FILED: NEW YORK COUNTY CLERK 02/06/ :34 PM INDEX NO /2017 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 02/06/2017

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1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X PAUL KRUG, v. Plaintiff, NICHOLAS J. STONE and JONATHAN KRIEGER, Individually, and BLUESTONE LANE MANAGEMENT LLC and BLUE STONE LANE HOLDINGS LLC, Defendants X To the above named Defendants: Index No. /2017 SUMMONS Date Index No. Purchased: 2/5/2017 Venue is based on defendants s place of business Plaintiff designates New York County as the Place of Trial YOU ARE HEREBY SUMMONED to answer the complaint in this action and to serve a copy of your answer, or, if the complaint is not served with this summons, to serve a notice of appearance, on the Plaintiff s attorney within 20 days after the service of this summons, exclusive of the day of service (or within 30 days after the service is complete if this summons is not personally delivered to you within the State of New York); and in case of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the complaint. The basis of venue designated is based on the defendants residence and the LLC being a New York Corporation, with its principal place of business in New York County, and services performed within the state of New York, contracts and guarantys mutually agreed to by the parties having been performed within the State of New York. Dated: February 2, 2017 New York, New York /s KEVIN SEAN O DONOGHUE O Donoghue PLLC Attorney for the Plaintiff 250 Canal Street, Suite 2A New York, NY kodesq@gmail.com 1 of 14

2 Defendants Addresses: BLUESTONE LANE MANAGEMENT LLC C/O Christoper Roman, Esq. Fried, Frank, Harris, Shriver & Jacobson LLP One New York Plaza, New York, NY NICHOLAS STONE 259 WEST 10TH, 1C NEW YORK, NEW YORK, JONATHAN KRIEGER 270 WEST 11TH STREET,APT. 4G NEW YORK, NEW YORK, BLUE STONE LANE HOLDINGS LLC 805 Third Avenue New York, New York of 14

3 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X PAUL KRUG, v. Plaintiff, Index No. VERIFIED COMPLAINT NICHOLAS J. STONE and JONATHAN KRIEGER, Individually, and BLUESTONE LANE MANAGEMENT, LLC and BLUE STONE LANE HOLDINGS LLC. Defendants X Plaintiff, PAUL KRUG, by his attorneys, O DONOGHUE PLLC, as and for his Complaint alleges the following: PRELIMINARY STATEMENT 1. This is a Complaint for damages arising out of breach of contract and other causes of action by the defendants, NICHOLAS J. STONE, JONATHAN KRIEGER and BLUESTONE MANAGEMENT LLC and/or on behalf of, BLUE STONE LANE HOLDINGS LLC (collectively BLUESTONE ) after the plaintiff, who co-founded, operated, co-created the IP and concept for, and managed the highly successful coffee retail outlets of Bluestone Lane Coffee was bought out by BLUESTONE through KRIEGER and STONE pursuant to a Membership Purchase Agreement (the Agreement Exhibit A ), which upon information and belief was done fraudulently and based on incomplete and inaccurate information which provided a low valuation of the company (Exhibit B ) and its shares in order to fraudulently induce Mr. KRUG to sell the interest, which he detrimentally relied upon. 2. In addition, the Agreement (Exhibit A ) included subsequent conditions which would provide Mr. KRUG with additional funds upon the satisfaction of certain conditions, which upon information and belief have been met (and surpassed) by BLUESTONE, (Exhibit C, social 3 of 14

4 media posts showing growth) but BLUESTONE denies such benchmarks have been met and in any event, refuses to produce such information ( of Christopher Roman, Esq., counsel to STONE and KRIEGER is annexed as Exhibit D ). THE PARTIES 3. Plaintiff, PAUL KRUG, is an individual that resides in the State of New York, county of Kings. 4. Upon information and belief, defendant, NICHOLAS J. STONE is an individual residing in the State of New York, New York County. 5. Upon information and belief, JONATHAN KRIEGER is an individual residing in the State of New York, New York County. 6. Upon information and belief, defendant, BLUESTONE LANE MANAGEMENT LLC is a domestic corporation, duly authorized to do business in New York State, with a principal place of business at New York, New York. 7. Upon information and belief, defendant BLUE STONE LANE HOLDINGS LLC is a domestic corporation, duly authorized to do business in New York State with a principal place of business at New York, New York. JURISDICTION and VENUE 8. Jurisdiction is properly in New York County as the parties all do of business in New York County and the defendants unlawful acts all arose out of the project in New York County. 9. All parties do business in New York County. Moreover, upon information and belief, the Defendants regularly transact or solicit business and/or derives substantial revenue from goods used or consumed or services rendered in New York County and/or expect or should reasonably expect the acts complained of here to have consequences in this County and State. 4 of 14

5 FACTS APPLICABLE TO ALL CAUSES OF ACTION 10. Upon information and belief, BLUE STONE LANE HOLDINGS LLC is the parent company of all of the Bluestone Lane Coffee entities, and BLUESTONE LANE MANAGEMENT is an entity organized solely to manage those Bluestone Lane Coffee entities, which do business as (including but not limited to) BLUESTONE LANE 55 GREENWICH LLC, BLUESTONE LANE 90 WATER LLC, BLUESTONE LANE ASTOR LLC and BLUESTONE ROASTING LLC, BLUE STONE LANE 805 LLC and BLUESTONE LANE COFFEE EVENTS LLC in New York, in the counties of New York and Suffolk. There are additional entities upon information and belief on the West Coast and other locations. Exhibit C. 11. Paul KRUG was a founding member and co-creator of the brand and operated the brand for many years, starting in 2012, into operations in 2013 and through The company had success in both the retail operations and growing the value of the brand and its intellectual property (held by a separate company, BSL IP LLC, which Mr. KRUG also owned interest in). 12. Mr. KRUG founded the company with STONE and ran the company and expanded the brand with STONE and KRIEGER which greatly increased the value of the intellectual property. Sometime in 2014, he sold his management interest and left daily management and operation of BLUESTONE and NICHOLAS STONE and others took over. He ceased being compensated as a manager at that time and only remained a member. 13. Sometime in 2015, JONATHAN KRIEGER, a commercial real estate broker at RKF, who had worked with Mr. KRUG on other projects locations, became interested in acquiring interest in BLUESTONE and adding the brand to RetailWorx his ethical retail concept. 14. Mr. KRUG, was approached about selling by Mr. KRIEGER on behalf of Mr. STONE and BLUESTONE. Mr. KRUG was told there were substantial debts and was told that 5 of 14

6 there was a low valuation of the company in comparison to its competitors, and that there was internal strife amongst the management, particularly between KRIEGER and STONE. He was told by KRIEGER that his shares would be buried by STONE if KRUG did not sell his interest, so there would be no profit distribution as a result of increased salaries, etc As a result, after requesting information and negotiating, Mr. KRUG was not satisfied with the offer, and was not satisfied with the documents and information that was produced regarding the assets and valuation of the company, as he believed such were too low. The information he was given indicated that this was a company that was not ready to flourish and open up over a dozen new retail units, especially based on the 2015 Profit and Loss Statement (Exhibit B ) however, within the last year, at least five additional retail locations and a roaster opened, which logically indicates that substantial funds were raised. (Exhibit C ). 16. Based on the information Mr. KRUG was given by BLUESTONE, KRIEGER and STONE, a purchase agreement was drafted (upon information and belief by Christopher Roman, Esq.) annexed here to as Exhibit A. At that time, Mr. KRUG had been given the information about the company as set forth above and an ultimatum and told to take it or leave it and he was inclined to leave it unless he was given the concession that if the company was sold or was successful in raising capital that would increase the valuation, he would be entitled to additional monies on the sale (known in the industry as schmuck insurance ) (Exhibit A Section 1 (c) and (d), page. This was added by Mr. Roman to the agreement before it was signed, upon information and belief. 17. Based on the information provided at the time, and the statements made by 1 According to H1B employment visa filings with the U.S. government, which will be proven by records to be produced by defendants or formally subpoenaed from the government, Blue Stone Lane Holdings LLC alone has a CEO making $188,000-$250,000; a head of marketing earning $110,000-$140,000;a regional director making $75,000; a business analyst making $70,000, and multiple managers and other titles with salaries over $50,000. This amounts to well over $1 million in foreign salaries over the past two years, which have been skyrocketing since of 14

7 KRIEGER and STONE, Mr. KRUG signed the agreement on or about February 5, Exhibit A. 18. As set forth above, in the intervening 12 months, at least 5 retail operations opened of Bluestone Lane Coffee, including a location in Montauk and locations outside New York City. (Exhibit C ). During this intervening year, Mr. KRUG was told about and shown valuations from marketing materials and proposals, made and used by STONE and KRIEGER in their pitches to investors, that valued the company at many times what they had bought him out at. The 2015 P/L indicated a projected profit of under $100,000 for the year yet there was substantial growth in multiple locations, which is estimated to cost over $1,000,000. (Exhibit B ). Mr. KRUG therefore logically concludes and alleges that there must have been additional capital raised and infused into the company to achieve such growth, which entitles him to additional funds under the Agreement or was raised and in the pipeline prior to his sale, thus the fraudulent basis for the contract would entitle him to rescission and damages. 19. The growth is not speculation even just on social media, the growth can be tracked. The Montauk Surf Lodge alone greatly multiplies the IP of the company. (Exhibit C ). 20. As a result, suspecting fraud in the inducement and that money was owed based on the agreement, on February 1, 2017, a request for financial information and documentation was requested in order to determine how much more was due. Exhibit D. However, Mr. Roman flatly refused to produce anything, and made the blanket statement that the benchmarks were not met and thus no money was due, with a statement that no further information will be provided. Those statements by counsel necessitated this action. 21. By this refusal, defendants have stated their clear intention to breach or anticipatorily breach the terms of the agreement, thereby illegally depriving Mr. KRUG from the value of the interest per the terms of the agreement. As of the date of filing, February 6, 2017, the additional 7 of 14

8 funds are now due and owing and therefore this claim is ripe. 22. In addition, it throws the original valuation, information and documentation into question, particularly when viewed along with the proposals and other information that sought substantially higher valuations. This is not mere speculation the only way to determine the accuracy of the claims is by ordering an accounting and production of the books, records, taxes, valuations, proposals, and other relevant information to determine if money is owed and if so how much; and if the information and documents produced at the time of the negotiation was fair and accurate information or was deceptive and fraudulent. If, as Mr. Roman represents, there is nothing owed, than this is a simple matter of producing supporting evidence. 23. The damages, fees, legal fees, loss of business and opportunity and other damages to be proven at trial cannot be determined at this time, but are estimated to be in the hundreds of thousands of dollars. 24. Such damages are a direct and proximate cause of the breach by defendants, which were foreseeable and not the fault of the plaintiff. AS AND FOR A FIRST CAUSE OF ACTION AGAINST DEFENDANTS 25. Plaintiff repeats and realleges paragraphs (1) through twenty-four (24) above as if fully stated herein. 26. Defendants and Plaintiff have entered into valid, binding contract for management services and consulting services and a valid, binding agreement to purchase the membership interest of Plaintiff, with a subsequent condition of additional payment after the sale based on certain benchmarks (Exhibit A ). 27. Plaintiff has complied with its responsibilities under said contract, by selling and transferring his interest pursuant to the Agreement and receiving the funds for same. 28. The Plaintiff reasonably relied on the promises made by the defendants in said 8 of 14

9 Agreement that additional money would be paid upon certain benchmarks and other occurrences, and also reasonably relied, to his detriment, upon the information and documents provided to him regarding the valuation of the interest that he sold to defendants. 29. Based on the reliance on said promises, Plaintiff forewent seeking other buyers or retaining the interest for himself, to his detriment. 30. Such Agreement is ongoing and continuous and has not been modified. 31. Defendants breached such agreement without cause and have not exercised the requisite good faith and fair dealing inherent in the aforementioned agreement. 32. Defendants materially and intentionally breached the Agreement with Plaintiff by failing to pay Plaintiff the additional sums owed pursuant to the contract (or by showing proof that no such additional sums are due, necessitating the commencement of this action). 33. As a direct and proximate cause of the breach by the Defendants and its agents, the Plaintiff has suffered irreparable damages, including but not limited to pecuniary loss and the loss of opportunities to make substantial profits from the contract. AS AND FOR A SECOND CAUSE OF ACTION 34. Plaintiff repeats and realleges paragraphs one (1) through thirty-three (33) above as if fully stated herein. 35. As a result of the breach, the plaintiff has been irreparably harmed by the actions of the defendants, which caused substantial damages, in an amount to be proven at trial. The Plaintiff substantially performed its obligations, which benefits were accepted by the Defendants. 36. Defendants have further been unjustly enriched at the expense of the Plaintiff, by wrongfully reaping benefits and revenues belonging to the Plaintiff, and improperly providing false documents to induce the sale at a low valuation, with a false promise to pay additional sums in the future. 9 of 14

10 37. Defendants have wrongfully reaped substantial benefits at the expense of the Plaintiff. The unjust enrichment is at the expense of the Plaintiff in an amount to be proven at trial but not less than $150, Equity and good conscience demand that the money defendants have been unjustly enriched with be paid to the Plaintiff, with interest and costs and fees of this action. AS AND FOR A THIRD CAUSE OF ACTION 39. Plaintiffs allege numbers one (1) through thirty-eight (38) above as if fully set forth herein. 40. In seeking to profit from the plaintiff, the defendants intentionally and fraudulently misrepresented to the Plaintiff that it would compensate him adequately based on specific benchmarks and numbers. This is outlined specifically in the contract. 41. This was fraudulent misrepresentation by Defendants, done intentionally and solely in order to induce the Plaintiff to enter into the agreement. 42. Defendants knew or should have known that such misrepresentation would be relied upon by Plaintiff, solely for the personal and pecuniary gain of Defendants and such was specifically added to the contract because Plaintiff demanded the inclusion of this language before he would sign. 43. However, such reasonable reliance on the misrepresentation and fraud was at the expense of the Plaintiff, who suffered actual pecuniary harm, including the costs and fees of this action in an amount to be proven at trial, but estimated to be over $150, As a result, the Plaintiff is entitled to damages, including punitive damages, for the bad faith misrepresentations and fraudulent inducements on the part of the defendants. AS AND FOR A FOURTH CAUSE OF ACTION 45. Plaintiff realleges numbers one (1) through forty-four (44) above as if herein fully 10 of 14

11 stated. 46. The terms of the contract and termination agreement are clear and unambiguous as to the terms and conditions agreed to and required to be performed by Defendants. 47. Plaintiff is now forced to bring this action in order to first determine if the valuation was fraudulent or improper; to get information and documents regarding the last 12 months to determine if he is entitled to recover such sums that were improperly kept by Defendants, who has refused to provide such to Plaintiff; and has otherwise refused to act in good faith. 48. Therefore, the Plaintiff demands judgment against Defendants for all costs, fees and expenses of this action, which was necessitated by Defendants bad faith actions in failing to properly, adequately, and legally adhere to the agreement made with the Plaintiff. AS AND FOR A FIFTH CAUSE OF ACTION 49. Plaintiff reiterates numbers one (1) through forty-eight (48) as if fully reinstated herein. 50. Defendants fraudulently induced Plaintiff into signing and agreeing to sell valuable interest in BLUESTONE and in the IP of BLUESTONE when he did not have to sell same, and made continuing promises to pay on the account upon certain events occurring but has failed to do so. 51. Defendants induced the purchase by providing false and incomplete and inaccurate information about the company and its valuation, which Plaintiff reasonably relied upon and could not independently verify. 52. Such failure is willful and intentional by Defendants, and the failure to pay is a material default, which is substantial, fundamental and strongly tends to defeat the object of the parties in making the contract 53. Plaintiff demands a rescission of the termination agreement as a result of this 11 of 14

12 material and intentional default, and seeks to have the Court restore the parties to the positions they maintained prior to the contract being signed. 12 of 14

13 DEMAND FOR RELIEF WHEREFORE, Plaintiff, respectfully demands judgment from this Court in its favor against Defendants as follows: Awarding Plaintiff judgment in an amount to be proven at trial; An accounting of all books, records and financials for the period of to determine additional monies owed; and an accounting of to determine if there was fraudulent or incomplete information provided; Actual, compensatory, expectation, punitive and any and all other damages available by law in an amount to be determined at trial, with interest, at the maximum amount permitted by law; Awarding Plaintiff its costs and disbursements in prosecuting this action to the extent permitted by law; Awarding Plaintiff such other and further relief to which it may be entitled. Dated: February 2, 2017 New York, New York /s KEVIN SEAN O DONOGHUE O Donoghue PLLC Attorney for the Plaintiff 250 Canal Street, Suite 2A New York, NY kodesq@gmail.com 13 of 14

14 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X PAUL KRUG, v. Plaintiff, NICHOLAS J. STONE and JONATHAN KRIEGER, Individually, and BLUESTONE LANE MANAGEMENT LLC Defendants X SUMMONS AND VERIFIED COMPLAINT O Donoghue PLLC Attorney for the Plaintiff 250 Canal Street, Suite 2A New York, NY kodesq@gmail.com CERTIFICATION PURSUANT TO 22 N.Y.C.R.R a KEVIN SEAN O DONOGHUE hereby certifies that, pursuant to 22 N.Y.C.R.R a, the foregoing Summons and Complaint is not frivolous nor frivolously presented. Dated: February 2, 2017 New York, New York /s KEVIN SEAN O DONOGHUE, Esq. PLEASE TAKE NOTICE * that the within is a true copy of a entered in the office of the clerk of the within named Court on. * that a of which the within is a true copy will be presented for settlement to the Hon. one of the judges of the within named Court at, on at 9:30 a.m. 14 of 14