Preview
FILED: NEW YORK COUNTY CLERK 10/27/2023 11:06 PM INDEX NO. 160556/2023
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 10/27/2023
SUPREME COURT OF THE STATE OF NEW YORK
NEW YORK COUNTY
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EIA INC.; ELECTRONIC INTERFACE ASSOCIATES,
INC.; EIA DATACOM, INC.; EIA ELECTRIC, INC.;
GEORGE ENGEL LIC, LLC; GEORGE ENGEL; INDEX NO.:
YOLANDA V. DEL PRADO; MATTHEW ORENT;
and ALEXANDRA ENGEL,
Plaintiffs, SUMMONS
-against-
MANDELBAUM BARRET PC; JEFFREY
ROSENTHAL; WILLIAM BARRETT; and
RICHARD SIMON,
Defendants.
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TO THE ABOVE-NAMED DEFENDANTS:
YOU ARE HEREBY SUMMONED, to answer the Verified Complaint in this action and
to serve a copy of your answer to the Verified Complaint on Plaintiffs’ attorney within twenty (20)
days after the service of this Summons, exclusive of the day of service, or within thirty (30) days
after the completion of service, if service is made in any manner other than personal delivery within
the State of New York.
YOU ARE HEREBY NOTIFIED THAT, should you fail to appear or answer, a
judgment will be entered against you by default for the relief demanded in the Verified Complaint.
The basis of venue is pursuant to CPLR 503(a) venue based on residence.
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Dated: New York, New York
October 27, 2023
Respectfully submitted,
Obermayer Rebmann Maxwell & Hippel, LLP
By:/s/ Ana Montoya, Esq.
Ana Montoya, Esq.
Attorneys for Plaintiff
60 East 42nd Street, 40th Floor
New York, New York 10165
(917) 994-2552
ana.montoya@obermayer.com
TO: MANDELBAUM BARRET PC
570 LEXINGTON AVENUE
NEW YORK, NY 10022
and
3 BECKER FARM ROAD, SUITE, 105
ROSELAND, NJ 07068
JEFFREY ROSENTHAL
32 TOCCI AVE
MONMOUTH BEACH, NJ 07750
WILLIAM BARRETT
34 HILLCREST RD
MOUNTAIN LAKES, NJ 07046
RICHARD SIMON
8 DAVEY DR,
WEST ORANGE, NJ, 07052
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SUPREME COURT OF THE STATE OF NEW YORK
NEW YORK COUNTY
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EIA INC.; ELECTRONIC INTERFACE ASSOCIATES,
INC.; EIA DATACOM, INC.; EIA ELECTRIC, INC.;
GEORGE ENGEL LIC, LLC; GEORGE ENGEL;
YOLANDA V. DEL PRADO; MATTHEW ORENT; INDEX NO.:
and ALEXANDRA ENGEL,
Plaintiffs,
VERIFIED COMPLAINT
- against -
MANDELBAUM BARRETT PC; JEFFREY
ROSENTHAL; WILLIAM BARRETT; and
RICHARD SIMON,
Defendants.
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Plaintiffs EIA Inc. (“EIA”), Electronic Interface Associates, Inc. (“Electronic Interface”),
EIA Datacom, Inc. (“EIA Datacom”), EIA Electric, Inc. (“EIA Electric”) (EIA, Electronic
Interface, EIA Datacom, and EIA Electric collectively “Borrowers”), George Engel LIC, LLC
(“Engel LIC, LLC”), George Engel (“George”), Yolanda V. del Prado (“Yolanda”), Matthew
Orent (“Matthew”), Alexandra Engel (“Alexandra”) (George, Yolanda, Matthew and Alexandra
collectively “Individual Guarantors”) (Individual Guarantors and Engel LIC, LLC collectively
“Guarantors”), by and through their attorneys, Obermayer Rebmann Maxwell & Hippel LLP, for
their Verified Complaint against Defendants Mandelbaum Barrett PC, previously known as
Mandelbaum Salsburg, P.C., (together “Mandelbaum”), Jeffrey Rosenthal (“Rosenthal”), William
Barrett (“Barrett”) and Richard Simon (“Simon”) (collectively “Defendants”) hereby allege as
follows:
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NATURE OF THE ACTION
1. These claims arise out of Defendants’ failure to exercise the ordinary reasonable
skill and knowledge commonly possessed by a member of the legal profession.
2. Defendants’ deviation from the standard of care proximately caused Plaintiffs to
suffer actual and ascertainable damages.
3. Defendants initiated and orchestrated a deal to the advantage of their favored
clients, White Oak Commercial Finance, LLC and/or White Oak Business Capital, Inc.
(collectively “White Oak”), and to the detriment of their other longstanding clients, the Borrowers.
4. White Oak took complete control over the Borrowers’ business and duped the
Borrowers and the Guarantors into believing that White Oak intended to continue providing
financing to ease the Borrowers’ cashflow problem as a quid pro quo for additional security and
collateral. The truth is that White Oak never intended to provide the necessary funding to maintain
the Borrowers as a going concern, and instead intended to terminate its lending relationship with
the Borrowers as soon as White Oak could swindle Guarantors into furnishing additional collateral
and guarantees. White Oak defrauded the Borrowers and Guarantors into believing that it would
forbear exercising default remedies under the contract and continue to finance the Borrowers’
cashflow needs, so that White Oak could induce the Guarantors to pledge additional collateral to
guarantee advances from White Oak, and dominate the day-to-day and strategic decision making
of the Borrowers, all to advance White Oak’s position and to impair the ability of the Borrowers
to continue as a going concern and to the detriment of the Borrowers’ employees, shareholders,
clients and creditors.
5. White Oak’s swindle of the Borrowers and Guarantors was aided and abetted by
the actions of Defendants. Due to Defendants’ concurrent representation of both the Borrowers
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and White Oak, Defendants had an unwaivable (or ineffectively waived) conflict of interest that
led it to act in the best interests of White Oak and contrary to the best interests of the Borrowers.
Defendants’ failure to act with competence and proper care in its representation of the Borrowers
facilitated White Oak’s complete domination of the Borrowers’ business activities, the pledging
of an additional guaranty and collateral, and the demise of the Borrowers as a going concern.
6. Defendants’ breach of its duties were negligent, grossly negligent, and/or
fraudulent in that Defendants deceived Plaintiffs into believing that Defendants would be at all
times acting in Plaintiffs’ best interest when, in actuality, Defendants at times relevant was
colluding with White Oak to Plaintiffs’ detriment.
7. White Oak’s bad faith and breach of fiduciary duties, aided and abetted by
Defendants, caused the Borrowers immense harm, the destruction of a vibrant and profitable
business, the loss of over $150 million in contracts and awards that the Borrowers were unable to
perform, damages arising out of the Borrowers’ inability to complete their obligations under the
remainder of their contracts, personal exposure of the Guarantors to damages claims, and the
fraudulent inducement of guarantees and valuable collateral, administrative expenses, and
exposure to punitive damages, attorneys’ fees, and more.
8. Mandelbaum’s violation of its duty of loyalty does not end with the Borrowers.
Mandelbaum has also refused to return $260,000 that it is holding in escrow for the benefit of
Engel LIC, LLC in an attempt to (a) coerce payment of legal expenses allegedly owed by the
Borrowers and (b) maintain a source of funds for Mandelbaum’s other client, White Oak, to
recover.
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THE PARTIES
9. EIA is a Delaware corporation that, while in business until December 2022, had its
principal place of business at 31-00 47th Avenue, Suite 5100, Long Island City, New York 11101.
It was engaged in the business of electrical and energy design, construction, maintenance and
service.
10. Electronic Interface is a New York corporation that, while in business until
December 2022, had its principal place of business at 31-00 47th Avenue, Suite 5100, Long Island
City, New York 11101. It was engaged in the business of electrical and energy design,
construction, maintenance, and service.
11. EIA Datacom is a Delaware corporation that, while in business until December
2022, had its principal place of business at 31-00 47th Avenue, Suite 5100, Long Island City, New
York 11101. It was engaged in the business of electrical and energy design, construction,
maintenance, and service.
12. EIA Electric is a New York corporation that, while in business until December
2022, had its principal place of business at 31-00 47th Avenue, Suite 5100, Long Island City, New
York 11101. It was engaged in the business of electrical and energy design, construction,
maintenance, and service.
13. Engel LIC, LLC is a New York limited liability company having a principal place
of business in the State of New York. At all relevant times, George Engel is and was the sole
member of Engel LIC, LLC.
14. George is an individual who is a resident of the State of New York. At all relevant
times, George was a director and/or officer of the Borrowers.
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15. Yolanda is an individual who is a resident of New Jersey. At all relevant times,
Yolanda was a director and/or officer of the Borrowers.
16. Matthew is an individual who is a resident of the State of New York. At all relevant
times, Matthew was a director and/or officer of the Borrowers.
17. Alexandra is an individual who is a resident of the State of South Carolina. At all
relevant times, Alexandra was a director and/or officer of the Borrowers.
18. Mandelbaum is a New Jersey Professional Association, practicing law in the State
of New York, with a place of business at 570 Lexington Avenue, New York, New York 10022.
19. Rosenthal is an individual who, upon information and belief, is a resident of the
State of New Jersey. At all relevant times, Rosenthal was a partner at Mandelbaum.
20. Barrett and Simon are individuals who, upon information and belief, are residents
of the State of New Jersey. At all relevant times, Barrett and Simon were partners at Mandelbaum.
JURISDICTION AND VENUE
21. This Court has personal jurisdiction over Mandelbaum because it regularly
conducts business in the State of New York.
22. This Court has personal jurisdiction over Rosenthal, Barrett, and Simon because
they are admitted to and practice law in the State of New York.
23. Venue in this county is proper under CPLR 503 based on residence.
FACTUAL ALLEGATIONS
A. Rosenthal Introduces the Borrowers to His Client, White Oak,
After the Borrowers’ White Oak-Affiliated Lender Pulls Funding
24. Upon information and belief, in March 2018 White Oak Global Advisors, LLC
(“Global Advisors”) partnered with C2FO, a business that specializes in providing working capital
solutions to businesses, and formed WO-C2FO SPV, LLC.
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25. On or about July 23, 2018, WO-C2FO SPV, LLC entered into a Loan and Security
Agreement with the Borrowers, providing the Borrowers with a $10 million revolving line of credit
with a 24-month term.
26. In or about July 2020, C2FO informed the Borrowers that it would be unable to
renew their agreement with the Borrowers, as its relationship with Global Advisors was ending.
27. To provide the Borrowers with time to obtain other funding, on July 28, 2020, WO-
C2FO SPV, LLC entered into a Second Amendment to the Loan and Security Agreement with the
Borrowers, extending the original agreement by 90 days from the date of execution.
28. Beginning in or about 2006, the Borrowers retained Mandelbaum as their general
counsel, to provide legal advice regarding various corporate matters.
29. Upon information and belief, Rosenthal is the Chair of Mandelbaum’s Bankruptcy
and Creditors Rights Practice and he possesses Juris Doctor and Masters of Business
Administration degrees and is a Certified Public Accountant.
30. Rosenthal has provided legal advice to the Borrowers concerning their lending and
financing needs and managing their relationship with creditors, since at least as early as 2018.
31. Upon information and belief, at all relevant times Mandelbaum was simultaneously
engaged by White Oak to provide it with legal advice regarding various corporate matters and/or
litigation services.
32. During the course of its representation of White Oak, Mandelbaum was provided
White Oak’s preferred form of a revolving credit and security agreement, the terms of which were
skewed to the benefit of White Oak, and to the detriment of the Borrowers and Guarantors.
33. When WO-C2FO SPV, LLC pulled its funding, Rosenthal introduced the
Borrowers to his other client, C2FO’s partner, White Oak.
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B. On Behalf of the Borrowers & Guarantors, Mandelbaum Negotiates the
Credit Agreement & Guarantees with His Other Client, White Oak
34. Following Rosenthal’s introduction, the Borrowers and White Oak negotiated a
Letter of Intent as a precursor to the Credit Agreement. In furtherance of that goal, Mandelbaum
represented the Borrowers in those negotiations.
35. Unbeknownst to the Borrowers, as early as August 2020, in breach of its duty of
loyalty, Mandelbaum was also providing legal advice to White Oak concerning documentation the
Borrowers had provided to White Oak as part of due diligence.
36. On September 28, 2020, Yolanda sent Rosenthal White Oak’s proposed Letter of
Intent with Borrowers and asked him to review and provide his counsel.
37. On or before October 5, 2020, Rosenthal provided the Borrowers with his legal
advice regarding the Letter of Intent.
38. By way of a letter dated October 8, 2020, addressed only to White Oak Business
Capital, Inc., Mandelbaum disclosed that the Borrowers had asked Mandelbaum to represent it “to
negotiate the loan documents and assist it in the closing of the transaction.” The letter informed
White Oak that it “has previously represented and may in the future represent White Oak with
regard to matters totally unrelated to the [Credit Agreement].”
39. Mandelbaum did not identify the “matters totally unrelated to the [Credit
Agreement]”, nor did the October 8, 2020 letter purport to seek a waiver of any conflicts related
to matters that may arise after the “closing of the transaction.”
C. The Credit Agreement & Guarantees
40. To prepare the Credit Agreement and Guarantees, Rosenthal used as a template,
White Oak’s preferred draft that he had been provided as part of his prior and ongoing
representation of White Oak. In doing so, Rosenthal proposed terms and conditions that were
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onerous to the Borrowers and Guarantors and were skewed to favor White Oak. Rosenthal failed
to adequately protect the interests of the Borrowers and Guarantors.
41. On October 15, 2020, Rosenthal sent the redlined Credit Agreement to White Oak
to make sure they were “ok with these changes to the form.” Therein, Rosenthal admitted that the
bulk of his changes “are clean up (underline, typos, eliminating names or dates that somehow got
put in the form and we never took them out).” Rosenthal did not seek the Borrowers’ input before
sending this draft to White Oak.
42. On October 27, 2020, Rosenthal sent further redlined agreements to attorneys at
Hahn & Hessen, LLP therein noting that the drafts began as “documents we used for prior WOBC
matters.”
43. Minutes later on October 27, 2020, Rosenthal advised the Borrowers that no
conflict waiver was needed because “[White Oak has] decided to hire outside counsel[.]”
However, this assertion ignores the fact that Mandelbaum had previously represented White Oak
with regard to similar lending agreements and that it continued to represent White Oak, at that
time, on allegedly unrelated matters. In fact, Rosenthal described White Oak to his partner as a
“significant client.” More egregiously, this assertion also ignores that Mandelbaum adopted White
Oak’s preferred form of the agreements, despite the fact that the terms were extremely favorable
to White Oak and overly burdensome to Borrowers and Guarantors.
44. The Borrowers and White Oak executed the Credit Agreement on November 12,
2020, which was supported by individual guarantees from the Guarantors and non-party David
Engel.
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D. The Borrowers Meet with Mandelbaum for Advice
Pertaining to Difficulties they were Experiencing with White Oak
45. Even though the prior conflict of interest waiver (assuming it was ever executed)
only permitted Mandelbaum to represent the Borrowers in the negotiation and closing of the loan
documents, Mandelbaum continued to represent the Borrowers in all aspects of its business,
including its relationship with White Oak. Mandelbaum never sought a subsequent conflict of
interest waiver from the Borrowers.
46. On or about August 25, 2022, Yolanda and Matthew met with two Mandelbaum
attorneys, Barrett and Simon, at Mandelbaum’s New Jersey office to discuss options regarding the
Borrowers’ cashflow problems and White Oak’s refusal to provide the funding that the Borrowers
required.
47. During this meeting, Yolanda and Matthew explained the Borrowers’ cashflow
needs, as well as the timeline of when they expected the Borrowers might exceed the Credit Limit
and default on the Credit Agreement unless something was done to avoid that possibility. In
particular, they explained that the COVID-19 pandemic slowed work, as well as payment by the
Borrowers’ clients, especially the government; frequently resulting in Accounts Receivables
exceeding 120 days and thus becoming ineligible to be included in the Borrowing Base, as set
forth in White Oak’s preferred form of Credit Agreement that Mandelbaum counseled the
Borrowers to execute.
48. Yolanda and Matthew also told the Mandelbaum attorneys that White Oak had
rebuffed the Borrowers’ efforts to modify their financial relationship in an effort to avoid a possible
default. Mandelbaum was told that White Oak refused multiple requests from the Borrowers to
increase the credit facility, provide a term loan, and/or enlarge the duration of the Accounts
Receivables.
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49. Concerned about the Borrowers’ financial position and the possibility that, if
something did not change, the Borrowers might default on the Credit Agreement, Yolanda and
Matthew asked the Mandelbaum attorneys whether the Borrowers should seek bankruptcy
protection. The Mandelbaum attorneys abruptly rejected the Borrowers’ request for advice
regarding financial restructuring under the bankruptcy laws and instead, assured the Borrowers
that Mandelbaum’s strong relationship with White Oak would help the Borrowers navigate their
financial predicament despite the fact that White Oak had already rejected everything the
Borrowers had requested to avoid a default – a larger credit facility, term loan, and/or enlarged
duration of eligible Accounts Receivables.
50. Upon information and belief, Mandelbaum persuaded the Borrowers not to pursue
bankruptcy because it would benefit White Oak, not because it was in the Borrowers’ best interest.
51. At this point in time, if not earlier, there could be no doubt that White Oak and the
Borrowers were in a conflict position; nonetheless, Mandelbaum continued to represent both
parties.
52. The Mandelbaum attorneys recommended that the Borrowers hire a financial
advisor to help them navigate their cash flow issues. Specifically, Mandelbaum recommended that
the Borrowers hire Traxi LLC (“Traxi”). Similar to how the Mandelbaum attorneys spoke of their
strong relationship with White Oak, they touted how well they knew Traxi and how they had
worked with them for years.
53. Based on Mandelbaum’s insistent recommendation, the Borrowers retained Traxi.
Unbeknownst to the Borrowers, Traxi’s expertise was, upon information and belief, in liquidating
failed businesses, a fact undoubtedly known by Mandelbaum, given their years of working
together.
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54. At no time during the meeting, did the Mandelbaum attorneys explain to the
Borrowers the consequences of what might happen if the Borrowers defaulted under the Credit
Agreement.
55. At no time, did any of the Mandelbaum attorneys provide the Borrowers with a
verbal or written assessment of the possibility of filing for bankruptcy or any strategy or
suggestions regarding how to proceed, other than to insist that they should rely on the strength of
Mandelbaum’s relationship with White Oak.
E. White Oak Issues a Reservation of Rights Letter
56. On September 16, 2022, White Oak issued a Reservation of Rights Letter to the
Borrowers. The letter alleged three Events of Default: (1) an alleged overadvance arising from a
$1.7 million write down; (2) EIA’s failure to deliver a projected operating budget for fiscal year
2023; and (3) EIA’s failure to deliver financial statements for the month of July 2022.
57. Despite the clear, unwaivable conflict of interest between White Oak and the
Borrowers, created by the issuance of the Reservation of Rights Letter, Mandelbaum did not
withdraw from its representation of the Borrowers and continued representing the Borrowers
concurrently with its representation of White Oak.
F. White Oak Continually Changes the Rules to Ensure the Borrowers Cannot Avoid
Default and Takes Complete Control of the Borrowers’ Operations
58. After it’s Reservation of Rights Letter, White Oak implemented multiple rule
changes to its sole benefit and to the detriment of the Borrowers. Upon information and belief,
these changes were intended to cause the Borrowers to exceed the Credit Limit.
59. After the issuance of the Reservation of Rights Letter, White Oak, with the help of
Mandelbaum, also took complete control of the Borrowers’ operations to optimize its short-term
interests at the expense of the Borrowers’ long-term survival.
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60. White Oak’s domination of the Borrowers’ time became so egregious that they
sought Mandelbaum’s intervention because compliance with White Oak’s demands left them with
insufficient time to effectively run the Borrowers’ businesses. Mandelbaum’s response was to tell
the Borrowers to give White Oak whatever it wanted so that it would “take it easy” on them, advice
that favored White Oak’s interests at the expense of the Borrowers’ interests. In fact, Rosenthal
conveyed an ominous warning that if the Borrowers did not acquiesce to White Oak’s whims, it
would resort to “scorched earth” tactics. This advice, along with other events, led the Borrowers
to question whether Mandelbaum was acting in the Borrowers’ best interests.
61. Indeed, at one point, the Borrowers became so concerned with Mandelbaum’s
advice favoring the interests of White Oak over those of the Borrowers, that the Borrowers sought
to replace Mandelbaum. White Oak refused to provide funding for the Borrowers to retain legal
counsel unconnected to White Oak. Instead, White Oak was only willing to continue funding the
representation by Mandelbaum, which, upon information and belief, would ensure that White Oak
maintained an additional measure of control over the Borrowers, by preventing Borrowers from
obtaining advice from counsel that was independent of White Oak.
62. In or around the end of October 2022, Traxi resigned. Rather than hiring a new
financial advisor, White Oak demanded that the Borrowers replace Traxi with a Chief
Restructuring Officer (“CRO”).
63. This demand was conveyed to the Borrowers through Rosenthal, who, at every step
of the way following the Reservation of Rights Letter, advised the Borrowers to acquiesce to White
Oak’s demands. At every turn Mandelbaum encouraged the Borrowers to “go along” with White
Oak’s myopic and self-serving focus on billing and collection rather than long-term sustainability
that was necessary for the Borrowers to survive as a going concern.
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G. White Oak Demands Additional Collateral
64. After the issuance of the Reservation of Rights Letter, White Oak demanded
additional collateral.
65. On or about September 6, 2022, George signed a letter committing to pledge real
property located at 1840 N. Ausable Street, Keeseville, NY 12944, used to operate a Dollar
General, valued at $1,500,000 to provide collateral for additional White Oak financing.
66. In or about mid-September 2022, White Oak insisted that George formalize his
prior commitment by way of a Pledge Agreement and that the officers provide even more
collateral.
67. The Borrowers were advised by Mandelbaum to provide White Oak with additional
collateral, even though it put White Oak in a position to immediately foreclose upon the additional
collateral and cease funding the Borrowers.
68. Engel LIC, LLC pledged a mortgage in the amount of $700,000 on real property
located in the Town of Ausable, Village of Keeseville, County of Clinton, State of New York.
69. George and Sofia pledged real property located at 133 Arrow Road, #349, Hilton
Head Island, South Carolina 29928.
70. Yolanda pledged a mortgage in the amount of $200,000 on real property located in
Hudson County, New Jersey.
71. Matthew opened a Brokerage Account into which approximately $200,000 in
mutual funds were deposited and he pledged the Brokerage Account as collateral.
72. Engel LIC, LLC, Matthew, Yolanda, George, and Sofia (“Pledgors”) provided this
additional collateral, in exchange for White Oak’s promise to forbear exercising default remedies.
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73. To memorialize these pledges of additional collateral, written mortgages and
pledge agreements were prepared.
74. Drafts of the mortgages and pledge agreements were exchanged between the parties
and their counsel for revisions.
75. Included within the drafts was a corporate guaranty to be provided by Engel LIC,
LLC (“Corporate Guaranty”). At no time had anyone asked Engel LIC, LLC to provide the
Corporate Guaranty, nor had George agreed to provide a Corporate Guaranty. At no time was a
draft or final version of the Corporate Guaranty ever provided to Engel LIC, LLC or George.
76. On October 3, 2022, while the documents were still being edited and before they
had been finalized, Rosenthal sent Matthew and Yolanda signature pages of Pledge Agreements
and Mortgages relating to the additional collateral required by White Oak and demanded that they
be signed immediately, despite the fact that the terms of those agreements were not provided to
the Pledgors. Upon the advice and instruction of Rosenthal, Matthew, Yolanda and George signed
the signature pages without the final agreements and without any referenced exhibits.
77. Because he was required to sign the signature pages without the actual agreements,
George did not know that Mandelbaum and White Oak intended to attach his signature page to a
Corporate Guaranty.
H. Rosenthal & Mandelbaum Violate Attorney-Client Privilege
to Aid Their Other Client, White Oak
78. Mandelbaum’s continuous advocacy for actions that were in White Oak’s best
interests and contrary to the Borrowers’ best interest caused the Borrowers to question who
Mandelbaum truly served. This suspicion was confirmed when Rosenthal and Mandelbaum
violated the attorney-client privilege and breached their duty to preserve confidences and secrets
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of clients by relaying confidential information to White Oak, resulting in dire consequences for
the Borrowers.
79. On December 12, 2022, White Oak gave the Borrowers, through Rosenthal, a
demand letter, requiring payment of the entire amount outstanding under the Credit Agreement by
10:00 AM on December 14, 2022.
80. In response, on the morning of December 13, 2022, the Borrowers sought advice
from Rosenthal regarding the letter. During that call, they informed Rosenthal that the Borrowers
had approximately $500,000 in the Borrowers’ bank accounts. Rosenthal was asked whether the
Borrowers had to turn the money over to White Oak in response to its demand, as they instead
wanted to use the money to fund part of the Borrowers’ payroll. Rosenthal responded that the
Borrowers should give the money to White Oak. When the Borrowers raised the possibility of
personal liability for unpaid payroll, Rosenthal responded that he would seek input from his
partners at Mandelbaum and would get back to them.
81. Following that call, at 9:41 AM, Rosenthal emailed Steven Adler and Michael
Polychronis, two Mandelbaum attorneys, seeking input on whether the Borrowers should give the
money to White Oak or pay payroll. Therein, he acknowledged, that White Oak could sweep the
funds, “but today the company has control over the funds….”
82. Approximately one hour later, Rosenthal again spoke to Matthew and Yolanda. On
that call, Rosenthal admitted that he had revealed to White Oak’s counsel the information that had
been provided to him in confidence, that the Borrowers had $500,000 in their accounts. Rosenthal
relayed that White Oak’s counsel admitted that White Oak had no idea there was that much money
in the Borrowers’ accounts, and that White Oak wanted those funds as they believed the funds
belonged to them.
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83. Shortly after Rosenthal revealed to White Oak that the Borrowers had $500,000 in
cash available in their accounts, White Oak instructed Chase Bank that it was seeking to enforce
the Blocked Account Control Agreements related to the accounts containing the $500,000. As a
result, the Borrowers lost access to the half a million dollars that was in those accounts and could
not fund their payroll.
84. On December 22, 2022, White Oak began sweeping the contents of the Chase
accounts.
85. As a result of Rosenthal and Mandelbaum’s breach of their duty of loyalty to, and
disclosure of information provided to them in confidence by, the Borrowers, White Oak removed
the Borrowers’ access to the approximately $500,000 in their bank accounts, and the Borrowers
were unable to fund their payroll. This has proximately caused the filing of numerous wage and
hour lawsuits by the Borrowers’ employees against the Borrowers and their officers and owners.
86. As a result of Rosenthal and Mandelbaum’s breach of their duty of loyalty to, and
disclosure of information provided to them in confidence by, the Borrowers, the Surety paid
laborers on the Borrowers’ bonded jobs. This has resulted in alleged liability by the Borrowers
and the Guarantors to the Surety.
I. Damages Suffered by the Borrowers & Guarantors
as a Result of the Legal Malpractice
87. The Borrowers and Guarantors suffered significant harm as a result of Defendants’
malpractice.
88. By not disclosing that Mandelbaum had previously represented White Oak with
regard to similar lending agreements and by utilizing White Oak’s preferred draft documents
without the knowledge and consent of the Borrowers and Guarantors, Plaintiffs did not know that
they should be seeking advice from other, unbiased counsel.
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89. Rosenthal and Mandelbaum’s drafting of, and advice to accept, contracts with terms
and conditions that were skewed to White Oak’s benefit and to the detriment of the Borrowers and
Guarantors, allowed White Oak to repeatedly change the terms under which the credit was
extended, thereby artificially inflating the size of the loan and limiting the available credit needed
by the Borrowers to keep their businesses as a going concern.
90. Defendants’ concurrent representation of both White Oak and the Borrowers after
the Reservation of Rights, despite the unwaivable conflict of interest, deprived the Borrowers of
competent, unbiased legal advice regarding how to challenge White Oak’s conduct and keep their
business as a going concern.
91. Defendants’ failure to counsel the Borrowers about the consequences of what might
happen if the Borrowers defaulted under the Credit Agreement or the potential advantages of
bankruptcy, facilitated White Oak’s complete domination of the Borrowers’ business activities,
the pledging of an additional guaranty and collateral, and the demise of the Borrowers as a going
concern.
92. Rosenthal and Mandelbaum’s breach of their duty to preserve confidences and
client secrets by revealing to White Oak that the Borrowers had approximately $500,000 in the
Borrowers’ bank accounts, allowed White Oak to sweep the accounts, resulting in: (a) the
Borrowers being unable to fund their payroll, resulting in numerous wage and hour lawsuits against
the Borrowers and Guarantors; (b) the Borrowers firing employees with minimal notice; (c) the
Borrowers failing to pay workers on the bonded jobs, who were then paid by the Surety, thereby
exposing the Borrowers and Guarantors to liability to the Surety; and (d) checks that had already
been written being declined for insufficient funds, creating additional liability for the Borrowers.
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93. In addition to the foregoing, Defendants’ cumulative malpractice proximately
caused the complete destruction of the Borrowers as a going concern, including but not limited to:
a. The Borrowers were unable to complete their work on any pending projects. This
resulted in:
i. The lost ability to collect over $5 million in outstanding Accounts
Receivables;
ii. The inability to obtain approval for and/or issue invoices for completed,
unbilled work valued at almost $4 million;
iii. Work on bonded jobs being completed by the Surety; thereby exposing the
Borrowers and Guarantors to liability to the Surety; and
iv. Claims by customers. For example, the Borrowers were unable to complete
work on the Jamaica Armory project. Suffolk Construction Company, Inc.
asserts that it had to hire other contractors at higher costs and pay vendors,
resulting in a loss to Suffolk of over $2.5 million. As a result, Suffolk has
sent the Borrowers a demand letter and threatened to file litigation against
it.
b. The Borrowers were unable to pay vendors and subcontractors, resulting in
potential liability thereto.
c. The Borrowers were unable to perform the work and collect on contracts and
awards, totaling over $150 million.
d. The Borrowers were unable to pay their rent, were evicted from their headquarters
in Long Island City and the landlord alleges that the Borrowers and Guarantors owe
$609,956.99.
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e. Being evicted from its headquarters in Long Island City, the Borrowers were forced
to dispose at distressed prices, inventory and vehicles stored therein that had a book
value of over $600,000.
94. In addition to the Borrowers’ catastrophic losses which flow to the Guarantors, the
Guarantors have also suffered harm by virtue of losing their pledged collateral.
COUNT I – LEGAL MALPRACTICE
The Borrowers & Guarantors v. Defendants
95. Plaintiffs re-allege and incorporate by reference the allegations contained in the
paragraphs above as if fully set forth herein.
96. Defendants represented the Borrowers with regard to all aspects of their
relationship and dealings with White Oak, and the Guarantors with respect to the negotiation,
preparation and execution of the Guarantees.
97. Defendants owed a duty to represent the Borrowers with the degree of care, skill,
diligence and knowledge commonly exercised by a member of the legal profession in like
circumstances.
98. Defendants breached this duty, and deviated from the custom and practice of New
York lawyers of ordinary care and skill by:
a. Concurrently representing White Oak and the Borrowers, prior to the execution of
a limited conflict waiver, and providing White Oak with legal advice concerning
contracts the Borrowers provided to White Oak as a part of its due diligence;
b. Concurrently representing White Oak and the Borrowers, prior to the execution of
a limited conflict waiver, and providing