEFCem nd AH FF YW DN

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market through its software platform. GOLDEN PACIFIC BANK also provided other expertise
in banking operations and compliance with applicable rules and regulations to contribute to overall
development of the software platform.

19. To protect GOLDEN PACIFIC BANK's confidential and proprietary business
information, specifically, its it required BILLFLOAT to enter into a Mutual Non-Disclosure and
Confidentiality Agreement on or about November 26, 2012, a true and correct copy of which is
attached as Exhibit 3 and incorporated herein by reference.

20. — Innegotiating the terms and conditions of the Joint Marketing and Technology
Agreement, GOLDEN PACIFIC BANK and BILLFLOAT prepared financial data and projected
revenues from BILLFLOAT's referrals of "qualified" businesses seeking an SBA oan of $25,000
or less and from future lending products and services that BILLFLOAT would offer through
GOLDEN PACIFIC BANK under the proposed "most favored nation" status. GOLDEN
PACIFIC relied on Defendants’ financial projections and representations in agreeing to the Joint
Marketing and Technology Agreement.

21. The key to understanding the parties’ business relationship under the Joint
Marketing and Technology Agreement is how they shared in the costs of the technology and the
foes generated from the shared economics of developing, improving and marketing the Joint
Technology, as defined in the Joint Marketing and Technology Agreement. It was material to
GOLDEN PACIFIC BANK's consent to enter into the Joint Marketing and Technology
Agreement that it would have equal ownership of the Joint Technology and share equally in any
fees and revenues that were produced from the Joint Technology or SmartBiz.

22. Another thaterial assumption and common understanding that induced GOLDEN
PACIFIC BANK to execute the Joint Marketing and Technology Improvement was that
GOLDEN PACIFIC BANK was not responsible for all of BILLFLOAT's operating costs or even
for any of BILLFLOAT's operating costs unrelated to the Joint Technology or the SmartBiz brand
that marketed the Joint Technology. Indeed, the parties agreed thet prior to the commencement of
work on technology development that would improve or add to the value of the "Joint IP," Section
4.2 requires that a Joint IP SOW would have to be provided and agreed upon by the parties no

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COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEFCor AH BF WN mm

later than 15 days before the work would commence. Section 1.5 defines "Joint IP" as "a __
combination of the Joint Technology and the SmartBiz brand and SmartBiz Marks.” Section 1.6
defines "Joint IP SOW” as a "plan to maintain and operate, improve, or increase the value of or
add to the Joint IP, including but not limited to, promoting the SmartBiz Marks and brand and.
Business Development" jointly funded by BILLFLOAT and GOLDEN PACIFIC BANK. Section
1.6 also provides that "[eJach Joint IP SOW shall include proposed schedules which outline the
dates of deliverables and the dates that payments are due from the Parties to fund the work
contemplated by such SOW, and @ budget, including timing and type of payments to be made by
the parties, deliverables and criteria for evaluating functionality.” Section 1.7 defines “Joint
Technology" as "a method for applying certain underwriting criteria for small business lending, as
further described in Exhibit A” of the Joint Marketing and Technology Improvement Agreement.

23. The parties agreed and understood, as memorialized in the Joint Marketing and
Technology Improvement Agreement, that BILLFLOAT could not charge GOLDEN PACIFIC
BANK for a 50 percent share of the improvement costs of their Joint IP Improvement Expenses to
which GOLDEN PACIFIC BANK did not agree. Section 4.2 requires that Joint IP SOW'’s shall
be provided in advance, not retroactively. The parties understood and expressly agreed in writing
that one party's late delivery of a Joint IP SOW prejudices the receiving party's ability to evaluate
the propriety of Statement of Work in order to decide whether or not to provide funding of a
particular activity. Providing line items in a Joint IP SOW without explanation of how they relate
to a specific "plan" is not in compliance with the clear meaning of the contractual language and
the mutual understanding and intent of the parties in executing the Joint Marketing and
Technology Agreement, :

24. On or about July 24, 2014, GOLDEN PACIFIC BANK and BILLFLOAT entered
into a "First Amended Joint Marketing and Joint Technology Improvement Agreement”
(“Amended Joint Marketing and Technology Agreement") to supersede and replace the Joint
Marketing and Technology Agreement. A true and correct copy of the Amended Joint Marketing
and Technology Agreement is attached as Exhibit 4 and incorporated herein by reference. The
only material changes were improved licensing fees paid to GOLDEN PACIFIC BANK for the

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COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEFoe YN AH & WY DN

"Joint Technology" which GOLDEN PACIFIC BANK and BILLFLOAT jointly owned. In all
other material respects, the contractual obligations and rights and common assumptions and
understandings in the Joint Marketing and Technology Agreement remained the same and were
incorporated into the Amended Joint Marketing and Technology Agreement.

25. However, BILLFLOAT entered into exclusive agreements with other depository
banks to provide new small business lending products for SBA loans in excess of $5,000 and up to
$350,000, without offering the same lending opportunities or shared fees to GOLDEN PACIFIC
BANK, in breach of the Amended Joint Marketing and Technology Agreement.

: : v.
‘THE OVERCHARGES - FRAUDULENT STATEMENTS OF WORK

26. On February 3, 2015, GOLDEN PACIFIC BANK sent a written correspondence to
Defendants demanding 2 more detailed account of shared expenses supporting BILLFLOAT's
Joint IP SOWs, in compliance with the Amended Joint Marketing and Technology Agreement.
The letter dated February 3, 2015, signed by Virginia Varela, GOLDEN PACIFIC BANK's Chief
Executive Officer and President, and addressed to RYAN GILBERT, BILLFLOAT’s Chief
Executive Officer, is attached to the Complaint as Exhibit 5 and incorporated herein by reference.

27. Ms. Varela's letter reminded Defendants that Section 1.6 of the Amended Joint
Marketing and Technology Agreement required BILLFLOAT to send GOLDEN PACIFIC BANK
“a plan to maintain and operate, improve or increase the value of or add to the Joint IP SOW" that
was supposed to “include proposed schedules which outline the dates of deliverables and the
Gates that payments are due from the Parties to fund the work contemplated by such SOW,
and a budget, including timing and types of payments to be made by the parties, deliverables
and criteria for evaluating functionality." (See, Exhibit 4, supra, [emphasis in original].)

28. Ms. Varela’ leter further informed Defendants: "To date, this provision has not
been complied with as no such information has been provided to GPB before the work was
completed. In fact, even after the work outlined in the SOW has been completed, this information
has not been provided in sufficient detail. Therefore, we request that BF provide GPB with this
information for each IP Joint SOW BF has presented to GPB and for which GPB has paid its

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COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEFoe I AH & WD

portions of the expenses related to that SOW." (See, Exhibit 4, supra.) With respect to joint
expenses that BILLFLOAT charged GOLDEN PACIFIC BANK, Ms. Varela demanded that
BILLFLOAT's "budgets include detail beyond categories of services provided as well as access to
the underlying detail so that we can better understand the work that has been (and, in the future,
will be) completed under each budget. For example, the broad categories of ‘Design, ,
Customization, Loan Specialists, Business Development, Tech Ops and Hosting’ are insufficient. .
We would like to see the detail that we expect you have in whatever accounting system you are
using that aggregates these categories." (/d.) Ms. Varela explained: "We know you understand
why we need this information and further understand our Board's responsibility to and trust from
our shareholders, both of which require that the Board and GPB's management team fully
understand the material costs incurred to date and are expected in the future for this joint venture.
As has been previously expressed to you, the costs of this program have been extraordinarily
higher than first estimated and, without a new business plan and budget, GPB cannot meet its
fiduciary obligations to its shareholders to make fully informed, reasoned business decisions."
(id.) Ms. Varela’s letter concluded: "The language of the Agreement does not ‘say that GPB is
responsible for essentially all operating costs of BF and shared costs of packaging must be
justified and appropriate." ,
VI.
THE FREEZE-OUT
29. Defendants provided no serious response to Ms. Varela's letter. Worse, the
Defendants’ response was unsparing and wrathful. GILBERT and O'MALLEY conspired to
freeze out any quality loan referrals to GOLDEN PACIFIC BANK. Within months, GOLDEN
PACIFIC BANK began receiving fewer and fewer offers of small business lending products and
services from BILLFLOAT with respect to SBA 7(a) loans above $25,000, and then fewer and
fewer referrals of "qualified" businesses seeking an SBA loan of $25,000 or less. Indeed,
BILLFLOAT sent GOLDEN PACIFIC BANK only one referral in August 2015 that resulted in a
loan to a qualified borrower, and did not send GOLDEN PACIFIC BANK a single loan in ,
September 2015. In comparison, from November 2014 to May 2015, GOLDEN PACIFIC BANK
-

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COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEFCoe NY A HW Be wD

funded an average of more than sixteen (16) SBA 7(@) loans resulting from BILLFLOAT referrals
each month, totaling over $1.3 million in funding each month. Despite repeated requests for
assurances, BILLFLOAT did not provide any reasonable explanation for its freeze-out of loan
referrals and complete loan package handoffs to GOLDEN PACIFIC BANK, in breach of the
Amended Joint Marketing and Technology Agreement. In further breach of the agreement,
BILLFLOAT entered into license agreements and loan referrals to ather lenders in a stealthy and
devious manner. In fact, GILBERT and O'MALLEY purposely concealed BILLFLOAT's license’
agreements and loan referrals to other lenders from GOLDEN PACIFIC BANK in direct meetings
with Plaintiff's executives, including Ms. Varela and board members, notwithstanding
BILLFLOAT's contractual obligation to give GOLDEN PACIFIC BANK 30 days.prior written
notice before entering into a bank license agreement or other arrangement with any other lender
for underwriting SBA 7(a) loan, and shall provide any such license agreement or other
arrangement to GOLDEN PACIFIC BANK. Indeed, in June 2015 BILLFLOAT suddenly stopped
delivery to GOLDEN PACIFIC BANK of any reports identifying BILLFLOAT's bank license
agreements or other arrangements including but not limited to loan referrals to and fees from other
depository institutions. BILLFLOAT’s Evan Singer, general manager of its SmartBiz brand,
promised this information would be forthcoming in meetings and correspondence to Ms, Varela,
but in spite of numerous requests from Ms. Varela, this contractually required information was
never provided to GOLDEN PACIFIC BANK, in violation of the Amended Joint Marketing and
Technology Agreement. (See, Amended Joint Marketing and Technology Agreement, § 3.4.)

30. | GOLDEN PACIFIC BANK has not received a Joint IP SOW since the date of Ms,
Varela's letter admonishing BILLFLOAT for inadequate transparency and completeness of
financial information in the Joint IP SOWs. Further, BILLFLOAT has steadfastly refused to
provide any of the development, improvement and marketing cost information for which
GOLDEN PACIFIC BANK paid and which was requested in Ms. Varela's letter and subsequent
oral demands by Ms. Varela since. GOLDEN PACIFIC BANK is informed and believes and
wi ,

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COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEFwo oe ND HH PF WwW NY &

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thereon alleges that BILLFLOAT inappropriately charged GOLDEN PACIFIC for operational,
technology and marketing charges that breached the terms and conditions of the Joint Marketing
and Technology Agreement. : :

31. _ BILLFLOAT's actions in refusing to disclose the shared economics for which
GOLDEN PACIFIC BANK paid and its refusal to share in the financial benefits of the parties
Joint Technology has resulted in BILLFLOAT's repudiation of the Amended Joint Marketing and
Technology Agreement. :

Default ("Notice of Default"), which described four separate instances where BILLFLOAT
bréached the Amended Joint Marketing Agreement, as well as a description of steps necessary to
cure each identified contract breach. The Notice of Default is attached to the Complaint as
Exhibit 6 and incorporated herein by reference, .
33. The Notice of Default in part alleged BILLFLOAT breached the Amended Joint
Marketing and Technology Agreement by failing to deliver to GOLDEN PACIFIC BANK, no
later than the 15" day of the month prior to commencing work on improving and/or marketing the
jointly owned technology that required the GOLDEN PACIFIC BANK's sharing of costs, a
“proposed schedules which outline the dates of deliverables and the dates that payments are due
from the Parties to fund the work contemplated ... including timing and type of payments to be
made by the parties, deliverables and criteria" — called a Joint Technology Statement of Work, or
“Joint IP SOW" — that was necessary to evaluate the functionality of the work for which
BILLFLOAT charged GOLDEN PACIFIC BANK. (See, Notice of Default [First Breach and
Second Breach; emphasis added]; see also, Amended Marketing Agreement, §§ 1.5, 1.6, 1.7, 4.2.)
In addition, the Notice of Default alleged BILLFLOAT also breached the written contract by
failing to refer to GOLDEN PACIFIC BANK a sufficient number of Qualified Introduced
ut oo
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COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEF ©wo ON AH Bw NH

Businesses seeking an SBA loan and by not sending loan packages that satisfied the "most favored
nation” status covenant. (See, Notice of Default [Second Breach and Fourth Breach]; see also,
Amended Marketing Agreement, §§ 3.1, 3.3.)

34,  BILLFLOAT did not cure any of the alleged breaches of contract in the > delay
cure period.

35. | The conduct of Defendants, and each of them, is nothing less than a series of
broken and fraudulent promises. Defendants engaged in a bold and brazen theft of the “Joint
Technology” and business opportunities on a benefactor to whom BILLFLOAT owed not only
express contractual obligations, but who educated BILLFLOAT about best practices and
procedures in SBA lending, provided it a national banking charter from which it had the
opportunity to use its software platform to originate and refer nation-wide SBA loans, and paid for
(at least) half of the technology development and improvement costs.

36. Plaintiff incorporates by reference paragraphs 1 through 35, inclusive, as if fully set
forth herein. ‘

37 GOLDEN PACIFIC BANK has fulfilled all of its obligations and complied with
any and all conditions and agreements urider the License Agreement, the Joint Marketing and
Technology Agreement, and the Amended Joint Marketing and Technology Agreement, which
superseded and replaced the Joint Marketing and Technology Agreement.

38 BILLFLOAT unjustifiably and inexcusably failed to perform its contractual
obligations under the License Agreement, the Joint Marketing and Technology Agreement, and
the Amended Joint Marketing and Technology Agreement, including but limited to the following:

8, __ BILLFLOAT breached paragraph 2.5 of the Amended Joint Marketing and

Technology Agreement by over-charging GOLDEN PACIFIC BANK with “improvement

expenses” that are not directly tied to the Joint IP SOW; by not delivering returns on

1288745,1 14023-0083 13
COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEFoe yy AH ee WN &

1288745.1 14023-003

licensing and referral fees from third party lenders on a monthly basis since

December 2014; by withholding contractually required information that allows GOLDEN
PACIFIC BANK to calculate monies owed it by BILLFLOAT; by refusing to provide
GOLDEN PACIFIC BANK with access to contractually required information to determine
funding volume and fees received from third party lenders since June 2015; and by not
paying to GOLDEN PACIFIC BANK with fee income from third party lenders.

b. _ BILLFLOAT breached paragraph 3.1 of the Amended Joint Marketing and
Technology Agreement by not complying with the "most favored nation” status covenant
for larger loans and other business ventures and not offering GOLDEN PACIFIC BANK
as a “preferred” banking partner.

c BILLFLOAT breached paragraph 3.3 of the Amended Joint Marketing and
Technology Agreement by not providing accurate reports for the volume of referrals to,
and fee income from other lending banks, and not referring 70% of qualified introduced
businesses secking a loan of $25,000 or less before referring said loans to another lender.
Jn addition, BILLFLOAT's referrals to GOLDEN PACIFIC BANK did not meet minimum
quality standards and are delivered in an incomplete package manner.

d, BILLFLOAT breached paragraph 3.4 of the Amended Joint Marketing and
Technology Agreement by providing 30 days prior written notice to GOLDEN PACIFIC
BANK before entering into a bank license agreement or other arrangement with any other
lending for underwriting SBA 7(s) loans, and by not sending referrals to GOLDEN
PACIFIC BANK third pasty referrals that GOLDEN PACIFIC BANK introduced to
BILLFLOAT. ‘

e. _ BILLFLOAT breached paragraph 4.1 of the Amended Joint Marketing and
Technology Agreement when it did not provide detailed information to GOLDEN
PACIFIC BANK that supported the technology improvement expenses,

f. BILLFLOAT breached paragraph 4.2(a) of the Amended Joint Marketing
and Technology Agreement by not providing a complete Joint IP SOW that fully meets the
defining requirements per the agreement in section 1.6, including but not limited to

14
COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEFwo ord A NH WHY —

proposed schedules that meet contractual definitions to outline the dates of deliverables
and the dates that payments are due from the Parties to fund the work contemplated by
such Joint IP SOW, and a budget, including timing and types of payments to be made by’
the Parties, deliverables, and criteria for evaluating functionality. In addition,
BILLFLOAT has breached the agreement in that it has never provided a complete Joint IP
SOW on a monthly basis to GPB at least 15 days in advance of the month in which the
work related to the Joint IP SOW would commence. Further, BILLFLOAT has breached
the agreement by not providing GOLDEN PACIFIC BANK with a reasonable opportunity
to agree or disagree to pay half the Improvement Expenses.

g- _ BILLFLOAT breached paragraph 4.2(b) of the Amended Joint Marketing
and Technology Agreement when it refused to provide GOLDEN PACIFIC BANK the
opportunity to agree or disagree within three (3) business days to fund half of the
Improvement Costs because of the lack of Joint IP SOWs.

h, _ BILLFLOAT breached paragraph 4.2(c) when it did not identify its -
“Business Development” or “Marketing” expenses with reasonably particularity on a ,
quarterly basis. .

i, | BILLFLOAT breached paragraph 4.3 when it shared intellectual property
jointly developed and owned by GOLDEN PACIFIC BANK with other depository
institutions without GOLDEN PACIFIC BANK’s consent. Further, to the extent that
BILLFLOAT charged GOLDEN PACIFIC BANK for development costs related to the

* software that BILLFLOAT owns, GOLDEN PACIFIC BANK jointly owns that software
which was developed, pursuant to paragraph 4.3.

j.  BILLPLOAT breached paragraph 4.4 when it refused to permit GOLDEN
PACIFIC BANK the opportunity to agree on a delivery and payment schedule for the
SmartBiz Brand SOW. Instead, BILLFLOAT dictated the payment schedule and manner
that it is paid, in breach of the agreement. : '

k. Pursuant to section 8 of the Amended Joint Marketing and Technology
Agreement: “The Parties specifically agree to exercise reasonable care to ensure that all of

129874S.1,14023-003 15

COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEF

aaytheir agreements and activities conform to industry standard practices and applicable law
and regulations... To the extent any agreement or relationship described in this / ,
Agreement is inconsistent with Applicable Regulations that are mandatory .in nature, the
Parties will make appropriate changes in order to comply.” BILLFLOAT has breached ,
this covenant in that it has not made appropriate changes to comply with the requirements
of federal statutory and regulatory requirements, including but not limited to Equal Credit
Opportunity Act ("ECOA"), Regulation B (12 Code Fed. Reg. § 202) and the Fair Credit
Reporting Act (suse 1681a). As requested on numerous occasions, BILLFLOAT has
failed to respond to GOLDEN PACIFIC BANK’s reasonable requests to make system:
changes that allow automatic adverse action letters to reflect detailed reasons for any credit
denial as is required per the regulations and failed to take other corrective actions to ensure
regulatory compliance. :

1 BILLFLOAT breached section 14 of the License Agreement when its
software system failed to comply with the requirements of ECOA, Regulation B and the
Fair Credit Reporting Act (15 USC 1681a), and further, BILLFLOAT failed to revise the
software system so that it was in compliance even after receipt of written notice of the
specific non-compliance issues,

m. _ BILLFLOAT breached section 16 of the License Agreement when it did not
offer GOLDEN PACIFIC BANK its contractual right to small business lending products
and/or services that were projected to yield at least $500,000 in net profit per year.

39 Asadirect and proximate result of BILLFLOAT's contract breaches, GOLDEN

PACIFIC BANK has been damaged in an mount according to proof and which satisfies the
jurisdiction of this Court.

ut
uM
uM
Mt

WHEREFORE, GOLDEN PACIFIC BANK prays judgment as set forth herein.

1288745.1. 14023-003

COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEFoem NA UH ®F YN &

10

1X.

IF At
of jood Faith and F:
{As to BILLFLOAT only)

40. Plaintiff incorporates by reference paragraphs 1 through 35, inclusive; as if fully set
forth herein. -

41. Implicit in every contract is a covenant of good faith and fair dealing by virtue of
which the parties covenant that they will act in good faith in their dealings with each other and will
not do anything to deliberately deprive the other of the reasonably expected benefits of their
contracts. . ‘

42, The acts of BILLFLOAT, as described above, constitute a breach of the covenant
of good faith and fair dealing implicit in the License Agreement, the Joint Marketing and
Technology Agreement, and the Amended Joint Marketing and Technology Agreement.

‘43. As aresult of the breach of the covenant of good faith and fair dealing implicit in
said agreements, GOLDEN PACIFIC BANK has been damaged in an amount according to-proof
and which satisfies the jurisdiction of this Court.

WHEREFORE, Cross-complainant prays judgment as set forth herein. .

Xx.

THIRD CAUSE OF ACTION
(Fraud) .
(As to all Defendants)
44. Plaintiff incorporates by reference paragraphs | through 35, inclusive, as if fully set

forth herein.

45. "Defendants, and each of them, made misrepresentations and concealment of
material facts as follows: :
a. __ In negotiating the terms and conditions of the Joint Marketing and
Technology Agreement and Amended Joint Marketing and Technology Agreement,
O'MALLEY and GILBERT promised GOLDEN PACIFIC BANK's negotiators that, by

1288745.1 14023-003 7 .
COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEFoem QA NH FF WN

Ss

il

128874$.0 14023-003

entering into the Joint Marketing and Technology Improvement Agreement and the
Amended Joint Marketing and Technology Improvement Agreement, that GOLDEN
PACIFIC BANK was not responsible for all of BILLFLOAT's operating costs or even for
any of BILLFLOAT's operating costs unrelated to the Joint Technology or the SmartBiz
brand that marketed the Joint Technology. O'MALLEY and GILBERT told ‘GOLDEN
PACIFIC BANK'S executives, that prior to the commencement of work on technology
development that would improve or add to the value of the "Joint IP," BILLFLOAT would
have to deliver a Joint IP SOW to GOLDEN PACIFIC BANK no later than 15 days before
the work would commence, O'MALLEY and GILBERT further told GOLDEN PACIFIC
BANK's executives that BILLFLOAT could not charge GOLDEN PACIFIC BANK for a
50 percent share of the improvement costs of their Joint IP Improvement Expenses to
which GOLDEN PACIFIC BANK did not agree. GOLDEN PACIFIC BANK relied on
said representations in agreement to contract provisions, as set forth above, that requires

- BILLFLOAT's Joint P SOW's to be provided in advance, not retroactively, so as not to

prejudice GOLDEN PACIFIC BANK by a late delivery of a Joint IP SOW to evaluate the
propriety of Statement of Work in order to decide whether or not to provide funding of a
particular activity. In fact, O'MALLEY and GILBERT had knowledge of the falsity of
their representations with the intent to defraud and/or induce reliance by GOLDEN
PACIFIC BANK. ‘

b. After execution of the terms and conditions of the Joint Marketing and
Technology Agreement and Amended Joint Marketing and Technology Agreement,
O'MALLEY and GILBERT caused to be delivered BILLFLOAT's Joint IP SOWs to
GOLDEN PACIFIC BANK that over-billed GOLDEN PACIFIC BANK for
BILLFLOAT's operating costs unrelated to the Joint Technology or the SmartBiz brand

" that marketed the Joint Technology. In fact, O’MALLEY and GILBERT had knowledge

of the falsity of the operating costs unrelated to the Joint Technology or the SmartBiz

.. brand that were included in BILLFLOAT's Joint IP Sows, with the intent to defraud and/or

induce reliance by GOLDEN PACIFIC BANK.

18
COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEF .Oo we UA WH & wD

c In negotiating the terms and conditions of the Joint Marketing and

Technology Agreement and Amended Joint Marketing and Technology Agreement,

O'MALLEY and GILBERT promised GOLDEN PACIFIC BANK's negotiators that would

make referrals of "qualified" businesses seeking an SBA loan of $25,000 or less and from

future lending products and services that BILLFLOAT would offer through GOLDEN

PACIFIC BANK under the proposed "most favored nation” status, In fact, O'MALLEY

and GILBERT had kriowledge of the falsity of their representations with the intent to

defraud and/or induce reliance by GOLDEN PACIFIC BANK.
d. , In negotiating the terms and conditions of the Joint Marketing and

Technology Agreement and Amended Joint Marketing and Technology Agreement,

O'MALLEY and GILBERT promised GOLDEN PACIFIC BANK's negotiators that would

deliver accurate reports for the volume of referrals to, and fee income from other lending

banks to GOLDEN PACIFIC BANK. In fact, O'MALLEY and GILBERT had knowledge
of the falsity of their representations with the intent to defraud and/or induce reliance by

GOLDEN PACIFIC BANK.

46. The Defendants’ mistepresentations, and each of them, were of material fact,
essential to the acts undertaken by GOLDEN PACIFIC BANK in reliance of said
misrepresentations and concealment of material facts, such that GOLDEN PACIFIC BANK
would not have acted as it did without them.

47. Defendants, and each of them, made the misrepresentation with knowledge of the
falsity and effect of false representations and concealment of the material facts.

48. Defendants, and each of them, intended to induce GOLDEN PACIFIC BANK to
alter its position to his injury or risk. .

49. | GOLDEN PACIFIC BANK did in fact justifiably rely on the Defendants’
misrepresentations and concealment of material facts,

50. Asa direct and proximate result of the fraud committed by Defendants, and each of
them, GOLDEN PACIFIC BANK has been damaged in a sum believed to be in excess of
$3,000,0000 and according to proof at trial. :

1288745.1 14023-003.

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COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEF7

© em 2A A Ph wD

51. At the time Defendants made the false and misleading representations, Defendants,
and each of them, intended that their conduct was willful, oppressive, fraudulent and/or malicious.
Accordingly, GOLDEN PACIFIC BANK is entitled to recover punitive and exemplary damages
in-an amount according to proof. ,

WHEREFORE, GOLDEN PACIFIC BANK prays judgment as set forth herein.

52. Plaintiff incorporates by reference paragraphs 1 through 51, inclusive, as if fully set
forth herein, .

53. _ In the alternative, GOLDEN PACIFIC BANK alleges it will suffer substantial
harm and injury under the written agreements alleged herein if they are not rescinded, in that, as a
result of Defendants’ conduct, GOLDEN PACIFIC BANK will be deprived of the benefit of its
bargain.

54. —_ In the alternative, service of the summons and complaint in this action serve as
notice of the rescission of the written agreements alleged herein, and hereby demands that
BILLFLOAT restore it to the consideration furnished by GOLDEN PACIFIC BANK according to
proof at trial. ‘ .

5S. _In the alternative, GOLDEN PACIFIC BANK is entitled to the remedy of
rescission based on the fraud of Defendants, on a failure of consideration in material respects, and:
on BILLFLOAT's refusal to comply with the requirements of federal statutory and regulatory
requirements, all as alleged herein.

. WHEREFORE, GOLDEN PACIFIC BANK prays judgment as set forth herein.

56. Plaintiff incorporates by reference paragraphs | through 35, inclusive, as if fully set
forth herein.

1288745.1 1423-003 20
COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEFom RI A Hw Rw NY

= 36

57. GOLDEN PACIFIC BANK owned confidential and proprietary business
information concerning its development of unique combinations of underwriting criteria for
assessing applications for small business loans, and the weighting of those factors into a decision-
making matrix, which permitted BILLFLOAT's to enter the online lending market through its
software platform. GOLDEN PACIFIC BANK also provided other proprietary and confidential
expertise and training to BILLFLOAT concerming SBA lending operations and compliance with
applicable rules and regulations to contribute to overall development of the software platform.
GOLDEN PACIFIC BANK required BILLFLOAT to enter into a Mutual Non-Disclosure and
Confidentiality Agreement on or about November 26, 2012, as set forth above. (See, Exhibit 3,
supra.) BILLFLOAT's software simply provided the code to efficiently read and process the
underwriting criteria. However, it was GOLDEN PACIFIC BANK that taught BILLFLOAT how
to design the underwriting criteria, and the unique weighting of the criteria, from which to assess
applications for small business loans on BILLFLOAT's software in a manner that meets
underwriting standards for SBA 7(a) Loan Program while increasing of the speed of the
origination, evaluation and closing of the loans.

. 58. The aforementioned confidential and proprietary business information were a trade
secret, in that they had actual or potential independent economic value because they were secret, -
and GOLDEN PACIFIC BANK made reasonable efforts to keep the information secret. :

59, Plaintiff is informed and believes and thereon alleges that Defendants improperly
used said trade secrets outside the contractual limitations of the Mutual Non-Disclosure and
Confidentiality Agreement and/or disclosed the trade secrets to third party lenders.

60.  Asaresult of the wrongful acts by Defendants, GOLDEN PACIFIC BANK will
suffer, and has suffered, great and irreparable harm and damage, the precise nature and amount of
which will be difficult to ascertain, thereby leaving GOLDEN PACIFIC BANK, without an
adequate remedy at law. Unless and until restrained, Defendants will continue to solicit
customers and obtain business utilizing GOLDEN PACIFIC BANK’s trade secrets. GOLDEN
PACIFIC is therefore entitled to injunctive relief restraining Defendants and BILLFLOAT's
respective officers, agents, employees, and all persons acting in concert with them, from engaging

1288745.) 14023-003 -

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COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEF_

oe YAH ea WwW DN

in such further unlawful acts and from reaping any additional commercial advantage from their
misappropriation of GOLDEN PACIFIC BANK’s trade secrets,

61, GOLDEN PACIFIC BANK is further entitled to recover from Defendants the
damages sustained as a result of the wrongful acts as alleged herein, The amounts of such
damages, while substantial, cannot be determined at this time. GOLDEN PACIFIC BANK is
entitled to recover from Defendants the gains; profits, advantage and unjust enrichment that they
have obtained as a result of her wrongful acts as alleged herein. To ascertain the full extent of
these gains, profits, advantages and unjust enrichment, GOLDEN PACIFIC BANK is entitled to
an account by each of the Defendants, GOLDEN PACIFIC BANK is also entitled to the
immediate imposition of a constructive trust over all such gains, profits, advantages and unjust

62. GOLDEN PACIFIC BANK is informed and b