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1 AKERMAN LLP
Donald N. David (SBN: 264142)
2 Email: donald.david@akerman.com
1251 Avenue of the Americas, 37th Floor
3
New York, New York 10020
4 Telephone: (212) 880-3800
Facsimile: (212) 880-8965
5
Joshua R. Mandell (SBN: 225269)
6 Email: joshua.mandell@akerman.com
633 West Fifth Street, Suite 6400
7
Los Angeles, California 90071
8 Telephone: (213) 688-9500
Facsimile: (213) 627-6342
9
Attorneys for Plaintiffs
10
11
TEL.: (213) 688-9500 – FAX: (213) 627-6342
12 SUPERIOR COURT OF THE STATE OF CALIFORNIA
633 WEST FIFTH STREET, SUITE 6400
LOS ANGELES, CALIFORNIA 90071
13 FOR THE COUNTY OF LOS ANGELES
AKERMAN LLP
14
15 CODEIBEL, LLC, a Missouri limited liability Case No.
company; and CODESMITH HOLDINGS,
16 LLC, a Delaware limited liability company, VERIFIED COMPLAINT FOR
DECLARATORY JUDGMENT AND
17 Plaintiffs, INJUNCTIVE RELIEF
18 v.
19 CODESMITH, LLC, a Delaware limited
liability company,
20
Defendant.
21
22
23 Plaintiff Codeibel, LLC (“Codeibel” or "Plaintiff") and Codesmith Holdings, LLC
24 (“Holdings”) (together collectively, “Plaintiffs”), for their complaint against Defendant Codesmith,
25 LLC (“Codesmith,” the “Company,” or “Defendant”), by their attorneys, Akerman LLP, allege on
26 knowledge of their own acts and otherwise on information and belief, as follows:
27
28
1
COMPLAINT
75485758;4
1 NATURE OF THE ACTION
2 1. Plaintiff Codeibel brings this action for declaratory judgment and injunctive
3 relief on grounds that Defendant Codesmith refuses to redeem the collateral pledged by Codeibel in a
4 secured transaction, specifically consisting of Codeibel’s membership interests in Codesmith, despite
5 Codeibel’s tender of payment in full satisfaction of its obligations to the Company.
6 2. Defendant has offered no explanation or rationale to justify its refusal to redeem
7 the pledged security comprised of Codeibel’s membership interests, but instead inexplicably and
8 unreasonably claims that it intends to foreclose on such security interests, auction them or take actual
9 possession thereof.
10 3. As explained herein, Defendant’s refusals – taken together and in context of
11 Codeibel’s discovery and investigation of undisclosed and irregular equity transactions executed
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12 between Codesmith’s founder and its chief executive officer, comprise a breach of the duties owed to
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13 Plaintiffs and comprise irreparable harm to Plaintiffs,
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14 4. Defendant’s threatened summary disposition of Codeibel's membership
15 interests, without offering it an opportunity to redeem, is violative of both the parties’ agreement and
16 the California Commercial Code.
17 5. Plaintiff accordingly seeks the Court’s direction in obtaining a declaratory
18 judgment stating Codeibel’s right to redeem, and injunctive relief preventing Defendant’s disposition
19 of Codeibel’s pledged membership interests pending adjudication.
20 6. Defendant’s inability to explain or justify the threatened foreclosure, auction or
21 transfer such pledged security is clearly not motivated by any legitimate desire to satisfy Plaintiff’s
22 monetary obligations – which Defendant could do simply by cashing the check Plaintiff has already
23 provided – but rather is fixated on dispossessing Plaintiff of its membership interests and removing
24 Plaintiff from the Company on pretext and without valid cause.
25 JURISDICTION AND VENUE
26 7. Jurisdiction is proper in the Superior Court of the State of California for the
27 County of Los Angeles pursuant to Code of Civil Procedure section 410.10 and the terms of the
28 Promissory Note and Pledge Agreement.
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COMPLAINT
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1 8. Venue is proper in the County of Los Angeles pursuant to Code of Civil
2 Procedure section 395.5 because the Company is located in the County of Los Angeles of California
3 and the terms of the Promissory Note and Pledge Agreement.
4 PARTIES
5 9. Codeibel is a Missouri limited liability company, organized and incorporated
6 on or about August 11, 2015. Codeibel serves as an investment vehicle for the Deibel family, and is
7 managed by Walker Deibel (“Deibel”), the designated managing member. Codeibel is an early
8 investor in, and minority shareholder and member of Codesmith, and the present manager of Holdings.
9 10. Holdings is a Delaware limited liability company, organized and incorporated
10 on or about May 8, 2020. Holdings is a member of Codesmith, representing a consolidation of
11 previous individual investors, like Codeibel.
TEL.: (213) 688-9500 – FAX: (213) 627-6342
12 11. Codesmith is a Delaware limited liability company, first organized in California
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13 on or about January 22, 2015 before being reorganized in Delaware in or about May 2020. Codesmith
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14 owns and operates a computer coding academy based in Los Angeles, California.
15 STATEMENT OF FACTS
16 II. PLAINTIFFS SEE PROMISE IN CODESMITH AND INVEST DURING THE
17 STARTUP PHASE
18 A. Codeibel
19 12. Codesmith began as a humble startup. It was founded on or about January 22,
20 2015, as a member-managed limited liability company, by its founder and (now former) chairman,
21 Chad Troutwine (“Troutwine”).
22 13. The Company was founded as a member-managed limited liability company.
23 14. As is typical of startups, two of the Company’s chief officers – specifically, its
24 Chief Executive Officer, William Sentance (“Sentance”), and its Chief Technology Officer, Alexander
25 Zai (“Zai”) – joined Troutwine as minority shareholders and members.
26 15. Upon information and belief, Troutwine initially held 100% of the Class A
27 Membership Interests of the Company before transferring 25% to Sentance, and 5% to Zai (leaving
28 Troutwine with 70%).
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COMPLAINT
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1 16. Seeing promise in Codesmith, Codeibel provided an early capital infusion to
2 the Company in the summer of 2015, in exchange for its own pro rata share of equity and membership.
3 17. The Company contemporaneously adopted its Amended and Restated
4 Operating Agreement, executed on August 20, 2015 (the “2015 Codesmith Operating Agreement”),
5 pursuant to which Codeibel contributed $475,000 to Codesmith in exchange for a pro rata percentage
6 of 19%. See Exhibit (“Ex.”) 1, 2015 Codesmith Operating Agreement, § 4.1(d).
7 18. Troutwine retained 51% of the Company’s membership interests following the
8 transaction, with Codesmith’s Chief Executive Officer, William Sentance maintaining 25% and its
9 Chief Technology Officer, Alexander Zai maintaining 5%. Id., Schedule A.
10 19. The number of shareholders in Codesmith more than doubled in the years
11 following Codeibel’s investment.
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12 20. From approximately June 2017 to January 2018, Codesmith’s founder,
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13 Troutwine, sold and transferred a collective 8% of the equity in Codesmith – sourced from his 51% –
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14 to five additional individuals and entities: RR Capital Partners II, LLC (“RR Capital”); Dominique
15 Foxworth (“Foxworth”); Sean P. Glass Revocable Trust (“Glass Trust”); Brain Family Holding
16 Company (“Brain Family Holding”) and Peter Glass (“Glass”).
17 21. These transactions increased the number of shareholders in the Company from
18 four to nine, and left Troutwine holding approximately 43% of the Company’s equity. Codeibel’s
19 equity interests remained unchanged, at 19%.
20 B. Holdings
21 22. In late 2019 and early 2020, Troutwine proposed organizing seven of
22 Codesmith’s shareholders and members – all but Sentance and Zai – into a single entity, Holdings.
23 23. Troutwine explained to Codeibel and the other investors that “consolidating”
24 the shareholders into Holdings in this way, and thereafter substituting Holdings as a single member
25 within Codesmith, would engender efficiencies, principally by allowing Sentance, on behalf of
26 Codesmith, to communicate with the Holdings’ members collectively through a single point of contact.
27 24. Under the arrangement, the investors would be issued their own membership
28 interests in Holdings on a pro rata basis relative their respective equity in Codesmith. For example,
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COMPLAINT
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1 as the contemplated Holdings members held a collective 70% of the membership interests in
2 Codesmith, and Codeibel held 19% of that 70%, Codeibel's anticipated membership interest would be
3 27.14% (i.e., 19/70ths).
4 25. The investors agreed to Troutwine’s proposal, and Holdings was incorporated
5 as a manager-managed limited liability company in California on December 23, 2019, with Troutwine
6 appointed as sole manager.
7 26. Troutwine, Codeibel, and the other investors, excepting Sentance and Zai, then
8 transferred and consolidated their separate interests in Codesmith into Holdings over the next several
9 months.
10 27. Holdings was officially organized pursuant the Operating Agreement of
11 Codesmith Holdings, LLC, dated January 5, 2020 (the “Holdings Operating Agreement”). See Ex. 2.
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12 28. The operating agreement memorialized that, as of that date, Holdings had issued
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13 a total of 10,000 Class A Membership Units, with Troutwine holding 6,143 (61.43%), Codeibel with
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14 2,714 (27.14%), Glass Trust with 142 (1.42%), RR Capital with 286 (2.86%), Foxworth with 142
15 (1.42%), Brain Family Holding with 500 (5.00%), and Glass with 71 (7.1%). Id.
16 29. Concurrently with the organization of Holdings, Codesmith converted from a
17 California limited liability company to a Delaware limited liability company.
18 30. On or about May 8, 2020, Codesmith adopted a new Limited Liability Company
19 Operating Agreement (the “2020 Codesmith Operating Agreement”), pursuant to which Holdings was
20 designated a member of the Company in place of its constituent members, thereby completing the
21 consolidation. See Ex. 3, Schedule A.
22 31. Per the membership schedule attached, Holdings held 7,000,000 of the
23 Company’s 12,325,000 Class 1 Units, making Holdings the majority member (and manager) of
24 Codesmith with approximately 51%. Id.
25 III. THE SECURED TRANSACTIONS
26 32. On or about January 27, 2017, Troutwine received a distribution from the
27 Company in the amount of $250,800.
28
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COMPLAINT
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1 33. That transaction was later recharacterized as a loan and memorialized in two
2 back-dated documents drafted in 2018: a Secured Promissory Note (the “Troutwine Note”), and a
3 corresponding Membership Interest Pledge Agreement (the “Troutwine Pledge”). See Exs. 4
4 (Troutwine Note), 5 (Troutwine Pledge).
5 34. On or about March 7, 2017, Codeibel received a distribution from the Company
6 in the amount of $185,000. This transaction was also later recharacterized as a loan and memorialized
7 in two back-dated agreements drafted in 2018: the Secured Promissory Note (the “Codeibel Note”),
8 and a corresponding Membership Interest Pledge Agreement (the “Codeibel Pledge”). See Exs. 6
9 (Codeibel Note), 7 (Codeibel Pledge).
10 35. The terms of Troutwine's and Codeibel’s secured “loans” from Codesmith are
11 substantially similar. As reflected in the Troutwine Note and the Codeibel Note (together, the
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12 “Notes”), Troutwine and Codeibel, as “Borrowers,” promised to repay Codesmith the principal
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13 amounts of their loans, together “with interest thereon to be computed from the date of disbursement
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14 under this promissory note… at the rate equal to Applicable Federal Rate for mid-term obligations to
15 be published by the Internal Revenue Service from time to time (the “Interest Rate”)[.]” See Exs. 4
16 and 6 p.1 (preamble).
17 36. Interest was to accrue on the outstanding principal at the defined Interest Rate
18 “at the end if each day on which any amount is outstanding under this Note.” Id., § 1, Interest. The
19 Notes required the Borrowers to pay all outstanding principal and accrued interest on the loan or before
20 a defined “Maturity Date” of January 27, 2017 and March 7, 2021, respectively. Id., p. 1 (preamble).
21 37. Any failure by the Borrowers to timely pay their obligations by the Maturity
22 Date constituted a defined “Event of Default” under the Notes. Id., § 6.1, Events of Default.
23 38. The Notes provided for a number of remedies to Codesmith in the event of the
24 Borrowers’ failure to timely repay the Note in full by the Maturity Date. See id., § 7.1, Rights and
25 Remedies.
26 39. First, Codesmith would be entitled to assess additional interest upon the
27 outstanding principal sum, from the date of default forward, under an increased “Default Rate,”
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COMPLAINT
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1 defined as “the rate of three percent (3.0%) per annum above the Interest Rate[.]” Id., § 2, Default
2 Interest.
3 40. The Notes were also secured by collateral as provided under the corresponding
4 Troutwine Pledge and Codeibel Pledge (together, the “the Pledges”). See Exs. 5 and 7 (Notes), § 3,
5 Security; Definitions; and Construction (defining the “Security Agreement” and “Loan Documents”
6 under the Notes to include the Pledge Agreement, and defining “Collateral,” and “Obligations” to
7 include the Loan Documents). As reflected in the Pledge Agreement, this collateral consisted of the
8 entirety of Codeibel’s 1,900 Class A membership interests in Codesmith at the time, including both
9 the membership interests themselves and all payments, income, distributions, dividends, or other funds
10 to which Codeibel would be entitled on such interests. See Ex. 3, Recitals, and § 1, Grant of Security
11 Interest (defining “Collateral” under the Pledge Agreement)
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12 41. As reflected therein, Troutwine and Codeibel each pledged “all of [their] Class
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13 A Membership Interests in the Pledged Entity,” defined as Codesmith, as well as their corollary voting
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14 rights and rights to distributions and other benefits associated with those membership interests. See
15 Exs 5 and 7, Recitals and § 1, Grant of Security Interest (defining the pledged “Collateral”). The
16 Pledges expressly provided for the scope of Borrowers’ secured obligations on the Notes as follows:
17 Secured Obligations. The obligations secured by this
Agreement (the “Secured Obligations”) are the following:
18
(a) any and all Obligations under the Loan
19
Documents, including the obligations and liabilities of Borrower arising
20 under and pursuant to this Agreement;
21 (b) any and all obligations and liabilities of
Borrower arising under and pursuant to the other Loan Documents;
22
(c) any and all amounts advanced by Lender
23
in order to preserve or protect the Collateral or to perfects it security
24 interest in the Collateral; and
25 (d) in the event of any proceeding to enforce
the collection of the Secured Obligations, the reasonable expenses of
26 retaking, holding, preparing for sale or lease, selling or otherwise
27 disposing of or realizing on the Collateral, or of any exercise by Lender
of its rights in the event of a default under any agreement between
28 Borrower and Lender, together with reasonable attorneys’ fees and court
costs.
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COMPLAINT
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1
See id. § 2, Secured Obligations.
2
42. The Notes and the Pledges each provide that they are governed by and shall be
3
construed in accordance with the laws of California. See Ex. 2, § 11, Governing Law; Consent to
4
Forum and Ex. 3, § 13, Governing Law; Severability.
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43. As such, the Notes and the Pledges are subject to Division 9 of the California
6
Commercial Code, the California law applicable to secured transactions, including but not limited to
7
Section 9623 and Section 9610, which govern the redemption and disposition of the Collateral.
8
IV. TROUTWINE SURREPTITIOUSLY SELLS HIS HOLDINGS’ MEMBERSHIP
9
INTERESTS TO CODESMITH
10
44. Codeibel has recently discovered that, from 2021 to 2022, Troutwine used
11
Holdings as a vehicle to surreptitiously have all or substantially all of his beneficial interest in
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12
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Codesmith redeemed by the Codesmith.
13
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45. Neither Codeibel, nor the other members of Holdings, were ever apprised or
14
made aware of the scope, scale, and consequence of Troutwine’s transactions until Codesmith
15
belatedly distributed its 2021 and 2022 Schedule K-1 tax forms, each of which reflected precipitous
16
declines in Holdings’ memberships interest in Codesmith, ultimately corresponding to the elimination
17
of the Codesmith equity that Troutwine had contributed to Holdings.
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46. By the end of 2021, Holdings' reported interest in Codesmith dropped to 31%.
19
See Ex. 8 (2021 K-1). By the end of 2022, Holdings’ interest fell to 27%. See Ex. 9 (2022 K-1). The
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K-1s further reflected an approximately $4.4 million distribution from Holdings to Troutwine –
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substantially disproportionate to the distributions made to other members of Holdings - during 2022.
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47. Following publication of the K-1s, Codeibel and the other Holdings members
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reached out to Troutwine for information, and to Codesmith’s general counsel, Robert Bryson
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(“Bryson”), to request copies of the Company’s financial information, including annual statements
25
and tax returns, for review.
26
48. During this process, Troutwine represented, among other things, that: (1) the
27
transactions were undertaken in response to Sentance’s “ruthless” demands that more equity be made
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COMPLAINT
75485758;4
1 available for the Company’s employees; (2) Troutwine sold almost the entirety of his ownership
2 interests back to Codesmith, leaving him with only a “fractional share”; (3) Troutwine’s decisions to
3 enter into the transactions were concededly “too unilateral,” to the extent he did not consult with or
4 inform the other members of Holdings of the transactions and/or their true scope and character; (4) a
5 number of the transactions are completely undocumented; and, thus (5) he had been running Holdings,
6 as its sole manager, and interfacing with Sentance, without any membership interest of his own and
7 no skin left in the game.
8 49. For its part, Codesmith also failed – and continues to fail – to furnish the
9 requested financial information to Holdings, representing instead that the Company’s records are a
10 “mess” and that a Certified Public Accountant must first “reconstitute” the Company’s 2021 and/or
11 2022 financials before they can be shared.
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12 50. Codesmith has refused or been unable to provide a capitalization table
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13 confirming the equity ownership of the company by its members.
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14 51. Plaintiffs continue to investigate Troutwine’s transactions with Codesmith, and
15 the possible dilution of membership interests in Codesmith or loss of control effected upon the
16 Holdings’ members as a result.
17 52. Codeibel has issued numerous and repeated demands for information from
18 Codesmith over the last eight (8) months, since at least June of 2023, all of which remain substantially
19 unanswered.
20 53. Troutwine resigned as manager of Holdings in or about January 2024, and
21 Walker Deibel has since assumed the role on behalf of Codeibel, as the holder of Holdings’
22 supermajority interest holder.
23 V. CODESMITH SEEKS TO FORECLOSE UPON HOLDINGS’ MEMBERSHIP
24 INTERESTS WITHOUT BASIS
25 54. In or about October 2023, Codesmith suddenly declared both Troutwine and
26 Codeibel’s in default under the Notes, and demanded that Holdings completely and irrevocably
27 “surrender” to Codesmith a pro rata share of Holdings’ membership interests in the Company
28
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COMPLAINT
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1 equivalent to the 70% of direct Codesmith Class A Membership Interests held by Troutwine and
2 Codeibel back in 2017.
3 55. Codesmith further threatened to initiate foreclosure proceedings if Holdings did
4 not voluntarily relinquish these interests. Alternatively, in other instances it has threatened to either
5 auction such interests or seize them directly.
6 56. This was the Company’s first declaration of default ever issued under the
7 Codeibel Note and, upon information and belief, the first declaration of default ever issued under the
8 Troutwine Note.
9 57. Upon receipt of Codesmith’s declaration and demand, Codeibel promptly
10 engaged with Bryson, specifically to inquire of the payoff amount due on the Codeibel Note, inclusive
11 of any interest assessed at the Default Rate on balances owed past the Maturity Date.
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12 58. Bryson advised Deibel that the total outstanding principal and interest due on
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13 the Codeibel Note, calculated through December 31, 2023, was $216,479.29.
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14 59. Upon information and belief, Troutwine did not substantially respond to the
15 Company’s purported demand under the Troutwine Note, as Troutwine had no interest left in Holdings
16 to protect.
17 60. On December 14, 2023, Codeibel tendered payment to Codesmith in the form
18 of a cashier’s check, in the total amount of $227,303.25, accompanied with an explanatory cover letter
19 (the “Payment Cover Letter”). See Ex. 9 (Payment Cover Letter).
20 61. As Codeibel explained therein, the cashier’s check reflected a total “Payoff
21 Amount” tendered in exchange for redemption of its previously pledged collateral, representing both:
22 (1) Codeibel’s payment of the stated balance on the Codeibel Note, $216,479.29, inclusive of interest
23 calculated to December 31, 2023; and (2) subject to Codesmith’s provision of an accounting under
24 Section 9610 of the California Commercial Code, a 5% premium on the principal, $10,823.96,
25 tendered in good faith to satisfy Codesmith’s collection costs and/or reasonable expenses and
26 attorney’s fees incurred on the Codeibel Note. Id. Codeibel further explained that:
27 The enclosed payment of the Payoff Amount constitutes a
redemption of my collateral pursuant to Cal. Com. Code § 9623 and Cal.
28 Corp. Code § 17302(c)(1). Accordingly, no later than fourteen (14)
days following the date hereof, Codesmith shall: (1) cause the Note to
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COMPLAINT
75485758;4
1 be marked as ‘cancelled’ and returned to me; (2) file such UCC-3
financing statements as may be required to release and terminate all
2 liens and security interests that Codesmith asserts against the collateral,
if any; (3) provide an accounting as required by Cal. Com. Code § 9210;
3
and (4) return any surplus or overpayment to me at the following
4 address: Codeibel, LLC, c/o Walker Deibel, 3 Hillvale Clayton, MO
63105.
5 Id.
6 62. Despite having provided Codeibel with