Ongoing multimillion-dollar disputes and allegations of fraud have heated up the legal action surrounding the business dealings of Joseph Blake Smith and the troubled SQRL convenience store chain he founded.
Meanwhile, bad behavior by attorneys in Little Rock bankruptcy court and allegations of cannibalistic threats in Palm Beach County Circuit Court have joined the multistate fray encompassing hundreds of stores.
While some creditors are trying to pull SQRL Holdings into involuntary bankruptcy, Cameron Properties Co. LLC of Charlotte, North Carolina, is pursuing a $101 million fraud suit in West Palm Beach against Smith.
Also named as defendants are Smith’s Arkansas-domiciled Standard Development Co. LLC along with Jamal Abdul Hizam and his Florida-domiciled Gas Hub Investment LLC.
The dispute revolves around a sale-leaseback of 31 convenience stores spread across four states: Florida, 15; Texas, 11; Arkansas, four; and Oklahoma, one.
According to its lawsuit, Cameron paid Standard Development more than $93 million for the properties and provided an additional $8.15 million for tenant improvements. In return, Smith’s SQRL Service Stations agreed to lease the stores for 20 years.
In its amended complaint filed June 25, Cameron alleged:
“Since the transaction closed, plaintiffs have learned that much of what Smith and Standard Development told them were lies.
“Although the full extent of the fraud has yet to be uncovered, plaintiffs have discovered that several of the properties are not free and clear of adverse claims and encumbrances as represented and that Smith absconded with the tenant improvement funds, leaving the subject properties in disrepair.”
Two of the Arkansas stores listed among Cameron’s holdings were built from the ground up by Little Rock’s Files Development LLC, led by Tim and Drew Files.
They maintain that they did not sell their C-store properties in Bryant and England to Cameron and that signatures were forged on deeds indicating otherwise.
According to its complaint, Cameron learned that some of the other 31 properties are encumbered by tax liens, mortgage liens and judgment liens. The lawsuit didn’t provide details about any of the other problematic projects.
Cameron claims it hasn’t received any monthly rent on the C-stores since April and alleges that Hizam and Gas Hub compounded the damage when they entered the picture after “Smith fled with the millions in stolen funds.”
Controversial Sale
On April 5, Hizam’s Gas Hub purportedly bought SQRL Service Stations LLC from Smith’s SQRL Holdings LLC.
On paper, Hizam replaced Smith as the controlling party in the role of tenant for all the leases of SQRL Service Stations held by Cameron and other landlords.
However, Cameron alleges the Gas Hub-SQRL Holdings transaction violates its lease agreements.
According to the complaint, the terms of the leases prohibit SQRL from assigning the lease or transferring any direct or indirect ownership of an interest in SQRL Service Stations without Cameron’s prior written consent.
Smith is relying on an indemnification clause in the SQRL Service Stations sales agreement with Gas Hub to shield him and SQRL Holdings from much of the new and lingering legal and financial exposure associated with the convenience store chain.
But if the ownership transfer of SQRL Service Stations shares is voided, Smith is on the firing line to answer for the company’s fiscal tailspin.
Cameron Property is suing Smith and Standard Development for fraud and fraudulent inducement and Hizam and Gas Hub for tortious interference with contract.
According to the lawsuit, Hizam has personally visited several properties, falsely told the stores’ operators that he owns the properties and demanded that the operators send all funds directly to him.
Hizam’s alleged wrongful actions include physically raiding C-store cash registers, directing store operators to pay him and redirecting credit card funds from SQRL stores to himself.
According to its complaint, Cameron hired a consultant who observed these activities by Hizam and Gas Hub:
“When the consultant confronted Hizam about his misdeeds, Hizam responded by threatening to rip out the consultant’s liver and eat it in front of him and break into the consultant’s home and kill him in his sleep.”
Hizam has made similar death threats to a representative of Cameron, according to the company’s complaint.
Attempts to contact Hizam and Smith were unsuccessful.
Involuntary Bankruptcy
Efforts to pull SQRL Holdings into an involuntary Chapter 7 bankruptcy that began in May continue although indications of settlements with three creditors recently have begun appearing on the court docket.
The trio listed breach of sales agreements totaling nearly $3.2 million: Gas Hub, the would-be buyer of SQRL Service Stations, $3 million; K&A Endeavors, led by Arsal Aziz, $61,518; and MT Everest, led by Pranaya Man Shrestha, $62,633.
Gas Hub’s claim is tied to its now-challenged takeover of the financially strapped SQRL Service Stations.
That controversial $17.4 million transaction was split between $3 million cash and a $14.4 million promissory note to SQRL Holdings. The 10-page membership purchase agreement entered the public record as part of the bankruptcy dispute.
During a recess at a June 12 hearing, heated words were exchanged in the courtroom between Gas Hub’s attorney Sidney Scheinberg of Dallas and SQRL Holdings’ attorney Clinton Lancaster of Little Rock.
The two were supposed to be discussing which available court dates would work for them to attend a three-day trial that later was set for July 29-31.
Separated by the defendant’s table, the two began conversation in hushed tones that eventually grew in volume.
The emotional elevation of the fussing prompted a nearby bailiff to call Scheinberg and Lancaster down a couple of times before his final words brought an end to the loud dialogue: “Gentlemen. Like I said. Stop it, now.”
Judge Bianca Rucker didn’t address the breach of courtroom decorum when she returned to finish up the proceeding, but she did before the start of the July 11 hearing.
Rucker called Scheinberg and Lancaster to the courtroom lectern and dressed them both down, saying their behavior generated concerns that verbal aggression would escalate into a physical altercation and an intervention by bailiffs.
“We have increased security in the courtroom today because of you,” Rucker said. “You’re both on notice if anything close to that happens again, they will take you into custody.”
Rucker outlined other contempt of court penalties that could be imposed in addition to taking them into temporary custody or a longer stay in confinement.
Those include suspension from practicing law and a fine of up to $10,000.
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