Preview
FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022
NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023
IN ARBITRATION BEFORE THE
AMERICAN ARBITRATION ASSOCIATION
Marcus Abrams, Clearwater Ventures, Inc.,
Lisa Abrams, and the Lisa Marie Abrams Revocable
Trust,
Claimants, AAA Case No. 01-20-0007-3684
-against-
Russell Abrams, Sandra Abrams, and
“RussellCar and its related entities” defined in
the parties’ agreement as “Issuer,”
Respondents.
CLAIMANTS’ POST-HEARING REPLY BRIEF
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Table of Contents
PRELIMINARY STATEMENT .................................................................................................... 1
ARGUMENT .................................................................................................................................. 3
I. Respondents’ Liability on the Loan is not Meaningfully Disputed ..................................... 3
A. The Contractual Damages are not “Special,” They are Claimants’ Best Estimates
(Which are Necessary Due to Respondents’ Fraud) ..................................................... 3
B. Russell, Sandra, and Aracar are all Individually Liable for the Loan........................... 6
C. The Conversion Issue Has Been Repeatedly Rejected, and the Aracar Stock is
Worthless (and Certainly Worth less than 3 Years of Marc’s Time) ........................... 9
II. Claimants Have Proven Their Tort Claims ........................................................................ 14
CONCLUSION ............................................................................................................................. 16
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PRELIMINARY STATEMENT
Claimants loaned Respondents Russell Abrams (“Russell”) and Sandra Abrams (“Sandra”)
over $1.4 million to expand their already successful taxi business, and never received a cent back.
When they tried to recover their money, they were laughed off. In this arbitration Respondents
have engaged in multiple delays, used a rotation of lawyers (who have each advanced frivolous
and contradictory arguments), failed to pay their portion of the AAA fees and otherwise acted with
dishonesty and disdain for the rule of law. Even their latest set of attorneys (like their predecessors)
are seeking to withdraw from representation, accusing both Russell and Sandra of breaking
promises and making misrepresentations to them, among other improprieties.
None of Claimants’ allegations are credibly refuted in Respondents’ post-hearing brief
(“Respondents Brief”), and most of them are not refuted at all. Even as to damages there is little
real dispute, because (as Respondents do not dispute) no quarterly payments were ever made. The
contractual damages are at least $2,939,976.31, as determined from Respondents’ (fraudulent and
incomplete) financial reports; to the extent Claimants are able to estimate Respondents’ actual
earnings based on their contemporaneous and under oath statements—they range from 15%
($3,559,540) to 22.7% ($4,591,082.97) to 30% ($10,202,363), all of which are supported by
testimony and documentary evidence.
Before responding to the arguments that are presented in Respondents’ latest brief, here
are some of the arguments Respondents have advanced and since abandoned in this arbitration:1
The amount of the loan – After Arbitrator Felsenfeld asked the parties to confirm the
amount of the loan, Respondents (through prior counsel Peter Kirwin), in an email dated
May 25, 2022, asserted “the principal amount should be $1,460,000.00….” Respondents
acknowledge a debt of $1,464,234 in all subsequent submissions, including Respondents
1
Should Respondents subsequently seek to bring up any of these apparently abandoned
arguments for the first time in their reply papers, Claimants respectfully ask for leave to respond.
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Brief. See, e.g., Respondents Brief at 2 n.1 and passim.
Anticipatory breach – During the dispositive motions, Respondents argued that the
principal was not due until the maturity date of the loan, causing Arbitrator Felsenfeld to
request additional briefing on the point of law. Now this argument has been abandoned.
Alleged payments on the loan – In his sworn testimony, Russell claimed (falsely and for
the first time in this arbitration) that some payments on the loan were made to Claimants.
See Russell Tr. 61:18-63.7; 218:16-25. These false statements (which were contradicted
by Claimants’ testimony, Respondent’s own expert, Sandra, and the available
documentary evidence) do not appear in Respondents Brief.
These abandoned allegations and arguments are all notable for the picture they paint of
Respondents’ bad faith and time-wasting tactics in this arbitration. While Claimants’ allegations
have remained consistent, Respondents have ran through a myriad of stories and defenses, slinging
everything they can while abandoning anything that does not stick.
This behavior cannot be permitted and certainly not rewarded.
Respondents’ defenses to contractual liability are transparently meritless, as the conversion
argument has been repeatedly disproven, while Russell, Sandra, and Aracar are all clearly liable
on the note under multiple legal and equitable grounds. Moreover, the record is rife with false
statements and fiduciary violations by Respondents, including (inter alia) repeated representations
that the investment were backed by assets and thus hedging against any risk of loss, that payments
would be made, that financial information and advice would be provided, and that Claimants’
money would go to RussellCar and not anywhere else. Respondents even sent Claimants a
distribution from an account they used to pay Marc’s deferred compensation and falsely told him
it was a quarterly payment – vile behavior by anyone, but absolutely disgusting considering that it
was committed against Respondents’ family.
Accordingly, Claimants repeat their request for an award based on their damages, plus
statutory interest, along with attorneys’ fees and arbitration costs as sanctions for Respondents’
deplorable conduct.
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ARGUMENT
I. Respondents’ Liability on the Loan is not Meaningfully Disputed
As set forth in Claimants’ post-hearing brief (“Claimants Brief”), Claimants loaned
Respondents a total of $1,464,234 based on terms devised and offered by Respondents, inter alia:
(i) Respondents would make quarterly payments in an amount pursuant to the parties’ agreement;
(ii) Respondents would provide financial information on the RussellCar entities sufficient to allow
Claimants to decide whether to loan more money and ultimately exercise their conversion option
(and confirm the amount of the quarterly payments); and (iii) Russell’s personal guarantee that at
least $1 million would be repaid within three years. Claimants gave Respondents the money based
on their trust in Respondents and the cashflows they promised would result. i.e., Respondents
promised that 30% annual payments would be made (based on pre-loan cashflows of 15%) which
increased to 20% based on the increased fleet size enabled by using the funds (i.e., 200 working
taxis to 300); plus an additional 10% on the initial $1 million investment (i.e., $100,000; see Ex.
2) from administrative business revenue. These promised returns were then corroborated by
Russell proactively offering his “personal guarantee” in excess of these promised returns but below
the 30-50% per annum cashflows he boasted would be ultimately generated. It is undisputed that
Claimants lived up to their end of the bargain, while Respondents failed to perform any of their
duties under the agreement.
A. The Contractual Damages are not “Special,” They are Claimants’ Best
Estimates (Which are Necessary Due to Respondents’ Fraud)
Respondents have attempted to characterize Claimants’ estimations of damages as
“special” or “consequential”. This is a misstatement of both the facts and the law, and in any event
ignores Respondents’ repeated failure to provide financials necessary to determine Claimants’
actual damages under the agreement. It is simply unconscionable to allow Respondents to flout
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this arbitration, simply refuse to provide demanded discovery, and then deny liability on the
grounds that Claimants have not adequately proved their damages.
First, the contractual damages sought by Claimants are not special or consequential.2
Claimants seek only their expectation damages, defined here as the amount they should have been
paid had Respondents made the quarterly payments required pursuant to the agreement. And as
set forth in Claimants Brief, Claimants’ expectation damages – based on Respondents’ own
financials – are $3 million and thus Respondents concede this is the floor for damages. See
Claimants Brief at 24, Appendix B.
However, this does not begin to tell the whole story. Russell acknowledged that he
manipulates RussellCar’s earnings, testifying that “[w]e set our expenses to be a function of our
revenues.” Russell Tr. 27:4-5.
According to Russell, there are multiple entities through which RussellCar funds flowed,
including all of the RussellCar entities, as well as the Aracar entities, Argentina Real Asset Partners
(“ARAP”), Titan Capital, and likely other entities. See, e.g., Ex. 41 at ¶5 (RussellCar Inversora
“is used to fund the other [RussellCar] entities”); Ex. 58 at K (“russellcar is funding aracar – where
do you think the money for aracar is coming from?”); Russell Tr. at 22:11-23:19; 52:21-54:8
(Russell’s testimony as to how Claimants’ money went from Titan Capital to ARAP to RussellCar
Inversora and finally to RussellCar SRL); Ex. 2 (money for RussellCar sent to Titan Capital bank
account). However, no bank or transaction records were produced, and financials were only
produced for RussellCar SRL and CrossTax (both in Spanish)– and even those two entities have
2
Even if these were consequential damages, there is no requirement that such be explicitly
included in a written agreement, only that it be “within the contemplation of the parties.” KSW
Mech. Servs., Inc. v. Am. Prot. Ins. Co., 40 A.D.3d 709, 711 (2d Dep’t 2007).
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different fiscal years and use different accounting bases, making them difficult if not impossible
to reconcile. See Exs. O-V; see also Russell Tr. at 24:10-20. Further making reconciliation
impossible is the fact that Russell admitted to manipulating expenses and income, and the Aracar
audits indicated several issues with the financials including undocumented and improper
intercompany loans and transfers, illegal payments, improper management fees and loans, and
other serious issues. See Russell Tr. 27:4-5; Ex. 32 at 13-15.3 This also demonstrates Aracar is a
recipient of funds owed to Claimants.
Accordingly, the only information we do have regarding RussellCar’s actual earnings –
from which Claimants’ quarterly payments were supposed to be calculated – are the
representations Respondents repeatedly made to Claimants and others:4
15% ($3,559,540): Earnings as represented in January 2016 (“currently the company is
making 15% cash flow”) and in September 2016 (“the baseline business is earning over
15% right now”). Ex. 58 at B, P (emphasis added).
22.7% ($4,591,082.97): Russell guaranteed Claimants would receive $1,000,000 within
three years and stated that Claimants would earn “another $100k per year on just the
administrative business,” which amounted to approximately 22% (15% current earnings
plus an additional $100,000 or 7% of the total investment). See Ex. 2
30% ($10,202,363): Earnings based upon RussellCar earning “about 1,500 USD per yr
per vehicle,” with RussellCar owning 300 vehicles, for a total of $450,000 per year (a
return of 30.7% on Claimants’ total investment), and corroborated by Russell’s personal
guarantee of $1 million in 3 years. Ex. 58 at P; see also Russell Tr. at 22:2-3; 23:24-24:1
(RussellCar entities own 300 taxis). Claimants also repeatedly testified that Respondents
orally represented present and earnings of 30 percent or more – testimony that Respondents
never bothered to refute in their own case-in-chief. See Marc Tr. at 81:14-16, 82:11-13,
84:4-8, 202:6-12, 209:16-210:5.
As previously detailed, prior counsel attempted to address these discovery shortcomings, only to
3
be abused by Russell and disrupted by Kirwin. See Ex. 30. It likely does not matter, as Russell’s
personal QuickBooks could produce financials saying anything. See Ex. 32 at 14. No tax or
other filings were included that could have substantiated any of the data, if accurate.
4
For calculations, see expert reports of Robert Jones, Exs. 45 and 49.
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Any of these numbers would be an appropriate estimation of earnings based on (inter alia)
a negative inference as to RussellCar’s true earnings. Given Respondents’ failure to produce the
documents necessary to conclusively determine damages as well as their overall behavior in this
arbitration, this inference is warranted. “An unfavorable inference may be drawn when … a party
fails to produce evidence which is within its control and which it is naturally expected to produce.”
Seward Park Hous. Corp. v. Cohen, 287 A.D.2d 157, 168 (1st Dep’t 2001) (citations omitted).
Accordingly, Claimants respectfully ask that the Arbitrator accept the proffered inference
of earnings for the calculation of expectation damages based on the repeatedly-represented 30%
return that comports to the minimum annual return based on the guarantee, for a total of
$10,202,363 plus statutory interest. See Claimants Brief at 26. The alternative – to let Respondents
flout this arbitration and play games with their financials and their production, then claim that
damages beyond 6% cannot be proven (despite evidence to the contrary in their own financials)
and thereby voiding the promises and inducements and condoning the aggressive conduct to
transfer of money prior to documentation – would be contrary to all principles of law and equity.
B. Russell, Sandra, and Aracar are all Individually Liable for the Loan
Respondents’ next argument is that only the RussellCar entities are liable for the loan,
arguing that none of the several other interrelated entities that “take advantage of the economic
benefit” of Claimants’ investment are parties to the agreement, and that Russell and Sandra are
also somehow not liable despite being sole owners and controllers of the companies and also both
being named in the Purchase Memorialization. These arguments are largely addressed in
Claimants Brief (and in several prior rounds of briefing including in Claimants’ summary
judgment brief, dated March 23, 2022), but a few additional points must be underscored.
1. Aracar is Clearly (and Admittedly) a Related Entity
The relationships between the various companies is documented in Claimants Brief, where
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voluminous testimony and documentary evidence proves that RussellCar funded Aracar, that
Respondents held Aracar out as a parent or subsidiary of RussellCar, and that money flowed freely
between the entities. See, e.g., initial offering memorandum and fundraising presentations of
Aracar. Ex. 58 at K, H-N and Ex. 31 at 3-4; Russell Tr. at 52:25-54:20, 98:2-101:13, 128:14-
129:21. Marc also testified repeatedly that RussellCar and Aracar were connected entities –
testimony that Respondents never bothered to refute. See Marc Tr. at 135:2-25 (“they’re the
same”); 114:7-115:1; 116:16-120:4. Finally, Respondents’ primary defense in this case has been
that Claimants allegedly converted their loan debt into shares of Aracar, the same company they
claim only has a relationship if it results in their being excused from paying their debts, but
apparently no relationship, if not.
Moreover, both entities are under the control of Russell and Sandra, as Russell testified
that he and Sandra own and control both Aracar and RussellCar – that he is “in charge” of Aracar,
has “ultimate decision-making power” over the company, and “can veto anything.” Russell Tr.
121:17-25, 122:1-23; see also 18:12-20; 133:6-18; 142:2-6; 153-19-154:11; 203:4-7, Exs. 65, 67.
This argument is as meritless as it is disingenuous, and should be disregarded.
2. Russell is Equitably Estopped from Denying Individual Liability on the Note
Russell made the personal guarantee of receiving $1 million in cashflows within three years
to induce Claimants into making the loan, and it is clear that they relied upon it (and other
representations and reassurances) in doing so. Under New York law, this is sufficient to bind
Russell to the total liability flowing from the agreement and his misconduct:
[I]f … the defendant promised the plaintiffs that he would also personally
guarantee the bank loan and become a signatory of the indemnification agreement,
and, as plaintiffs contend, they relied on that promise in executing their individual
guarantees, then such reliance would generate the consideration necessary to
validate the indemnity agreement as to all parties thereto, including the defendant.
Next, such promises, if established, would create an equitable estoppel effectively
precluding defendant from relying on his conduct as a defense to plaintiffs’ action.
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Holt v. Feigenbaum, 75 A.D.2d 676, 676 (3d Dep’t 1980) (emphasis added); see also Gray v. Met
Contracting Corp., 4 A.D.2d 495, 497 (1st Dep’t 1957).
3. Both Russell and Sandra Are Also Equitably Liable
Irrespective of the guarantee, Russell and Sandra are nevertheless liable under equitable
theories of quasi-contract such as promissory estoppel or unjust enrichment.5
The elements of promissory estoppel are: (i) a sufficiently clear and unambiguous promise;
(ii) reasonable reliance on the promise; and (iii) injury caused by the reliance. See, e.g., Castellotti
v. Free, 138 A.D.3d 198, 204 (1st Dep’t 2016); Williams v. Eason, 49 A.D.3d 866, 868 (2d Dep’t
2008). The elements of unjust enrichment are simply that Respondents were enriched at
Claimants’ expense, and that it is against equity and good conscience to permit them to retain
Claimants’ money. See, e.g., City of Nassau v. Expedia, Inc., 120 A.D.3d 1178, 1180 (2d Dep’t
2014). Importantly, both doctrines remain available where a party may not otherwise be bound to
an existing written agreement:
[T]here remains an issue of fact as to whether or not the Defendant Marc Bikindou
was also bound by said written rental agreement. If Mr. Bikindou was bound by
said written rental agreement, then the Plaintiff would not be entitled to recover
under the equitable theories of unjust enrichment or promissory estoppel. However,
if the jury or trier of fact determine at trial that Mr. Bikindou was not bound by the
written rental agreement, the Plaintiff may still potentially recover from Mr.
Bikindou under the Court’s broad equitable powers.
Pak v. Jet Lag Prods., Inc., 2016 N.Y. Misc. LEXIS at *32 (Sup. Ct. New York Cty. 2016)
(emphasis added); see also Castellotti, 138 A.D.3d at 204 (promissory estoppel is available even
5
Although these causes of action were not specifically pled in the Statement of Claim, they do
not require proof of additional facts, and Respondents were on notice of equitable causes of
action. See AAA Rule 4(e)iv; see also Chanko v. American Broadcasting Cos., Inc., 27 N.Y.3d
46, 52 (2016) (“the question is whether plaintiffs have a cause of action, not whether they have
properly labeled or artfully stated one”).
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where contractual liability is otherwise barred, such as by the statute of frauds) (citing Fleet Bank
v. Pine Knoll Corp., 290 A.D.2d 792, 797 (3rd Dep’t 2002); other citations omitted).
As set forth in Claimants’ testimony, Russell and Sandra made a series of specific promises
to Claimants about the promised investment, including inter alia that (i) the business was risk free
due to several specific factors, (ii) the loan was secured by the working assets they funded and
hedged against inflation and currency risk, (iii) Claimants would receive cashflows between 30-
50% (i.e., $300-500k per annum from an initial loan amount of $1 million), and (iv) Claimants
would receive in quarterly payments , guaranteed by Russell, repayment of $1 million within 3
years (34% per annum). Claimants would not have removed a substantial portion of their
diversified, stable returning investment accounts to enter into the loan agreement absent these
promises. See, e.g., Marc Tr. at 164:25-165:8; 169:19-170:16; 171:20-172:3; 174:21-177:3; Day
2 Tr. at 66:21-68:21; 95:15-97:20. As a result, Claimants lost the returns previously generated by
the funds and in order to live, they had to deplete their remaining savings. See, e.g., Marc Tr. at
80:2-81:3. To allow Respondents to keep Claimants’ money would be simply unconscionable.
This is more than sufficient to find individual liability under promissory estoppel, unjust
enrichment, or basic principles of equity.
C. The Conversion Issue Has Been Repeatedly Rejected, and the Aracar Stock is
Worthless (and Certainly Worth less than 3 Years of Marc’s Time)
As set forth in Claimants Brief (and correctly decided in the Arbitrator’s decision dated
June 27, 2022), Respondents have not come close to meeting their burden that Claimants assented
to a conversion of the debt into equity in Respondents’ entities. This has already been determined
in this arbitration, along with the undisputed showing that neither Lisa nor the Trust ever received
any shares.
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1. The Date of the Purported Conversion Changes Again
As set forth in Claimants Brief, Russell submitted contradictory sworn statements on when
the supposed conversion occurred, first starting it occurred in “early 2018,” then to change his
story to “prior to the summer of 2018” and then ultimately to testify at the hearing that it occurred
in “the summer of 2018.” Russell Tr. 258:19-259:6. Respondents changed their story once again,
stating in their post-hearing brief that the supposed conversion occurred “[b]efore the Summer of
2018.” Respondents Brief at 2.
2. The August 2018 Email Proves Nothing
Respondents attempt to exploit an August 2018 email6 wherein Marc – aggrieved from the
dispute and written on the anniversary of his mother’s death – mentions a percentage of Aracar in
the context of complaining about not receiving anything for setting up the company. In
Respondents Brief, they disingenuously cherry-pick a single sentence from the email. See Ex. DD.
This email does not remotely demonstrate the voluntary assent and exercise of the conversion
option by Claimants. It is, however, documentary reinforcement of Claimants’ testimony that
Respondents did not follow the agreement, that Marc did not receive any cash or (as of August
2018) equity for his work for Aracar, and (impliedly) that Sandra is a party to this dispute. As for
any other meaning to be gleaned, it is telling that from all of the extensive testimony Marc gave at
the hearing regarding this email, not a single line was cited in Respondents Brief.
Moreover, the argument that this email is proof of conversion is belied by documentary
evidence. It is undisputed that in September 2019 – more than a year after the alleged conversion
– Russell asked Marc to “convert your russellcar note” into various combinations of cash and
6
Respondents did not mention this email in their dispositive motion papers, and importantly
predates the issuance of Marc’s Aracar stock by several months, undercutting their argument.
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Aracar common shares (which Marc declined). Ex. 12. Respondents have never addressed this
email, nor otherwise attempted to explain why – if their sworn testimony is true – Russell was still
asking Marc and Lisa to convert the note in September 2019. See id.
3. It is Not Even the Correct Amount of Shares
Respondents argue that Marc’s alleged 6,500 shares of Aracar “represent[s] 13% of
Aracar’s outstanding shares, mirroring the formula of equity (instead of debt) as set forth in the
Purchase Memorialization,” implying that this number of shares is somehow indicative of
conversion. Respondents Brief at 24. However, if Marc (and/or Lisa or the Trust, who have never
been alleged to own any shares of RussellCar or Aracar) ever actually did convert the loan debt
into shares of Aracar, they would have received significantly more than 6,500 shares.
Pursuant to the Purchase Memorialization, if Claimants opted to convert the debt into
shares of RussellCar and Aracar, they would be entitled to an amount of stock equal to the
percentage their investment constituted of the combined assets of the companies. If Respondents’
contention that the 13% was somehow a fixed percentage and not simply an illustration of the
conversion formula that Russell devised then there would be no need for the anti-dilution
provision, which was described by Russell to provide protection to Claimants (a minimum of 5%)
in case the company later issued more equity to subsequent investors. See Ex. 1 at 1-2, 4.
Respondents’ offer represented that Claimants’ initial $1 million investment would constitute
(approximately) 10% of RussellCar’s assets, while $1,464,234 would (at the time) be 13.05% of
the company. See id. at 4. However, although the financial documents RussellCar turned over
were scant; they clearly show assets (“activo”) as of August 2018 to be 131,933,425.96 pesos (and
even if the rate was held constant at the 13.7% original exchange rate, the assets would be only
$9,630,177.08), meaning that in August 2018, Claimants’ investment constituted roughly 15.2%
of RussellCar’s value. See Ex. S at 3. As for Aracar, its financials (unaudited for 2018) show
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assets in the amount of $6,583,593 – Claimants’ loan applied to Aracar would be worth over 22%
of the company, or roughly 11,120 of the company’s 50,000 common shares. See Ex. 32 at 5, 11
(pp. 4 and 10 per internal numbering). Quite telling about Aracar’s financial state, in 2019 – the
first year that Aracar’s financials were audited – the company’s assets had dropped by almost $2.5
million, in which case Claimants’ investment would be 35.8%, or nearly 18,000 shares. See id.
Any argument by Respondents that 6,500 shares is evidence of conversion (or repayment
in stock or anything else) is simply nonsensical as it contradicts Russell’s own devised conversion
formula and his email explaining to Marc how it worked.
4. Respondents’ Valuation of the Aracar Stock is Complete Nonsense
In a disingenuous pivot, Respondents next argue that even if Claimants did not convert the
debt into shares of one of the entities, Marc was “paid in full” in the form of 6,500 shares of Aracar,
as Aracar common stock is allegedly valued at $1,000 per share. Respondents Brief at 24.
Although this “valuation” is thoroughly disproven in Claimants Brief, a few points are warranted.
First, by their own arguments they should have over $25 million in purportedly liquid assets
in Aracar stock alone. As such, it speaks volumes as to their history of not paying obligations as
Respondents are even now being accused by their own counsel of making false representations
about their liquidity and ability to pay legal bills in pending motions to withdraw in federal and
state proceedings, as well as allegedly being unable to pay their share of arbitration fees.
Second, the proffered valuation, if true, would be an admission of massive securities fraud
on the part of Aracar. In Respondents Brief, the book values and distinctions between common
versus preferred Aracar stock are hand-waved away; however, these valuations are reported in the
company’s financials and reported to shareholders. Aracar’s balance sheet shows $11.5 million in
liabilities from share capital, denoted as $1.5 million worth of common shares (valued at $30 per
share) and $10 million worth of preferred shares (valued at $1,000 per share). If, as Respondents
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argue, Aracar common stock is actually worth $1,000 per share, that would constitute an
underreporting of liabilities in the amount of $48.5 million – ten times the assets of the entire
company. See Ex. 32 at 5, 11 (pp. 4 and 10 per internal numbering); see also, e.g., ’34 Act §
13(b)(5) and regulations promulgated thereunder.
Third, the assertion that common and preferred Aracar stock are de facto equal in value for
Claimants is belied by documentary evidence. In a March 2020 email, Aracar then-CFO John
Ogle informed Marc that his common shares “that were granted for service” did not have an option
to convert, as opposed to “other investors who paid for the class A” that were given a conversion
option.7 Ex. 16. Even if other shareholders could convert common Aracar shares into preferred,
Marc could not, thus rendering any discussion of the value of preferred shares in 2018 entirely
moot.
Finally, the idea that the price a private startup company can sell common shares to venture
capitalists somehow equates to being the same price that restricted common shares can be sold in
a secondary market (assuming Russell and Sandra allowed it) simply betrays all financial logic
and common sense. Aracar’s (unaudited) financials show that as of December 2018, the company
had zero revenue and a $2.7 million net loss; in the 2019 (audited) financials, the company still
had zero revenue, but the loss had increased to nearly $8 million. See Ex. 32 at 5-7 (pp. 4-6 per
internal numbering). The only positive cash flow the company had was from the issuance of share
capital, which had fallen off precipitously by 2019. See id. at 7(6). Over 90% of the company’s
reported assets were shares in the Argentinian subsidiary Aracar Financiera S.A. (“AFSA”) valued
7
The use of “conversion” is confusing on the facts of this case, but this email references
converting common Aracar shares into class A (preferred) shares (specifically, Marc not being
able to do that), and not conversion of the loan into equity.
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at $3.7 million, despite AFSA reporting an accumulated deficit in excess of $3.8 million, not to
mention AFSA’s multiple troubling issues noted by the auditors. See id. at 5, 9 (4, 8), 13-14 (audit
committee report).
How Russell convinced someone to pay $1,000 per share for Aracar preferred stock is
beyond the scope of this arbitration – however the facts remain that that was a different class of
stock than what Marc allegedly had, Marc could not have converted his common shares into
preferred shares, the common shares he allegedly had were worth at most $30 per share, and
realistically both classes of shares were never worth anything on a secondary market; (Marc’s only
avenue to sell them) but certainly not the restricted Canadian company common shares he was
given certificates to, as that entity according to shareholder reports transferred all of its assets to
the “new” Aracar company – a Delaware corporation See, e.g., Ex. 31. This entire argument is
simply baseless.
II. Claimants Have Proven Their Tort Claims
Finally, the tort claims for fraud, fraudulent inducement, and breach of fiduciary duty have
been adequately demonstrated by Claimants. As set forth at length in the testimony and
documentary evidence, both Russell and Sandra repeatedly represented that Claimants’ investment
into RussellCar had no discernable risk, and that they would provide financial information and
make quarterly payments as they agreed. Russell also specifically represented that Claimants
would make $100,000 per year on administrative earnings alone, that the investment would make
$600,000 in profits per year (a 40 percent return), that Claimants could “see any report [they]
want,” and that a $150,000 distribution in the fall of 2016 was a quarterly payment pursuant to the
agreement, when in fact it was an outstanding payment relating to Marc’s unrelated deferred
compensation plan which Russell was Administrator of; in short it was paying Marc with his own
money. . Ex. 4; see also Exs. 1-2; Russell Tr. at 62:9-73:1. At the hearing, Respondents suggested
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that Marc was aware of risks based on an ARAP investor presentation (although for a different
deal that Marc and Lisa had rejected several months before the RussellCar investment and which
ultimately never raised any funds). This has little or no probative value of Marc or Lisa’s
knowledge of the risks of this specific security, which had three main “enhancements”, debt
secured by assets; the guarantee and conversion option; however, it is highly probative of Russell’s
knowledge, along with his prior career in finance where he both worked with convertible debt and
in South America. That Russell knew these risks and still represented the investment as risk-free
is textbook fraud. Moreover, Claimants clearly trusted and relied upon both Sandra and Russell’s
representations in making the loan, as detailed at length in their testimony. Claimants accordingly
are entitled to an award of $1,464,234 plus interest on the fraud and fraudulent inducement claims.
As for breach of fiduciary duty, independent of their familial relationship Russell and
Sandra owed Claimants a fiduciary duty based on their roles as owners and promoters of
RussellCar and their solicitations for investment from Claimants. See, e.g., Roni LLC v. Arfa, 74
A.D.3d 442, 444 (1st Dep’t 2010); see also Toobian v. Golzad, 193 A.D.3d 784, 789-90 (2d Dep’t
2021) (fiduciary relationship found where “the parties enjoyed a relationship founded on trust and
companionship,” evidenced by “an extensive, if informal, business relationship,” and “[t]he degree
to which the plaintiff felt free to seek loans of hundreds of thousands of dollars from the defendant,
and the informality with which those loans were made”). As fiduciaries, they had a duty of loyalty
and a duty of care that they not only violated but intentionally exploited (inter alia) to obtain
Claimants’ money, and even to provide financial information upon reasonable request, and to not
waste or alienate the company’s funds. Claimants accordingly are entitled to an award of
$3,522,437.25 plus interest on the breach of fiduciary duty claim. See Ex. 45 at D.
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CONCLUSION
For the reasons stated herein, Claimants respectfully repeat their request for an award based
on election of remedies jointly and severally against all Respondents in the amount of $10,202,363,
based on the promised 30% return, plus 9% statutory pre-judgement interest, attorney’s fees, costs
of this arbitration, and such other and further relief as the Arbitrator may deem just.
Dated: New York, New York KIM & SERRITELLA LLP
November 22, 2022
By: /s/ James R. Serritella
James R. Serritella
Justin Stone
110 W. 40th Street, 10th Floor
New York, NY 10018
(212) 960-8345
jserritella@kandslaw.com
Attorneys for Claimants
16
Preview
FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 IN ARBITRATION BEFORE THE AMERICAN ARBITRATION ASSOCIATION Marcus Abrams, Clearwater Ventures, Inc., Lisa Abrams, and the Lisa Marie Abrams Revocable Trust, Claimants, AAA Case No. 01-20-0007-3684 -against- Russell Abrams, Sandra Abrams, and “RussellCar and its related entities” defined in the parties’ agreement as “Issuer,” Respondents. CLAIMANTS’ POST-HEARING REPLY BRIEF FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 Table of Contents PRELIMINARY STATEMENT .................................................................................................... 1 ARGUMENT .................................................................................................................................. 3 I. Respondents’ Liability on the Loan is not Meaningfully Disputed ..................................... 3 A. The Contractual Damages are not “Special,” They are Claimants’ Best Estimates (Which are Necessary Due to Respondents’ Fraud) ..................................................... 3 B. Russell, Sandra, and Aracar are all Individually Liable for the Loan........................... 6 C. The Conversion Issue Has Been Repeatedly Rejected, and the Aracar Stock is Worthless (and Certainly Worth less than 3 Years of Marc’s Time) ........................... 9 II. Claimants Have Proven Their Tort Claims ........................................................................ 14 CONCLUSION ............................................................................................................................. 16 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 PRELIMINARY STATEMENT Claimants loaned Respondents Russell Abrams (“Russell”) and Sandra Abrams (“Sandra”) over $1.4 million to expand their already successful taxi business, and never received a cent back. When they tried to recover their money, they were laughed off. In this arbitration Respondents have engaged in multiple delays, used a rotation of lawyers (who have each advanced frivolous and contradictory arguments), failed to pay their portion of the AAA fees and otherwise acted with dishonesty and disdain for the rule of law. Even their latest set of attorneys (like their predecessors) are seeking to withdraw from representation, accusing both Russell and Sandra of breaking promises and making misrepresentations to them, among other improprieties. None of Claimants’ allegations are credibly refuted in Respondents’ post-hearing brief (“Respondents Brief”), and most of them are not refuted at all. Even as to damages there is little real dispute, because (as Respondents do not dispute) no quarterly payments were ever made. The contractual damages are at least $2,939,976.31, as determined from Respondents’ (fraudulent and incomplete) financial reports; to the extent Claimants are able to estimate Respondents’ actual earnings based on their contemporaneous and under oath statements—they range from 15% ($3,559,540) to 22.7% ($4,591,082.97) to 30% ($10,202,363), all of which are supported by testimony and documentary evidence. Before responding to the arguments that are presented in Respondents’ latest brief, here are some of the arguments Respondents have advanced and since abandoned in this arbitration:1 The amount of the loan – After Arbitrator Felsenfeld asked the parties to confirm the amount of the loan, Respondents (through prior counsel Peter Kirwin), in an email dated May 25, 2022, asserted “the principal amount should be $1,460,000.00….” Respondents acknowledge a debt of $1,464,234 in all subsequent submissions, including Respondents 1 Should Respondents subsequently seek to bring up any of these apparently abandoned arguments for the first time in their reply papers, Claimants respectfully ask for leave to respond. 1 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 Brief. See, e.g., Respondents Brief at 2 n.1 and passim. Anticipatory breach – During the dispositive motions, Respondents argued that the principal was not due until the maturity date of the loan, causing Arbitrator Felsenfeld to request additional briefing on the point of law. Now this argument has been abandoned. Alleged payments on the loan – In his sworn testimony, Russell claimed (falsely and for the first time in this arbitration) that some payments on the loan were made to Claimants. See Russell Tr. 61:18-63.7; 218:16-25. These false statements (which were contradicted by Claimants’ testimony, Respondent’s own expert, Sandra, and the available documentary evidence) do not appear in Respondents Brief. These abandoned allegations and arguments are all notable for the picture they paint of Respondents’ bad faith and time-wasting tactics in this arbitration. While Claimants’ allegations have remained consistent, Respondents have ran through a myriad of stories and defenses, slinging everything they can while abandoning anything that does not stick. This behavior cannot be permitted and certainly not rewarded. Respondents’ defenses to contractual liability are transparently meritless, as the conversion argument has been repeatedly disproven, while Russell, Sandra, and Aracar are all clearly liable on the note under multiple legal and equitable grounds. Moreover, the record is rife with false statements and fiduciary violations by Respondents, including (inter alia) repeated representations that the investment were backed by assets and thus hedging against any risk of loss, that payments would be made, that financial information and advice would be provided, and that Claimants’ money would go to RussellCar and not anywhere else. Respondents even sent Claimants a distribution from an account they used to pay Marc’s deferred compensation and falsely told him it was a quarterly payment – vile behavior by anyone, but absolutely disgusting considering that it was committed against Respondents’ family. Accordingly, Claimants repeat their request for an award based on their damages, plus statutory interest, along with attorneys’ fees and arbitration costs as sanctions for Respondents’ deplorable conduct. 2 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 ARGUMENT I. Respondents’ Liability on the Loan is not Meaningfully Disputed As set forth in Claimants’ post-hearing brief (“Claimants Brief”), Claimants loaned Respondents a total of $1,464,234 based on terms devised and offered by Respondents, inter alia: (i) Respondents would make quarterly payments in an amount pursuant to the parties’ agreement; (ii) Respondents would provide financial information on the RussellCar entities sufficient to allow Claimants to decide whether to loan more money and ultimately exercise their conversion option (and confirm the amount of the quarterly payments); and (iii) Russell’s personal guarantee that at least $1 million would be repaid within three years. Claimants gave Respondents the money based on their trust in Respondents and the cashflows they promised would result. i.e., Respondents promised that 30% annual payments would be made (based on pre-loan cashflows of 15%) which increased to 20% based on the increased fleet size enabled by using the funds (i.e., 200 working taxis to 300); plus an additional 10% on the initial $1 million investment (i.e., $100,000; see Ex. 2) from administrative business revenue. These promised returns were then corroborated by Russell proactively offering his “personal guarantee” in excess of these promised returns but below the 30-50% per annum cashflows he boasted would be ultimately generated. It is undisputed that Claimants lived up to their end of the bargain, while Respondents failed to perform any of their duties under the agreement. A. The Contractual Damages are not “Special,” They are Claimants’ Best Estimates (Which are Necessary Due to Respondents’ Fraud) Respondents have attempted to characterize Claimants’ estimations of damages as “special” or “consequential”. This is a misstatement of both the facts and the law, and in any event ignores Respondents’ repeated failure to provide financials necessary to determine Claimants’ actual damages under the agreement. It is simply unconscionable to allow Respondents to flout 3 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 this arbitration, simply refuse to provide demanded discovery, and then deny liability on the grounds that Claimants have not adequately proved their damages. First, the contractual damages sought by Claimants are not special or consequential.2 Claimants seek only their expectation damages, defined here as the amount they should have been paid had Respondents made the quarterly payments required pursuant to the agreement. And as set forth in Claimants Brief, Claimants’ expectation damages – based on Respondents’ own financials – are $3 million and thus Respondents concede this is the floor for damages. See Claimants Brief at 24, Appendix B. However, this does not begin to tell the whole story. Russell acknowledged that he manipulates RussellCar’s earnings, testifying that “[w]e set our expenses to be a function of our revenues.” Russell Tr. 27:4-5. According to Russell, there are multiple entities through which RussellCar funds flowed, including all of the RussellCar entities, as well as the Aracar entities, Argentina Real Asset Partners (“ARAP”), Titan Capital, and likely other entities. See, e.g., Ex. 41 at ¶5 (RussellCar Inversora “is used to fund the other [RussellCar] entities”); Ex. 58 at K (“russellcar is funding aracar – where do you think the money for aracar is coming from?”); Russell Tr. at 22:11-23:19; 52:21-54:8 (Russell’s testimony as to how Claimants’ money went from Titan Capital to ARAP to RussellCar Inversora and finally to RussellCar SRL); Ex. 2 (money for RussellCar sent to Titan Capital bank account). However, no bank or transaction records were produced, and financials were only produced for RussellCar SRL and CrossTax (both in Spanish)– and even those two entities have 2 Even if these were consequential damages, there is no requirement that such be explicitly included in a written agreement, only that it be “within the contemplation of the parties.” KSW Mech. Servs., Inc. v. Am. Prot. Ins. Co., 40 A.D.3d 709, 711 (2d Dep’t 2007). 4 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 different fiscal years and use different accounting bases, making them difficult if not impossible to reconcile. See Exs. O-V; see also Russell Tr. at 24:10-20. Further making reconciliation impossible is the fact that Russell admitted to manipulating expenses and income, and the Aracar audits indicated several issues with the financials including undocumented and improper intercompany loans and transfers, illegal payments, improper management fees and loans, and other serious issues. See Russell Tr. 27:4-5; Ex. 32 at 13-15.3 This also demonstrates Aracar is a recipient of funds owed to Claimants. Accordingly, the only information we do have regarding RussellCar’s actual earnings – from which Claimants’ quarterly payments were supposed to be calculated – are the representations Respondents repeatedly made to Claimants and others:4 15% ($3,559,540): Earnings as represented in January 2016 (“currently the company is making 15% cash flow”) and in September 2016 (“the baseline business is earning over 15% right now”). Ex. 58 at B, P (emphasis added). 22.7% ($4,591,082.97): Russell guaranteed Claimants would receive $1,000,000 within three years and stated that Claimants would earn “another $100k per year on just the administrative business,” which amounted to approximately 22% (15% current earnings plus an additional $100,000 or 7% of the total investment). See Ex. 2 30% ($10,202,363): Earnings based upon RussellCar earning “about 1,500 USD per yr per vehicle,” with RussellCar owning 300 vehicles, for a total of $450,000 per year (a return of 30.7% on Claimants’ total investment), and corroborated by Russell’s personal guarantee of $1 million in 3 years. Ex. 58 at P; see also Russell Tr. at 22:2-3; 23:24-24:1 (RussellCar entities own 300 taxis). Claimants also repeatedly testified that Respondents orally represented present and earnings of 30 percent or more – testimony that Respondents never bothered to refute in their own case-in-chief. See Marc Tr. at 81:14-16, 82:11-13, 84:4-8, 202:6-12, 209:16-210:5. As previously detailed, prior counsel attempted to address these discovery shortcomings, only to 3 be abused by Russell and disrupted by Kirwin. See Ex. 30. It likely does not matter, as Russell’s personal QuickBooks could produce financials saying anything. See Ex. 32 at 14. No tax or other filings were included that could have substantiated any of the data, if accurate. 4 For calculations, see expert reports of Robert Jones, Exs. 45 and 49. 5 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 Any of these numbers would be an appropriate estimation of earnings based on (inter alia) a negative inference as to RussellCar’s true earnings. Given Respondents’ failure to produce the documents necessary to conclusively determine damages as well as their overall behavior in this arbitration, this inference is warranted. “An unfavorable inference may be drawn when … a party fails to produce evidence which is within its control and which it is naturally expected to produce.” Seward Park Hous. Corp. v. Cohen, 287 A.D.2d 157, 168 (1st Dep’t 2001) (citations omitted). Accordingly, Claimants respectfully ask that the Arbitrator accept the proffered inference of earnings for the calculation of expectation damages based on the repeatedly-represented 30% return that comports to the minimum annual return based on the guarantee, for a total of $10,202,363 plus statutory interest. See Claimants Brief at 26. The alternative – to let Respondents flout this arbitration and play games with their financials and their production, then claim that damages beyond 6% cannot be proven (despite evidence to the contrary in their own financials) and thereby voiding the promises and inducements and condoning the aggressive conduct to transfer of money prior to documentation – would be contrary to all principles of law and equity. B. Russell, Sandra, and Aracar are all Individually Liable for the Loan Respondents’ next argument is that only the RussellCar entities are liable for the loan, arguing that none of the several other interrelated entities that “take advantage of the economic benefit” of Claimants’ investment are parties to the agreement, and that Russell and Sandra are also somehow not liable despite being sole owners and controllers of the companies and also both being named in the Purchase Memorialization. These arguments are largely addressed in Claimants Brief (and in several prior rounds of briefing including in Claimants’ summary judgment brief, dated March 23, 2022), but a few additional points must be underscored. 1. Aracar is Clearly (and Admittedly) a Related Entity The relationships between the various companies is documented in Claimants Brief, where 6 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 voluminous testimony and documentary evidence proves that RussellCar funded Aracar, that Respondents held Aracar out as a parent or subsidiary of RussellCar, and that money flowed freely between the entities. See, e.g., initial offering memorandum and fundraising presentations of Aracar. Ex. 58 at K, H-N and Ex. 31 at 3-4; Russell Tr. at 52:25-54:20, 98:2-101:13, 128:14- 129:21. Marc also testified repeatedly that RussellCar and Aracar were connected entities – testimony that Respondents never bothered to refute. See Marc Tr. at 135:2-25 (“they’re the same”); 114:7-115:1; 116:16-120:4. Finally, Respondents’ primary defense in this case has been that Claimants allegedly converted their loan debt into shares of Aracar, the same company they claim only has a relationship if it results in their being excused from paying their debts, but apparently no relationship, if not. Moreover, both entities are under the control of Russell and Sandra, as Russell testified that he and Sandra own and control both Aracar and RussellCar – that he is “in charge” of Aracar, has “ultimate decision-making power” over the company, and “can veto anything.” Russell Tr. 121:17-25, 122:1-23; see also 18:12-20; 133:6-18; 142:2-6; 153-19-154:11; 203:4-7, Exs. 65, 67. This argument is as meritless as it is disingenuous, and should be disregarded. 2. Russell is Equitably Estopped from Denying Individual Liability on the Note Russell made the personal guarantee of receiving $1 million in cashflows within three years to induce Claimants into making the loan, and it is clear that they relied upon it (and other representations and reassurances) in doing so. Under New York law, this is sufficient to bind Russell to the total liability flowing from the agreement and his misconduct: [I]f … the defendant promised the plaintiffs that he would also personally guarantee the bank loan and become a signatory of the indemnification agreement, and, as plaintiffs contend, they relied on that promise in executing their individual guarantees, then such reliance would generate the consideration necessary to validate the indemnity agreement as to all parties thereto, including the defendant. Next, such promises, if established, would create an equitable estoppel effectively precluding defendant from relying on his conduct as a defense to plaintiffs’ action. 7 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 Holt v. Feigenbaum, 75 A.D.2d 676, 676 (3d Dep’t 1980) (emphasis added); see also Gray v. Met Contracting Corp., 4 A.D.2d 495, 497 (1st Dep’t 1957). 3. Both Russell and Sandra Are Also Equitably Liable Irrespective of the guarantee, Russell and Sandra are nevertheless liable under equitable theories of quasi-contract such as promissory estoppel or unjust enrichment.5 The elements of promissory estoppel are: (i) a sufficiently clear and unambiguous promise; (ii) reasonable reliance on the promise; and (iii) injury caused by the reliance. See, e.g., Castellotti v. Free, 138 A.D.3d 198, 204 (1st Dep’t 2016); Williams v. Eason, 49 A.D.3d 866, 868 (2d Dep’t 2008). The elements of unjust enrichment are simply that Respondents were enriched at Claimants’ expense, and that it is against equity and good conscience to permit them to retain Claimants’ money. See, e.g., City of Nassau v. Expedia, Inc., 120 A.D.3d 1178, 1180 (2d Dep’t 2014). Importantly, both doctrines remain available where a party may not otherwise be bound to an existing written agreement: [T]here remains an issue of fact as to whether or not the Defendant Marc Bikindou was also bound by said written rental agreement. If Mr. Bikindou was bound by said written rental agreement, then the Plaintiff would not be entitled to recover under the equitable theories of unjust enrichment or promissory estoppel. However, if the jury or trier of fact determine at trial that Mr. Bikindou was not bound by the written rental agreement, the Plaintiff may still potentially recover from Mr. Bikindou under the Court’s broad equitable powers. Pak v. Jet Lag Prods., Inc., 2016 N.Y. Misc. LEXIS at *32 (Sup. Ct. New York Cty. 2016) (emphasis added); see also Castellotti, 138 A.D.3d at 204 (promissory estoppel is available even 5 Although these causes of action were not specifically pled in the Statement of Claim, they do not require proof of additional facts, and Respondents were on notice of equitable causes of action. See AAA Rule 4(e)iv; see also Chanko v. American Broadcasting Cos., Inc., 27 N.Y.3d 46, 52 (2016) (“the question is whether plaintiffs have a cause of action, not whether they have properly labeled or artfully stated one”). 8 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 where contractual liability is otherwise barred, such as by the statute of frauds) (citing Fleet Bank v. Pine Knoll Corp., 290 A.D.2d 792, 797 (3rd Dep’t 2002); other citations omitted). As set forth in Claimants’ testimony, Russell and Sandra made a series of specific promises to Claimants about the promised investment, including inter alia that (i) the business was risk free due to several specific factors, (ii) the loan was secured by the working assets they funded and hedged against inflation and currency risk, (iii) Claimants would receive cashflows between 30- 50% (i.e., $300-500k per annum from an initial loan amount of $1 million), and (iv) Claimants would receive in quarterly payments , guaranteed by Russell, repayment of $1 million within 3 years (34% per annum). Claimants would not have removed a substantial portion of their diversified, stable returning investment accounts to enter into the loan agreement absent these promises. See, e.g., Marc Tr. at 164:25-165:8; 169:19-170:16; 171:20-172:3; 174:21-177:3; Day 2 Tr. at 66:21-68:21; 95:15-97:20. As a result, Claimants lost the returns previously generated by the funds and in order to live, they had to deplete their remaining savings. See, e.g., Marc Tr. at 80:2-81:3. To allow Respondents to keep Claimants’ money would be simply unconscionable. This is more than sufficient to find individual liability under promissory estoppel, unjust enrichment, or basic principles of equity. C. The Conversion Issue Has Been Repeatedly Rejected, and the Aracar Stock is Worthless (and Certainly Worth less than 3 Years of Marc’s Time) As set forth in Claimants Brief (and correctly decided in the Arbitrator’s decision dated June 27, 2022), Respondents have not come close to meeting their burden that Claimants assented to a conversion of the debt into equity in Respondents’ entities. This has already been determined in this arbitration, along with the undisputed showing that neither Lisa nor the Trust ever received any shares. 9 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 1. The Date of the Purported Conversion Changes Again As set forth in Claimants Brief, Russell submitted contradictory sworn statements on when the supposed conversion occurred, first starting it occurred in “early 2018,” then to change his story to “prior to the summer of 2018” and then ultimately to testify at the hearing that it occurred in “the summer of 2018.” Russell Tr. 258:19-259:6. Respondents changed their story once again, stating in their post-hearing brief that the supposed conversion occurred “[b]efore the Summer of 2018.” Respondents Brief at 2. 2. The August 2018 Email Proves Nothing Respondents attempt to exploit an August 2018 email6 wherein Marc – aggrieved from the dispute and written on the anniversary of his mother’s death – mentions a percentage of Aracar in the context of complaining about not receiving anything for setting up the company. In Respondents Brief, they disingenuously cherry-pick a single sentence from the email. See Ex. DD. This email does not remotely demonstrate the voluntary assent and exercise of the conversion option by Claimants. It is, however, documentary reinforcement of Claimants’ testimony that Respondents did not follow the agreement, that Marc did not receive any cash or (as of August 2018) equity for his work for Aracar, and (impliedly) that Sandra is a party to this dispute. As for any other meaning to be gleaned, it is telling that from all of the extensive testimony Marc gave at the hearing regarding this email, not a single line was cited in Respondents Brief. Moreover, the argument that this email is proof of conversion is belied by documentary evidence. It is undisputed that in September 2019 – more than a year after the alleged conversion – Russell asked Marc to “convert your russellcar note” into various combinations of cash and 6 Respondents did not mention this email in their dispositive motion papers, and importantly predates the issuance of Marc’s Aracar stock by several months, undercutting their argument. 10 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 Aracar common shares (which Marc declined). Ex. 12. Respondents have never addressed this email, nor otherwise attempted to explain why – if their sworn testimony is true – Russell was still asking Marc and Lisa to convert the note in September 2019. See id. 3. It is Not Even the Correct Amount of Shares Respondents argue that Marc’s alleged 6,500 shares of Aracar “represent[s] 13% of Aracar’s outstanding shares, mirroring the formula of equity (instead of debt) as set forth in the Purchase Memorialization,” implying that this number of shares is somehow indicative of conversion. Respondents Brief at 24. However, if Marc (and/or Lisa or the Trust, who have never been alleged to own any shares of RussellCar or Aracar) ever actually did convert the loan debt into shares of Aracar, they would have received significantly more than 6,500 shares. Pursuant to the Purchase Memorialization, if Claimants opted to convert the debt into shares of RussellCar and Aracar, they would be entitled to an amount of stock equal to the percentage their investment constituted of the combined assets of the companies. If Respondents’ contention that the 13% was somehow a fixed percentage and not simply an illustration of the conversion formula that Russell devised then there would be no need for the anti-dilution provision, which was described by Russell to provide protection to Claimants (a minimum of 5%) in case the company later issued more equity to subsequent investors. See Ex. 1 at 1-2, 4. Respondents’ offer represented that Claimants’ initial $1 million investment would constitute (approximately) 10% of RussellCar’s assets, while $1,464,234 would (at the time) be 13.05% of the company. See id. at 4. However, although the financial documents RussellCar turned over were scant; they clearly show assets (“activo”) as of August 2018 to be 131,933,425.96 pesos (and even if the rate was held constant at the 13.7% original exchange rate, the assets would be only $9,630,177.08), meaning that in August 2018, Claimants’ investment constituted roughly 15.2% of RussellCar’s value. See Ex. S at 3. As for Aracar, its financials (unaudited for 2018) show 11 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 assets in the amount of $6,583,593 – Claimants’ loan applied to Aracar would be worth over 22% of the company, or roughly 11,120 of the company’s 50,000 common shares. See Ex. 32 at 5, 11 (pp. 4 and 10 per internal numbering). Quite telling about Aracar’s financial state, in 2019 – the first year that Aracar’s financials were audited – the company’s assets had dropped by almost $2.5 million, in which case Claimants’ investment would be 35.8%, or nearly 18,000 shares. See id. Any argument by Respondents that 6,500 shares is evidence of conversion (or repayment in stock or anything else) is simply nonsensical as it contradicts Russell’s own devised conversion formula and his email explaining to Marc how it worked. 4. Respondents’ Valuation of the Aracar Stock is Complete Nonsense In a disingenuous pivot, Respondents next argue that even if Claimants did not convert the debt into shares of one of the entities, Marc was “paid in full” in the form of 6,500 shares of Aracar, as Aracar common stock is allegedly valued at $1,000 per share. Respondents Brief at 24. Although this “valuation” is thoroughly disproven in Claimants Brief, a few points are warranted. First, by their own arguments they should have over $25 million in purportedly liquid assets in Aracar stock alone. As such, it speaks volumes as to their history of not paying obligations as Respondents are even now being accused by their own counsel of making false representations about their liquidity and ability to pay legal bills in pending motions to withdraw in federal and state proceedings, as well as allegedly being unable to pay their share of arbitration fees. Second, the proffered valuation, if true, would be an admission of massive securities fraud on the part of Aracar. In Respondents Brief, the book values and distinctions between common versus preferred Aracar stock are hand-waved away; however, these valuations are reported in the company’s financials and reported to shareholders. Aracar’s balance sheet shows $11.5 million in liabilities from share capital, denoted as $1.5 million worth of common shares (valued at $30 per share) and $10 million worth of preferred shares (valued at $1,000 per share). If, as Respondents 12 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 argue, Aracar common stock is actually worth $1,000 per share, that would constitute an underreporting of liabilities in the amount of $48.5 million – ten times the assets of the entire company. See Ex. 32 at 5, 11 (pp. 4 and 10 per internal numbering); see also, e.g., ’34 Act § 13(b)(5) and regulations promulgated thereunder. Third, the assertion that common and preferred Aracar stock are de facto equal in value for Claimants is belied by documentary evidence. In a March 2020 email, Aracar then-CFO John Ogle informed Marc that his common shares “that were granted for service” did not have an option to convert, as opposed to “other investors who paid for the class A” that were given a conversion option.7 Ex. 16. Even if other shareholders could convert common Aracar shares into preferred, Marc could not, thus rendering any discussion of the value of preferred shares in 2018 entirely moot. Finally, the idea that the price a private startup company can sell common shares to venture capitalists somehow equates to being the same price that restricted common shares can be sold in a secondary market (assuming Russell and Sandra allowed it) simply betrays all financial logic and common sense. Aracar’s (unaudited) financials show that as of December 2018, the company had zero revenue and a $2.7 million net loss; in the 2019 (audited) financials, the company still had zero revenue, but the loss had increased to nearly $8 million. See Ex. 32 at 5-7 (pp. 4-6 per internal numbering). The only positive cash flow the company had was from the issuance of share capital, which had fallen off precipitously by 2019. See id. at 7(6). Over 90% of the company’s reported assets were shares in the Argentinian subsidiary Aracar Financiera S.A. (“AFSA”) valued 7 The use of “conversion” is confusing on the facts of this case, but this email references converting common Aracar shares into class A (preferred) shares (specifically, Marc not being able to do that), and not conversion of the loan into equity. 13 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 at $3.7 million, despite AFSA reporting an accumulated deficit in excess of $3.8 million, not to mention AFSA’s multiple troubling issues noted by the auditors. See id. at 5, 9 (4, 8), 13-14 (audit committee report). How Russell convinced someone to pay $1,000 per share for Aracar preferred stock is beyond the scope of this arbitration – however the facts remain that that was a different class of stock than what Marc allegedly had, Marc could not have converted his common shares into preferred shares, the common shares he allegedly had were worth at most $30 per share, and realistically both classes of shares were never worth anything on a secondary market; (Marc’s only avenue to sell them) but certainly not the restricted Canadian company common shares he was given certificates to, as that entity according to shareholder reports transferred all of its assets to the “new” Aracar company – a Delaware corporation See, e.g., Ex. 31. This entire argument is simply baseless. II. Claimants Have Proven Their Tort Claims Finally, the tort claims for fraud, fraudulent inducement, and breach of fiduciary duty have been adequately demonstrated by Claimants. As set forth at length in the testimony and documentary evidence, both Russell and Sandra repeatedly represented that Claimants’ investment into RussellCar had no discernable risk, and that they would provide financial information and make quarterly payments as they agreed. Russell also specifically represented that Claimants would make $100,000 per year on administrative earnings alone, that the investment would make $600,000 in profits per year (a 40 percent return), that Claimants could “see any report [they] want,” and that a $150,000 distribution in the fall of 2016 was a quarterly payment pursuant to the agreement, when in fact it was an outstanding payment relating to Marc’s unrelated deferred compensation plan which Russell was Administrator of; in short it was paying Marc with his own money. . Ex. 4; see also Exs. 1-2; Russell Tr. at 62:9-73:1. At the hearing, Respondents suggested 14 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 that Marc was aware of risks based on an ARAP investor presentation (although for a different deal that Marc and Lisa had rejected several months before the RussellCar investment and which ultimately never raised any funds). This has little or no probative value of Marc or Lisa’s knowledge of the risks of this specific security, which had three main “enhancements”, debt secured by assets; the guarantee and conversion option; however, it is highly probative of Russell’s knowledge, along with his prior career in finance where he both worked with convertible debt and in South America. That Russell knew these risks and still represented the investment as risk-free is textbook fraud. Moreover, Claimants clearly trusted and relied upon both Sandra and Russell’s representations in making the loan, as detailed at length in their testimony. Claimants accordingly are entitled to an award of $1,464,234 plus interest on the fraud and fraudulent inducement claims. As for breach of fiduciary duty, independent of their familial relationship Russell and Sandra owed Claimants a fiduciary duty based on their roles as owners and promoters of RussellCar and their solicitations for investment from Claimants. See, e.g., Roni LLC v. Arfa, 74 A.D.3d 442, 444 (1st Dep’t 2010); see also Toobian v. Golzad, 193 A.D.3d 784, 789-90 (2d Dep’t 2021) (fiduciary relationship found where “the parties enjoyed a relationship founded on trust and companionship,” evidenced by “an extensive, if informal, business relationship,” and “[t]he degree to which the plaintiff felt free to seek loans of hundreds of thousands of dollars from the defendant, and the informality with which those loans were made”). As fiduciaries, they had a duty of loyalty and a duty of care that they not only violated but intentionally exploited (inter alia) to obtain Claimants’ money, and even to provide financial information upon reasonable request, and to not waste or alienate the company’s funds. Claimants accordingly are entitled to an award of $3,522,437.25 plus interest on the breach of fiduciary duty claim. See Ex. 45 at D. 15 FILED: NEW YORK COUNTY CLERK 02/25/2023 06:43 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 68 RECEIVED NYSCEF: 02/25/2023 CONCLUSION For the reasons stated herein, Claimants respectfully repeat their request for an award based on election of remedies jointly and severally against all Respondents in the amount of $10,202,363, based on the promised 30% return, plus 9% statutory pre-judgement interest, attorney’s fees, costs of this arbitration, and such other and further relief as the Arbitrator may deem just. Dated: New York, New York KIM & SERRITELLA LLP November 22, 2022 By: /s/ James R. Serritella James R. Serritella Justin Stone 110 W. 40th Street, 10th Floor New York, NY 10018 (212) 960-8345 jserritella@kandslaw.com Attorneys for Claimants 16