Jim Shaub, majority owner of SouthEast Waffles LLC, and Becky Sullivan, longtime chief financial officer of the company, both responded today to the lawsuit filed against them in June by SunTrust Bank.
Each claimed the other was responsible for the financial irregularities that sent the restaurant chain spiraling into bankruptcy almost a year ago.
Although formal answers to legal complaints usually provide little detail about how the accused plan to defend themselves, these filings are exceptions. Shaub's answer is at this link, Sullivan's at this one.
The bank has accused the two defendants of taking part in a $3.7 million check-kiting scheme before SouthEast Waffles filed for Chapter 11 protection in August of last year. Sullivan allegedly floated worthless company checks back and forth between SunTrust and Nashville's FirstBank from late June to August of 2008, working in concert with Shaub.
The lawsuit also faults Shaub for using company cash to fund his family's "lavish personal expenses," including maintaining his Belle Meade Boulevard home, with its "swimming pool and other luxuries," and covering private school tuition and charity contributions.
Shaub's reply says such allegations "should be stricken for containing immaterial, impertinent or scandalous material." It says he is "unable to respond to the allegations about 'luxuries' because that term is vague and not defined."
Addressing the bank's charge that Shaub and his wife gave bills from their personal expenses to a SouthEast Waffles employee, Dianna Bischoff, and had her pay them from company funds, the answer states: "Mr. Shaub admits that Ms. Bischoff on occasion was provided personal bills related to his family’s living expenses." But it goes on to deny the claim that company funds covered the payments.
Shaub argues that SunTrust "has violated the Bankruptcy Code’s automatic stay by bringing claims which, if they are valid at all (which Mr. Shaub denies), belong to SouthEast Waffles, not SunTrust." He says that to the extent that SunTrust suffered damages, they are "in whole or in part the result of the conduct of Ms. Sullivan" and were worsened by the bank’s failure to detect the check-kiting scheme.
Sullivan, in her answer, goes into less detail but concludes by stating:
"All actions taken by defendant Sullivan were at the direction of her superior, defendant James L. Shaub II, and defendant Sullivan did not benefit in any way from the conduct alleged....
"Any loss caused to Suntrust Bank was brought about by defendant Shaub over whom defendant Sullivan had no control and for which she is not liable."
Webb Campbell and Michael Abelow of Sherrard & Roe filed Shaub's reply. David Raybin of Hollins Wagster Weatherly & Raybin, who spoke on Shaub's behalf at the time SunTrust filed suit, has not made an appearance in the case.
Peter Strianse of Tune, Entrekin & White is representing Sullivan.