For those who haven't seen this.
Craig G. Russillo, WSBA #27998
Email: crussillo@schwabe.com
Jamila A. Johnson, WSBA #39349
Email: jajohnson@schwabe.com Schwabe, Williamson & Wyatt, P.C.
1420 5th Ave., Suite 3400
Seattle, WA 98101
Telephone: (206) 622-1711
Attorneys for Plaintiff,
Labor Smart, Inc.
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
LABOR SMART, INC., a Nevada
corporation,
Plaintiff,
v.
COMMAND CENTER, INC. a Washington
corporation,
Defendants.
COMPLAINT
JURY DEMAND
Plaintiff, Labor Smart, Inc. (“Labor Smart” or “Plaintiff”) hereby alleges as
follows:
I. NATURE OF THE CASE
1. This lawsuit is about a dispute between competitors. Plaintiff and
Defendant provide temporary labor services. Defendant purchased a convertible note
from an investor in Plaintiff’s company. Plaintiff is not in default under the
renegotiated terms of the note, yet Defendant insists on asserting that Plaintiff is. By
making such knowingly false statements, Defendant is engaging in tortious business
practices, defamation, and causing Plaintiff ongoing harm. Plaintiff seeks judicial
intervention, including injunctive relief, declaratory judgment, and damages for various
causes of action described herein.
Case 1:15-cv-05398-DAB Document 1 Filed 06/04/15 Page 1 of 10
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COMPLAINT - 2 SCHWABE, WILLIAMSON & WYATT, P.C.
Attorneys at Law
U.S. Bank Centre
1420 5th Avenue, Suite 3400
Seattle, WA 98101-4010
Telephone 206.622.1711 Fax 206.292.0460
PDX\119825\163833\CGR\15996287.6
II. JURISDICTION AND VENUE
2. The matter in controversy exceeds the sum or value of $75,000, exclusive
of interest and costs, and the matter in controversy is between citizens of different
states. This Court has subject matter jurisdiction over Plaintiff’s claims pursuant to 28
U.S.C. § 1332.
3. The Court has personal jurisdiction over Defendant because Defendant has
transacted and continues to transact business in the State of Washington.
4. Venue is proper as a substantial part of the events giving rise to the claims
occurred in Washington.
III. THE PARTIES
5. Plaintiff Labor Smart is incorporated within Nevada and has its principal
place of business in Powder Spring, Georgia. It provides on-demand temporary labor to
a variety of industries. Its clients range from small business to fortune 100 companies.
6. Defendant Command Center, Inc. (“Command Center” or “Defendant”) is
a corporation incorporated in Washington State, and with its principal place of business
within Idaho State. It also provides services in the temporary labor market.
IV. FACTS
7. Plaintiff Labor Smart formed in 2011 as a small startup. It had two offices:
one in Marietta, Georgia and the other in Nashville, Tennessee. Plaintiff went public at
inception and structured itself around a model of equity incentives to attract top talent
from the temporary labor industry and eventually pursue acquisitions.
8. Plaintiff grew quickly and soon became a strong alternative to other
temporary labor businesses across the United States. In 2012, revenue topped $7
million and Labor Smart expanded to six offices. By 2013, revenue topped $16 million
and Labor Smart expanded to fifteen locations. By 2014, revenue reached nearly $24
million and it had thirty offices.
Case 1:15-cv-05398-DAB Document 1 Filed 06/04/15 Page 2 of 10
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COMPLAINT - 3 SCHWABE, WILLIAMSON & WYATT, P.C.
Attorneys at Law
U.S. Bank Centre
1420 5th Avenue, Suite 3400
Seattle, WA 98101-4010
Telephone 206.622.1711 Fax 206.292.0460
PDX\119825\163833\CGR\15996287.6
9. Plaintiff financed most of its growth through convertible notes.
Convertible notes are loans that may be converted into equity. This method of funding
is common for startup companies, as investors can loan money to a company, and then
have the option to convert all or a portion of the convertible note into common stock of
the company, in lieu of repayment of the note.
10. Plaintiff began issuing convertible notes in late 2012. In late 2013, an
aggressive note holder quickly liquidated its position. By doing so, that note holder
drove the price of Labor Smart’s stock down, making it difficult to finance Plaintiff’s
growth with convertible notes. Convertible note holders were concerned about the
liquidity in Plaintiff’s stock and the notes were reaching maturity.
11. Plaintiff renegotiated with each remaining note holder to be able to get
through the challenges it faced in the public marketplace caused by its lack of liquidity.
Its relationship with these note holders and the likely continued success of the business
made note holders willing to change the terms on the maturing notes.
12. In early 2015, Defendant—a much larger competitor—approached
Plaintiff about buying Labor Smart’s assets. After several discussions, the parties were
unable to reach agreement on the sale of Labor Smart’s assets and Plaintiff withdrew
from negotiations.
13. Meanwhile, Plaintiff was finalizing new terms with one final note holder,
Gemini Master Fund, LTD. (“Gemini”), to modify the terms of the note (the “Gemini
Note”) and accept $4,800 per month on the 27th day of the month, instead of a lump
sum payment when the Gemini Note reached maturity (the “Note Amendment”). The
first payment under the Note Amendment was due and was paid on or about April 27,
2015. The Note Amendment modified the terms by which a “default” could occur
under the Gemini Note. Other terms remained in effect. At the time the Note
Amendment was finalized, Gemini was holder of the Gemini Note.
Case 1:15-cv-05398-DAB Document 1 Filed 06/04/15 Page 3 of 10
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COMPLAINT - 4 SCHWABE, WILLIAMSON & WYATT, P.C.
Attorneys at Law
U.S. Bank Centre
1420 5th Avenue, Suite 3400
Seattle, WA 98101-4010
Telephone 206.622.1711 Fax 206.292.0460
PDX\119825\163833\CGR\15996287.6
14. After Plaintiff and Gemini finalized the Note Amendment, Defendant
purchased the Gemini Note. It provided no notice to Plaintiff before purchasing the
note.
15. On May 26, 2015, Plaintiff received from Defendant a demand for
payment and default notice of the Gemini Note. The notice stated that Defendant
owned the Gemini Note and demanded $305,429.00 – the alleged then-balance of the
Gemini Note. Plaintiff requested information about the identification of the Gemini
Note, proof of ownership, how Defendant calculated what was owed to them, etc.
16. On May 26, 2015, Plaintiff also received from Defendant a Letter of Intent
(“LOI”), which set forth offer for Defendant to buy Plaintiff’s assets in a bankruptcy
process under 11 U.S.C. § 363. Additionally, the LOI stated that if Plaintiff did not
come to an agreement to sell its assets in such a process to Defendant, Plaintiff would
be defaulted on the convertible note that Defendant had purchased.
17. On May 27, 2015, Defendant provided proof of ownership of the Gemeni
Note to Plaintiff.
18. Plaintiff immediately informed Defendant that the Gemini note had been
amended in writing with Gemini, and that now the note had a payment arrangement to
amortize the note in payments of $4,800.00 per month with payment on the 27th of each
month. Plaintiff requested wiring instructions so that Plaintiff could make payment to
Defendant instead of Gemini.
19. Defendant denied any payment agreement existed and refused to provide
the wire instrucitons necessary for Plaintiff to wire payment. Plaintiff has since made
the May 27 payment by check.
20. Plaintiff forwarded the written agreement memorializing the Note
Amendment. This agreement had been made days of the sale of the note and was
transmitted via email. On information and belief, Defendant knew of Note Amendment
Case 1:15-cv-05398-DAB Document 1 Filed 06/04/15 Page 4 of 10
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COMPLAINT - 5 SCHWABE, WILLIAMSON & WYATT, P.C.
Attorneys at Law
U.S. Bank Centre
1420 5th Avenue, Suite 3400
Seattle, WA 98101-4010
Telephone 206.622.1711 Fax 206.292.0460
PDX\119825\163833\CGR\15996287.6
prior to its purchase of the Gemini Note.
21. The Gemeni Note is governed under the laws of New York. New York
law views e-mail communications, such as the ones amending payment terms, as
binding. The e-mail communications clearly constitute a bona fide amendment.
22. On the morning of May 28, 2015, Plaintiff notified Defendant that
Plaintiff rejected Defendant’s offer.
23. The U.S. Securities and Exchange Commission (“SEC”) requires the use
of a Form 8-K form in certain circumstances. An 8-K form is the “current report”
companies must file with the SEC to announce major events that shareholders should
know about.
24. On May 28, 2015, Defendant filed a Form 8-K form with the SEC stating
that Defendant had made an offer to purchase Plaintiff’s assets, had purchased a note,
had provided a default notice and demanded payment.
25. Because the Plaintiff is not in default, Plaintiff subsequently requested that
Defendant file an amended 8-K reflecting the correct information. Defendant did not
respond.
26. On information and belief, Defendant has been contacting note holders
since May 29, 2015, and notifying them that it defaulted Plaintiff, and in some cases,
requested other note holders join Defendant in a petition for involuntary bankruptcy,
where they would be able to essentially buy the operations for pennies on the dollar.
27. Defendant purchased the convertible note with the sole intent of putting
pressure on Plaintiff to sell to Defendant below market price. It is seeking to discredit
Plaintiff with false information and engaging in a campaign of providing misleading
information and false claims to note holders and the public.
28. Plaintiff’s relationships with note holders, with whom it has worked
diligently with and in good faith to avoid default, has been compromised. Plaintiff’s
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COMPLAINT - 6 SCHWABE, WILLIAMSON & WYATT, P.C.
Attorneys at Law
U.S. Bank Centre
1420 5th Avenue, Suite 3400
Seattle, WA 98101-4010
Telephone 206.622.1711 Fax 206.292.0460
PDX\119825\163833\CGR\15996287.6
reputation in the industry has been harmed.
29. Defendant’s actions have caused unfounded fear for employees and some
note holders who fear Plaintiff is now either on the verge of bankruptcy or going to be
pushed into bankruptcy. Note holders and shareholders who were once patient, willing
to work with Defendant and wait for Defendant to push through their public market
challenges are now expressing they are nervous about continuing relationships.
V. CAUSES OF ACTION
30. Plaintiff brings the following causes of Action
A. Declaratory Judgment (First Cause of Action)
31. Plaintiff re-alleges and incorporates by reference each and every allegation
contained in each paragraph above as though fully set forth herein.
32. An actual controversy has arisen and now exists between Plaintiff and
Defendant concerning their respective rights and duties in that Plaintiff contends that
under the note, as amended, Plaintiff is not in Default, whereas Defendant appears to
disputes this contention.
33. Plaintiff desires a judicial determination of its rights and duties under the
note.
34. A judicial declaration is necessary and appropriate at this time under the
circumstances in order that Plaintiff may ascertain its rights and duties under the note.
35. Plaintiff is entitled to its attorneys’ fees and costs for bringing this cause
of action.
B. Tortious Interference with Contractual Relations (Second Cause
of Action)
36. Plaintiff re-alleges and incorporates by reference each and every allegation
contained in each paragraph above as though fully set forth herein.
37. There is a valid contractual relationship between Plaintiff and its note
Case 1:15-cv-05398-DAB Document 1 Filed 06/04/15 Page 6 of 10
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COMPLAINT - 7 SCHWABE, WILLIAMSON & WYATT, P.C.
Attorneys at Law
U.S. Bank Centre
1420 5th Avenue, Suite 3400
Seattle, WA 98101-4010
Telephone 206.622.1711 Fax 206.292.0460
PDX\119825\163833\CGR\15996287.6
holders.
38. Defendant has knowledge of the relationships.
39. Defendant is engaging in intentional interference inducing or causing a
breach or termination thereof by encouraging note holders to push Plaintiff into
involuntary bankruptcy or seeking to encourage note holders to behave contrary to
agreements presently in place.
40. Defendant’s actions are resulting in damage.
41. Defendant, as a note holder, has a duty of non-interference.
42. As a result of Defendant’s actions, Plaintiff has been damaged in an
amount to be proven at trial, but not less than $75,000.00
C. Interference with Prospective Advantage or Business Expectancy
(Third Cause of Action)
43. Plaintiff re-alleges and incorporates by reference each and every allegation
contained in each paragraph above as though fully set forth herein.
44. There is a business expectancy between Plaintiff and its note holders.
45. Defendant has knowledge of this business expectancy.
46. Defendant is engaging in intentional interference inducing or causing a
breach or termination of the business expectancy by encouraging note holders to push
Plaintiff into involuntary bankruptcy or seeking to encourage note holders to behave
contrary to agreements presently in place.
47. Defendant has interfered for the improper purpose of acquiring and/or
putting its competition out of business and has used improper means by spreading
falsities about the Plaintiff.
48. As a result of Defendant’s actions, Plaintiff has been damaged in an
amount to be proven at trial, but not less than $75,000.00
Case 1:15-cv-05398-DAB Document 1 Filed 06/04/15 Page 7 of 10
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COMPLAINT - 8 SCHWABE, WILLIAMSON & WYATT, P.C.
Attorneys at Law
U.S. Bank Centre
1420 5th Avenue, Suite 3400
Seattle, WA 98101-4010
Telephone 206.622.1711 Fax 206.292.0460
PDX\119825\163833\CGR\15996287.6
D. Defamation (Fourth Cause of Action)
49. Plaintiff re-alleges and incorporates by reference each and every allegation
contained in each paragraph above as though fully set forth herein.
50. On May 28, 2015, Defendant made knowingly false statements in its SEC
Form 8-K regarding the note, and alleging Plaintiff to be in default.
51. From May 29, 2015, through at least the filing of this complaint,
Defendant has been calling investors in Plaintiff’s company that hold convertible notes
and making knowingly false statements about Plaintiff being in Default.
52. As a result of Defendant’s actions, Plaintiff has been damaged in an
amount to be proven at trial, but not less than $75,000.00
E. Breach of Contract/Note (Fifth Cause of Action)
53. Plaintiff re-alleges and incorporates by reference each and every allegation
contained in each paragraph above as though fully set forth herein.
54. Defendant has breached the terms of the Gemini Note, without waiving
any other defaults, by falsely publishing that Plaintiff is in default of the note and by
demanding full payment of the Note.
55. Plaintiff has performed all conditions precedent required under the Gemini
Note, or such conditions have been excused.
56. Plaintiff is entitled to damages, injunctive relief under the note.
57. Plaintiff is entitled to any other damages under the note in an amount to be
proven at trial.
58. Plaintiff is entitled to attorneys’ fees from bringing this cause of action.
59. As a result of Defendant’s actions, Plaintiff has been damaged in an
amount to be proven at trial, but not less than $75,000.00
/ / /
/ / /
Case 1:15-cv-05398-DAB Document 1 Filed 06/04/15 Page 8 of 10
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COMPLAINT - 9 SCHWABE, WILLIAMSON & WYATT, P.C.
Attorneys at Law
U.S. Bank Centre
1420 5th Avenue, Suite 3400
Seattle, WA 98101-4010
Telephone 206.622.1711 Fax 206.292.0460
PDX\119825\163833\CGR\15996287.6
PRAYER FOR RELIEF
WHEREFORE, having fully stated its causes of action, Plaintiff hereby prays for
relief as follows:
a. Entry of declaratory judgment that Plaintiff’s obligations under the Gemini
note were amended in communications between Plaintiff and Gemini prior to
Defendant’s purchase of the note, that Plaintiff is not in default of the note,
and that Defendant had and has no right to declare Plaintiff in default under
note or collect the amount of $305,429 demanded by Defendant
b. Such other and further relief as may follow from the entry of a declaratory
judgment;
c. For judgment against Defendant for damages for tortious interference with a
contractual relationship between Plaintiff and its noteholders in an amount to
be proved at trial, but which is believed to be in excess of $75,000.00;
d. For judgment against Defendant for damages for tortious interference with a
business expectancy between Plaintiff and its noteholders in an amount to be
proved at trial, but which is believed to be in excess of $75,000.00;
e. For judgment against Defendant for damages for defamation relating to
statements made by Defendant to the public on its SEC Form 8-K.
f. For judgment against Defendant for damages for defamation relating to
statements made by Defendant to Plaintiff’s note holders.
g. Enjoin Defendant from continuing to make statements to the public and note
holders regarding default of the unamended note.
h. Reasonable attorney's fees, expenses and costs, to the fullest extent allowed
by law and equity; and
i. A grant of such other relief as the Court may deem just and proper.
Case 1:15-cv-05398-DAB Document 1 Filed 06/04/15 Page 9 of 10
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COMPLAINT - 10 SCHWABE, WILLIAMSON & WYATT, P.C.
Attorneys at Law
U.S. Bank Centre
1420 5th Avenue, Suite 3400
Seattle, WA 98101-4010
Telephone 206.622.1711 Fax 206.292.0460
PDX\119825\163833\CGR\15996287.6
VI. JURY DEMAND
Pursuant to FED. R. CIV. P. 38(b), Plaintiff demands a trial by jury of all issues
presented in this complaint which are triable by jury.
Dated this 4th day of June, 2015.
SCHWABE, WILLIAMSON & WYATT, P.C.
By: /s/ Craig G. Russillo
Craig G. Russillo, WSBA #27998
crussillo@schwabe.com
Jamila A. Johnson, WSBA #39349
jajohnson@schwabe.com
1420 5th Ave., Suite 3400
Seattle, WA 98101
(206) 622-1711
Attorneys for Plaintiff,
Labor Smart, Inc.
]/b]
Replies:
Dirty Pool by Command Center -- What other
Pofolk on 9/2/2015 1:01:28 AM
Your post significantly reveals Schadel's underhanded tactics
DD2Gain on 9/2/2015 4:15:34 AM
That's very interesting, mick. Especially this part:
DD2Gain on 9/2/2015 4:21:13 AM
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