Lawsuits Pile Up In MapleWood Case

April proved a stormy month for those involved in the AMC Computer Corp. case. MapleWood Partners Founder and Managing Principal Robert Glaser became the defendant in a new lawsuit filed by Eugenia VI Venture Holdings.

The new complaint is the latest in a series of lawsuits that have grown out of the Florida buyout firm’s ill-fated investment in AMC Computer Corp. Eugenia asserts it was the victim of fraud, while Glaser says the latest lawsuit is a tactical maneuver meant to strengthen other lawsuits.

The complaint against Glaser was filed on April 18 with the United States District Court in the Southern District of New York and levels allegations of fraud against him. The suit accuses Glaser of securing fraudulent loans for AMC from Eugenia and seeks unspecified compensatory and punitive damages. The suit is the latest in a flurry of lawsuits that have come from MapleWood’s former portfolio company AMC, which defaulted on loans it received from Eugenia. The lawsuit says that AMC owes Eugenia approximately $7 million, according to their credit agreement.

In August 2000, MapleWood paid more than $100 million to acquire AMC, a New York-based supplier of high-end computer equipment, software and IT services. Financing for the deal was provided by GE Capital and Key Corporate Capital. The buyout was one of the fund’s earliest investments made near the final close of its MapleWood Equity Partners fund.

In fall 2002, a capital restructuring of AMC turned MapleWood from a majority shareholder to a minority shareholder in the company. The restructuring also led to a dispute over the appropriateness of loans to AMC from Eugenia and resulted in Eugenia filing lawsuits against members of both AMC and MapleWood’s management, including Glaser. Those cases are still pending.

The new suit claims that Glaser exercised control over the company and disregarded standard accounting and managerial practices and that he purposely withheld key information regarding the finances of AMC Computer. Among the complaint’s allegations are that Glaser concealed the details of a meeting between MapleWood and GE Capital in which GE expressed concern regarding AMC’s accounting practices. The suit also claims that he failed to disclose that AMC defaulted on its loan from GE and that Glaser knew and failed to report the results of a damning PricewaterhouseCoopers audit of the company.

Eugenia also claims in the suit that AMC was involved in “wide-reaching and extensive accounting fraud,” alleging the company sent false invoices for equipment that was not ordered and violated Generally Accepted Accounting Practices (GAAP) by billing for equipment before delivery and installation.

Glaser said that neither he nor any of MapleWood’s partners or employees acted irresponsibly in the AMC case and that whatever losses Eugenia suffered are due to its own failures to act reasonably. He says Eugenia’s losses are significantly smaller than MapleWood’s AMC losses and calls into question the number of separate lawsuits Eugenia has launched related to the investment.

Glaser said that as of April 24, neither he nor his attorneys were properly served with notices of the lawsuit though a copy of the complaint had been provided to Buyouts. He said he and his attorneys were provided a draft of the suit and told it would be filed if other lawsuits pertaining to the Eugenia/AMC matter were not settled to the plaintiff’s satisfaction.

“I refused to be blackmailed or intimidated,” said Glaser, who added that he has since filed countersuits against Eugenia charging defamation of character and tortuous interference.

“Eugenia is owed a lot of money and is pursuing those people who owe it,” said Mitchell Karlan, a partner with Gibson Dunn & Crutcher, who is representing Eugenia in the lawsuit. He denied that the lawsuit is a legal tactic and says it is based on information that came to light during the discovery process of the other lawsuits.

Karlan also represents MapleWood limited partner Casita in a separate but related lawsuit against the firm. Casita filed a complaint against MapleWood seeking to protect its investor rights after it missed a capital call (see Buyouts, Mar. 20, 2006). It alleges that the capital call is invalid because the funding would be used to defend MapleWood and its partners against other lawsuits in the AMC Computer matter.

The Casita case has stalled over a dispute involving Gibson Dunn & Crutcher and other attorneys representing the limited partner. The Casita attorneys were ordered removed from the case due to an alleged conflict of interest, although that order of removal has been stayed pending an appeal, which will get under way later this year. Further capital calls on Casita have been enjoined until these issues are resolved.

While legal observers watching the case generally believe that the case would most likely be settled out of court, Karlan was skeptical that any such resolution could be reached before matters went to trial. He says that the cases involving Eugenia, AMC and MapleWood would likely have a joint trial.

“It’s unfortunate to be in this litigation,” said Glaser. “This is not how I enjoy spending my time.” — M.S.