rule 26f joint discovery plan- case 11-cv-01556

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

JOHN R. RICONDA,

Plaintiff,

-against-

MARC SHERMAN, EDWARD L. CUMMINGS, ROBERT W. VAN HELLEMONT, R. KEITH ELLIOT, JOHN F. CUNNINGHAM, AND GEOFF SMITH,

Defendants.

Civil Action No. 11-CV-01556

Judge Joanna Seybert

Magistrate Judge E. Thomas Boyle

RULE 26(F) JOINT DISCOVERY PLAN

Plaintiff John R. Riconda (“Plaintiff” ) and Defendants Marc Sherman, Edward L.

Cummings, Robert W. Van Hellemont, R. Keith Elliot and Geoff Smith (“Defendants”) hereby

submit their Rule 26(f) Joint Discovery Plan as follows:

A. CHANGES TO RULE 26(A) INITIAL DISCLOSURES

Pursuant to Rule 26(f)(1) the Parties state that Plaintiff’s Initial Disclosures under

Rule 26(a) will be served July 7, 2011. Defendants will serve their Initial Disclosures by July 12,

2011. At this time, the Parties are not aware of other changes that should be made to the timing,

form, or requirement for disclosure under Rule 26(a)(1).

B. SUBJECTS OF DISCOVERY

Plaintiff’s Statement of Facts: This action arises out of acts of fraud, self-dealing

and breach of fiduciary duty by the Defendants, who were the directors and officers of QSGI, Inc.

and QSGI-CCSI, Inc. – two Florida-based public companies that are now Debtors in a Chapter

11 proceeding in the United States Bankruptcy Court for the Southern District of Florida. In July

2008, under the stewardship of the Defendants, QSGI purported to buy John Riconda’s company,

Case 2:11-cv-01556-JS-ETB Document 14 Filed 07/07/11 of 6 PageID #: 339

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Contemporary Computer Services, Inc. (“CCSI”), in exchange for a $10 million, 10% promissory

note. John Riconda also received shares in QSGI. QSGI pledged the stock and assets of CCSI

back to John Riconda as security for its payment obligations under the promissory note. Yet

QSGI never paid a dollar of that purchase price to Riconda.

To make matters worse, immediately following the transaction, QSGI pledged all

of its assets – including the stock and assets of CCSI – to a lender called Victory Park

Management, LLC, in order to secure a multi-million loan. Because QSGI defaulted on its

payment obligation, John was entitled to reclaim CCSI from QSGI. However, because QSGI had

given Victory Park a lien on CCSI’s assets (including its cash and receivables), John Riconda had

to spend hundreds of thousands of dollars and more than a year in litigation with Victory Park, in

order to reclaim CCSI free and clear of any encumbrances.

The Defendants are personally liable for John Riconda’s losses because they

committed acts of fraud, self-dealing and breaches of fiduciary duty and their duty of loyalty to

John Riconda. First, on the Defendants’ watch, QSGI intentionally filed disclosures with the

SEC containing falsified inventory figures inflated by millions of dollars. The filings

misrepresented the financial stability of QSGI. John Riconda relied on these filings in agreeing

to enter into the sale transaction with QSGI.

Following the transaction, QSGI and the individual Defendants owed Riconda a

fiduciary duty because QSGI had pledged the stock of CCSI to Riconda as collateral for the

promissory note, and Defendants had a duty not to impair that collateral. Defendants also owed

John Riconda a fiduciary duty as a shareholder of QSGI. By falsifying QSGI’s SEC disclosures

and/or allowing the Company to file falsified documents with the SEC, the Defendants’ breached


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those duties and are personally liable for John Riconda’s damages. This misconduct also

damaged Riconda because Victory Park relied on the false SEC filings in lending millions of

dollars to QSGI – a loan that was secured by the stock and assets of CCSI (i.e., which QSGI

purported to own). At least some of the Defendants are presently under investigation by the SEC

for this misconduct.

Defendants also breached their fiduciary duty to John Riconda in other ways as

well. For instance, QSGI pursued an aggressive strategy of buying used computers for resale.

But QSGI paid a hugely inflated price for the used computers – causing the company to

hemorrhage cash – because the seller was Keystone Memory Group, a company owned and

managed by Defendant Marc Sherman’s sister.

As a result of Defendants’ misconduct, John Riconda suffered damages in excess

of $2,572,000. Riconda filed its complaint on February 25, 2011 in New York Supreme Court,

County of Suffolk. On March 30, 2011, the Defendants removed the case to the Eastern District

of New York based on diversity jurisdiction. In April 2011, the Defendants filed their motions to

dismiss and motion to transfer venue to the Southern District of Florida. Defendants have not

filed an Answer to the Complaint. John Riconda anticipates filing papers in opposition to

Defendants’ various motions on or before July 14, 2011.

Plaintiff anticipates taking discovery with respect to the subjects set forth above

and the other allegations set forth in the complaint.

Defendant’s Statement of Facts: Defendants will provide their statements of facts

for inclusion in the Rule 26(f) Joint Discovery Plan by July 12, 2011.


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C. DISCOVERY OF ELECTRONICALLY STORED INFORMATION

The Parties anticipate conducting discovery of electronically stored information

and the measures taken to preserve such information. The Parties shall confer on the form in

which electronically stored information shall be produced.

D. CLAIMS OF PRIVILEGE AND WORK PRODUCT

At this time the Parties are not aware of any concerns regarding claims of

privilege or the work product doctrine.

E. LIMITATIONS ON DISCOVERY

Discovery shall be limited as provided under the Federal Rules of Civil Procedure.

F. PROPOSED CASE MANAGEMENT SCHEDULE

The parties propose a case management schedule as set forth in the attached

Proposed Case Management Order.

Dated: July 7, 2011. New York, New York

By: /s Joshua A. Berman Joshua A. Berman

KELLEY DRYE & WARREN LLP 101 Park Avenue New York, New York 10178 Telephone: (212) 808-7800 Email: [email protected] Attorney for Plaintiff John R. Riconda


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Dated: July 7, 2011. Melville, New York

By: /s Richard A. Kraslow Richard A. Kraslow

RICHARD A. KRASLOW, P.C. 425 Broad Hollow Road, Suite 206 Melville, New York 11747 (631) 756-8300 Email: [email protected] Attorney for Defendants Marc Sherman, Edward L. Cummings, Robert W. Van Hellemont, R. Keith Elliot and Geoff Smith


CERTIFICATE OF SERVICE

I, Joshua A. Berman, hereby certify that on this 7th day of July, 2011, a true and correct copy of the foregoing document was served upon all counsel of record via ECF electronic filing.

/s/ Josh A. Berman Josh A. Berman


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