Communiclique (AKA Clique API) Response by Creditors To Bankruptcy Court
Communiclique (AKA Clique API) Response by Creditors To Bankruptcy Court
Keith Hladek, Philip Lowit, Paitaridis Children Family Trust, Robert M. Pons, Erik
Sachwitz, Andrew Schwartzberg and Jaime Schwartzberg, Adam Stern and Stonehaven Capital
(collectively, the “Petitioning Creditors”), by and through undersigned counsel, file this response
(the “Response”) to the Court’s sua sponte motion to transfer (the “Motion to Transfer”) the
involuntary bankruptcy cases filed against (i) CommuniClique, Inc. (the “Company” or
“CommuniClique Action”) pending in the Bankruptcy Court for the District of Delaware (the
“Bankruptcy Court”), and (b) Andrew Brent Powers (“Mr. Powers”, together with
CommuniClique, and alleged debtor in case number 19-10574 (the “Powers Action”, together with
the CommuniClique Action, the “Actions”) pending in the Bankruptcy Court. In support of the
PRELIMINARY STATEMENT1
The Petitioning Creditors understand the Court’s concern about whether Delaware is the
proper venue for the Actions to proceed. Mr. Powers is a California resident and his company,
1 Capitalized terms not defined in the Preliminary Statement have the meanings ascribed to them in this Response.
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CommuniClique, is apparently doing business in California. But these are unusual cases. Upon a
closer examination, the only parties that truly benefit from a transfer to California are the Alleged
Debtors, who would benefit from being closer in proximity to the forum, and, ancillary, from
further delay of these proceedings – an obvious goal of the Alleged Debtors. The Court must ask
itself what is fair under the circumstances. As discussed infra, on balance, the most convenient
forum is in fact Delaware, the chosen state of incorporation for the Company, not California, and,
under the circumstances, fairness requires that the Court give very little deference to what is
convenient for the Alleged Debtors. Accordingly, the Petitioning Creditors request that the Court
BACKGROUND
Virginia (the “Commission”) issued a Rule to Show Cause (the “Rule”) against CommuniClique
and Mr. Powers based upon allegations made by the Commission’s Division of Securities and
Retail Franchising (the “Division”) that the Alleged Debtors violated the Virginia Securities Act
(the “Act”) by making material misrepresentations to investors, thereby commencing the case
styled Commonwealth of Virginia v. CommuniClique, Inc. and Andrew Brent Powers, Case No.
Securities Action. Counsel ultimately withdrew prior to the evidentiary hearing. According to
Mr. Powers, he and CommuniClique “chose not to contest the action.” See Blog Post titled “I
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3. A hearing on the Rule was held in the VA Securities Action on June 12, 2018 (the
“Hearing”).
4. Following the Hearing, on July 13, 2018, A. Ann Berkebile (the “Hearing
Examiner”), a hearing examiner with the Commission, issued her report (the “Report”), pursuant
to which she determined that the Alleged Debtors violated the Act by making material
misrepresentations to investors. A true and correct copy of the Report is attached hereto as Exhibit
A. The Hearing Examiner recommended, among other things, that the Alleged Debtors make
restitution to investors, including the Petitioning Creditors, in the aggregate amount of $9,890.2932
and that the Alleged Debtors be permanently enjoined from offering or selling securities in
5. On August 30, 2018, the Commission entered a Judgment Order (the “Judgment
Order”) against the Alleged Debtors for violations of the Act, adopting the Hearing Examiner’s
findings and recommendations in the Report. A true and correct copy of the Judgment Order is
6. Prior to August 2018, Mr. Powers was a long-time resident of the Commonwealth
of Virginia. It was there that he started his company, CommuniClique, and perpetrated a decade-
7. The Hearing Examiner issued her report in July 2018. In August 2018, with the
writing on the wall, the Alleged Debtors all but emptied the CommuniClique bank accounts,
transferring funds to Mr. Powers and other associates. A true and correct summary compilation
2 The Commission ordered both CommuniClique and Mr. Powers to pay $9,890,293 in restitution to defrauded
Investors. The portion of the total restitution ordered by the Commission that relates to the Petitioning Creditors is
$2,876,281.40.
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of bank statements reflecting such transfers is attached hereto as Exhibit C. Alleged Debtors then
C. The Assets
8. Petitioning Creditors do not yet know precisely what assets the Alleged Debtors
have and where those assets are located. Petitioning Creditors believe that CommuniClique’s
primary assets are likely cash and investments. Petitioning Creditors are not aware of any real
property (improved or otherwise) or any other tangible assets owned by the Company and situated
9. Petitioning Creditors believe that Mr. Powers’ primary assets are likely cash and
investments. Petitioning Creditors do not believe that Mr. Powers’ owns real property (improved
or otherwise) in California; Mr. Powers is known to have been renting in California since he moved
D. The Employees
10. Petitioning Creditors are not aware of any current employees of CommuniClique.
11. Petitioning Creditors are aware of the following former employees of the Company
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• Timothy Lee (“Mr. Lee”), former Chief Financial Officer, resident of the
Commonwealth of Virginia, see id.
C. The Creditors
12. Many of the creditors left in the Alleged Debtors’ wake are from Virginia and the
surrounding areas. In fact, only two of the nine Petitioning Creditors are from California, Andrew
and Jamie Schwartzberg (the “Schwartzbergs”), and they prefer Delaware as a venue. Six of the
remaining Petitioning Creditors reside on the East Coast, located in Virginia, New York, and
13. In addition, five other known investors (the majority of which are covered by the
Judgment Order) have signed declarations (the “Non-Petitioning Creditor Investor Declarations”)
stating that they are owed substantial sums of money by the Alleged Debtors, reside on the East
Coast, and prefer that the bankruptcy cases remain in Delaware. The Non-Petitioning Creditor
Investor Declarations are attached hereto as Exs. E, Jai Gupta Declaration; F, Satya Akula
Another known creditor, Barrique Holdings, LLC, located in Washington, D.C., has also signed a
declaration (the “Barrique Declaration”) indicating its preference that the Court not transfer the
14. The Petitioning Creditors are also aware of the following recent lawsuits (and,
• Alleged Debtors were sued by the Donahue Trusts3 in the Circuit Court of
Fairfax County, Virginia (the “Donahue Complaint”), pursuant to which a
3 The “Donahue Trusts” means collectively, (i) the Jason Mark Donahue ROTH IRA 706358, a self-directed Roth
IRA for the benefit of Jason M. Donahue and his wife, Sara J. Donahue, (ii) the Jason M. Donahue Trust, an individual
Trust owned by Jason M. Donahue, and (iii) the Robert and Carole Donahue Family Trust, a trust for the benefit of
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judgment order was entered in favor of the Donahue Trusts and against the
Alleged Debtors in the amount of $4,302,816.66 (the “Donahue Judgment
Order”). True and correct copies of the Donahue Complaint and the
Donahue Judgment Order are attached hereto as Exhibits K and L.
• Finally, this month, Powers was sued (along with the Company) (the
“Rocker Complaint”) by his landlord, Rosanna Rocker (“Ms. Rocker”),
for failure to pay rent for his home in Pacific Palisades, California. A true
and correct copy of the Rocker Complaint is attached hereto as Exhibit O.
15. Ms. Snell, former executive assistant of the Alleged Debtors, owed approximately
$35,000, is a resident of Colorado Springs, Colorado. See Declaration of Courtney Snell filed at
Case No., 19-10573, Dkt. No. 24-4 and Case No. 19-10574, Dkt. No. 28-4. Mr. Hopkins is a
resident of the State of Massachusetts. See Ex. M, Hopkins Compl. Snap is a Delaware
corporation doing business in the State of California. See Ex. N, Snap Compl. It is not known
where Ms. Rocker resides, but she is the owner of the California property rented by Mr. Powers
ARGUMENT
Jason M. Donahue’s parents. See Ex. K (Donahue Compl.). The Donahues chose Virginia as their preferred forum
to litigate the issues set forth in the Donahue Complaint.
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17. Venue in Delaware is also proper as to Mr. Powers due to his “affiliate” status under
the Bankruptcy Code. Specifically, 28 U.S.C. § 1408(2) provides that a case under title 11 may
be commenced in the district court for the district “in which there is pending a case under title 11
person) that “directly or indirectly owns, controls, or holds with power to vote, 20 percent or more
of the outstanding voting securities of the debtor….” 11 U.S.C. 101(2)(A). As of January 15,
2018, Mr. Powers owned 34.25% of the shares of CommuniClique through Empower Investments
LLC (“Empower”). A true and correct copy of the CommuniClique capitalization table as of
January 15, 2018 is attached hereto as Exhibit P. This has not been disputed. Empower is an
entity created and controlled by Mr. Powers, described by him as his “investment office.” See
controls and holds more than 20% of the voting securities of CommuniClique. The Petitioning
Creditors have no reason to believe that Mr. Powers, founder and CEO of CommuniClique, does
not have the power to vote those shares through Empower. As such, venue is proper in Delaware
as to Mr. Powers. See In re Innovative Communication Co., LLC, 358 B.R. 120 (Bankr. D. Del.
2006) (found venue of involuntary Chapter 11 case of individual debtor could lie in Delaware due
to individual’s “affiliate” status under the Bankruptcy Code where individual was owner, chairman
of the board, CEO and president of a Delaware company that was subject to a pending involuntary
case in Delaware).
II. The Court should refrain from transferring the Actions to California.
18. Notwithstanding proper venue, the Court “may transfer a case or proceeding under
title 11 to a district court for another district, in the interest of justice or for the convenience of the
parties. 28 U.S.C. § 1412; see also Fed. R. Bankr. P. 1014(a)(1) (If a petition is filed in the proper
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district, the court, on the timely motion of a party in interest or on its own motion, and after hearing
on notice to the petitioners, the United States trustee, and other entities as directed by the court,
may transfer the case to any other district if the court determines that the transfer is in the interest
of justice or for the convenience of the parties.”). “The decision of whether to transfer venue is
within the court’s discretion based on an individualized case-by-case analysis of convenience and
D. Del. Feb. 2, 2015) quoting In re Enron Corp., 274 B.R. 327, 342 (Bankr. S.D.N.Y. 2002).
19. Pursuant to the Motion to Transfer, the Court asks why the Actions should not be
transferred to California. At first blush, it is easy to see why the Court raised this issue sua sponte.
Mr. Powers is a California resident and his company, CommuniClique, is apparently doing
business in California. But these are unusual cases. Upon a closer examination, it is not clear that
California is the preferable venue under these circumstances. Petitioning Creditors submit that it
is not, and that Delaware is the proper venue to administer these cases both from a convenience
20. “When considering convenience of the parties for purposes of transfer of venue, .
. . courts often look to the factors set forth in the United States Court of Appeals for the Fifth
(3) The proximity of the witnesses necessary to the administration of the estate;
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Id. citing In re Commonwealth Oil Refining Co. 596 F.2d 1239, 1247 (5th Cir. 1979) (“CORCO”);
21. The first factor, the proximity of creditors of every kind to the Court, weighs
heavily in favor of this Court retaining jurisdiction. Each of the Petitioning Creditors chose this
venue as their preferred forum. Six out of nine of the Petitioning Creditors reside on the East
Coast, one lives in Australia and the Schwartzbergs, the only West Coast residents of the
creditors by virtue of the VA Securities Action—reside on the East Coast. See Exs. E-J
venue for these creditors. Id. These creditors’ preference should be given substantial weight, as
they account for more than $7 million in debt on their own. Id.
23. Other known creditors of the Alleged Debtors reside in Massachusetts (Mr.
Hopkins) and Colorado (Ms. Snell). Snap, CommuniClique’s landlord, is a Delaware corporation
24. While the residences of other creditors of the Alleged Debtors are likely spread
throughout the United States (and potentially abroad), it is expected that there is a high
concentration on the East Coast, where the Alleged Debtors operated their business (and
orchestrated their fraud) for many years. Indeed, the overwhelming majority of creditors whose
residences are known by the Petitioning Creditors are located on the East Coast, as set forth herein.
4 Ms. Rocker, Mr. Powers’ landlord, may also reside in California, but it is not known.
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there is further dissipation of assets because of any delays associated with a venue transfer).
25. On balance, Delaware is closer in proximity for known creditors of the Alleged
Debtors than California. And, of note, no creditor has expressed a preference for these cases to
be transferred to California. Accordingly, this factor weighs strongly in favor of this Court
retaining jurisdiction.
26. Petitioning Creditors are not aware of any current employees of the Company (other
than Mr. Powers) or of any current physical office in which the Company resides. See Ex. N, Snap
Compl. (CommuniClique is being sued by its landlord for unpaid rent and is no longer in
possession of the premises). For all intents and purposes, the Company is Mr. Powers, who resides
in California. Obviously, California is closer in proximity for the Alleged Debtors than Delaware.
While courts generally give the debtor’s choice of forum a certain level of deference, such
deference is more closely scrutinized in an involuntary case commenced by the debtor’s creditors.
Id. at *8. Under the circumstances, the Court should give very little deference to the Alleged
27. First, the reason Mr. Powers and his Company are in California in the first place
appears to stem from circumstances created by their own misconduct. Prior to August 2018, Mr.
Powers lived in, and operated his Company out of, Virginia. Only when the Hearing Examiner
issued her Report, (i) finding that the Alleged Debtors violated the Virginia Securities Act by
making material false misrepresentations to investors, and (ii) recommending (a) that the Alleged
Debtors pay almost $10 million in restitution to the aggrieved investors, and (b) that a permanent
injunction be put in place that would prevent the Alleged Debtors from ever offering or selling
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securities in Virginia again, did the Alleged Debtors leave Virginia. And they did so abruptly, but
not first without draining the Company’s bank accounts and leaving a slew of creditors in their
28. Second, as set forth in more detail in the Petitioning Creditors’ Motion for (I) Entry
of an Order Striking Alleged Debtors' Answers to Involuntary Petitions, and (II) Entry of the
Orders for Relief [Case No. 19-10573, Dkt. No. 24; Case No. 19-10574, Dkt. No. 28], the Alleged
Debtors seem to have learned very little from their past misdeeds. Instead, in an effort to prove
that they are capable of paying large debts as they come due, the Alleged Debtors falsified invoices
that were submitted to this Court as evidence that it should not enter the orders for relief pending
against them. Suffice it to say, the convenience of forum for the Alleged Debtors should be a low
administration of the estates. Those employees include Ms. Snell, who resides in Colorado, see
Declaration of Courtney Snell filed at Case No., 19-10573, Dkt. No. 24-4, and Case No. 19-10574,
Dkt. No. 28-4; Mr. Hopkins, who resides in Massachusetts, see Ex. M, Hopkins Compl.; Mr. Ram
Reddy, who resides in Virginia, see Ex. D, SEC Form D; Mr. Gentry, who resides in Virginia, see
id.; and Mr. Lee, who resides in Virginia, see id. But for Ms. Snell, all of CommuniClique’s former
employees that may be necessary witnesses reside on the East Coast. On balance, Delaware is
30. Petitioning Creditors do not yet know precisely what assets the Alleged Debtors
have and where those assets are located. However, Petitioning Creditors believe that the Alleged
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Debtors’ primary assets are movable (i.e., cash and investments) or intangible (i.e., intellectual
property and contracts). It is not known whether the Alleged Debtors have any tangible assets
located in California, but both CommuniClique and Mr. Powers rented space in California, so,
presumably, they do not own real property in California. The location of assets on a whole should
31. The economic and efficient administration of the estate is often cited as the most
4952559, *6; CORCO, 596 F.2d at 1247; Enron, 274 B.R. at 348. Here, there is no reason to
believe that the ability of this Court and the California court to administer the Alleged Debtors’
bankruptcy cases in a just and efficient manner is, in general, anything but equal. However, while
the Actions have not been pending for long (relatively speaking), this Court has developed a
“learning curve” based on the (unfortunate) matters that have already come before it in these cases,
gaining valuable familiarity with many of the issues that have and will likely continue to arise in
these cases. See Enron, 274 B.R. at 349. This “learning curve” contributes to judicial economy,
32. Moreover, it is in the interest of efficiency and economy that there be no delay,
which will be inevitable in the event of a transfer. Alleged Debtors’ misdeeds make it all the more
likely that any delay will be used to further deplete their estates. A trustee’s prompt appointment
is essential.
33. Further, since it appears the trustee will not be administering tangible assets in
California, neither venue is more convenient than the other for that purpose.
34. Accordingly, this factor weighs heavily in favor of keeping this case in Delaware.
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35. It is not clear that this factor applies in a Chapter 7 context where a liquidation is
contemplated. Even in a Chapter 11 case, courts have discounted the importance of the sixth
CORCO factor. See CORCO, 596 F.2d at 1248 (stating that the anticipation of the failure of the
Chapter XI proceeding is an illogical basis upon which to predicate a transfer); Caesars, 2015 WL
495259, *6 fn. 7. Nevertheless, as set forth in the preceding section, since it appears the trustee
will not be administering tangible assets in California, neither venue is more convenient than the
other for that purpose. Further, all known litigation against the Alleged Debtors can be effectively
B. Interest of Justice
36. “The ‘interest of justice’ component of Section 1412 is a broad and flexible
whether transferring venue would promote the efficient administration of the bankruptcy estate,
judicial economy, timeliness, and fairness….” Id. at *7 quoting In re Patriot Coal Corp., 482 B.R.
37. The considerations involved with the interest of justice are intertwined with the
economic and efficient administration of the estate. Enron, 274 B.R. at 349. As set forth above,
it does not appear that these cases will be more economical or efficient in one venue over the other.
However, the Petitioning Creditors submit that this Court has developed a “learning curve” in these
38. Petitioning Creditors have selected Delaware as their chosen forum, and many other
creditors have expressed a preference for maintaining the case in Delaware. And, on balance, the
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CORCO factors tip towards keeping the cases in Delaware. The only parties that truly benefit
from a transfer to California are the Alleged Debtors, who would benefit from further delay of
these proceedings. The Court must ask itself what is fair under the circumstances. Petitioning
Creditors submit that fairness requires the Court to keep the Actions in Delaware, their chosen
forum, and, under these particular circumstances, not give deference to the convenience of the
Alleged Debtors.
CONCLUSION
39. For all the reasons set forth herein, Petitioning Creditors respectfully submit that
the Court should deny the Motion to Transfer and keep the Actions in Delaware.
-and-
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