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  • American Healthcare Administrative Services, Inc et al vs. Aizen, Lance Other Tort: Other Non PI/PD/WD (35) document preview
  • American Healthcare Administrative Services, Inc et al vs. Aizen, Lance Other Tort: Other Non PI/PD/WD (35) document preview
  • American Healthcare Administrative Services, Inc et al vs. Aizen, Lance Other Tort: Other Non PI/PD/WD (35) document preview
  • American Healthcare Administrative Services, Inc et al vs. Aizen, Lance Other Tort: Other Non PI/PD/WD (35) document preview
  • American Healthcare Administrative Services, Inc et al vs. Aizen, Lance Other Tort: Other Non PI/PD/WD (35) document preview
  • American Healthcare Administrative Services, Inc et al vs. Aizen, Lance Other Tort: Other Non PI/PD/WD (35) document preview
  • American Healthcare Administrative Services, Inc et al vs. Aizen, Lance Other Tort: Other Non PI/PD/WD (35) document preview
  • American Healthcare Administrative Services, Inc et al vs. Aizen, Lance Other Tort: Other Non PI/PD/WD (35) document preview
						
                                

Preview

1 NOONAN LAW GROUP 08/04/2020 TODD M. NOONAN (SBN 172962) 2 todd@noonanlawgroup 980 9th Street, 16th Floor 3 Sacramento, CA 95814 Telephone: 916.449.9541 4 GIBSON, DUNN & CRUTCHER LLP 5 BENJAMIN B. WAGNER, SBN 163581 bwagner@gibsondunn.com 6 MICHAEL D. CELIO, SBN 197998 mcelio@gibsondunn.com 7 1881 Page Mill Road Palo Alto, CA 94304-1211 8 Telephone: 650.849.5300 Facsimile: 650.849.5333 9 [Additional Counsel on Signature Page] 10 Attorneys for Defendant Lance Aizen 11 12 SUPERIOR COURT OF CALIFORNIA 13 COUNTY OF PLACER 14 CASE NO. S-CV-0042143 AMERICAN HEALTHCARE 15 ADMINISTRATIVE SERVICES, INC. and DEFENDANT LANCE AIZEN’S AHAS HOLDINGS, INC., Plaintiffs, 16 CROSS-COMPLAINT FOR: v. 17 (1) BREACH OF CONTRACT/AHAS; LANCE AIZEN, Defendant.- (2) BREACH OF CONTRACT/AHAS ______________________________________ 18 HOLDINGS AND INDIVIDUAL-TRUST LANCE AIZEN, Cross-Complainant, CROSS-DEFENDANTS; 19 (3) TORTIOUS INTERFERENCE v. WITH CONTRACT 20 (4) BREACH OF FIDUCIARY AMERICAN HEALTHCARE DUTY/MINORITY SHAREHOLDER 21 ADMINISTRATIVE SERVICES, INC.; OPPRESSION; AND AHAS HOLDINGS, INC.; GROVER LEE; (5) CONVERSION 22 GROVER LEE REVOCABLE LIVING TRUST; CHRISTINE SHAFFER; JURY TRIAL DEMANDED 23 CHRISTINE SHAFFER REVOCABLE LIVING TRUST; CHARLES LEE; Complaint Filed: November 19, 2018 24 CHARLES E. LEE LIVING TRUST; CHARLES H. LEE 2012 TRUST NO. 1; 25 CHARLES H. LEE 2012 TRUST NO. 2; JACQUELINE LEE; JACQUELINE C. LEE 26 2012 TRUST NO. 1; JACQUELINE C. LEE 2012 TRUST NO. 2; JACQUELINE C. LEE 27 LIVING TRUST; and Roes 1 to 10, inclusive, Cross Defendants. 28 -1- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 Defendant and cross-complainant Lance Aizen (“AIZEN”) complains against American 2 Healthcare Administrative Services, Inc. (“AHAS”), AHAS Holdings, Inc. (“AHAS 3 HOLDINGS”), Christine Schaffer (“SCHAFFER”), Grover Lee (“LEE”), and the remaining 4 named Cross-Defendants as follows. 5 INTRODUCTION 6 1. AIZEN and AHAS entered into a contract that made LEE and SCHAFFER 7 wealthy – or to be more exact, significantly wealthier than they already were. That contract was 8 part of a larger transaction by which the bulk of the business that AIZEN built for LEE and 9 SCHAFFER was sold to a third party at a significant premium. LEE and SCHAFFER were 10 ecstatic when the deal was negotiated and praised AIZEN for the skill and hard work that had 11 created such an extraordinary result. They gladly accepted the wealth that it provided them and 12 their children. But with that money in hand, they reversed course and now refuse to honor their 13 end of the bargain: the express contractual obligation to pay AIZEN the balance of what they 14 owe him. They have even filed a meritless action against AIZEN in their attempt to avoid paying 15 him what they plainly owe. 16 2. By this Cross-complaint AIZEN seeks to set the record straight and recover what 17 he is due. AIZEN almost-singlehandedly took a struggling family business, cross-defendant 18 AHAS, and built it into a profitable $150 million enterprise that was ultimately acquired at a 19 premium. That acquisition delivered a massive windfall to the cross-defendant founders, 20 formerly husband and wife LEE and SCHAFFER and their adult children—who did nothing to 21 earn it. 22 3. As part of that larger acquisition transaction, AIZEN negotiated AHAS’s buyout 23 of his employment contract. He, AHAS, and AHAS’s founders, LEE and SCHAFFER, agreed on 24 a buy-out of $20.8 million. The $20.8 million was to be paid in two parts: first, a lump sum 25 payment (which was made) and second, a series of payments over time, which have been 26 wrongfully withheld. This buyout agreement was documented in the Agreement to Terminate 27 Employment Agreement (the “Agreement”), a copy of which is attached hereto as Exhibit A and 28 incorporated by this reference. -2- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 4. The terms of the Agreement make plain Cross-Defendants’ obligations and breach, 2 with the corresponding factual backdrop exposing the depth of Plaintiffs’ overreach. LEE and 3 SCHAFFER had 10 months to evaluate AIZEN’s buyout proposal. The final revised version of 4 the Agreement was signed on June 27, 2018, following an AHAS Board of Directors meeting and 5 Board Resolutions that addressed, among other things, approval of the Agreement. But AIZEN 6 had presented SCHAFFER and LEE the initial framework for his proposal in late July 2017, in 7 connection with an earlier derailed acquisition opportunity. AIZEN had also presented a revised 8 set of detailed calculations in March 2018, over three months before the final written agreement 9 was signed (and seven months before the Maxor transaction closed). 10 5. LEE and SCHAFFER thus had every opportunity to challenge, question, or 11 counter AIZEN’s proposal. Further, the Agreement itself is a lengthy, fully integrated contract 12 drafted not by AIZEN, but by AHAS’s outside counsel at Morgan Lewis & Bockius LLP. 13 Moreover, LEE and SCHAFFER not only had the opportunity to so, they had the means to do so. 14 LEE and SCHAFFER are wealthy individuals, and they and AHAS had the support of a 15 prominent accounting firm, Moss Adams, and the aforementioned international law firm, Morgan 16 Lewis. Yet another local Sacramento law firm, Boutin Jones, Inc., as well as an outside 17 consultant, had supported AHAS in its prior negotiations with AIZEN concerning his 18 employment agreement, and a different Sacramento law firm, Foster Law Group, assisted AHAS 19 in its negotiations with AIZEN concerning the employment agreement addendum. 20 6. Further, the very circumstances leading up to the final, executed version of 21 Agreement, and in particular the deferred nature of the balance of payments, confirm AIZEN’s 22 conduct was appropriate and ethical. In March 2018, when LEE and SCHAFFER negotiated and 23 first agreed to the terms of AIZEN’s requested $20.8 million buyout, the acquiror was expected to 24 purchase AHAS in its entirety. At that time, the Agreement called for a $20.8 million lump sum 25 payment to AIZEN. 26 7. But then the terms of the acquisition changed. The acquiror decided it was not 27 going to purchase all of AHAS’s lines of business. AHAS’s third-party rebate and population 28 health management businesses were no longer part of the deal. The proposed acquisition price -3- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 dropped by more than half. AIZEN, seeking to be a responsible corporate partner, did not 2 continue to insist on receiving his promised $20.8 million up front. Instead, he readily agreed to a 3 massive downward adjustment of his upfront payment. In fact, he agreed to a reduction of the up- 4 front payment by essentially the same percentage that the acquisition price dropped. He also 5 agreed to tie his future payment stream to the third-party rebate business that was not being 6 acquired, which he agreed to run. Finally, he also agreed that if the rebate business failed 7 altogether under his stewardship then AHAS’s payment obligation would be relieved. 8 8. AIZEN acted responsibly: He dropped his demand commensurate with the drop in 9 price, and then took all the risk with the backend payout of the balance. He would run the rebate 10 business, and those future cash proceeds would fund the remaining buyout amount. 11 9. In return, AIZEN asked for two things. First, he negotiated a provision that 12 provided that if he were terminated, the entire remaining amount would be due immediately. He 13 also negotiated that the payment be treated as a distribution of an ownership interest in the 14 company (rather than as wages) to provide tax efficiencies in connection with the payment. 15 AIZEN was willing to defer payment, and to have them be contingent on the success of the 16 business, but only when linked to his sweat, effort, expertise. In the event he was terminated, 17 AHAS had to pay him the balance. 18 10. That was the deal AHAS negotiated, that is the deal it entered into through the 19 Agreement, and that is the deal it has breached. It terminated Aizen and then refused to pay him 20 the funds he was owed. No later than November 6, 2018, Cross-Defendants formally terminated 21 AIZEN from AHAS; indeed, Cross-Defendants have at times asserted that they terminated him as 22 early as September 17, 2018, when the deal closed. Yet only a single $500,000 payment was 23 made in October 2018. AIZEN is due the entire unpaid balance and has been owed it for almost 24 two years at the time of the filing of this Cross-Complaint. 25 11. Faced with the clear contractual obligations and indisputable evidence of breach, 26 SCHAFFER and LEE (and AHAS on their behalf) incredibly claim that they were fraudulently 27 induced into the deal (as well as into AIZEN’s earlier employment agreement addendum). They 28 have gone so far as to sue AIZEN, who did so much for them, perhaps reasoning that the best -4- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 defense is a good offense. But the evidence is unequivocal: AIZEN acted fairly and honestly at 2 all times. Their claims that they were misled are contradicted by their own words and 3 contemporaneous documents. 4 12. Indeed, even the small amount that AHAS paid against its back-end obligation – 5 the first required installment payment of $500,000 – Cross-Defendants now seek to recapture 6 with manufactured false accusations. SCHAFFER expressly authorized this payment on October 7 11, 2018, and it was paid to AIZEN the next day on October 12, 2018. Yet SCHAFFER then 8 denied she authorized the payment and accused AIZEN of stealing the funds, and AHAS 9 misrepresented the very date of payment in an effort to bolster these false accusations. AHAS’s 10 own bank records, however, will show the date of the wire transfer. This misdirection from 11 Cross-Defendants is not an isolated example. 12 13. This is not a complex case. The Agreement provides that the balance of AIZEN’s 13 buyout payment accelerates if he is terminated. SCHAFFER, LEE, and AHAS terminated 14 AIZEN. AIZEN is entitled to be paid. It is no harder than that. 15 14. Yet Cross-Defendants have refused to pay Aizen – not coincidentally, the only 16 non-family member shareholder – more than half of the compensation they contractually agreed 17 to pay him, instead engaging in blatant self-dealing and elevating the family’s financial interest 18 over the terms of AHAS’s contract with AIZEN. SCHAFFER and LEE and their adult children 19 received tens of millions of dollars from the transaction with Maxor. It is absurd for SCHAFFER 20 and LEE, two millionaires and career entrepreneurs supported by national accounting and law 21 firms, to claim that they were misled. By his Cross-Complaint, AIZEN seeks to hold Cross- 22 Defendants to the deal they entered. 23 JURISDICTION AND VENUE 24 15. Venue is proper in the Superior Court of California, County of Placer, pursuant to 25 Code of Civil Procedure §§ 395, 395.5. 26 16. This Court may properly exercise jurisdiction over each Cross-Defendant. 27 Plaintiff corporations have filed suit in this jurisdiction and allege that they are California 28 corporations. The named cross-complainant trusts are alleged to be trusts formed under the laws -5- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 of the State of California. As for the individual defendants, they either are or were California 2 residents at the time of the events alleged herein, performed wrongful acts in the State of 3 California, entered into contracts in the State of California, and/or acted as CONTROLLING 4 SHAREHOLDERS, as defined below, to direct, control, and act through the California corporate 5 Plaintiffs and Crossclaim Defendants, in committing the torts described herein, and in improperly 6 diverting and receiving funds from the California corporate plaintiffs in furtherance of the alleged 7 wrongs. 8 THE PARTIES 9 17. Cross-complainant Lance Aizen (“AIZEN”) is a citizen of the State of New Jersey, 10 a shareholder of defendant AHAS Holdings, Inc., and a former officer of cross-defendant 11 American Healthcare Administrative Services, Inc. 12 18. Cross-defendant AHAS Holdings, Inc. (“AHAS HOLDINGS”) alleges in its 13 Complaint that it is a corporation organized and existing under the laws of the State of California. 14 AIZEN is informed and believes and thereon alleges that AHAS HOLDINGS owned and owns 15 one hundred percent (100%) of cross-defendant American Healthcare Administrative Services, 16 Inc. 17 19. Cross-defendant American Healthcare Administrative Services, Inc., (“AHAS”) 18 alleges that it is a corporation organized and existing under the laws of the State of California, 19 and the wholly owned subsidiary of AHAS HOLDINGS. 20 20. Cross-defendant Christine Schaffer also known as Christine V. Lee and Christine 21 Schaffer-Lemeshow, is or was during the relevant times an officer and shareholder of AHAS 22 HOLDINGS and an officer of AHAS. AIZEN is also informed and believes that SHAFFER is 23 trustee of cross-defendant the Christine Shaffer Revocable Living Trust. The Christine Schaffer 24 Revocable Living Trust is on information and belief a trust established under the laws of the State 25 of California. SCHAFFER is sued in her individual capacity and as trustee of the Christine 26 Shaffer Revocable Living Trust, which trust is or was during the relevant times a shareholder of 27 AHAS HOLDINGS. Schaffer and her trust are referred to as SCHAFFER herein. 28 -6- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 21. Cross-defendant Grover Lee is or was at all relevant times a shareholder of AHAS 2 Holdings. AIZEN is also informed and believes and thereon alleges that LEE is also trustee of 3 cross-defendant the Grover Lee Revocable Living Trust. The Grover Lee Revocable Living Trust 4 is on information and belief a trust established under the laws of the State of California. LEE is 5 sued in his individual capacity and as trustee of the Grover Lee Revocable Living Trust, which 6 trust is a shareholder of AHAS HOLDINGS. Lee and his trust are referred to as LEE herein. 7 22. AIZEN further alleges on information and belief that cross-defendant Charles E. 8 Lee is the trustee of Charles E. Lee Living Trust, the Charles H. Lee 2012 Trust No. 1, and the 9 Charles H. Lee 2012 Trust No. 2, which trusts are on information and belief formed under the 10 laws of the State of California. Charles Lee is sued in his individual capacity and as trustee of 11 these trusts, which are or were during the relevant times shareholders of AHAS HOLDINGS. 12 Charles Lee and his trusts are referred to as CHARLES LEE herein. 13 23. AIZEN further alleges on information and belief that cross-defendant Jacqueline 14 C. Lee (also known as Jacqueline Schaffer) is the trustee of the Jacqueline C. Lee 2012 Trust 15 No. 1, Jacqueline C. Lee 2012 Trust No. 2, and the Jacqueline C. Lee Living Trust, which trusts 16 are on information and belief formed under the laws of the State of California. Jacqueline Lee is 17 sued in her individual capacity and as trustee of these trusts, which are or were during the relevant 18 period shareholders of AHAS HOLDINGS. Jacqueline Lee and her trusts are referred to as 19 JACQUELINE LEE herein. 20 24. AIZEN is informed and believes and thereon alleges that true names and capacities 21 of cross-defendants ROES 1 through 10, inclusive, are unknown to AIZEN, who therefore sues 22 such Cross-Defendants by such fictitious names. AIZEN alleges that ROES 1 through 10, 23 inclusive, are officers, directors, employees, and/or agents of the other Cross-Defendants and 24 were acting in that capacity at all relevant times. AIZEN is further informed and believes and 25 thereon alleges that each of the Cross-Defendants named as ROES 1 through 10, inclusive, were 26 and are in some manner responsible for the actions and omissions herein alleged, and for the 27 damage caused by the Cross-Defendants and are, therefore, jointly and severally liable. 28 -7- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 BACKGROUND 2 A. Aizen Builds A Successful Business At AHAS. 3 25. In June 2010, AHAS hired AIZEN as its Vice President of Sales. AHAS was a 4 family-owned and controlled business focused on national pharmacy benefit management 5 (“PBM”) services, 340B federal drug program administration, and population health management 6 (“PHM”) services. By 2012, AIZEN’s exemplary performance had merited his elevation to 7 President and by 2013, he was further elevated to CEO of the company. In 2018, he was also 8 named Chairman of the Boards of Directors for AHAS and AHAS HOLDINGS as well. From 9 2012 through 2018, Aizen took the company from $80 million in revenue and losses on its core 10 business to $150 million in revenue and thriving success as a profitable business. 11 B. Cross-Defendant Family Member Control Over AHAS and AHAS HOLDINGS. 12 26. Throughout the entirety of AIZEN’s involvement with AHAS, LEE, SCHAFFER, 13 and their adult children, CHARLES LEE and JACQUELINE LEE, treated AHAS as though the 14 business was their own personal bank account. These shareholder cross-defendants routinely paid 15 personal expenses with corporate funds, diverted or attempted to divert substantial sums out of 16 AHAS for personal benefit, paid themselves excessive compensation for minimal work, and 17 otherwise engaged in self-dealing for their own personal profit, rather than in furtherance of any 18 corporate interest. 19 27. Aizen is informed and believes and thereon alleges the following share ownership 20 in AHAS and then AHAS HOLDINGS at times relevant to this dispute: 21 • SCHAFFER, as Trustee of the Christine Schaffer Revocable Living Trust, 27%; 22 • LEE, as Trustee of the Grover Lee Revocable Living Trust, 27%; 23 • CHARLES LEE, as Trustee of the Charles E. Lee Living Trust dated March 17, 2012, 9.0%; 24 • CHARLES LEE, as Trustee of the Charles E. Lee 2012 Trust No. 1 dated 25 November 29, 2012; 4.5%; 26 • CHARLES LEE, as Trustee of the Charles E. Lee 2012 Trust No. 2 dated November 29, 2012 4.5%; 27 • JACQUELINE LEE, as Trustee of the Jacqueline C. Lee Living Trust dated April 28 3, 2012, 9.0%; -8- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 • JACQUELINE LEE, as Trustee of the Jacqueline Lee 2012 Trust No. 1 dated November 29, 2012 4.5%; and 2 • JACQUELINE LEE, as Trustee of the Jacqueline Lee 2012 Trust No. 2 dated 3 November 29, 2012, 4.5% 4 28. SCHAFFER and LEE together; SCHAFFER with her adult children; and the entire 5 SCHAFFER, LEE family block, each constituted majority and controlling share interests in 6 AHAS and AHAS HOLDINGS, and these family shareholder groups are referred to herein as the 7 CONTROLLING SHAREHOLDERS. The CONTROLLING SHAREHOLDERS had the ability 8 to, and did, control and direct AHAS and AHAS HOLDINGS, even over AIZEN’s objection. 9 29. By reason of her control and influence over her adult children as it related to 10 AHAS and AHAS HOLDINGS, SCHAFFER also had substantial direct power to control AHAS. 11 Over years of dealing with AHAS and SCHAFFER, AIZEN came to reasonably rely upon 12 SCHAFFER’s formal or informal consent and agreement as speaking for AHAS (and once it was 13 formed in 2017, AHAS HOLDINGS). SCHAFFER and LEE also routinely ignored corporate 14 formalities, and AIZEN reasonably relied upon their consent and agreement as speaking for 15 AHAS for nearly all matters. 16 C. Aizen’s Prior Employment Agreements 17 30. CONTROLLING SHAREHOLDERS have a history of self-dealing, misuse of 18 corporate assets, diversion of corporate funds, and payment of salaries to themselves not 19 commensurate with the services provided, all directed toward the personal enrichment of family 20 members. In an effort to better protect his interests, AIZEN requested and received a formal 21 written employment agreement. 22 31. Thus, on November 21, 2014, AIZEN negotiated an employment agreement with 23 AHAS through its founders LEE and SCHAFFER, which entitled AIZEN to a salary increase, a 24 seat on the board (the first and only seat to belong to a non-family member), and a ten percent 25 ownership share in AHAS. (See Ex. B hereto; see also Complaint, Ex. A.) In November 2016, 26 AIZEN, LEE, and SCHAFFER on behalf of AHAS negotiated amendments to the employment 27 agreement, and later executed a formal addendum memorializing those agreed-upon terms and 28 extending AIZEN’s contract for another two years. (Exhibit C, hereto; see also Complaint, -9- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 Ex. B.) By this reference, AIZEN incorporates these contracts herein. Collectively, the 2 employment agreement and addendum are referred to herein as the “Employment Agreement.” 3 32. The contracts were multi-page, complex agreements negotiated at arms-length. 4 AHAS retained outside counsel and a consultant to assist it with the negotiation and 5 documentation of these arrangements. The Employment Agreement provided AIZEN with 6 specified contractual rights to salary and bonus payments, as well as assured payouts in the event 7 of his termination or a “Change in Control” of the company (such as might result from an 8 acquisition or asset sale). 9 D. The Maxor Transaction & AIZEN’s Buyout Negotiations 10 33. Eventually AIZEN had built something so valuable that outside private equity 11 firms and other companies began to express interest in acquiring all or part of AHAS. An 12 extended off-and-on process followed, with several would-be suitors considering acquiring some 13 or all of AHAS. Eventually AIZEN was able to shepherd AHAS to a sale of its PBM and 340B 14 Administration business assets to a company called Maxor Acquisition, Inc. (the “Maxor 15 Transaction”) for tens of millions of dollars. AIZEN played a key role in the negotiations with 16 Maxor. He identified Maxor as a potential suitor in early 2017. AIZEN then also helped bring 17 Maxor back to the bargaining table in early 2018, after it had previously withdrawn from the 18 process in June 2017. He was ultimately appointed Seller’s Representative on behalf of the 19 various AHAS sellers for the transaction. Recognizing AIZEN’s key role in the success of 20 AHAS, Maxor also insisted that AIZEN enter into a transitionary 6-month consulting agreement 21 and enter into a multi-year contractual non-compete in connection with the transaction. 22 34. Contrary to Plaintiffs’ allegations, AIZEN kept AHAS and AHAS HOLDINGS 23 and their principals, including specifically SCHAFFER and LEE, accurately and closely apprised 24 of developments with respect to the potential Maxor deal, and they also remained closely 25 involved with the negotiation and finalization of the deal itself. AHAS and AHAS HOLDINGS 26 also had sophisticated outside transaction and tax counsel on board through the law firm of 27 Morgan, Lewis & Bockius and an outside accounting firm, Moss Adams. 28 -10- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 35. As part of the broader negotiation of the Maxor Transaction, AIZEN, on the one 2 hand, and AHAS, AHAS HOLDINGS, SCHAFFER, and LEE, on the other, also negotiated 3 amounts due AIZEN as a result of the Maxor Transaction. As discussed above, AIZEN’s 4 Employment Agreement provided for certain payouts and bonuses in the event his employment 5 was terminated and in the event of a change of control of the company. The parties understood 6 and agreed that the Maxor Transaction would trigger these provisions and sought to reach an 7 agreed-upon resolution to provide certainty moving forward to and through the closing of the 8 Maxor Transaction. AIZEN was also being asked to enter into a multi-year non-compete as a 9 condition of the Maxor Transaction, substantially impeding his future earning capacity, and his 10 willingness to enter into that commitment was tied to successful negotiation and performance of 11 the Agreement. 12 36. These negotiations were conducted at arms-length. The parties were projecting 13 amounts that might be due under a contract based on future events and future company 14 performance. AIZEN presented his interpretation of the requirements of the Employment 15 Agreement, his opinions and assumptions as to future events and company performance, his 16 estimates relating to the impact on him of the non-compete, and disclosed his conclusions arising 17 therefrom. AIZEN first disclosed his proposed methodology in late July 2017, well prior to the 18 Maxor Transaction, in connection with an earlier different, derailed acquisition overture. He then 19 provided a revised and updated version in March 2018 in the lead up to the Maxor Transaction, 20 advancing his position that he would agree to a $20.8 million buyout. In preparing and presenting 21 these projections and assessments, AIZEN relied not only on his own assumption and projections, 22 but also on calculations and financial projections completed by AHAS’s Senior Vice President of 23 Finance. 24 37. AHAS, AHAS HOLDINGS, SCHAFFER, and LEE, for their part, had access to 25 the information and people necessary to evaluate AIZEN’s position. They had the Employment 26 Agreement and could review those contracts on their own and obtain outside legal advice 27 concerning their meaning and effect. They had detailed spreadsheets from AIZEN on his 28 calculations. They had detailed discussions and email correspondence with AIZEN on the -11- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 subject. They had direct access to information on the proposed buyout transaction, including 2 through AHAS/AHAS HOLDINGS’s outside transaction counsel. They also had access more 3 generally to this outside counsel and outside accounting support. They had access to AHAS 4 Senior Vice President of Finance and all of AHAS and AHAS HOLDINGS’ financials and 5 performance data. And they controlled AHAS and AHAS HOLDINGS, with the 6 CONTROLLING SHAREHOLDERS owning a 90% share, as alleged above. 7 38. AHAS, AHAS HOLDINGS, and the CONTROLLING SHAREHOLDERS, 8 therefore, had access to any and all information they might need to assess AIZEN’s proposals, 9 and the opportunity and obligation as controlling shareholders and board members to challenge or 10 otherwise negotiate with AIZEN as to his buyout request if they disagreed with any aspect of it. 11 If they did not agree with his calculations or believed that AIZEN was seeking more than he 12 would have otherwise been entitled, they had the authority and duty to say no, or to present a 13 counterproposal. Indeed, they could have terminated AIZEN at any time and simply let 14 provisions of the Employment Agreement govern. 15 39. AHAS, AHAS HOLDINGS, and the CONTROLLING SHAREHOLDERS 16 decided not to do that. Instead, after negotiating with AIZEN and obtaining concessions from 17 him, they otherwise concluded that it was in their best interest to agree with AIZEN on the terms 18 of a buyout. AIZEN is informed and believes and thereon alleges that Cross-Defendants believed 19 that AIZEN was important to the successful closing of the Maxor Transaction, and they wanted to 20 ensure his involvement and assistance so that they could maximize their payout and pocket 21 millions upon millions of dollars for the family. Having the full opportunity to assess and 22 evaluate his proposal, and to negotiate changes, they agreed to AIZEN’s requested $20.8 million 23 buyout amount, also agreeing in the process that they understood and agreed that the amount was 24 a negotiated settlement amount, potentially subject to differing views and judgment on how 25 matters might arise in the future. 26 40. This agreement and later modifications were confirmed orally, in email 27 correspondence, and later through formal Board Resolutions approving the Maxor Transaction, 28 and through the Maxor Transaction contracts themselves. The written drafts and the final formal -12- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 written agreement were all prepared by AHAS’s transaction counsel at Morgan Lewis. AIZEN, 2 in fact, received a first version of the contract unsolicited from Morgan Lewis in mid-April 2018, 3 having not requested that it be created or sent to him. He sent it to SCHAFFER that same day. 4 41. At the time of this first draft, the parties were anticipating that the Maxor 5 Transaction would result in the complete acquisition of AHAS. This first draft therefore had 6 AIZEN’s full $20.8 million buyout paid at closing and provided for his termination. Soon 7 thereafter, however, Maxor abandoned pursuit of AHAS’s third-party rebate and PHM lines, 8 requiring a downward adjustment in the purchase price. In view of these events, in early May 9 2018, AIZEN, AHAS, LEE and SCHAFFER discussed and agreed on new terms for AIZEN’s 10 buyout. 11 42. AIZEN offered to defer $11.8 million of the $20.8 million because of the reduced 12 closing proceeds, to be paid $500,000 per month over time, with a link between those payments 13 and the rebate business that would now stay with AHAS. AIZEN discussed with LEE and 14 SCHAFFER that because of the risks associated with deferring the payments and with the rebate 15 business, the payments would need to be structured as a preferred shareholder distribution to offer 16 him offsetting favorable tax treatment. AIZEN, SCHAFFER and LEE discussed that this 17 structure might be accomplished either through AIZEN obtaining a new ownership percentage in 18 AHAS and/or AHAS HOLDINGS, or through the creation of a new company, such that his 19 monthly $500,000 shareholder distribution could be made proportional to share ownership. 20 43. Thus, through these discussions, AIZEN agreed to defer receipt of the balance of 21 $11.8 million and to tie those payments to the rebate business, which the parties agreed he would 22 have a continued role managing and operating. In return for AIZEN taking on these risks – of 23 delayed payment and the tie to the rebate business – the parties also agreed to, and AIZEN 24 reasonably relied upon, AIZEN maintaining a continued direct role in the rebate business, and the 25 re-structuring of AHAS or AHAS HOLDINGS such that the payments could be made to AIZEN 26 as shareholder distributions in a tax efficient manner. They further agreed to an acceleration 27 clause, protecting AIZEN in the event that he was terminated and no longer had control over the 28 rebate business. AIZEN’s agreement to defer payment and to take it in installments tied to the -13- NOONAN LAW GROU P SACRA M E NT O, CALI FO R NIA CROSS-COMPLAINT CASE NO. S-CV-0042143 1 rebate business was thus expressly contingent on his continued role with AHAS and this re- 2 structuring. AIZEN also agreed that if the rebate business ended completely without any further 3 rebate proceeds being received, that he would relieve AHAS/AHAS HOLDINGS of the 4 remaining balance of the $11.8 million obligation. 5 44. SCHAFFER and LEE agreed, and Morgan Lewis proceeded to revise the draft 6 written agreement, with a new version following on or about June 23, 2018. Among other things, 7 since AIZEN was to remain with AHAS in connection with the ongoing rebate and PHM 8 businesses, the heading of Paragraph 1 of the Termination Agreement was changed from 9 “Termination of Employment” to “Termination of Employment Agreement.” 10 45. The terms of this agreement were then discussed with, and vetted and approved by, 11 LEE and SCHAFFER individually and then formally by the Boards of Directors of AHAS and 12 AHAS HOLDINGS. Copies of those Board Resolutions are attached hereto as Exhibits D and E. 13 Through them, AHAS HOLDINGS and the CONTROLLING SHAREHOLDERS agreed, in 14 pertinent part, as follows: 15 WHEREAS, pursuant to Section 11.3(f) of the Employment Agreement, dated as of November 21, 2014, by and between the Company and Aizen (the “Aizen 16 Employment Agreement”), Aizen shall receive certain payments (“Change of Control Payments”) and the amounts payable to the Company under the 17 Promissory Note shall be forgiven in the event that Aizen's employment with the Company under the Aizen Employment Agreement is the [sic] terminated in