Preview
1 CHRISTOPHER FROST (SBN 200336)
chris@frostllp.com
2 JOSHUA S. STAMBAUGH (SBN 233834)
josh@frostllp.com
3 NICO L. BRANCOLINI (SBN 318237)
nico@frostllp.com
4 ZACHARY WEST (SBN 335411)
zach@frostllp.com
5 FROST LLP
10960 Wilshire Boulevard, Suite 1260
6 Los Angeles, California 90024
Telephone: (424) 254-0441
7 Facsimile: (424) 600-8504
8 Attorneys for Plaintiffs, MERIDIAN CAPITAL
LLC, M2 GROWTH PARTNERS IV, LLC,
9 OBM PDG, LLC WILMINGTON INVESTORS,
LLC., OMAR MANGALJI, MICHAEL
10 STEINBERG, DAVID MEHLMAN
11
12 SUPERIOR COURT OF THE STATE OF CALIFORNIA
13 COUNTY OF LOS ANGELES, CENTRAL DISTRICT
14
MERIDIAN CAPITAL LLC, a Delaware Case No.:
15 limited liability company; M2 GROWTH
PARTNERS IV, LLC, a Delaware limited
16 liability company; OBM PDG, LLC., a MERIDIAN CAPITAL LLC, M2 GROWTH
California limited liability company; PARTNERS IV, LLC, OBM PDG LLC,
17 WILMINGTON INVESTORS, LLC a WILMINGTON INVESTORS, LLC,
California limited liability company, OMAR OMAR MANGALJI, DAVID MEHLMAN,
18 MANGALJI, an individual; DAVID and MICHAEL STEINBERG’s
MEHLMAN, an individual; MICHAEL COMPLAINT FOR:
19 STEINBERG, an individual;
1. Intentional Interference With
20 Plaintiffs, Contractual Relations
2. Tortious Interference with Prospective
21 vs. Economic Advantage
3. Breach of Fiduciary Duty
22 WILL ABBOTT, an individual; ALEXEY 4. Breach of Fiduciary Duty
MIKHAYLOV, an individual; THOMAS RINI, 5. Fraud (Constructive)
23 an individual; 4E CAPITAL LP, a Canadian 6. Fraudulent Concealment
limited partnership; MEKITA INVESTMENTS 7. Accounting
24
LTD., a Cyprus registered limited company,
25 PHARM CAPITAL, LLC, an Ohio limited
liability company; and DOES 1-10,
26
Defendants.
27
28
24798.3 1
COMPLAINT
1 Plaintiffs Meridian Capital LLC (“Meridian”), M2 Growth Partners IV, LLC (“M2”), OBM
2 PDG, LLC. (“OBM PDG”), Wilmington Investors, LLC (“Wilmington”), Omar Mangalji
3 (“Mangalji”), David Mehlman (“Mehlman”), and Michael Steinberg (“Steinberg”) (collectively,
4 “Plaintiffs”), by and through their counsel of record, allege against Defendants Will Abbott
5 (“Abbott”), Alexey Mikhaylov (“Mikhaylov”), Thomas Rini (“Rini”), 4E Capital LP (“4E”), Mekita
6 Investments Ltd. (Mekita”), Pharm Capital LLC (“Pharm”), and DOES 1-20 (collectively,
7 “Defendants,” and together with Plaintiffs, the “Parties”) as follows:
8 INTRODUCTION
9 1. This lawsuit arises due to an unlawful scheme by a group of rogue lenders to the
10 company Pacific Consolidated Holdings Group, Inc. (“PCH”), who are attempting to misappropriate
11 substantial resources and financial assets—from both PCH and its other lenders—for their personal
12 benefit, thereby harming all of the other lenders, including Plaintiffs, and jeopardizing the viability
13 of PCH.
14 2. Plaintiffs and Defendants are all involved with PCH, a key company in California’s
15 cannabis industry that provides various services spanning from cultivation to production to retail.
16 3. Defendants make up the largest group of lenders to PCH. Mangalji, Mehlman, and
17 Steinberg, through their various entities, are the next largest group of investors, representing
18 approximately 36% of the total debt.
19 4. Given the uneven and evolving legal status of cannabis use nationally, the industry
20 is subject to unique vicissitudes with high stakes and volatile outcomes. Therefore, all PCH loan
21 agreements, including those signed by the Parties, include robust disclosures and warnings about
22 the risks of lending to the company.
23 5. Following an initial period of growth, which benefitted all of PCH’s lenders, by 2023
24 industry-wide contractions impacted PCH’s financial standing and the company began having
25 difficulty paying all of its debt obligations, including to their lenders (many of who are Parties to
26 this action).
27 6. Amid this financial turmoil, PCH revamped its board and operations, coursing a path
28 to recovery.
24798.3 2
COMPLAINT
1 7. Yet, with PCH’s financial position precarious, the Defendants insisted on exclusive
2 repayment to only themselves, demanding that PCH forego all other debt obligations in order to pay
3 the Defendants. PCH and the Plaintiffs, as well as their counsel, have repeatedly explained and
4 outlined in detail why such actions were not possible. Plaintiffs also provided fulsome accounting
5 documentation outlining the company’s path forward in an effort to quell Defendants’ concerns.
6 Fuled by fear and greed, Defendants refused to listen.
7 8. Instead, driven by a compulsive need for control, Defendants implemented a strategy
8 that has sabotaged PCH’s recovery, thereby harming all of the other lenders and endangering PCH
9 itself.
10 9. Using easily disproven fabrications and flights of fancy, Defendants directly targeted
11 and disrupted PCH’s primary revenue stream in an attempt to delay payment of those funds, which
12 were needed to fund PCH operations, and redirect company funds to themselves to the exclusion of
13 other creditors.
14 10. As Defendants know, PCH’s largest funding source comes through a wholly-owned
15 subsidiary of PCH, and party to this action, OBM PDG which receives monthly payments from a
16 group of connected commercial cannabis cultivation companies: Pacific Dutch Group, LLC
17 (“PDG”), Carpinteria Peak Land LLC (“CP”), and Rincon Point Farms, LLC (“RP,” and collectively
18 with PDG and CP, the “PDG Group”).
19 11. Using this knowledge, and armed with only false and frivolous assertions of an
20 assignment of these payments, Defendants went to the PDG Group directly (with whom they have
21 no contractual relationship) and demanded that all future payments OBM PDG was entitled to
22 instead be redirected to Defendants.
23 12. PCH and the Plaintiffs quickly responded to Defendants’ demands to the PDG
24 Group, noting that OBM PDG was not a signatory to the document allegedly assigning rights to the
25 payments. PCH and the Plaintiffs also warned the Defendants that redirecting these funds would be
26 a Pyrrhic victory. The sum in question was a fraction of the amounts due from PCH to all lenders,
27 and such a move would block PCH’s path to recovery, effectively shutting down repayment
28 prospects for all lenders, Defendants included.
24798.3 3
COMPLAINT
1 13. Nevertheless, Defendants’ bullying tactics convinced the PDG Group, who was
2 spooked and indefinitely ceased all payments furthering straining PCH’s finances.
3 14. The cannabis industry is seasonal, making the withholding of PDG payments to
4 OBM PDG increasingly detrimental to PCH’s financial stability. Each day the payments are
5 delayed, PCH’s ability to cover essential expenses and pay vendors is compromised, ravaging the
6 overall financial ecosystem and prejudicing all other lenders, including the Plaintiffs.
7 15. Plaintiffs now challenge the Defendants’ aggressive overreach and their reckless
8 gamble with PCH’s survival, while aiming to protect their investments and the company’s future.
9 This suit is a stand against the Defendants’ exploitation of the legal system, illegal interference with
10 the contractual rights and prospective economic advantages of the Plaintiffs, and an attempt to
11 rectify the financial harm inflicted on all of PCH’s lenders.
12 THE PARTIES
13 16. Plaintiff Meridian Capital LLC, is a limited liability company formed under the laws
14 of the State of Delaware, with a principal address at 5847 San Felipe St., Suite 4650, Houston,
15 Texas, 77057.
16 17. Plaintiff M2 Growth Partners IV LLC, is a limited liability company formed under
17 the laws of the State of Delaware, with a principal address at 1066 Allen Creek Rd., Rochester, New
18 York, 14618.
19 18. Plaintiff OBM PDG is a limited liability company formed under the laws of the State
20 of California, with its principal address at 8600 Rheem Ave., South Gate, California, 90280.
21 19. Plaintiff Wilmington Investors LLC, is a limited liability company formed under the
22 laws of the State of California, with its principal address at 8600 Rheem Ave., South Gate,
23 California, 90280.
24 20. Plaintiff Omar Mangalji is a natural person residing in London, England.
25 21. Plaintiff David Mehlman is a natural person residing in Miami, Florida.
26 22. Plaintiff Michael Steinberg is a natural person residing in Los Angeles, California.
27 23. Upon information and belief, defendant Abbott is a natural person residing in
28 London, United Kingdom.
24798.3 4
COMPLAINT
1 24. Upon information and belief, defendant Alexey Mikhaylov (“Mikhaylov”) is a
2 natural person residing in residing in London, England, United Kingdom.
3 25. Upon information and belief, defendant Rini is a natural person residing in the State
4 of Ohio, United States.
5 26. Upon information and belief, defendant 4E is a limited partnership formed under the
6 laws of Canada, with a principal address in Toronto, Ontario, Canada.
7 27. Upon information and belief, defendant Mekita is a limited company registered in
8 Cyprus, and formerly registered in the British Virgin Islands, whose registered office is at Arch.
9 Makariou III, 155 Proteas House, 5th floor 3026, Limassol, Cyprus.
10 28. Upon information and belief, defendant Pharm is a limited liability company
11 organized under the laws of the State of Ohio, with an unknown principal place of business.
12 DOE DEFENDANTS AND ALTER EGOS
13 29. Plaintiffs are unaware of the true names and capacities of the Defendants sued herein
14 as DOES 1 through 20, inclusive, and therefore sue said Defendants by such fictitious names.
15 30. Plaintiffs are informed and believes and thereon alleges that DOES 1 through 20,
16 inclusive, are persons, corporations, or other entities. Plaintiffs are further informed and believe and
17 thereon alleges that DOES 1 through 20 have or claim to have an interest in the contested assets or
18 who are otherwise responsible for the acts and/or omissions identified herein. Plaintiffs are further
19 informed and believes and thereon alleges that the Defendants sued herein as DOES 1 through 20
20 inclusive, are liable for Plaintiffs damages as set forth herein. Plaintiffs will seek leave of this Court
21 to amend this Complaint to allege the true names and capacities of the Defendants sued as DOES 1
22 through 20, inclusive, when the same have been ascertained.
23 31. Plaintiffs are informed and believe and thereon alleges that at all times relevant
24 hereto, each Defendants, including each DOE Defendant, was and is the alter ego, agent, servant
25 and employee of each other Defendants, and that each was at all times relevant hereto acting within
26 the course and scope of said agency and employment and with the full knowledge and consent of
27 all other Defendants, and each of said Defendants ratified and approved the conduct of all other
28 Defendants as each other’s agent. Plaintiffs are further informed and believe that each Defendant
24798.3 5
COMPLAINT
1 failed and refused to maintain appropriate corporate formalities of each, failed to properly capitalize
2 or maintain sufficient capitalization of each, and failed to maintain proper form and legal obligations
3 of each, creating a sufficient commonality among the Defendants that the Court should ignore the
4 separate corporate form of each.
5 JURISDICTION AND VENUE
6 32. This Court has personal jurisdiction over Defendants, and each of them, because they
7 are domiciled in California or have sufficient minimum contacts with California such that exercising
8 jurisdiction would comport with traditional notions of fair play and substantial justice. This Court
9 has subject matter jurisdiction over the causes of action alleged herein under Article VI, Section 10
10 of the California Constitution.
11 33. This Court also has jurisdiction over all parties and the subject matter of this action
12 because Defendants have consented to jurisdiction and venue in this State by purposefully availing
13 themselves of the privilege of conducting activities and utilizing the courts in the State of California.
14 34. Venue is also proper in this District because the acts complained of occurred in Los
15 Angeles County, which is where PCH operates its business and executed certain loan agreements
16 with many of the Parties. Additionally, in the loan agreements, Defendants agreed that “any and all
17 legal proceedings under, with respect to or related to [the relevant loan agreements]” would be
18 brought “in courts sitting in the County of Los Angeles.” See Exhibits A, B, C & D, which are
19 attached hereto and incorporated herein by this reference, at Section 7(d).
20 STATEMENT OF FACTS
21 PCH Background and Business
22 35. PCH is a holding company and was one of the largest vertically integrated cannabis
23 producers and retailers in California. The majority shareholder of PCH is OBM Holdings, LLC
24 (“OBM Holdings”), whose members are Plaintiffs’ Mangalji and Steinberg, along with non-party
25 Brent Cox (“Cox”).
26 36. Historically, an important financial asset for PCH has been its minority investment,
27 through its subsidiary OBM PDG, in a group of connected cannabis cultivation companies, the PDG
28 Group. Entities relating to Mangalji and Steinberg contributed around $36 million in cash to fund
24798.3 6
COMPLAINT
1 this initial investment in the PDG Group.
2 37. In 2019, as the PDG Group sought to expand, entities relating to Mangalji and
3 Steinberg funded the acquisition of two properties, known as “VR1” and “VR2,” with a purchase
4 price of $22 million. The first property was leased from Zevo Drive Holdings LLC (“Zevo”), a
5 company affiliated with Steinberg, while the second property was from Meridian Via Real LLC
6 (“Meridian Via Real”), a company affiliated with Mangalji (together, the “Greenhouse Properties”).
7 The leases for the Greenhouse Properties were the result of arms-length transactions between
8 adversarial non-affiliated entities, under terms heavily negotiated and based on the market rates (the
9 “Original Leases”). Together, the Greenhouse Properties provided the PDG Group with
10 approximately 900,000 square feet of greenhouse space spread over more than 29 acres,
11 significantly expanding the company’s operations capacity.
12 38. However, in January 2020, one of the PDG Group’s farms was the subject of a high-
13 profile police raid and subsequent full criminal investigation. OBM PDG and the PDG Group
14 became embroiled in litigation aimed at disentangling their business interests as OBM PDG sought
15 to minimize potentially material adverse effects for itself and PCH.
16 PCH Raises Capital Investments Through Debt Financing.
17 39. Throughout 2020, PCH’s chief executive officer, Chris Vaughn, sought to expand
18 the company’s business operations—specifically e-commerce—through a round of debt financing.
19 40. In early 2021, Vaughn, alongside Brent Cox—a board member appointed by OBM
20 Holdings—initiated negotiations for loans on behalf of PCH with Mekita (through its principal Will
21 Abbott) and Pharm (through its principal Rini). These negotiations culminated in a debt funding
22 round, with Pharm and Mekita entering into loan agreements with PCH in March and April 2021.
23 41. In early 2021 Plaintiffs Meridian and Wilmington similarly made substantial loans
24 to PCH under similar terms to those of Mekita and Pharm.
25 42. At the time of this funding, Mekita and Pharm were fully aware of the litigation
26 between OBM PDG and the PDG Group and its impact upon PCH.
27 43. During the funding negotiations, the 4E related entities and Abbott were repeatedly
28 and continuously informed of the details of the ongoing litigation, which eventually resulted in an
24798.3 7
COMPLAINT
1 arbitration between OBM PDG and the PDG Group. These communications included a January 28,
2 2021 email to the potential lenders that attached the Stockholders Agreement and Amendment,
3 which listed updated risk factors relating to the PDG Group criminal investigation, and subsequent
4 arbitration between OBM PDG and the PDG Group. See Exhibit E, at Schedule A.
5 44. In January 28, 2021, an email to Abbott and Mekita’s counsel a PCH representative
6 included a copy of the Stockholders Agreement which included a list setting forth risk factors
7 pertaining to the PDG Group raid, criminal investigation, and subsequent lawsuit and arbitration
8 with OBM PDG. The document states in relevant part:
9 Recent law enforcement incident regarding the Santa Barbara Companies create
uncertainty and potential material adverse effects.
10 In January 2020, the Santa Barbara County Sherriff obtained search warrants and
entered into certain premises, some of which were utilized by one or more of the
11 Santa Barbara Companies and/or the Santa Barbara License-Holding Entities. The
Sherriff seized certain cash and cannabis oil alleging that certain activities and
12 conduct by two of the Santa Barbara License-Holding Entities may be unlicensed
and/or unlawful (such as inappropriate storage of the cannabis oil in a non-licensed
13 area). The Santa Barbara County District Attorney has assigned Case No. 20-987 to
the matter. However, a significant amount of the seized product was located on a
14 premises that was not, and currently is not, leased by the Santa Barbara Companies
or the Santa Barbara License-Holding Entities, and the law enforcement actions
15 relating thereto appear to be focused on such non-leased premises. The applicable
Santa Barbara Companies have engaged specialized legal counsel and consultants to
16 represent it regarding this matter. The County of Santa Barbara sent letters, dated
February 13, 2020, to two of the Santa Barbara License-Holding Entities regarding
17 the matter (such letters stating, in part, that the County has reason to believe the
subject business entity conducted activities which it was not licensed). The
18 applicable Santa Barbara Companies have been in communication with the County
of Santa Barbara as it relates to their economic interest in the Santa Barbara License-
19 Holding Entities. The Santa Barbara Companies proposed to the County, on behalf
of the two Santa Barbara License-Holding Entities that received letters from the
20 County, that they are agreeable to voluntarily electing to not renew certain licenses
if other arrangements and licenses could be obtained in the future. Currently, the
21 County has been agreeable to certain proposed arrangements and the County has
provided authorization for another of the Santa Barbara License-Holding Entities to
22 obtain one or more licenses. While the Santa Barbara Companies are acting diligently
to investigate the matter and preserve their business assets and operations, the
23 potential ramifications of this event are currently unknown and they may have a
material adverse effect on the Santa Barbara Companies and/or the Santa Barbara
24 License-Holding Entities, which in turn could have a material adverse effect on the
Companies. Some potential results from this incident may also include, without
25 limitation, criminal charges against one or more of the Santa Barbara License-
Holding Entities’ principals, monetary fines, suspension or revocation of one or more
26 cannabis licenses, and/or disqualification of the County-sanctioned legal non-
conforming land use status. This matter, including investigations relating to the
27 matter, is continuing.
28 Currently there is pending arbitration related to the Santa Barbara Companies.
24798.3 8
COMPLAINT
1 Currently, the Company’s Subsidiary that owns equity interests in the Santa Barbara
Companies is in arbitration with the majority equity holder of one or more of the
2 Santa Barbara Companies and other parties regarding, among other matters, a
contractual dispute over whether the Company’s Subsidiary is entitled to receive an
3 increased distribution percentage from the operations of some of the Santa Barbara
Companies due to the actions surrounding the January 2020 law enforcement action.
4
See Exhibit E, Schedule A, Exhibit C.
5
45. The loan agreements for Pharm and Mekita specifically stated that each “[lender]
6
agrees and acknowledges that it has been provided with a copy of the [PCH] Stockholders
7
Agreement, and that it has fully read and understands the Stockholders Agreement.” See Exhibits
8
A, B, C & D at Warrant, section 5 “Stockholders Agreement.”
9
46. The loan agreements entered into by Mekita and Pharm also included a
10
confidentiality clause which states: “Lender agrees and acknowledges that the covenants of the
11
‘Stockholder’ set forth in Section 13 of the Stockholders Agreement (Nondisclosure of Confidential
12
Information) shall apply to Lender, mutatis mutandis. Without limiting the generality of the
13
foregoing sentence, Lender agrees to keep all Major Lender Observer Information provided to
14
Lender (if any) confidential in accordance with Section 13 of the Stockholders Agreement
15
(Nondisclosure of Confidential Information).” See Exhibits A, B, C & D, at Ex. A, section 7(o)
16
“Confidentiality.”
17
OBM PDG and the PDG Group Enter Into a Settlement
18
47. After many months of negotiations, in January 2022, the PDG Group and OBM
19
reached a confidential settlement agreement (the “PDG Settlement”) in which the PDG Group
20
bought out OBM PDG’s equity interests in these companies. This settlement included a
21
comprehensive buy-out of OBM PDG’s interests, formalized through various legal instruments such
22
as guaranties, security agreements, equity pledges, deeds of trust, subordination agreements, and a
23
trio of promissory notes (the “PDG Notes” and collectively, the “PDG Settlement Terms”). These
24
notes mandated monthly payments from the PDG Group to OBM PDG, which were frequently
25
remitted to PCH.
26
48. The PDG Settlement also facilitated reassignment of the Greenhouse Properties from
27
the PDG Group to PCH. Under the settlement terms, while the original leases were terminated, the
28
24798.3 9
COMPLAINT
1 Greenhouse Properties were leased to PCH at the same rates and under similar to those of the
2 original agreements with the PDG Group.
3 49. for PCH-related entities to assume control of the Greenhouse Properties as tenants,
4 effectively ending the original leases with the PDG Group. However, the new leases with PCH’s
5 entities as the tenants maintained similar rental rate terms as those previously negotiated with the
6 PDG Group.
7 50. The PDG Settlement Terms allow OBM PDG to declare an “Event of Default” for a
8 missed payment with a written notice (a “Default Notice”). In such an event, the PDG Settlement
9 Terms further provide various remedies including acceleration of the principal owed along with any
10 interest. On March 23, 2024, OBM PDG sent a Default Notice to the PDG Group.
11 PCH Secures More Financing From Defendants
12 51. In early 2022, PCH engaged in another round of debt financing with entities
13 associated with defendant 4E and Alexey Mikhaylov. As part of these discussion Vaughn
14 enthusiastically updated Defendants on both the PDG Settlement and provided information
15 regarding the settlement terms as the lenders, now Defendants in this suit, had insisted upon the
16 PDG Settlement as a condition precedent before agreeing to lend money to PCH. See January 20,
17 2022, email and attachments from Vaughn, which is attached hereto as Exhibit F and incorporated
18 herein by reference.
19
20
21
22
23
24
25
26
27
28
24798.3 10
COMPLAINT
1 The following day, Abbott acknowledged receipt of the information and congratulated the
2 company. See January 21, 2022, email from Abbott, which is attached hereto as Exhibit G and
3 incorporated herein by reference.
4
5
6
7
8
52. The PDG Settlement was widely seen as a strategic opportunity for PCH to broaden its
9
cultivation capabilities, in furtherance of its goal for vertical integration. Motivated by this settlement,
10
Plaintiffs eagerly participated in the new financing round. PCH received a $1 million loan from
11
Mikhaylov and two additional loans totaling $4 million from entities linked to Abbott. These loans were
12
later transferred to defendant 4E in December 2022.
13
53. When negotiating a second loan from the 4E affiliated lenders, the 4E affiliated
14
lenders sought: (i) additional warrants that entitled the company to purchase shares in PCH and (ii)
15
substantial modifications to the warrants previously issued to prior lenders, including adding more
16
PCH shares and setting a lower exercise price. Eventually this resulted in 4E having a substantial
17
equity interest in PCH which in turn prompted 4E to attempt to dominate and control PCH and direct
18
the actions of the company.
19
54. As 4E became more involved in PCH’s operations, Abbott primarily communicated
20
with Cox and Vaughn. All three individuals were focused on PCH’s retail and e-commerce business.
21
PCH’s then-CEO Vaughn had a background in e-commerce and heavily allocated resources to that
22
business sector. Steinberg and Mangalji, however, remained vocal about wanting to build the retail
23
and cultivation hard assets, which were unfortunately never built out.
24
Breakdown in California Cannabis Market Impacts PCH
25
55. In 2023, conditions of the cannabis market deteriorated significantly. In early 2023,
26
Vaughn, proposed selling off its subsidiary alcohol delivery service “Saucey.”
27
56. Even after selling off Saucey, the company’s financial challenges persisted. PCH was
28
having difficulty paying various expenses due to the focus on e-commerce, which had high
24798.3 11
COMPLAINT
1 associated costs. Vaughn, in his capacity as CEO, made decisions as to what expenses could and
2 could not be paid, including certain legal fees, taxes, and other expenses including many months of
3 rent payments on the Greenhouse Properties.
4 57. In April 2023, Mangalji urged Vaughn and Cox to begin discussions with 4E and
5 Pharm on a restructuring effort and stabilization plan for the company. Mangalji and Steinberg were
6 involved in the conversations as it was beneficial for every stakeholder to try and find a favorable
7 outcome for the company. This resulted in a restructuring letter of intent (the “Restructuring LOI”)
8 being entered into on or about April 16, 2023. See Restructuring LOI, which is attached hereto as
9 Exhibit H and incorporated herein by reference. The Restructuring LOI tasked the parties to “agree
10 to negotiate in good faith” in a more comprehensive restructure with 4E allegedly serving as “lead
11 lender” for those purposes.
12 58. However, the parties were limited in effectuating the plans outlined in that
13 Restructuring LOI until September 2023 because Abbott did not have the correct business structure
14 in place to actually consummate the arrangement.
15 59. Despite this, after signing the Restructuring LOI, 4E, acting through Abbott,
16 attempted to control how PCH used its funds by accessing the OBM PDG bank account. This was
17 significant because payments from the PDG Notes to PCH represented the company’s primary
18 revenue source.
19 60. With greater access and control over PCH’s bank accounts, Abbott furthered
20 attempted to pivot away from cultivation towards e-commerce. He indicated that his motivation for
21 this shift stemmed largely from his desire to diversify his own personal portfolio, given that his
22 other investments were already concentrated in the cultivation sector.
23 61. In September 2023, amid the continued deterioration of the legal cannabis market in
24 California, OBM Holdings replaced Cox on the board with Mehlman (another lender to PCH) and,
25 in an attempt to stabilize the company, initiated aggressive cost-cutting strategies that the current
26 management was unable or unwilling to execute.
27 62. Pursuant to the Restructuring LOI, further restructuring efforts ensued. On
28 September 14, 2023, 4E’s legal counsel forwarded draft documents to PCH’s CEO, Vaughn, for
24798.3 12
COMPLAINT
1 review. The initial drafts included: (i) an amended and restated master loan agreement requiring
2 signatures from PCH and all 15 lenders; (ii) an assignment and assumption agreement for the PDG
3 Settlement Terms to be signed by OBM PDG, the 15 lenders, and note holders PDG, CP, and RP;
4 and (iii) a servicing agreement for the PDG loans requiring signatures from PCH, OBM PDG, and
5 the 15 lenders (together, the “Draft Restructuring”). This email with attachments is attached hereto
6 as Exhibit I and incorporated herein by this reference. 4E’s counsel noted that many of these
7 documents “need [further information] to prepare” while others, like Uniform Commercial Code
8 finance statements and a joint written consent by PCH’s board, still needed to be drafted.
9 63. Also included in the September 14, 2023 email was a closing checklist for the Draft
10 Restructuring, which was prepared by 4E’s counsel and listed over 42 documents necessary for the
11 transaction’s closure. Many of these documents contained statements like “need [further
12 information] to prepare” while others, like Uniform Commercial Code finance statements and a joint
13 written consent by PCH’s board, still needed to be drafted, demonstrating that Abbott and 4E were aware
14 these documents were far from final. See Exhibit I, “Closing Checklist”. However, none of these,
15 nor any other, restructuring terms were ever agreed to or finalized by the parties.
16 64. All told, these documents would have been subject to the review and approval of
17 approximately 20 different individuals and entities. The various documents included in the Draft
18 Restructuring, which—to reiterate—required signatures from PCH, OBM PDG, and 15 lenders—
19 were never shared with nor review by many of the other PCH lenders. None of the Plaintiffs
20 designated or approved 4E to represent them as “leader lender” through the restructuring process.
21 Nor are Plaintiffs aware of any other non-party lenders who designated 4E as lead lender.
22 65. Despite this, 4E would later claim to represent the lender class.
23 Breakdown In Relationship Between Defendants and PCH
24 66. Despite broader investor support for cultivation, due to their increased control over
25 PCH, 4E, Abbott, and the other Defendants continued to hinder PCH’s expansion of its cultivation
26 business, including specifically advising the company to terminate certain related leases. This
27 escalated to the point where Abbott and 4E demanded that PCH refrain from paying other lenders,
28 subsequently threatening legal action against PCH if it made payments to any other lenders contrary
24798.3 13
COMPLAINT
1 to the Defendants’ instructions.
2 67. Formal demand was made on September 25, 2023, from the Defendants’ attorneys
3 at Coppersmith Brockelman, sent to PCH, in which they voiced objections to PCH’s allocation of
4 funds received from the PDG Group (hereinafter referred to as the “Coppersmith Letter”). The
5 September 25, 2023 Coppersmith Letter is attached hereto as Exhibit J and incorporated herein by
6 this reference. The Coppersmith Letter specifically objected to PCH’s intention to utilize the PDG
7 Funds for payroll and other operating expenses of the Company and its subsidiaries. It further stated:
8 “This letter serves to notify the Company that any use of the PDG Funds for purposes other than
9 those agreed upon for PDG Funds[u]se requires the express consent of the Lead Lender.” Id.
10 68. Then on October 16, 2023, 4E emailed the PCH Board to object to PCH having added
11 a new user to the OBM PDG bank account, asking the Board about whether it had approved certain
12 payments made by that new user.
13 69. On November 9, 2023, Defendants sent two additional letters to PCH. One of them,
14 which is attached hereto as Exhibit K and incorporated herein by this reference, addressed the
15 restructuring issue (the “Restructuring Demand Letter”). The Restructuring Demand Letter, despite
16 having no authorization from the other lenders, asserted that 4E was “lead lender” under the
17 Restructuring LOI, and was thereby entitled to priority payment.
18 70. The other November 9, 2023 letter, which is attached hereto as Exhibit L and
19 incorporated herein by this reference, was a notice of default on behalf of 4E and Pharm (the “4E
20 Default Notice”). The 4E Default Notice raised concerns regarding lender payments, alleged
21 fraudulent transfers, and disputed “years of rent payments” for the Greenhouse Properties, this
22 despite the fact that all of this information had been disclosed to Plaintiffs in January 2022, and
23 before the loans were entered into. See Exhibit F.
24 71. On November 13, 2023, 4E emailed again to object to PCH revoking Abbott’s access
25 to the OBM PDG account and to make several demands, including that no funds be withdrawn
26 “without prior written approval from the Lead Lender.”
27 72. Outside counsel for PCH, Steven C. Schinko, responded to the Defendants’
28 misguided demands with a letter dated November 15, 2023 (hereinafter referred to as the “Schinko
24798.3 14
COMPLAINT
1 Letter”). See Schinko Letter, which is attached hereto as Exhibit M and incorporated herein by this
2 reference. In this letter, Schinko clarified that PCH’s financial obligations exceeded its current liquid
3 assets, rendering it impossible for PCH to allocate all of its cash reserves to 4E and Pharm while
4 neglecting tens of millions of dollars in other claims and continuing obligations. The Schinko Letter
5 elaborated that the PDG Settlement had been fully disclosed to the lenders (see exhibit F), including
6 the terms of the new leases for Greenhouse Properties (id.). It provided an accounting showing that
7 the rents for the Greenhouse Properties were predominantly unpaid due to PCH’s cash flow issues,
8 leading to substantial losses for the lessors.
9 73. Indeed, by that point the owners of the Greenhouse Properties, entities relating to
10 Mangalji and Steinberg, had deferred payments related to rent and interest at the properties, along
11 with interest and repayment on the debt instruments, so as to allow PCH to fulfil obligations to other
12 creditors as an act of good faith to support the company. These properties had suffered massive
13 losses over the life of their leases with PCH. The loan for the VR2 property—a property owned by
14 an entity related to Mangalji—had to be serviced out-of-pocket for almost the entirety of the lease.
15 Ultimately, VR2 had to be sold in May 2023 at a significant loss due to PCH’s failure to pay rent.
16 74. In sum, the Schinko Letter provided evidence that there was nothing fraudulent in
17 the property transfers new leases and that, far from concealment, PCH had disclosed these relevant
18 facts to the Plaintiffs here.
19 75. Finally, the “lead lender” claims in the Restructuring LOI were quickly contradicted
20 in a December 12, 2023, letter from 4E, signed by Abbott, which was sent out to all of PCH’s lenders
21 (the “4E Lender Letter”), which is attached hereto as Exhibit N, and incorporated herein by this
22 reference.
23
24
25
26
27
28
24798.3 15
COMPLAINT
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
4E’s Campaign of Harassment and Fraud
21
76. As they were free to do, on January 31, 2024, 4E, Pharm, and Mikhaylov, now
22
represented by Katten Muchin Rosenman LLP (“Katten”), filed a lawsuit against PCH, Mangalji,
23
Steinberg, Mehlman, Zevo, and Meridian Via Real entitled: 4E Capital LLC, et al., v. Pacific
24
Consolidated Holdings Group, Inc., et al., Case No. 24STCV02587 (California Superior Court,
25
County of Los Angeles) (the “4E Parties Complaint”).
26
77. However, rather than properly allowing the courts to resolve the issue, Defendants
27
undertook a subsequent campaign of harassment and disruption against PCH, which directly harmed
28
24798.3 16
COMPLAINT
1 the company’s other lenders.
2 78. Katten, on behalf of the Defendants, sent a letter to the PDG Group on February 12,
3 2024, falsely asserted authority under the Restructuring LOI and as “lead lender.” It further “notified
4 and instructed” the PDG Group “to remit payment of the full amount of each monthly payment of
5 the PDG Notes directly to Lenders, rather than to PCH.” See February 12, 2024 Katten Letter, which
6 is attached hereto as Exhibit O and incorporated herein by this reference.
7 79. Defendants asserted that the Restructuring LOI effectively enabled an assignment by
8 PCH of OBM PDG’s ownership and rights under the PDG Settlement. This despite the fact that
9 Brent Cox, the sole manager of OBM PDG, was not a party to the Restructuring LOI, and did not
10 consent to such an assignment.
11 80. Additionally, when Defendants made these claims to the PDG Group, they knew that
12 numerous Draft Restructuring documents still had to be both prepared and finalized, and then
13 executed by all of PCH’s other lenders before any assignment of the PDG Settlement could take
14 place. Therefore, no loan modifications had actually been executed pursuant to the Restructuring
15 LOI, nor were the Draft Restructuring documents approved or finalized by the lenders.
16 81. Moreover, 4E was not lead lender. The other lenders had not authorized 4E to be
17 lead lender. And, of course, both 4E and Abbott had explicitly told the other lenders that they were
18 not representing them in PCH restructuring process, or in any other capacity. See Exhibit N.
19 82. In short, Defendants’ claims to the PDG Group were false. And, Defendants knew
20 those claims were false.
21 83. Yet, Defendants continued their campaign of interference and sabotage of PCH in
22 order to benefit themselves (to the exclusion of the Plaintiffs’ rights) as set forth herein.
23 84. Upon information and belief, Abbott has personally contacted the PDG Group and/or
24 their counsel on multiple occasions demanding that payment be made to the Defendants (and not to
25 any other PCH creditor).
26 85. In a letter dated February 22, 2024 letter to attorneys for the PDG Group, counsel for
27 PCH rebutted the claims made in the Katten Letter, insisting that all future payments on the PDG
28 Settlement Terms continue to be made to OBM PDG, the only proper payee.
24798.3 17
COMPLAINT
1 86. However, Defendants (including Abbott and 4E) continued to threaten PDG to pay
2 the proceeds of the PDG Settlement Terms to Defendants rather than to PCH. Abbott continued to
3 use the imprimatur of his position at 4E to imply that he speaks or acts on behalf of all of the PCH
4 lenders, authority which does not exist and has never existed.
5 87. Incredibly, Abbott even personally reached out to Mangalji’s father (who is not a
6 party to 4E’s Complaint) with implied threats and harassment intending to bolster Defendants’
7 improper assertion that they are entitled to the proceeds of the PDG Settlement Terms.
8 88. Unfortunately, the Plaintiffs’ attempts to disrupt PCH’s credit access led the PDG
9 Group to file an Interpleader Action in Santa Barbara on March 22, 2024, indefinitely blocking
10 PCH’s primary capital source. See Complaint in Pacific Dutch Group, LLC, et al. v. OBM PDG,
11 LLC, et al., Case No. 24CV01682 (Santa Barbara Superior Court), which is attached hereto as
12 Exhibit P and incorporated herein by this reference.
13 CAUSES OF ACTION
14 FIRST CAUSE OF ACTION
15 Intentional Interference With Contractual Relations
16 (Against All Defendants and Does 1-20)
17 89. Plaintiffs re-allege and incorporate herein by reference the allegations contained in
18 each and every Paragraph set forth above, as though set forth in full.
19 90. A valid contract existed between Plaintiff OBM PDG and the PDG Group, as
20 outlined in the PDG Settlement and PDG Settlement Terms, entitling OBM PDG to monthly
21 payments.
22 91. These payments were frequently remitted to PCH, which were a significant source
23 of operational revenue for the company.
24 92. Defendants were aware that OBM PDG was entitled to these funds from the PDG
25 Settlement and that they represented a crucial revenue stream for OBM PDG and consequently PCH,
26 benefiting all lenders, including the Plaintiffs in this case.
27 93. Following a dispute with PCH, Defendants sought to disrupt the contractual
28 relationship between OBM PDG and the PDG Group by falsely claiming lead lender status and
24798.3 18
COMPLAINT
1 assignment of the PDG Settlement Terms through the Katten Letter and various related
2 communications with the PDG Group.
3 94. Defendants were aware—or should have been aware—that their demands in the
4 Katten Letter were likely to interfere with the contractual relationship between OBM PDG and the
5 PDG Group, leading to a disruption of payments and operations for PCH.
6 95. An actual breach and disruption of the contractual relationship between OBM PDG
7 and the PDG Group has occurred, marked by the halt of payments to OBM PDG under the PDG
8 Settlement Terms, and which, as a result, indefinitely delays any future payments to PCH.
9 96. As a result of Defendants’ interference with OBM PDG’s contract rights, all
10 Plaintiffs have suffered damages exceeding the Court’s jurisdictional threshold, to be precisely
11 determined at trial.
12 97. Defendants' actions were intentional, malicious, and reckless, showing a conscious
13 disregard for Plaintiffs’ rights with the intent to cause harm. This conduct justifies punitive or
14 exemplary damages under California Civil Code § 3294 to punish Defendants and deter similar
15 actions in the future.
16 SECOND CAUSE OF ACTION
17 Tortious Interference With Prospective Economic Advantage
18 (Against All Defendants and Does 1-20)
19 98. Plaintiff re-alleges and incorporates herein by reference the allegations contained in
20 each and every Paragraph set forth above, as though set forth in full.
21 99. Plaintiffs maintain valid prospective economic relationships with PCH, both through
22 ownership and access to the funds from the PDG Settlement Terms and related monthly payments,
23 and through prospective economic opportunities derived from PCH’s vertically integrated cannabis
24 cultivation and distribution operations. These relationships were expected to yield substantial profits
25 for Plaintiffs and PCH lenders through these ventures.
26 100. Defendants were aware of these prospective economic relationships, sharing similar
27 relationships with PCH and having knowledge of the PDG Settlement and PDG Notes, which fund
28 PCH’s operations. This awareness is further evidenced by Defendants’ efforts to redirect the use of
24798.3 19
COMPLAINT
1 monthly payments in mid-2023, a period during which Defendants 4E and Abbott had access to and
2 control over certain of PCH’s financial accounts.
3 101. Defendants engaged in independently wrongful conduct to usurp these prospective
4 economic relationships and the resultant profits that rightfully belonged to Plaintiffs and PCH. This
5 includes efforts to pivot PCH’s business model to e-commerce and attempting to redirect the PDG
6 Settlement payments to themselves instead of OBM PDG, thereby depriving OBM PDG and PCH
7 of their rightful benefits.
8 102. Defendants have undertaken a series of intentional and wrongful acts aimed to
9 disrupt the economic relationships between Plaintiffs and PCH. This includes interference with: (a)
10 Plaintiffs’ access to PDG Group payments; (b) the creditor relationships between Plaintiffs and
11 PCH; and (c) the utilization of PDG Notes payments for PCH’s daily operations and vendor
12 relationships.
13 103. The prospective economic relationship between Plaintiffs (and PCH) with PCH
14 creditors and vendors has been compromised as Defendants effectively obstructed Plaintiffs’ access
15 to PDG Settlement payments, undermining PCH’s ability to fulfill its obligations to creditors and
16 vendors.
17 104. The inability of Plaintiffs and PCH to access PDG Settlement funds has jeopardized
18 PCH’s financial stability and its economic relationships, with Defendants’ actions directly causing
19 this adverse impact.
20 105. The conduct described was intentional, malicious, and reckless, demonstrating a
21 blatant disregard for Plaintiffs’ rights with the aim to cause harm, distres
Preview
1 CHRISTOPHER FROST (SBN 200336) chris@frostllp.com 2 JOSHUA S. STAMBAUGH (SBN 233834) josh@frostllp.com 3 NICO L. BRANCOLINI (SBN 318237) nico@frostllp.com 4 ZACHARY WEST (SBN 335411) zach@frostllp.com 5 FROST LLP 10960 Wilshire Boulevard, Suite 1260 6 Los Angeles, California 90024 Telephone: (424) 254-0441 7 Facsimile: (424) 600-8504 8 Attorneys for Plaintiffs, MERIDIAN CAPITAL LLC, M2 GROWTH PARTNERS IV, LLC, 9 OBM PDG, LLC WILMINGTON INVESTORS, LLC., OMAR MANGALJI, MICHAEL 10 STEINBERG, DAVID MEHLMAN 11 12 SUPERIOR COURT OF THE STATE OF CALIFORNIA 13 COUNTY OF LOS ANGELES, CENTRAL DISTRICT 14 MERIDIAN CAPITAL LLC, a Delaware Case No.: 15 limited liability company; M2 GROWTH PARTNERS IV, LLC, a Delaware limited 16 liability company; OBM PDG, LLC., a MERIDIAN CAPITAL LLC, M2 GROWTH California limited liability company; PARTNERS IV, LLC, OBM PDG LLC, 17 WILMINGTON INVESTORS, LLC a WILMINGTON INVESTORS, LLC, California limited liability company, OMAR OMAR MANGALJI, DAVID MEHLMAN, 18 MANGALJI, an individual; DAVID and MICHAEL STEINBERG’s MEHLMAN, an individual; MICHAEL COMPLAINT FOR: 19 STEINBERG, an individual; 1. Intentional Interference With 20 Plaintiffs, Contractual Relations 2. Tortious Interference with Prospective 21 vs. Economic Advantage 3. Breach of Fiduciary Duty 22 WILL ABBOTT, an individual; ALEXEY 4. Breach of Fiduciary Duty MIKHAYLOV, an individual; THOMAS RINI, 5. Fraud (Constructive) 23 an individual; 4E CAPITAL LP, a Canadian 6. Fraudulent Concealment limited partnership; MEKITA INVESTMENTS 7. Accounting 24 LTD., a Cyprus registered limited company, 25 PHARM CAPITAL, LLC, an Ohio limited liability company; and DOES 1-10, 26 Defendants. 27 28 24798.3 1 COMPLAINT 1 Plaintiffs Meridian Capital LLC (“Meridian”), M2 Growth Partners IV, LLC (“M2”), OBM 2 PDG, LLC. (“OBM PDG”), Wilmington Investors, LLC (“Wilmington”), Omar Mangalji 3 (“Mangalji”), David Mehlman (“Mehlman”), and Michael Steinberg (“Steinberg”) (collectively, 4 “Plaintiffs”), by and through their counsel of record, allege against Defendants Will Abbott 5 (“Abbott”), Alexey Mikhaylov (“Mikhaylov”), Thomas Rini (“Rini”), 4E Capital LP (“4E”), Mekita 6 Investments Ltd. (Mekita”), Pharm Capital LLC (“Pharm”), and DOES 1-20 (collectively, 7 “Defendants,” and together with Plaintiffs, the “Parties”) as follows: 8 INTRODUCTION 9 1. This lawsuit arises due to an unlawful scheme by a group of rogue lenders to the 10 company Pacific Consolidated Holdings Group, Inc. (“PCH”), who are attempting to misappropriate 11 substantial resources and financial assets—from both PCH and its other lenders—for their personal 12 benefit, thereby harming all of the other lenders, including Plaintiffs, and jeopardizing the viability 13 of PCH. 14 2. Plaintiffs and Defendants are all involved with PCH, a key company in California’s 15 cannabis industry that provides various services spanning from cultivation to production to retail. 16 3. Defendants make up the largest group of lenders to PCH. Mangalji, Mehlman, and 17 Steinberg, through their various entities, are the next largest group of investors, representing 18 approximately 36% of the total debt. 19 4. Given the uneven and evolving legal status of cannabis use nationally, the industry 20 is subject to unique vicissitudes with high stakes and volatile outcomes. Therefore, all PCH loan 21 agreements, including those signed by the Parties, include robust disclosures and warnings about 22 the risks of lending to the company. 23 5. Following an initial period of growth, which benefitted all of PCH’s lenders, by 2023 24 industry-wide contractions impacted PCH’s financial standing and the company began having 25 difficulty paying all of its debt obligations, including to their lenders (many of who are Parties to 26 this action). 27 6. Amid this financial turmoil, PCH revamped its board and operations, coursing a path 28 to recovery. 24798.3 2 COMPLAINT 1 7. Yet, with PCH’s financial position precarious, the Defendants insisted on exclusive 2 repayment to only themselves, demanding that PCH forego all other debt obligations in order to pay 3 the Defendants. PCH and the Plaintiffs, as well as their counsel, have repeatedly explained and 4 outlined in detail why such actions were not possible. Plaintiffs also provided fulsome accounting 5 documentation outlining the company’s path forward in an effort to quell Defendants’ concerns. 6 Fuled by fear and greed, Defendants refused to listen. 7 8. Instead, driven by a compulsive need for control, Defendants implemented a strategy 8 that has sabotaged PCH’s recovery, thereby harming all of the other lenders and endangering PCH 9 itself. 10 9. Using easily disproven fabrications and flights of fancy, Defendants directly targeted 11 and disrupted PCH’s primary revenue stream in an attempt to delay payment of those funds, which 12 were needed to fund PCH operations, and redirect company funds to themselves to the exclusion of 13 other creditors. 14 10. As Defendants know, PCH’s largest funding source comes through a wholly-owned 15 subsidiary of PCH, and party to this action, OBM PDG which receives monthly payments from a 16 group of connected commercial cannabis cultivation companies: Pacific Dutch Group, LLC 17 (“PDG”), Carpinteria Peak Land LLC (“CP”), and Rincon Point Farms, LLC (“RP,” and collectively 18 with PDG and CP, the “PDG Group”). 19 11. Using this knowledge, and armed with only false and frivolous assertions of an 20 assignment of these payments, Defendants went to the PDG Group directly (with whom they have 21 no contractual relationship) and demanded that all future payments OBM PDG was entitled to 22 instead be redirected to Defendants. 23 12. PCH and the Plaintiffs quickly responded to Defendants’ demands to the PDG 24 Group, noting that OBM PDG was not a signatory to the document allegedly assigning rights to the 25 payments. PCH and the Plaintiffs also warned the Defendants that redirecting these funds would be 26 a Pyrrhic victory. The sum in question was a fraction of the amounts due from PCH to all lenders, 27 and such a move would block PCH’s path to recovery, effectively shutting down repayment 28 prospects for all lenders, Defendants included. 24798.3 3 COMPLAINT 1 13. Nevertheless, Defendants’ bullying tactics convinced the PDG Group, who was 2 spooked and indefinitely ceased all payments furthering straining PCH’s finances. 3 14. The cannabis industry is seasonal, making the withholding of PDG payments to 4 OBM PDG increasingly detrimental to PCH’s financial stability. Each day the payments are 5 delayed, PCH’s ability to cover essential expenses and pay vendors is compromised, ravaging the 6 overall financial ecosystem and prejudicing all other lenders, including the Plaintiffs. 7 15. Plaintiffs now challenge the Defendants’ aggressive overreach and their reckless 8 gamble with PCH’s survival, while aiming to protect their investments and the company’s future. 9 This suit is a stand against the Defendants’ exploitation of the legal system, illegal interference with 10 the contractual rights and prospective economic advantages of the Plaintiffs, and an attempt to 11 rectify the financial harm inflicted on all of PCH’s lenders. 12 THE PARTIES 13 16. Plaintiff Meridian Capital LLC, is a limited liability company formed under the laws 14 of the State of Delaware, with a principal address at 5847 San Felipe St., Suite 4650, Houston, 15 Texas, 77057. 16 17. Plaintiff M2 Growth Partners IV LLC, is a limited liability company formed under 17 the laws of the State of Delaware, with a principal address at 1066 Allen Creek Rd., Rochester, New 18 York, 14618. 19 18. Plaintiff OBM PDG is a limited liability company formed under the laws of the State 20 of California, with its principal address at 8600 Rheem Ave., South Gate, California, 90280. 21 19. Plaintiff Wilmington Investors LLC, is a limited liability company formed under the 22 laws of the State of California, with its principal address at 8600 Rheem Ave., South Gate, 23 California, 90280. 24 20. Plaintiff Omar Mangalji is a natural person residing in London, England. 25 21. Plaintiff David Mehlman is a natural person residing in Miami, Florida. 26 22. Plaintiff Michael Steinberg is a natural person residing in Los Angeles, California. 27 23. Upon information and belief, defendant Abbott is a natural person residing in 28 London, United Kingdom. 24798.3 4 COMPLAINT 1 24. Upon information and belief, defendant Alexey Mikhaylov (“Mikhaylov”) is a 2 natural person residing in residing in London, England, United Kingdom. 3 25. Upon information and belief, defendant Rini is a natural person residing in the State 4 of Ohio, United States. 5 26. Upon information and belief, defendant 4E is a limited partnership formed under the 6 laws of Canada, with a principal address in Toronto, Ontario, Canada. 7 27. Upon information and belief, defendant Mekita is a limited company registered in 8 Cyprus, and formerly registered in the British Virgin Islands, whose registered office is at Arch. 9 Makariou III, 155 Proteas House, 5th floor 3026, Limassol, Cyprus. 10 28. Upon information and belief, defendant Pharm is a limited liability company 11 organized under the laws of the State of Ohio, with an unknown principal place of business. 12 DOE DEFENDANTS AND ALTER EGOS 13 29. Plaintiffs are unaware of the true names and capacities of the Defendants sued herein 14 as DOES 1 through 20, inclusive, and therefore sue said Defendants by such fictitious names. 15 30. Plaintiffs are informed and believes and thereon alleges that DOES 1 through 20, 16 inclusive, are persons, corporations, or other entities. Plaintiffs are further informed and believe and 17 thereon alleges that DOES 1 through 20 have or claim to have an interest in the contested assets or 18 who are otherwise responsible for the acts and/or omissions identified herein. Plaintiffs are further 19 informed and believes and thereon alleges that the Defendants sued herein as DOES 1 through 20 20 inclusive, are liable for Plaintiffs damages as set forth herein. Plaintiffs will seek leave of this Court 21 to amend this Complaint to allege the true names and capacities of the Defendants sued as DOES 1 22 through 20, inclusive, when the same have been ascertained. 23 31. Plaintiffs are informed and believe and thereon alleges that at all times relevant 24 hereto, each Defendants, including each DOE Defendant, was and is the alter ego, agent, servant 25 and employee of each other Defendants, and that each was at all times relevant hereto acting within 26 the course and scope of said agency and employment and with the full knowledge and consent of 27 all other Defendants, and each of said Defendants ratified and approved the conduct of all other 28 Defendants as each other’s agent. Plaintiffs are further informed and believe that each Defendant 24798.3 5 COMPLAINT 1 failed and refused to maintain appropriate corporate formalities of each, failed to properly capitalize 2 or maintain sufficient capitalization of each, and failed to maintain proper form and legal obligations 3 of each, creating a sufficient commonality among the Defendants that the Court should ignore the 4 separate corporate form of each. 5 JURISDICTION AND VENUE 6 32. This Court has personal jurisdiction over Defendants, and each of them, because they 7 are domiciled in California or have sufficient minimum contacts with California such that exercising 8 jurisdiction would comport with traditional notions of fair play and substantial justice. This Court 9 has subject matter jurisdiction over the causes of action alleged herein under Article VI, Section 10 10 of the California Constitution. 11 33. This Court also has jurisdiction over all parties and the subject matter of this action 12 because Defendants have consented to jurisdiction and venue in this State by purposefully availing 13 themselves of the privilege of conducting activities and utilizing the courts in the State of California. 14 34. Venue is also proper in this District because the acts complained of occurred in Los 15 Angeles County, which is where PCH operates its business and executed certain loan agreements 16 with many of the Parties. Additionally, in the loan agreements, Defendants agreed that “any and all 17 legal proceedings under, with respect to or related to [the relevant loan agreements]” would be 18 brought “in courts sitting in the County of Los Angeles.” See Exhibits A, B, C & D, which are 19 attached hereto and incorporated herein by this reference, at Section 7(d). 20 STATEMENT OF FACTS 21 PCH Background and Business 22 35. PCH is a holding company and was one of the largest vertically integrated cannabis 23 producers and retailers in California. The majority shareholder of PCH is OBM Holdings, LLC 24 (“OBM Holdings”), whose members are Plaintiffs’ Mangalji and Steinberg, along with non-party 25 Brent Cox (“Cox”). 26 36. Historically, an important financial asset for PCH has been its minority investment, 27 through its subsidiary OBM PDG, in a group of connected cannabis cultivation companies, the PDG 28 Group. Entities relating to Mangalji and Steinberg contributed around $36 million in cash to fund 24798.3 6 COMPLAINT 1 this initial investment in the PDG Group. 2 37. In 2019, as the PDG Group sought to expand, entities relating to Mangalji and 3 Steinberg funded the acquisition of two properties, known as “VR1” and “VR2,” with a purchase 4 price of $22 million. The first property was leased from Zevo Drive Holdings LLC (“Zevo”), a 5 company affiliated with Steinberg, while the second property was from Meridian Via Real LLC 6 (“Meridian Via Real”), a company affiliated with Mangalji (together, the “Greenhouse Properties”). 7 The leases for the Greenhouse Properties were the result of arms-length transactions between 8 adversarial non-affiliated entities, under terms heavily negotiated and based on the market rates (the 9 “Original Leases”). Together, the Greenhouse Properties provided the PDG Group with 10 approximately 900,000 square feet of greenhouse space spread over more than 29 acres, 11 significantly expanding the company’s operations capacity. 12 38. However, in January 2020, one of the PDG Group’s farms was the subject of a high- 13 profile police raid and subsequent full criminal investigation. OBM PDG and the PDG Group 14 became embroiled in litigation aimed at disentangling their business interests as OBM PDG sought 15 to minimize potentially material adverse effects for itself and PCH. 16 PCH Raises Capital Investments Through Debt Financing. 17 39. Throughout 2020, PCH’s chief executive officer, Chris Vaughn, sought to expand 18 the company’s business operations—specifically e-commerce—through a round of debt financing. 19 40. In early 2021, Vaughn, alongside Brent Cox—a board member appointed by OBM 20 Holdings—initiated negotiations for loans on behalf of PCH with Mekita (through its principal Will 21 Abbott) and Pharm (through its principal Rini). These negotiations culminated in a debt funding 22 round, with Pharm and Mekita entering into loan agreements with PCH in March and April 2021. 23 41. In early 2021 Plaintiffs Meridian and Wilmington similarly made substantial loans 24 to PCH under similar terms to those of Mekita and Pharm. 25 42. At the time of this funding, Mekita and Pharm were fully aware of the litigation 26 between OBM PDG and the PDG Group and its impact upon PCH. 27 43. During the funding negotiations, the 4E related entities and Abbott were repeatedly 28 and continuously informed of the details of the ongoing litigation, which eventually resulted in an 24798.3 7 COMPLAINT 1 arbitration between OBM PDG and the PDG Group. These communications included a January 28, 2 2021 email to the potential lenders that attached the Stockholders Agreement and Amendment, 3 which listed updated risk factors relating to the PDG Group criminal investigation, and subsequent 4 arbitration between OBM PDG and the PDG Group. See Exhibit E, at Schedule A. 5 44. In January 28, 2021, an email to Abbott and Mekita’s counsel a PCH representative 6 included a copy of the Stockholders Agreement which included a list setting forth risk factors 7 pertaining to the PDG Group raid, criminal investigation, and subsequent lawsuit and arbitration 8 with OBM PDG. The document states in relevant part: 9 Recent law enforcement incident regarding the Santa Barbara Companies create uncertainty and potential material adverse effects. 10 In January 2020, the Santa Barbara County Sherriff obtained search warrants and entered into certain premises, some of which were utilized by one or more of the 11 Santa Barbara Companies and/or the Santa Barbara License-Holding Entities. The Sherriff seized certain cash and cannabis oil alleging that certain activities and 12 conduct by two of the Santa Barbara License-Holding Entities may be unlicensed and/or unlawful (such as inappropriate storage of the cannabis oil in a non-licensed 13 area). The Santa Barbara County District Attorney has assigned Case No. 20-987 to the matter. However, a significant amount of the seized product was located on a 14 premises that was not, and currently is not, leased by the Santa Barbara Companies or the Santa Barbara License-Holding Entities, and the law enforcement actions 15 relating thereto appear to be focused on such non-leased premises. The applicable Santa Barbara Companies have engaged specialized legal counsel and consultants to 16 represent it regarding this matter. The County of Santa Barbara sent letters, dated February 13, 2020, to two of the Santa Barbara License-Holding Entities regarding 17 the matter (such letters stating, in part, that the County has reason to believe the subject business entity conducted activities which it was not licensed). The 18 applicable Santa Barbara Companies have been in communication with the County of Santa Barbara as it relates to their economic interest in the Santa Barbara License- 19 Holding Entities. The Santa Barbara Companies proposed to the County, on behalf of the two Santa Barbara License-Holding Entities that received letters from the 20 County, that they are agreeable to voluntarily electing to not renew certain licenses if other arrangements and licenses could be obtained in the future. Currently, the 21 County has been agreeable to certain proposed arrangements and the County has provided authorization for another of the Santa Barbara License-Holding Entities to 22 obtain one or more licenses. While the Santa Barbara Companies are acting diligently to investigate the matter and preserve their business assets and operations, the 23 potential ramifications of this event are currently unknown and they may have a material adverse effect on the Santa Barbara Companies and/or the Santa Barbara 24 License-Holding Entities, which in turn could have a material adverse effect on the Companies. Some potential results from this incident may also include, without 25 limitation, criminal charges against one or more of the Santa Barbara License- Holding Entities’ principals, monetary fines, suspension or revocation of one or more 26 cannabis licenses, and/or disqualification of the County-sanctioned legal non- conforming land use status. This matter, including investigations relating to the 27 matter, is continuing. 28 Currently there is pending arbitration related to the Santa Barbara Companies. 24798.3 8 COMPLAINT 1 Currently, the Company’s Subsidiary that owns equity interests in the Santa Barbara Companies is in arbitration with the majority equity holder of one or more of the 2 Santa Barbara Companies and other parties regarding, among other matters, a contractual dispute over whether the Company’s Subsidiary is entitled to receive an 3 increased distribution percentage from the operations of some of the Santa Barbara Companies due to the actions surrounding the January 2020 law enforcement action. 4 See Exhibit E, Schedule A, Exhibit C. 5 45. The loan agreements for Pharm and Mekita specifically stated that each “[lender] 6 agrees and acknowledges that it has been provided with a copy of the [PCH] Stockholders 7 Agreement, and that it has fully read and understands the Stockholders Agreement.” See Exhibits 8 A, B, C & D at Warrant, section 5 “Stockholders Agreement.” 9 46. The loan agreements entered into by Mekita and Pharm also included a 10 confidentiality clause which states: “Lender agrees and acknowledges that the covenants of the 11 ‘Stockholder’ set forth in Section 13 of the Stockholders Agreement (Nondisclosure of Confidential 12 Information) shall apply to Lender, mutatis mutandis. Without limiting the generality of the 13 foregoing sentence, Lender agrees to keep all Major Lender Observer Information provided to 14 Lender (if any) confidential in accordance with Section 13 of the Stockholders Agreement 15 (Nondisclosure of Confidential Information).” See Exhibits A, B, C & D, at Ex. A, section 7(o) 16 “Confidentiality.” 17 OBM PDG and the PDG Group Enter Into a Settlement 18 47. After many months of negotiations, in January 2022, the PDG Group and OBM 19 reached a confidential settlement agreement (the “PDG Settlement”) in which the PDG Group 20 bought out OBM PDG’s equity interests in these companies. This settlement included a 21 comprehensive buy-out of OBM PDG’s interests, formalized through various legal instruments such 22 as guaranties, security agreements, equity pledges, deeds of trust, subordination agreements, and a 23 trio of promissory notes (the “PDG Notes” and collectively, the “PDG Settlement Terms”). These 24 notes mandated monthly payments from the PDG Group to OBM PDG, which were frequently 25 remitted to PCH. 26 48. The PDG Settlement also facilitated reassignment of the Greenhouse Properties from 27 the PDG Group to PCH. Under the settlement terms, while the original leases were terminated, the 28 24798.3 9 COMPLAINT 1 Greenhouse Properties were leased to PCH at the same rates and under similar to those of the 2 original agreements with the PDG Group. 3 49. for PCH-related entities to assume control of the Greenhouse Properties as tenants, 4 effectively ending the original leases with the PDG Group. However, the new leases with PCH’s 5 entities as the tenants maintained similar rental rate terms as those previously negotiated with the 6 PDG Group. 7 50. The PDG Settlement Terms allow OBM PDG to declare an “Event of Default” for a 8 missed payment with a written notice (a “Default Notice”). In such an event, the PDG Settlement 9 Terms further provide various remedies including acceleration of the principal owed along with any 10 interest. On March 23, 2024, OBM PDG sent a Default Notice to the PDG Group. 11 PCH Secures More Financing From Defendants 12 51. In early 2022, PCH engaged in another round of debt financing with entities 13 associated with defendant 4E and Alexey Mikhaylov. As part of these discussion Vaughn 14 enthusiastically updated Defendants on both the PDG Settlement and provided information 15 regarding the settlement terms as the lenders, now Defendants in this suit, had insisted upon the 16 PDG Settlement as a condition precedent before agreeing to lend money to PCH. See January 20, 17 2022, email and attachments from Vaughn, which is attached hereto as Exhibit F and incorporated 18 herein by reference. 19 20 21 22 23 24 25 26 27 28 24798.3 10 COMPLAINT 1 The following day, Abbott acknowledged receipt of the information and congratulated the 2 company. See January 21, 2022, email from Abbott, which is attached hereto as Exhibit G and 3 incorporated herein by reference. 4 5 6 7 8 52. The PDG Settlement was widely seen as a strategic opportunity for PCH to broaden its 9 cultivation capabilities, in furtherance of its goal for vertical integration. Motivated by this settlement, 10 Plaintiffs eagerly participated in the new financing round. PCH received a $1 million loan from 11 Mikhaylov and two additional loans totaling $4 million from entities linked to Abbott. These loans were 12 later transferred to defendant 4E in December 2022. 13 53. When negotiating a second loan from the 4E affiliated lenders, the 4E affiliated 14 lenders sought: (i) additional warrants that entitled the company to purchase shares in PCH and (ii) 15 substantial modifications to the warrants previously issued to prior lenders, including adding more 16 PCH shares and setting a lower exercise price. Eventually this resulted in 4E having a substantial 17 equity interest in PCH which in turn prompted 4E to attempt to dominate and control PCH and direct 18 the actions of the company. 19 54. As 4E became more involved in PCH’s operations, Abbott primarily communicated 20 with Cox and Vaughn. All three individuals were focused on PCH’s retail and e-commerce business. 21 PCH’s then-CEO Vaughn had a background in e-commerce and heavily allocated resources to that 22 business sector. Steinberg and Mangalji, however, remained vocal about wanting to build the retail 23 and cultivation hard assets, which were unfortunately never built out. 24 Breakdown in California Cannabis Market Impacts PCH 25 55. In 2023, conditions of the cannabis market deteriorated significantly. In early 2023, 26 Vaughn, proposed selling off its subsidiary alcohol delivery service “Saucey.” 27 56. Even after selling off Saucey, the company’s financial challenges persisted. PCH was 28 having difficulty paying various expenses due to the focus on e-commerce, which had high 24798.3 11 COMPLAINT 1 associated costs. Vaughn, in his capacity as CEO, made decisions as to what expenses could and 2 could not be paid, including certain legal fees, taxes, and other expenses including many months of 3 rent payments on the Greenhouse Properties. 4 57. In April 2023, Mangalji urged Vaughn and Cox to begin discussions with 4E and 5 Pharm on a restructuring effort and stabilization plan for the company. Mangalji and Steinberg were 6 involved in the conversations as it was beneficial for every stakeholder to try and find a favorable 7 outcome for the company. This resulted in a restructuring letter of intent (the “Restructuring LOI”) 8 being entered into on or about April 16, 2023. See Restructuring LOI, which is attached hereto as 9 Exhibit H and incorporated herein by reference. The Restructuring LOI tasked the parties to “agree 10 to negotiate in good faith” in a more comprehensive restructure with 4E allegedly serving as “lead 11 lender” for those purposes. 12 58. However, the parties were limited in effectuating the plans outlined in that 13 Restructuring LOI until September 2023 because Abbott did not have the correct business structure 14 in place to actually consummate the arrangement. 15 59. Despite this, after signing the Restructuring LOI, 4E, acting through Abbott, 16 attempted to control how PCH used its funds by accessing the OBM PDG bank account. This was 17 significant because payments from the PDG Notes to PCH represented the company’s primary 18 revenue source. 19 60. With greater access and control over PCH’s bank accounts, Abbott furthered 20 attempted to pivot away from cultivation towards e-commerce. He indicated that his motivation for 21 this shift stemmed largely from his desire to diversify his own personal portfolio, given that his 22 other investments were already concentrated in the cultivation sector. 23 61. In September 2023, amid the continued deterioration of the legal cannabis market in 24 California, OBM Holdings replaced Cox on the board with Mehlman (another lender to PCH) and, 25 in an attempt to stabilize the company, initiated aggressive cost-cutting strategies that the current 26 management was unable or unwilling to execute. 27 62. Pursuant to the Restructuring LOI, further restructuring efforts ensued. On 28 September 14, 2023, 4E’s legal counsel forwarded draft documents to PCH’s CEO, Vaughn, for 24798.3 12 COMPLAINT 1 review. The initial drafts included: (i) an amended and restated master loan agreement requiring 2 signatures from PCH and all 15 lenders; (ii) an assignment and assumption agreement for the PDG 3 Settlement Terms to be signed by OBM PDG, the 15 lenders, and note holders PDG, CP, and RP; 4 and (iii) a servicing agreement for the PDG loans requiring signatures from PCH, OBM PDG, and 5 the 15 lenders (together, the “Draft Restructuring”). This email with attachments is attached hereto 6 as Exhibit I and incorporated herein by this reference. 4E’s counsel noted that many of these 7 documents “need [further information] to prepare” while others, like Uniform Commercial Code 8 finance statements and a joint written consent by PCH’s board, still needed to be drafted. 9 63. Also included in the September 14, 2023 email was a closing checklist for the Draft 10 Restructuring, which was prepared by 4E’s counsel and listed over 42 documents necessary for the 11 transaction’s closure. Many of these documents contained statements like “need [further 12 information] to prepare” while others, like Uniform Commercial Code finance statements and a joint 13 written consent by PCH’s board, still needed to be drafted, demonstrating that Abbott and 4E were aware 14 these documents were far from final. See Exhibit I, “Closing Checklist”. However, none of these, 15 nor any other, restructuring terms were ever agreed to or finalized by the parties. 16 64. All told, these documents would have been subject to the review and approval of 17 approximately 20 different individuals and entities. The various documents included in the Draft 18 Restructuring, which—to reiterate—required signatures from PCH, OBM PDG, and 15 lenders— 19 were never shared with nor review by many of the other PCH lenders. None of the Plaintiffs 20 designated or approved 4E to represent them as “leader lender” through the restructuring process. 21 Nor are Plaintiffs aware of any other non-party lenders who designated 4E as lead lender. 22 65. Despite this, 4E would later claim to represent the lender class. 23 Breakdown In Relationship Between Defendants and PCH 24 66. Despite broader investor support for cultivation, due to their increased control over 25 PCH, 4E, Abbott, and the other Defendants continued to hinder PCH’s expansion of its cultivation 26 business, including specifically advising the company to terminate certain related leases. This 27 escalated to the point where Abbott and 4E demanded that PCH refrain from paying other lenders, 28 subsequently threatening legal action against PCH if it made payments to any other lenders contrary 24798.3 13 COMPLAINT 1 to the Defendants’ instructions. 2 67. Formal demand was made on September 25, 2023, from the Defendants’ attorneys 3 at Coppersmith Brockelman, sent to PCH, in which they voiced objections to PCH’s allocation of 4 funds received from the PDG Group (hereinafter referred to as the “Coppersmith Letter”). The 5 September 25, 2023 Coppersmith Letter is attached hereto as Exhibit J and incorporated herein by 6 this reference. The Coppersmith Letter specifically objected to PCH’s intention to utilize the PDG 7 Funds for payroll and other operating expenses of the Company and its subsidiaries. It further stated: 8 “This letter serves to notify the Company that any use of the PDG Funds for purposes other than 9 those agreed upon for PDG Funds[u]se requires the express consent of the Lead Lender.” Id. 10 68. Then on October 16, 2023, 4E emailed the PCH Board to object to PCH having added 11 a new user to the OBM PDG bank account, asking the Board about whether it had approved certain 12 payments made by that new user. 13 69. On November 9, 2023, Defendants sent two additional letters to PCH. One of them, 14 which is attached hereto as Exhibit K and incorporated herein by this reference, addressed the 15 restructuring issue (the “Restructuring Demand Letter”). The Restructuring Demand Letter, despite 16 having no authorization from the other lenders, asserted that 4E was “lead lender” under the 17 Restructuring LOI, and was thereby entitled to priority payment. 18 70. The other November 9, 2023 letter, which is attached hereto as Exhibit L and 19 incorporated herein by this reference, was a notice of default on behalf of 4E and Pharm (the “4E 20 Default Notice”). The 4E Default Notice raised concerns regarding lender payments, alleged 21 fraudulent transfers, and disputed “years of rent payments” for the Greenhouse Properties, this 22 despite the fact that all of this information had been disclosed to Plaintiffs in January 2022, and 23 before the loans were entered into. See Exhibit F. 24 71. On November 13, 2023, 4E emailed again to object to PCH revoking Abbott’s access 25 to the OBM PDG account and to make several demands, including that no funds be withdrawn 26 “without prior written approval from the Lead Lender.” 27 72. Outside counsel for PCH, Steven C. Schinko, responded to the Defendants’ 28 misguided demands with a letter dated November 15, 2023 (hereinafter referred to as the “Schinko 24798.3 14 COMPLAINT 1 Letter”). See Schinko Letter, which is attached hereto as Exhibit M and incorporated herein by this 2 reference. In this letter, Schinko clarified that PCH’s financial obligations exceeded its current liquid 3 assets, rendering it impossible for PCH to allocate all of its cash reserves to 4E and Pharm while 4 neglecting tens of millions of dollars in other claims and continuing obligations. The Schinko Letter 5 elaborated that the PDG Settlement had been fully disclosed to the lenders (see exhibit F), including 6 the terms of the new leases for Greenhouse Properties (id.). It provided an accounting showing that 7 the rents for the Greenhouse Properties were predominantly unpaid due to PCH’s cash flow issues, 8 leading to substantial losses for the lessors. 9 73. Indeed, by that point the owners of the Greenhouse Properties, entities relating to 10 Mangalji and Steinberg, had deferred payments related to rent and interest at the properties, along 11 with interest and repayment on the debt instruments, so as to allow PCH to fulfil obligations to other 12 creditors as an act of good faith to support the company. These properties had suffered massive 13 losses over the life of their leases with PCH. The loan for the VR2 property—a property owned by 14 an entity related to Mangalji—had to be serviced out-of-pocket for almost the entirety of the lease. 15 Ultimately, VR2 had to be sold in May 2023 at a significant loss due to PCH’s failure to pay rent. 16 74. In sum, the Schinko Letter provided evidence that there was nothing fraudulent in 17 the property transfers new leases and that, far from concealment, PCH had disclosed these relevant 18 facts to the Plaintiffs here. 19 75. Finally, the “lead lender” claims in the Restructuring LOI were quickly contradicted 20 in a December 12, 2023, letter from 4E, signed by Abbott, which was sent out to all of PCH’s lenders 21 (the “4E Lender Letter”), which is attached hereto as Exhibit N, and incorporated herein by this 22 reference. 23 24 25 26 27 28 24798.3 15 COMPLAINT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 4E’s Campaign of Harassment and Fraud 21 76. As they were free to do, on January 31, 2024, 4E, Pharm, and Mikhaylov, now 22 represented by Katten Muchin Rosenman LLP (“Katten”), filed a lawsuit against PCH, Mangalji, 23 Steinberg, Mehlman, Zevo, and Meridian Via Real entitled: 4E Capital LLC, et al., v. Pacific 24 Consolidated Holdings Group, Inc., et al., Case No. 24STCV02587 (California Superior Court, 25 County of Los Angeles) (the “4E Parties Complaint”). 26 77. However, rather than properly allowing the courts to resolve the issue, Defendants 27 undertook a subsequent campaign of harassment and disruption against PCH, which directly harmed 28 24798.3 16 COMPLAINT 1 the company’s other lenders. 2 78. Katten, on behalf of the Defendants, sent a letter to the PDG Group on February 12, 3 2024, falsely asserted authority under the Restructuring LOI and as “lead lender.” It further “notified 4 and instructed” the PDG Group “to remit payment of the full amount of each monthly payment of 5 the PDG Notes directly to Lenders, rather than to PCH.” See February 12, 2024 Katten Letter, which 6 is attached hereto as Exhibit O and incorporated herein by this reference. 7 79. Defendants asserted that the Restructuring LOI effectively enabled an assignment by 8 PCH of OBM PDG’s ownership and rights under the PDG Settlement. This despite the fact that 9 Brent Cox, the sole manager of OBM PDG, was not a party to the Restructuring LOI, and did not 10 consent to such an assignment. 11 80. Additionally, when Defendants made these claims to the PDG Group, they knew that 12 numerous Draft Restructuring documents still had to be both prepared and finalized, and then 13 executed by all of PCH’s other lenders before any assignment of the PDG Settlement could take 14 place. Therefore, no loan modifications had actually been executed pursuant to the Restructuring 15 LOI, nor were the Draft Restructuring documents approved or finalized by the lenders. 16 81. Moreover, 4E was not lead lender. The other lenders had not authorized 4E to be 17 lead lender. And, of course, both 4E and Abbott had explicitly told the other lenders that they were 18 not representing them in PCH restructuring process, or in any other capacity. See Exhibit N. 19 82. In short, Defendants’ claims to the PDG Group were false. And, Defendants knew 20 those claims were false. 21 83. Yet, Defendants continued their campaign of interference and sabotage of PCH in 22 order to benefit themselves (to the exclusion of the Plaintiffs’ rights) as set forth herein. 23 84. Upon information and belief, Abbott has personally contacted the PDG Group and/or 24 their counsel on multiple occasions demanding that payment be made to the Defendants (and not to 25 any other PCH creditor). 26 85. In a letter dated February 22, 2024 letter to attorneys for the PDG Group, counsel for 27 PCH rebutted the claims made in the Katten Letter, insisting that all future payments on the PDG 28 Settlement Terms continue to be made to OBM PDG, the only proper payee. 24798.3 17 COMPLAINT 1 86. However, Defendants (including Abbott and 4E) continued to threaten PDG to pay 2 the proceeds of the PDG Settlement Terms to Defendants rather than to PCH. Abbott continued to 3 use the imprimatur of his position at 4E to imply that he speaks or acts on behalf of all of the PCH 4 lenders, authority which does not exist and has never existed. 5 87. Incredibly, Abbott even personally reached out to Mangalji’s father (who is not a 6 party to 4E’s Complaint) with implied threats and harassment intending to bolster Defendants’ 7 improper assertion that they are entitled to the proceeds of the PDG Settlement Terms. 8 88. Unfortunately, the Plaintiffs’ attempts to disrupt PCH’s credit access led the PDG 9 Group to file an Interpleader Action in Santa Barbara on March 22, 2024, indefinitely blocking 10 PCH’s primary capital source. See Complaint in Pacific Dutch Group, LLC, et al. v. OBM PDG, 11 LLC, et al., Case No. 24CV01682 (Santa Barbara Superior Court), which is attached hereto as 12 Exhibit P and incorporated herein by this reference. 13 CAUSES OF ACTION 14 FIRST CAUSE OF ACTION 15 Intentional Interference With Contractual Relations 16 (Against All Defendants and Does 1-20) 17 89. Plaintiffs re-allege and incorporate herein by reference the allegations contained in 18 each and every Paragraph set forth above, as though set forth in full. 19 90. A valid contract existed between Plaintiff OBM PDG and the PDG Group, as 20 outlined in the PDG Settlement and PDG Settlement Terms, entitling OBM PDG to monthly 21 payments. 22 91. These payments were frequently remitted to PCH, which were a significant source 23 of operational revenue for the company. 24 92. Defendants were aware that OBM PDG was entitled to these funds from the PDG 25 Settlement and that they represented a crucial revenue stream for OBM PDG and consequently PCH, 26 benefiting all lenders, including the Plaintiffs in this case. 27 93. Following a dispute with PCH, Defendants sought to disrupt the contractual 28 relationship between OBM PDG and the PDG Group by falsely claiming lead lender status and 24798.3 18 COMPLAINT 1 assignment of the PDG Settlement Terms through the Katten Letter and various related 2 communications with the PDG Group. 3 94. Defendants were aware—or should have been aware—that their demands in the 4 Katten Letter were likely to interfere with the contractual relationship between OBM PDG and the 5 PDG Group, leading to a disruption of payments and operations for PCH. 6 95. An actual breach and disruption of the contractual relationship between OBM PDG 7 and the PDG Group has occurred, marked by the halt of payments to OBM PDG under the PDG 8 Settlement Terms, and which, as a result, indefinitely delays any future payments to PCH. 9 96. As a result of Defendants’ interference with OBM PDG’s contract rights, all 10 Plaintiffs have suffered damages exceeding the Court’s jurisdictional threshold, to be precisely 11 determined at trial. 12 97. Defendants' actions were intentional, malicious, and reckless, showing a conscious 13 disregard for Plaintiffs’ rights with the intent to cause harm. This conduct justifies punitive or 14 exemplary damages under California Civil Code § 3294 to punish Defendants and deter similar 15 actions in the future. 16 SECOND CAUSE OF ACTION 17 Tortious Interference With Prospective Economic Advantage 18 (Against All Defendants and Does 1-20) 19 98. Plaintiff re-alleges and incorporates herein by reference the allegations contained in 20 each and every Paragraph set forth above, as though set forth in full. 21 99. Plaintiffs maintain valid prospective economic relationships with PCH, both through 22 ownership and access to the funds from the PDG Settlement Terms and related monthly payments, 23 and through prospective economic opportunities derived from PCH’s vertically integrated cannabis 24 cultivation and distribution operations. These relationships were expected to yield substantial profits 25 for Plaintiffs and PCH lenders through these ventures. 26 100. Defendants were aware of these prospective economic relationships, sharing similar 27 relationships with PCH and having knowledge of the PDG Settlement and PDG Notes, which fund 28 PCH’s operations. This awareness is further evidenced by Defendants’ efforts to redirect the use of 24798.3 19 COMPLAINT 1 monthly payments in mid-2023, a period during which Defendants 4E and Abbott had access to and 2 control over certain of PCH’s financial accounts. 3 101. Defendants engaged in independently wrongful conduct to usurp these prospective 4 economic relationships and the resultant profits that rightfully belonged to Plaintiffs and PCH. This 5 includes efforts to pivot PCH’s business model to e-commerce and attempting to redirect the PDG 6 Settlement payments to themselves instead of OBM PDG, thereby depriving OBM PDG and PCH 7 of their rightful benefits. 8 102. Defendants have undertaken a series of intentional and wrongful acts aimed to 9 disrupt the economic relationships between Plaintiffs and PCH. This includes interference with: (a) 10 Plaintiffs’ access to PDG Group payments; (b) the creditor relationships between Plaintiffs and 11 PCH; and (c) the utilization of PDG Notes payments for PCH’s daily operations and vendor 12 relationships. 13 103. The prospective economic relationship between Plaintiffs (and PCH) with PCH 14 creditors and vendors has been compromised as Defendants effectively obstructed Plaintiffs’ access 15 to PDG Settlement payments, undermining PCH’s ability to fulfill its obligations to creditors and 16 vendors. 17 104. The inability of Plaintiffs and PCH to access PDG Settlement funds has jeopardized 18 PCH’s financial stability and its economic relationships, with Defendants’ actions directly causing 19 this adverse impact. 20 105. The conduct described was intentional, malicious, and reckless, demonstrating a 21 blatant disregard for Plaintiffs’ rights with the aim to cause harm, distres