OSTERGAR LATTIN JULANDER LLP
Treg A. Inlander (State Bar No. 174759)
Allen C. Ostergar III (State Bar No. 166411)
9110 Irvine Center Drive Irvine, CA 92618
Attorney for Plaintiff NAZ II HOLDING, LLC
IN THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA
NAZ II HOLDING, LLC, a Nevada
limited liability company,
THE LITIGATION PRACTICE GROUP
PC; TONY DIAB; VALIDATION
PARTNERS, LLC and DOES 1-10, inclusive,
1. Plaintiff Naz II Holding, LLC (“Plaintiff’), demanding a jury trial for any issue triable by a jury, alleges: NATURE OF THE CASE 1. This action arises from an ongoing scheme in which Defendant The Litigation Practice Group PC (“LPG”), under the direction of a disbarred and illegally practicing lawyer, Defendant Tony Diab, (collectively with DOES 1-10, the “LPG Defendants”), is misappropriating millions of dollars of investments Plaintiff made in Defendants’ debt resolution legal services business.
2. Plaintiff is one of the investor-clients of Defendant Validation Partners, LLC (“VP”). VP’s main purpose is to raise capital for LPG’s debt resolution practice. To do so, VP acts as a factor: it purchases accounts receivable based on the legal fees owed to LPG by its clients, who are generally individual consumers with significant credit card or other consumer debt. In some instances, LPG directly assigns its accounts receivable to VP. In other instances, LPG pays a portion of the fees from each client account to “Marketing Affiliates” in exchange for the Marketing Affiliates’ services in identifying consumer clients for LPG to represent. The Marketing Affiliates then assign to VP their rights to receive these payments from LPG. In both instances, LPG is contractually obligated to pay the fees it receives from its clients to VP.
3. VP acquires the accounts receivable with funds solicited from investors like Plaintiff. Plaintiff invested in VP through two separate agreements in 2021 and 2022. Under these agreements, VP is obligated to repay Plaintiff’s principal plus a return on investment out of payments it receives from LPG. As the LPG Defendants know, if LPG does not pay VP, VP cannot pay Plaintiff.
4. In or about June 2022, LPG, at the direction of Diab, abruptly stopped paying VP. LPG was not unable to pay. Indeed, at least as recently as October 2022, its revenue from fees paid by its clients was stable and substantially exceeded its operating costs. Rather, LPG began rapidly diverting client-fee revenue and other assets to third parties in what appears to be an effort by Diab to transfer LPG’s tens of thousands of revenue-generating client accounts to another entity that has no obligations to VP or VP’s investors, thus enabling Diab to expropriate the lion’s share of proceeds from LPG’s lucrative debt resolution business.
5. Plaintiff Naz II Holding, LLC is a Nevada limited liability company with its principal place of business in Las Vegas, Nevada. Plaintiffs sole member is the Naz II Family Trust, a trust organized under Nevada law. The trustee of the Naz II Family Trust is Premier Trust, Inc., a Nevada corporation with headquarters in Las Vegas, Nevada. Accordingly, Plaintiff is a citizen of Nevada.
6. On information and belief, defendant Litigation Practice Group PC (“LPG”) is a California professional corporation with its principal place of business in Tustin, California. LPG is a law firm specializing in resolution of consumer debt. It claims it is an elite law firm dedicated to the practice of law. In reality, LPG is run entirely by Tony Diab, a former attorney now disbarred in two states following disciplinary proceedings for serious ethics violations, including stealing client funds and forging the signature of a judge. As alleged herein, the only known licensed attorney currently employed at LPG is nothing more than a figurehead who Diab impersonates to surreptitiously engage in the unauthorized practice of law.
7. On information and belief, Defendant Tony Diab is an individual residing in Orange County, California. Diab was disbarred from the practice of law in the state of California under Cal. Bar No. 277343 on January 10, 2020 for several ethics violations relating to Diab’s fraudulent diversion a client’s $375,000 settlement payment into his own personal banking account—a scheme that involved his forging the signatures of a judge in 2016. Diab is also disbarred from the practice of law in Nevada as of January 14,2019 for ethics violations related to the same incident under Nevada Bar No. 12954.
8. On information and belief, Defendant Validation Partners, LLC (“VP”) is a Florida limited liability company with its principal place of business in Florida. VP’s members are Stratcap Management, LLC (“Stratcap”), a Califomia/Wyoming limited liability company, and Goldtone Ventures, LLC (“Goldtone”), a Florida limited liability company. Stratcap’s members are Wes Thomas, a California resident, and BAE Enterprises, Inc., a Wyoming corporation with principal place of business in Wyoming. Goldtone’s members are Overtone Ventures Florida, Inc., a Florida corporation with principal place of business in Florida, Longclaw, Inc., a Florida corporation with principal place of business in Florida, and California residents Rodney Squires and Michael Loughton, who are natural persons. Accordingly, VP is a citizen of California, Florida, and Wyoming.
9. Plaintiff sues Defendants DOES 1 through 10 under fictitious names. Their true names and capacities, whether individual, corporate, associate, or otherwise are unknown to Plaintiff. When Plaintiff ascertains their true names and capacities, it will amend the Complaint to insert the true name and capacity of each fictitiously- named defendant. On information and belief, each fictitiously named defendant is legally responsible in some manner for the occurrences alleged in this Complaint, and those defendants directly and proximately caused Plaintiffs damages.
10. On information and belief, at all times relevant to this Complaint, the LPG Defendants, and each of them, were the co-conspirators, agents, servants, employees, alter egos, successors-in-interest, subsidiaries, affiliated companies or corporations, and joint ventures of the other LPG Defendants, and were, as such, acting within the course, scope, and authority of each other LPG Defendant. Plaintiff further alleges on information and belief that each of the LPG Defendants acted in concert with, and with the consent of, each of the other LPG Defendants, and that each of the LPG Defendants ratified or agreed to accept the benefits of the conduct of each of the LPG Defendants.
JURISDICTION AND VENUE
11. The Court has jurisdiction over this matter based on diversity of citizenship under 28 U.S.C. § 1332. Plaintiff is a citizen of Nevada while Defendants are citizens of California, Wyoming, and/or Florida. The amount in controversy, exclusive of interest and costs, exceeds the sum of $75,000.
12. The Court has personal jurisdiction over Defendants, as they are citizens of California. Moreover, Defendants conduct significant business in California. LPG, which Diab controls, is based in Orange County. VP exists for the sole purpose of financing LPG’s activities, including in California. VP also filed a lawsuit against LPG, Diab, and others on September 20, 2022 in California Superior Court for the County of Orange based on similar misconduct by LPG and Diab as alleged herein
13. Venue is proper in this judicial district under 28 U.S.C. § 1391(b)(2) because a substantial part of the events giving rise to Plaintiff’s claims occurred at LPG’s office in Tustin, California, within the boundaries of the Central District of California.
LPG’s Investment Structure
14. On information and belief, VP commenced business in 2021 with the primary purpose of providing financing for LPG’s debt resolution business.
15. On information and belief, LPG has traditionally obtained clients with the assistance of various Marketing Affiliates. These Marketing Affiliates locate qualified consumers who have been the victim of predatory lending or who otherwise are subject to claims of sizeable debt that are not legally valid under applicable law.
16. On information and belief, LPG takes on these consumers as clients and compensates the Marketing Affiliates for their services by paying them a portion of the fees LPG earns in the debt resolution process.
17. On information and belief, LPG has approximately 50,000 active client accounts nationwide, although, as discussed further below, Diab is actively causing these accounts to be transferred to third party entities.
18. Upon information and belief, VP finances the relationship between the Marketing Affiliates and LPG by providing factoring services to the Marketing Affiliates. Specifically, VP purchases at discounted rates the Marketing Affiliates’ accounts receivable owed to them by LPG. In this way, the Marketing Affiliates assign to VP their rights to receive these payments from LPG. On information and belief, LPG acknowledged the assignment of these accounts receivable to VP and, for a time, paid VP directly in accordance with the Marketing Affiliates’ assignment of the accounts receivable to VP.
19. VP obtains the funds with which to finance LPG and the Marketing Affiliates operation from investors such as Plaintiff. VP then uses the payments from LPG—ultimately based on fees paid by LPG’s clients—to repay the investors’ principal plus a contractually agreed return.
Plaintiffs First Investment
20. On or around September 2021, VP’s CEO, Russ Squires, and its one of its managers, Gary DePue, approached Plaintiffs agent, Chris Frankian, on behalf of VP to solicit Plaintiffs investment in Defendants’ debt resolution business. Squires and DePue explained that the return on Plaintiffs investment would be based on a portion of the fees generated by LPG’s practice, the rights to which VP had acquired or would acquire through factoring the Marketing Affiliates accounts receivable. Squires and DePue told Frankian that the investments made by VP’s investors in LPG’s debt resolution practice were performing well, and Plaintiffs investment would result in a favorable return. On October 4, 2021, in reliance on these representations, Plaintiff agreed to invest in VP pursuant to the terms of a written contract (“Agreement No. 1”), attached hereto as Exhibit A.
21. Agreement No. 1 provides for Plaintiff to invest $2,000,000 with VP in exchange for VP’s obligation to repay Plaintiffs principal of $2,000,000 plus a 20 percent return over a series of 12 monthly payments, for a total of $2,400,000. Accordingly, Plaintiff paid VP $2,000,000 by wire transfer on or about October 4, 2021.
22. The LPG Defendants had actual knowledge and notice of Plaintiffs investment under Agreement No. 1. At the time of execution of Agreement No. 1, Wes Thomas was both LPG’s Chief Financial Officer, a close associate of Diab, and a member of Stratcap, one of VP’s owners. Thomas was thus involved in, and knowledgeable about, the activities of both companies. In addition, Frankian specifically told Thomas that Plaintiff would be investing in VP and LPG’s business.
23. The LPG Defendants also knew that VP’s ability to repay Plaintiff depended on LPG properly remitting the fees received from its clients to VP in accordance with the its obligations to Marketing Affiliates that had been assigned to VP. Indeed, on information and belief, LPG expressly recognized each assignment and confirmed that VP was entitled to payment as a result.
24. Plaintiff received a total of nine payments in accordance with the pay schedule outlined in Agreement No. 1, with the first payment in October 2021 and the last in June 2022. These nine payments amounted to $2,034,000, leaving a shortfall of $366,000.
Plaintiffs Second Investment
25. On or around March 2022, representatives of VP again approached Frankian requesting that Plaintiff make a second investment into LPG’s debt resolution practice. At that time, VP had not yet defaulted on its payments to Plaintiff under Agreement No. 1. However, Plaintiff was hesitant to make a second investment. To “sweeten the deal,” VP told Frankian the terms of Plaintiffs second investment would be more favorable. On a phone call on or around February or March 2022, Squires informed Frankian that the terms of the second investment deal would defer payment by 90 days, but would pay a greater return of 25 percent.
26. In reliance on these representations, Plaintiff executed Agreement No. 2, attached hereto as Exhibit B on or around March 9, 2022. The overall structure of Agreement No. 2 was substantially similar to Agreement No. 1, except that, consistent with the above negotiations, VP’s first payment was deferred 90 days and Plaintiff received a contractual rate of return of 25 percent. Plaintiff invested $2,500,000 and was therefore owed a total of $3,125,000.
27. The LPG Defendants had actual knowledge of Plaintiffs investment under Agreement No. 2. At the time of execution of Agreement No. 2, Thomas was both LPG’s CFO, a close associate of Diab, and a member of Stratcap, one of VP’s owners. Thomas was thus involved in, and knowledgeable about, the activities of both companies. In addition, Frankian specifically told Thomas that Plaintiff would be investing in VP and LPG’s business.
28. The LPG Defendants also knew that VP’s ability to repay Plaintiff depended on LPG properly remitting the fees received from its clients to VP in accordance with the its obligations to Marketing Affiliates that had been assigned to VP. Indeed, on information and belief, LPG expressly recognized each assignment and confirmed that VP was entitled to payment as a result.
29. Plaintiff received a single payment of $300,000 under Agreement No. 2 on June 22, 2022, but no further payments since, leaving a deficit of $2,825,000. 30. In sum, as of the date of filing of this Complaint, Plaintiff is still owed $366,000 plus interest under Agreement No. 1 and $2,825,000 plus interest under Agreement No. 2, for a total outstanding balance of $3,191,000 plus interest.
LPG’s Assurances and Nonpayment
31. On or around August 3, 2022, Thomas informed Frankian that LPG had stopped remitting the funds to VP needed to pay Plaintiff under the Agreements.
32. On or around this time, Russ Squires also informed Frankian that Diab had gone “rogue,” and despite LPG continuing to collect revenue from tens of thousands of client accounts, Diab was refusing to remit the funds to VP as required under VP’s acquisition of the Marketing Affiliates’ rights to receive a portion of the fees paid to LPG. Squires specifically told Frankian that Diab had personal and executive control over the revenue received by LPG and Diab had unilaterally cut off any and all payments due to VP. Squires told Frankian, and Thomas confirmed, that Diab “ran” LPG, including controlling LPG’s trust and bank accounts, despite having been disbarred in California and Nevada for misappropriating client funds and associated ethical violations.
33. Throughout August 2022, Frankian and Thomas continued to communicate regarding LPG’s failure to pay VP and LPG’s cause of VP’s default under the Agreements between VP and Plaintiff. Thomas promised that LPG would soon resume making payments directly to Plaintiff, even requesting Plaintiffs wire transfer information to facilitate such payments. But after more time passed and Plaintiff had still not received any further payments under either Agreement, Thomas told Frankian that “Tony [Diab] was supposed to send it [the money],” and “I can’t control Tony.”
34. Frankian also interacted directly with Diab on behalf of Plaintiff between August and October 2022. On or about August 22, 2022, Diab promised Frankian that LPG would “probably send [Plaintiff] $50,000 every couple of days” and again requested that Frankian send the wire transfer instructions to Thomas so Diab could pay Plaintiff directly for the outstanding amounts under Agreement Nos. 1 and 2. Plaintiff never received any payments as Diab promised. In truth, Diab was misleading Plaintiff. Diab had no intention to pay Plaintiff, VP, or its investors. Instead, Diab had decided to keep the revenue due to VP and Plaintiff for his own personal benefit, to fund his other ventures, and make payments to his friends and business associates.
35. On information and belief, LPG, under Diab’s direction, is intentionally and maliciously withholding money due and owing to VP and Plaintiff. On information and belief, LPG continues to receive a substantial stream of revenue in the form of fees from tens of thousands of client accounts. A substantial portion of this revenue was assigned to VP and comprises the source of funds upon which VP depends to pay its investors, including Plaintiff, as Defendants know.
36. On information and belief, Diab is in the process of misappropriating and diverting the funds LPG owes to VP and Plaintiff for his own personal use and to shield them from LPG’s creditors, including using the funds to directly purchase additional client accounts. On information and belief, one of Diab’s objectives appears to be to transfer LPG’s client accounts to a new law firm that has no obligations to VP or Plaintiff.
37. As a consequence of LPG’s refusal to pay VP and Diab’s unlawful diversion of the funds it owes to VP and Plaintiff, VP cannot pay Plaintiff and is therefore in breach of its obligations to Plaintiff under the Agreements.
Tony Diab’s Role at LPG
38. Tony Diab was once a licensed attorney in the states of California and Nevada. Diab was disbarred from the practice of law in Nevada on January 14, 2019 for ethics violations relating to stealing large sums of client funds. Diab was disbarred from the practice of law in California on January 10, 2020 for several ethics violations, including for fraudulently diversion of a client’s $375,000 settlement payment into his own personal banking account and forging the signatures of a judge in 2016. Since then, Diab has not been licensed to practice law in Nevada, California, or in any state in the United States.
39. On information and belief, Diab practiced law at his firm, Diab Law in Newport Beach, California prior to and leading up to his disbarment. On information and belief, Diab’s debt resolution practice commenced at Diab Law. Upon information and belief, Diab founded the LPG law firm in California one month after his disbarment in Nevada. Diab then transferred his debt resolution practice to LPG.
40. On information and belief, at LPG’s inception, the President and Secretary of LPG were listed as John Thompson and Rosa Bianca Loli, respectively. Plaintiff is informed and believes, and on that basis alleges, that neither Thompson nor Loli were ever attorneys licensed to practice law in California or any other U.S. state.
41. At some point after LPG’s inception, attorney Daniel S. March assumed the roles of President and Secretary of LPG. March is licensed to practice law in California, but his attorney profile on the California State Bar website shows he was subject to disciplinary action and suspension in 2008 for willful violation of the Rules of Professional Conduct related to his handling of client funds. Plaintiff alleges that March has, and has continued to, practice law through a law firm named Law Office of Daniel S. March in Tustin, California. As of January 4, 2023, March still lists this firm as his employer with the State Bar of California, although LPG’s website lists March as its “Managing Shareholder.”
42. Although March appears to be the only licensed attorney employed at LPG, on information and belief, he does not exercise or retain control over the law firm, its client trust accounts, its finances, or any business decisions of LPG, including its means of practicing law and all other aspects of the firm’s business operations.
43. On information and belief, March is merely a figurehead used by LPG to conceal the fact that a disbarred attorney—Diab—exercises complete and exclusive control over the firm’s finances, IOLTA client trust account, operations, and practice of law. On information and belief, March has permitted Diab to use his name and bar license as Diab deems fit, including signing March’s signature on contracts on behalf of LPG, communicating with third parties—including Plaintiff—on LPG’s behalf, and making financial decisions regarding client funds. To hide his unlawful practice of law, Diab communicates with third parties and acts on LPG’s behalf under the label “Admin” and using the email address “email@example.com.” For example, the primary DocuSign signatory used by LPG to execute contracts goes to “firstname.lastname@example.org,” an e-mail account used and controlled by Diab, through which Diab signs contracts as March.
44. On information and belief, Diab runs a substantial portion of the business operations and the practice of law through various intermediaries in the firm. The vast majority of LPG’s debt resolution work occurs without litigation, i.e., very few of LPG’s clients actually end up in court. This pre-litigation debt resolution work is almost entirely done in California by a large team of unlicensed staff. On information and belief, neither Diab nor LPG’s staff is supervised, managed, controlled, or directed by a licensed attorney, and is instead supervised, managed, controlled, and directed by Diab. March has abdicated all responsibility for managing LPG and effectively exercises none of the traditional functions a managing partner exercises over a law firm.
45. On information and belief, Diab treated himself as a 1099 attorney for a portion of the time after his disbarment, issuing direct payments to himself from July of 2019 through March of 2020 for “Client attorney fees” in a total amount of at least $445,000.
Tony Diab’s Control and Diversion of LPG’s Funds
46. On information and belief, since June 2022, the LPG Defendants intentionally have diverted revenue owned to Plaintiff and VP, with the knowledge and intention of forcing VP to default on its obligation to pay Plaintiff under the Agreements.
47. On information and belief, Diab himself is in complete control over the finances of LPG, including LPG’s bank accounts and IOLTA client trust account. These accounts receive and hold the client fee revenue assigned to VP by way of its factoring of the Marketing Affiliates’ accounts receivable.
48. Diab has repeatedly and continuously mispresented the status of LPG’s finances to Plaintiff and VP to promote the falsehood that LPG lacks the funds to pay the amounts Plaintiff is owed under the Agreements. In truth, LPG continues to receive substantial revenue from the client fees to which Plaintiff and VP have acquired the rights. Diab has intentionally and unlawfully diverted those funds to business associates and third-party entities he controls. For example, on information and belief, between July and October 2022, Diab personally authorized LPG to pay more than $1,000,000 to marketing/lead generation firms, at least one of which Diab partially owns, which is inconsistent with LPG’s business model of obtaining client accounts through its Marketing Affiliates in exchange for assignments of a share of fees generated by such accounts.
49. In addition, on information and belief, the LPG Defendants have spent large sums on buying assets for LPG rather than paying monies owed to VP and its investors. Specifically, LPG spent over $6 million to directly purchase new client accounts between July and October 2022.
50. On information and belief, Diab also appears to be rapidly transferring LPG’s fee-generating client accounts—many of which had already been assigned to VP—to a third-party entity called Teracel. On information and belief, LPG did not receive any money in exchange for these accounts.
51. Diab is thus on course to drain LPG of its assets. If Diab’s looting scheme is permitted to continue, LPG will become unable to repay VP and Plaintiff, while Diab continues LPG’s debt resolution practice through another entity that has no obligations to VP or Plaintiff.
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