Paul Sharp Mark Erjavec Daniel Gelb Plaza I Bankruptcy Complaint

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IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF MINNESOTA

In Re:

Mark Mathew Erjavec, BKY Case No. 10-42856

Debtor. Chapter7

______________________________ Hon. Robert J. Kressel

Paul Sharp,

Plaintiff,

vs. ADV. Case No. ______________

Mark Mathew Erjavec,

Defendant.

COMPLAINT FOR DETERMINATION OF

NONDISCHARGEABILITY OF A DEBT

Paul Sharp (hereinafter “Sharp" or "Plaintiff"), brings this Complaint against

Mark Mathew Erjavec ("Erjavec") in order to obtain a determination that certain debts

owed by Erjavec to Sharp are non-dischargeable pursuant to Title 11 U.S.C. § 523(a) of

the Bankruptcy Code because Erjavec used false pretenses, made false representations,

committed fraud, defalcation, and embezzlement, and inflicted a willful and malicious

injury to Sharp and his property, while acting in a fiduciary capacity to Sharp and his

property in order to obtain money or property belonging to Sharp. In support of this

Complaint, Plaintiff alleges as follows:

PARTIES

1. Sharp is a Minnesota resident residing at 2417 Britton Lane, Wayzata,

MN 55391.

2. Defendant, Mark Mathew Erjavec (hereinafter “Erjavec” or “Defendant”)

is upon information and belief a homeless person who receives his mail at drop box #101

of a UPS- Postal Store (“UPS-Store”) located at 7455 France Avenue South, Edina, MN

55435. He is the Debtor in the above-captioned Chapter 7 bankruptcy case, which he

commenced on April 19, 2010.

Case 10-42856 Doc 51 Filed 07/10/10 Entered 07/10/10 11:25:18 Desc Main Document of 12

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3. Non-party, Gemini Equity Group, LLC ("Gemini") is a Minnesota limited

liability company registered to do business in the State of Minnesota with headquarters at

3141 Dean Court, Room 303, Minneapolis, MN 55416, whose stated business purpose

was to originate and service a large mortgage loan portfolio.

4. Non-party, Dmitry B. Mogilyansky, (hereinafter “Mogilyansky”), claims

at all times relevant herein, that he was the incorporator, and sole owner/member of

Gemini.

5. Since 2006, Gemini has been in the business of financing the purchase of

residential real estate, the refurbishment and rehabilitation of such real estate, and the

eventual re-sale of such real estate projects, all while borrowing money to fund, purchase

and rehabilitate said real estate in Minnesota and elsewhere.

6. Non-party, Mesaba Finance-Blue Ridge Group, LLC (hereinafter

"Mesaba"), is a Minnesota limited liability company, incorporated, owned and operated

by Erjavec and non-party, Ryan Oberlander (“Oberlander”), whose registered address to

do business in the State of Minnesota is at the UPS-Store referenced above at 7455

France Avenue South, #101, Edina, MN 55435.

7. Non-party, S and J Homes of Minnesota, LLC (hereinafter “S&J”), a

Minnesota limited liability company, registered to do business in the State of Minnesota

at 12935 Canby Avenue, Faribault, MN 55201, is or was owned and operated by non-

party, Steve Gillen (“Gillen”).

8. Non-party, Plaza I, Inc. (hereinafter “Plaza I”), is a Minnesota domestic

corporation, registered to do business in the State of Minnesota at 9617 Oak Ridge Trail,

Minnetonka, MN 55305, that is owned and operated by non-party, Daniel L. Gelb

(“Gelb”).

9. Non-party, Tricolor Heron, LLC (hereinafter “Tricolor"), is a Minnesota

limited liability company, incorporated, owned and operated by Erjavec and registered to

do business in the State of Minnesota at the same UPS-Store located at 7455 France

Avenue South #101, Edina, MN 55435.

10. Non-parties, Ronald Prokosch and Kathleen Prokosch (the “Prokoschs”),

reside at 2078 Cottage Grove Drive, Woodbury, MN 55129 (hereinafter the “Woodbury

Property”), which is also the registered address for non-party Mesaba-Blue Ridge Group,


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LLC, (not the same as “Mesaba” referenced above), which, upon information and belief,

is also owned and operated by Erjavec.

11. Non-parties, Wendy J. Jorgenson-Kooda and Daniel M. Kooda (the

Koodas”) reside at 16561 Klamath Trail, Lakeville, MN 55044 (hereinafter the

“Lakeville Property”).

JURISDICTION-VENUE

12. The initial meeting of Erjavec’s creditors was on May 12, 2010, which

was continued to a second meeting of creditors held June 9, 2010.

13. The deadline to file a complaint objecting to discharge of the Debtor

and/or to determine dischargeability of certain debts is July 12, 2010.

14. This adversary proceeding arises out of and is related to the above-

captioned case pending before the United States Bankruptcy Court. This Court has

jurisdiction over this matter pursuant to Title 28 U.S.C. § 1334 since this is a civil case

arising under 11 U.S.C. § 523.

15. Venue is proper under 28 U.S.C. § 1409(a) since this proceeding arises

under Title 11 U.S.C. § 523(a) and because Erjavec's bankruptcy case is pending in this

District.

16. This proceeding is core proceeding pursuant to Title 28 U.S.C. §

1157(b)(2)(I) as this proceeding seeks a determination as to the dischargeability of

certain debts.

BACKGROUND FACTS-GENERAL ALLEGATIONS

17. On June 15, 2007, Gemini entered into a Promissory Note with S&J in the

principal amount of $260,000.00 (hereinafter the S&J Note”) to finance the purchase of

the Lakeville Property by Gillen, who intended to repair, rehabilitate, and re-sell the

Lakeville Property; additionally, the S&J Note was secured by a mortgage which was

duly filed and recorded with the Dakota County Registrar of Titles.

18. At some point in time, on or after May 24, 2007, Mogilyansky, on behalf

of Gemini, hired or retained Erjavec to act as a “1099” independent business consultant

and allowed Erjavec to represent himself as a “Manager” of Gemini, with the apparent

authority to bind Gemini to various contracts and real estate transactions.

19. On May 15, 2008, S&J and Gillen, having defaulted on the loan from

Gemini, entered into a “Modification of Promissory Note”, for which Erjavec, on behalf


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of Gemini, extended the maturity date of the S&J Note and provided for additional

interest payments.

20. On the very same day, May 15, 2008, Plaintiff and Erjavec, who asserted

he was acting as Manager of Gemini, entered into a “Loan Participation Agreement”,

whereby Plaintiff and Gemini agreed to participate jointly in the collection of the S&J

Note and to receive pro-rata shares of the interest payments and/or the proceeds from the

sale, refinance or liquidation of the loan; in essence, Plaintiff received a partial

assignment of 56.7% ownership in the S&J Note and mortgage, with Gemini retaining

43.3%.

21. As consideration for the partial assignment of the S&J Note, Plaintiff gave

Erjavec title to “(1) Alfa Gold Motor Home Serial Number 4UZABFCY54CN76900”

(his recreational motor home), for the agreed upon value of $160,000.00.

22. The Loan Participation Agreement provided that "Upon sale of the loan,

refinance or liquidation, the participants [Gemini and Sharp] shall split via pro-rata share

to their own ownership interest any proceeds and accept them as full and final

repayment." (sic)

23. The Loan Participation Agreement also appointed Gemini as the Agent

for Plaintiff "in all matters in connection with the making and administration of the

Loan." (sic)

24. The Loan Participation Agreement also provided that Plaintiff "shall be

consulted and concur regarding any matters considered in connection with any and all

loan documents prior to any decision made." (sic)

25. As part of the May 15, 2008 assignment, Erjavec, acting on behalf of

Gemini as manager, acknowledged receipt of Plaintiff’s contribution of $160,000.00 and

prepared and signed a document for the transfer to Plaintiff of “a 56.7% interest in the

Mortgage dated June 15, 2007, executed by S&J to Gemini”; however, Erjavec never

caused this document to be filed or recorded, as promised.

26. On May 16, 2008, Erjavec prepared a BILL OF SALE for Plaintiff’s

motor home, the title for which was held by Sharp’s limited liability company in

Montana called “Three Lions, LLC”; however, Erjavec indicated to Sharp that the buyer

of the motor home had now changed to Tricolor, Erjavec’s solely owned (shell)

company.


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27. On June 6, 2008, Erjavec (on behalf of Gemini), and Gelb (on behalf of

Plaza I), jointly sent written notification (a letter) containing both their signatures, to S&J

and Gillen stating that the S&J Note and mortgage were being collaterally assigned and

payments henceforth were to be made to Plaza I; however, Sharp was never notified or

consulted by Erjavec or Mogilyansky.

28. On June 14, 2008, Erjavec delivered to Mogilyansky a document

entitled “Binding Disbursement Memo” which indicated that Ronald Prokosch had

agreed to purchase the S&J Note and mortgage for $262,000.00 and that the funds were

to be sent directly to Gemini at its address of record.

29. Although the “Binding Disbursement Memo” appears to contain the

signature of “Ronald Prokosh”, Mr. Prokosch denies ever having seen the document and

swears he did not sign it.

30. On June 17, 2008, Mogilyansky and Erjavec, both apparently acting on

behalf of Gemini, entered into a “Collateral Assignment of Promissory Note and

Mortgage” with Plaza I for the same S&J Note previously assigned to Plaintiff.

31. In exchange for the transfer of the S&J Note and a new mortgage against

the Woodbury Property, Mesaba, a business entity, that may or may not be truly

“affiliated” with Gemini, received financing in the amount of a $408,000.00 for a term

loan, that was to become due and payable by Mesaba on March 8, 2009.

32. On June 16, 2008, Erjavec caused the $408,000.00 loan proceeds from

Plaza I to be paid on behalf of Mesaba to purchase and acquire the Woodbury Property

from Deutsche Bank National Trust Company for the total sum of $525,000.00.

33. The Collateral Assignment of Promissory Note and Mortgage (hereinafter

"Collateral Assignment") falsely represented that Gemini was the sole holder and owner

of the S&J Note and its mortgage, and purported to grant, convey, transfer and assign to

Plaza I, the entire 100% interest in the original $260,000.00 S&J Note.

34. Despite the fact that Erjavec and Mogilyansky, both acting on behalf of

Gemini had sold or assigned the S&J Note and its mortgage to Plaza I, no apparent

consideration was ever paid to Gemini, and Sharp did not receive his pro-rata share, as

set out in the May 15, 2008 Participation Agreement.


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35. Soon thereafter, on June 25, 2008, Erjavec formed another limited

liability company named “Three Lions, LLC” using the same UPS-Store at 7455 France

Avenue South #101, Edina, MN 55435 as its registered address.

36. Not by coincidence, Erjavec’s new Minnesota company “Three Lions,

LLC” just happened to be the exact same name as that of Plaintiff’s Montana company,

which had five (5) weeks earlier transferred ownership of Plaintiff’s motor home to

Erjavec’s other company, Tricolor.

37. On July 31, 2008, Erjavec, on behalf of Mesaba, sold the Woodbury

Property to the Prokoschs in a ‘like-kind exchange’ for the property owned by the

Prokoschs at 266 Summit Avenue in St. Paul; however, the satisfaction of the mortgage

held by Plaza I on the Woodbury Property was not recorded until September 4, 2008.

38. Upon information and belief, the estimated value of the property at 266

Summit Avenue at the time of the aforementioned exchange was approximately three

million dollars ($3,000,000.00), and this is the property that has been used by Erjavec

and his family as their personal residence until Erjavec was allegedly evicted subsequent

to this bankruptcy filing.

39. On or before February 27, 2009, Erjavec personally acquired ownership

of S&J from Gillen; the purpose of which was to sell the Lakeville Property owned by

S&J to the Koodas.

40. On February 27, 2009, at the closing of the Lakeville Property to the

Koodas, the S&J Note was paid in full and its mortgage on the Lakeville Property was

satisfied from the purchase proceeds paid by Koodas.

41. Plaza I, as 100% assignee of the S&J Note, claims to have received

pay-off proceeds at the closing in the amount of only $211,333.31; however none of

these proceeds from the pay-off of the S&J Note were ever paid to Plaintiff as promised

by Erjavec.

42. On February 25, 2009, two (2) days prior to the closing on the Lakeville

Property to the Koodas, Erjavec, both personally and on behalf of S&J, was required to

execute an “Indemnity Agreement” to Guaranty Commercial Title, Inc. (the title

company issuing the title insurance to the Koodas and their lender), because

Mogilyansky, on behalf of Gemini, had raised an objection and a possible claim relating

to a dispute between himself and Erjavec.


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43. Although Plaintiff has no knowledge as to who signed the Satisfaction of

Mortgage for the S&G Note originally recorded in Gemini’s name, Plaintiff was never

notified of the sale and never received any payment whatsoever from the closing of the

Lakeville Property.

44. On December 22, 2008, Plaintiff initiated a civil action against Gemini

and Mesaba in the Hennepin County District Court for breach of contract, but the matter

was never filed with the Court Administer and Gemini was subsequently dismissed

without prejudice.

COUNT I

(11 U.S.C. § 523(a)(2)(A): false pretenses, false representations, fraud)

45. Plaintiff restates and realleges the allegations set forth in the above

paragraphs and further states and alleges as follows:

46. Erjavec made the representations set forth in this Complaint so as to

induce Plaintiff to enter into the Loan Participation Agreement.

47. On May 15, 2008, Plaintiff agreed to enter into the Loan Participation

Agreement, believing that the representations made by Erjavec were true.

48. Erjavec made the representations set forth in this Complaint knowing

them to be false and fraudulent and with the intention of deceiving Plaintiff and thus

inducing Plaintiff to enter into the Loan Participation Agreement and transferring to

Erjavec the title to his $160,000.00 motor home.

49. Plaintiff reasonably relied on these false representations made by Erjavec

when he agreed to enter into the Loan Participation Agreement and transferred

ownership of the motor home to Erjavec as consideration.

50. As a direct and proximate result of Erjavec's other actions and inactions

and use of false representations, fraud, deceit, false pretenses, Sharp has incurred

damages in excess One Hundred-Sixty Thousand Dollars ($160,000.00), the exact

amount to be determined at trial and such is non-dischargeable pursuant to Title 11

U.S.C. § 523(a)(2)(A).

COUNT II

(11 U.S.C. § 523(a)(2)(B): Use of a statement in writing that is materially false)


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52. Erjavec prepared phony and forged documents to trick Plaintiff into

transferring ownership of the motor home to Erjavec, including but not limited to:

a. The Loan Participation Agreement in which Erjavec allegedly did not have

the authority to bind Gemini;

b. The Partial Assignment of the S&J mortgage which was never recorded by

Erjavec;

c. The Bill of Sale wherein Erjavec changed the name of the purchaser of the

motor home from Gemini to his own company, Tricolor;

d. The letter to Gillen and S&J falsely stating that 100% of the S&J Note had

been assigned to Plaza I;

e. The forged document Erjavec delivered to Mogilyansky that represented the

S&J Note had been sold to Mr. Prokosch; and,

f. Formation of the fictitious Minnesota limited liability company- Three Lions,

LLC- using the same name as Plaintiff’s company.

53. By the use of the foregoing written statements, Erjavec was able to trick

Sharp, as well as others necessary to perpetrate the fraud, and illegally obtain Plaintiff’s

motor home valued at $160,000.00 that should be determined to be non-dischargeable

pursuant to Title 11 U.S.C. § 523(a)(2)(B).

COUNT III

(11 U.S.C. § 523(a)(4): Fraud, Defalcation While Acting in a Fiduciary

Capacity, Embezzlement and Larceny)



55. On or around June 17, 2008, when Erjavec and Mogilyansky caused

Gemini to enter into the Collateral Assignment of the S&J Note to Plaza I, Erjavec knew

of Plaintiff's 56.7% interest in the S&J Note which Plaintiff had purchased by

transferring ownership of his motor home to Erjavec’s company, Tricolor.


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56. Erjavec stood in a confidential and/or fiduciary relationship to Sharp at

the time of the Collateral Assignment as well as the transactions that occurred thereafter.

57. Erjavec had a duty to disclose to Plaintiff the dealings regarding the

Collateral Assignment to Plaza I, and to obtain Plaintiff's consent prior to entering into

the Collateral Assignment.

58. Erjavec’s failure to disclose this information constitutes intentional fraud

by omission and a defalcation of his fiduciary responsibilities owed to Plaintiff.

59. The main purpose of Erjavec’s scheme was to use his apparent authority

as Manager of Gemini to first fraudulently acquire Plaintiff’s motor home and second, to

secure for his own personal use the proceeds from the payment of the S&J Note and its

mortgage so as to purchase for himself a $3M mansion at 266 Summit Avenue in St.

Paul.

60. Whether or not Mogilyansky was aware of the scheme or whether he too

was truly a victim of Erjavec’s scheme, is unknown to Plaintiff, but the other non-parties

such as Plaza I, the Prokoschs, and the Koodas’ title company all relied on certain

documents containing Mogilyanky’s apparent notarized signatures, which were used to

facilitate Erjavec’s successful scheme.

61. As the person responsible for retaining the services of Erjavec,

Mogilyansky, together with Gelb and Oberlander, more likely than not, influenced and

controlled the scheme to some extent by, among other things, providing potential real

estate properties to purchase, identifying potential lenders to finance the scheme, and

reviewing financial information from Erjavec and Mogilyansky.

62. In furtherance of the scheme, other unknown non-parties may have

also assisted Erjavec to deceive Plaintiff and others who were providing the financing to

facilitate the scheme.

63. Upon information and belief, Erjavec did not disclose the scheme to the

Prokoschs or the Koodas.

64. Erjavec did not disclose and actively concealed from Gillen, Plaza I, and

the Koodas that he had received ownership of Plaintiff’s motor home in return for

Gemini’s assignment of 56.7% of the S&J Note’s proceeds to Plaintiff.

65. As a direct and proximate result of Erjavec’s defalcation while acting in a

fiduciary capacity, not to mention his embezzlement of the proceeds of the S&J Note,


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Plaintiff has been damaged in an amount exceeding One Hundred-Sixty Thousand

Dollars ($160,000.00), the exact amount to be determined at trial, that should be

determined to be non-dischargeable pursuant to Title 11 U.S.C. § 523(a)(4).

COUNT IV

(11 U.S.C. § 523(a)(6), Willful and Malicious Injury to Sharp)



67. Erjavec directly or indirectly made, published, and communicated to

Plaintiff orally and in writing untrue, deceptive or misleading material statements and

misrepresentations of fact as set forth above, including but not limited to, representing to

Plaintiff that Erjavec had the authority to enter into the Loan Participation Agreement on

behalf of Gemini.

68. These untrue, deceptive, misleading and false representations of fact were

known by Erjavec to be untrue when made because Erjavec made these promises with

the intent not to perform; and, the evidence of Erjavec’s intent not to perform can be

corroborated by other substantial evidence, to wit:

a. Within one (1) day of the theft, Erjavec changed the purchaser of the motor

home from Gemini to his own company, Tricolor;

b. Within three (3) weeks of the theft, Erjavec and Gelb sent a letter to Gillen

informing him to now make payments on the S&J Note directly to Plaza I;

c. Within four (4) weeks of the theft,

- Erjavec produced a false document for Mogilyansky that represented

the S&J Note had been sold to Mr. Prokosch,

- Erjavec obtained a loan for $408,000.00 by assigning 100% of the

S&J Note to Plaza I,

- Erjavec purchased the Woodbury Property for the eventual re-sale to

the Prokoschs; and,

d. Within five (5) weeks of the theft, Erjavec formed a fictitious limited liability

company in Minnesota with the exact same name as Plaintiff’s Montana

company that had previously held title to Plaintiff’s motor home.


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69. Erjavec knowingly prepared phony and forged documents to swinde

Plaintiff using artifice, trick, device, and other means, to obtain Plaintiff’s motor home

by theft.

70. Moreover, Erjavec with intent to defraud, apparently diverted corporate

property other than in accordance with Gemini’s general business purposes or for

purposes other than those specified in the Gemini's articles of incorporation, by

appropriating for himself the proceeds of the S&J Note without any apparent

consideration paid to Gemini or Sharp.

71. Erjavec has knowingly and intentionally taken Plaintiff’s property valued

at $160,000.00 under false pretenses, and upon information and belief, has wrongfully

converted it to his own use via the fictitious Three Lions, LLC.

72. As such, Erjavec has acted to intentionally and maliciously to deprive

Plaintiff of the possession and use of his motor home, and Erjavec, having paid no

consideration whatsoever, has converted same, all without any lawful or equitable

entitlement therefore, and contrary to the rights of Plaintiff as the true owner.

73. As a direct and proximate result of Erjavec’s violations of Minn. Stat.

§609.52 (Theft), Erjavec could be subject to imprisonment for not more than 20 years or

to payment of a fine of not more than $100,000, or both, because the value of the

property stolen from Plaintiff is more than $35,000.00; moreover, unbeknownst to

Plaintiff, Erjavec has a former felony conviction for theft by swindle.

74. Erjavec’s actions described herein constitute willful and malicious injury

to Plaintiff and are nondischargeable in bankruptcy pursuant to 11 U.S.C. § 523(a)(6).

75. As a direct and proximate result of the nondischargeable damages caused

by Erjavec, Plaintiff has incurred damages in excess of $160,000.00, and will continue to

incur substantial damages until the motor home is returned or Erjavec makes restitution

to Plaintiff for the value of the motor home.

76. Despite demand, Erjavec has maliciously refused and continues to refuse

to return Plaintiff’s motor home and as a result, Plaintiff has been damaged in an amount

exceeding One Hundred Sixty Thousand Dollars ($160,000.00), the exact amount to be

determined at trial, which should not be dischargeable under 11 U.S.C. § 523(a)(6).


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WHEREFORE,

Plaintiff respectfully requests that this Court enter judgment in

favor of Plaintiff and against Erjavec as follows:

1. Determining pursuant to Title 11 U.S.C. § 523(a)(2)(A) that Erjavec's

obligation outstanding to Plaintiff in excess of $160,000.00 is non-dischargeable in

Erjavec's Chapter 7 bankruptcy proceeding;

2. Determining pursuant to Title 11 U.S.C. § 523(a)(2)(B) that Erjavec's


Erjavec's Chapter 7 bankruptcy proceeding;

3. Determining that pursuant to Title 11 U.S.C. § 523(a)(4), that Erjavec's


Erjavec's Chapter 7 bankruptcy proceedings;

4. Determining that pursuant to Title 11 U.S.C. § 523(a)(6), that Erjavec's


Erjavec's Chapter 7 bankruptcy proceedings;

5. That Plaintiff be granted his costs, disbursements in this action;

6. That Plaintiff be granted his attorney's fees, if applicable; and,

7. Such further relief as the Court may find just and equitable.

Dated: July 10, 2010 Jon R. Hawks, Attorney at Law

By /e/ Jon R. Hawks Attorney I.D.#150745 4530 Blaisdell Avenue South Minneapolis, MN55419-5031 Telephone (612) 825-9090


Paul Sharp Mark Erjavec Daniel Gelb Plaza I Bankruptcy Complaint

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Transcript of Paul Sharp Mark Erjavec Daniel Gelb Plaza I Bankruptcy Complaint