UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON DIVISION

IN RE: )

)

HDR FARMS INCORPORATED, ) Chapter 11

)

Debtor ) CASE NO. 20-50888-GRS

)

HDR FARMS INCORPORATED ) LIQUIDATING TRUST, )

)

Plaintiff ) A.P. No. _________________

) v. ) )

APPLIED BOTANICS LLC f/k/a )

XSI USA, LLC )

118 E. Main, Suite 200 ) Louisville, KY 40202 )

)

Serve: Dean Johnson ) 118 E. Main, Suite 200 ) Louisville, KY 40202 )

)

COZEN O’CONNOR )

1650 Market Street, Suite 2800 ) Philadelphia, PA 19103 )

)

Serve: Michael Heller, President )

1900 Market Street ) Philadelphia, PA 19103 )

)

KAWEL LAUBACH )

3018 Hilltop Court )

Prospect, KY 40059 )

)

DEAN JOHNSON )

865 Whitfield Lane ) Taylorsville, KY 40071 )

)

ANNETTE COX )

6700 Elmcroft Circle )

Louisville, KY 40241 )

)

TODD MERCER )

3703 Pennington Ln )

Louisville, KY 40207 )

)

APPLIED BIOLOGY LLC )

17780 Fitch )

Irvine, CA 92614 )

)

Serve: Andy Goren, President )

17780 Fitch ) Irvine, CA 92614 ) )

)

Defendants )

)

COMPLAINT

Comes the Plaintiff, HDR Farms Incorporated Liquidating Trust (“Trust” or “Plaintiff”), and for its complaint against Applied Botanics LLC f/k/a XSI USA, LLC (“XSI”), Cozen

O’Connor (“Cozen”), Kawel LauBach (“LauBach”), Dean Johnson (“Johnson”), Todd Mercer

(“Mercer”), Annette Cox (“Cox”), and Applied Biology LLC (“AB,” and collectively with XSI,

Cozen, LauBach, Johnson, Mercer, and Cox, the “Defendants”) respectfully states as follows:

PRELIMINARY STATEMENT

This is an action to recover certain transfers and damages from the Defendants caused by an elaborate scheme to plunder the assets of HDR Farms Incorporated (“HDR Farms” or

“Debtor”). HDR Farms was formed in 2018 and primarily funded by contributions totaling $2,107,500.00 from Class B shareholders. The Class B shareholders received promissory notes for repayment of the contributions made. Like most start-ups, Debtor faced cash flow challenges from its inception. Adding to the strained cash position were excessive salaries taken by the executive management team including LauBach whose salary was $162,500 per year. Near the end of 2019, with money running out and payments becoming due on the investor notes, LauBach plotted his exit in concert with Johnson, Mercer, AB, Cox, and Cozen. The Defendants formed XSI and

diverted Cox’s $2.5 million and Mercer’s $100,000.00 investments intended for HDR Farms to the new company.

The Trust is comprised of creditors, mostly the Class B shareholders, that were left holding claims against Debtor following the depletion of Debtor’s assets through mismanagement, deception, and exploitation. The Trust took assignment of all claims asserted herein pursuant to the Debtor’s confirmed chapter 11 plan of reorganization (the “Plan”).

PARTIES

Plaintiff is the Liquidating Trust created pursuant to Section 4.03 of the Plan confirmed in the chapter 11 bankruptcy case of the Debtor. Plaintiff is a trust comprised of the Debtor’s intangible assets, including without limitation the causes of action asserted herein, established for the benefit of holders of Allowed Unsecured Claims under the Plan.
Defendant XSI is a Delaware limited liability company with its principal place of business located at 118 E. Main Street, Suite 200, Louisville, Kentucky. XSI has transacted and continues to transact business in Kentucky. XSI is subject to the jurisdiction and venue of this Court.
Defendant Cozen is a Pennsylvania professional corporation with its principal place of business located at 1650 Market Street, Suite 2800, Philadelphia, Pennsylvania. Cozen has transacted and continues to transact business in Kentucky. Cozen is subject to the jurisdiction and venue of this Court.
Defendant LauBach is an individual residing at 3108 Hilltop Court, Prospect,

Kentucky 40059. LauBach is subject to the jurisdiction and venue of this Court.

Defendant Johnson is an individual who regularly conducts business from an office located at 865 Whitfield Lane, Taylorsville, Kentucky. Johnson is subject to the jurisdiction and venue of this Court.

Defendant Mercer is an individual residing at 3703 Pennington Lane, Louisville,

Kentucky. Mercer is subject to the jurisdiction and venue of this Court.

Defendant Cox is an individual residing at 6700 Elmcroft Circle, Louisville,

Kentucky. Cox is subject to the jurisdiction and venue of this Court.

Defendant AB is a California limited liability company with its principal place of business located at 17780 Fitch, Irvine, California. AB has transacted and continues to transact business in Kentucky. AB is subject to the jurisdiction and venue of this Court.

JURISDICTION

This Court has subject matter jurisdiction over this case under 28 U.S.C. §1334. Venue is proper pursuant to 28 U.S.C. §1409 as this Court is the district in which Debtor’s title 11 bankruptcy proceeding was filed. This matter is a core proceeding pursuant to 28 U.S.C. §157.

FACTS

HDR Farms was a cannabis agricultural, processing, and cloning operation that produced refined cannabinoids (CBDs) and CBD isolate marketed wholesale to formulators of retail CBD products.
HDR Farms incorporated as a Kentucky corporation in July 2018. LauBach was one of three (3) founding partners in HDR Farms and received 200 Class A shares in the corporation.
At all relevant times herein, HDR Farms’ principal place of business was located in Harrodsburg, Kentucky.
Initially, LauBach served as an officer of HDR Farms from his residence in Florida.
In or around May 2019, LauBach relocated from Florida to Kentucky. More than

$11,000 of LauBach’s personal moving expenses were covered or reimbursed by HDR Farms.

At the time HDR Farms paid LauBach’s moving expenses, HDR Farms did not have sufficient capital or income to fund such payments, so LauBach caused the cash raised from Class B shareholders to be the source of funds.
On or around May 13, 2019, Johnson, as CEO of Xtraction Solutions Inc. (“XSI Canada”), and LauBach, as President of HDR Farms, engaged in discussions concerning a potential joint venture or merger of their respective companies.
Initially, LauBach shared HDR Farms’ confidential and proprietary commercial information with Johnson and XSI Canada. On June 22, 2019, LauBach expressed concern to Johnson over the amount of HDR Farms’ proprietary information that he was providing to Johnson and XSI Canada as prospective competitors of HDR Farms.
On or around July 1, 2019 Johnson executed a Non-Disclosure, Non-Compete, Non-Raid, and Non-Circumvention Agreement (the “NDA”) in favor of HDR Farms. A true and correct copy of the NDA is attached hereto as Exhibit A.
Notwithstanding the executed NDA, LauBach concealed the NDA from other officers and directors of HDR Farms and did not file the NDA in HDR Farms’ records.
Danny Plyler (“Plyler”) was a co-founder and officer of HDR Farms. In May 2019, LauBach began a campaign to reduce Plyler’s role and compensation with HDR Farms. In addition to disparaging Plyler to existing shareholders, Laubach repeatedly blamed Plyer for the Debtor’s financial struggles when pursuing additional capital investments from potential new investors.
In or around September 2019, HDR Farms engaged Cozen as counsel. LauBach communicated primarily with Joseph Bedwick (“Bedwick”), a partner at Cozen, to discuss HDR Farms’ legal needs.
Shortly after being introduced to Bedwick, LauBach sought counsel from Bedwick for legal strategies to dissolve HDR Farms and start anew.

In early September 2019, AB, through its President Andy Goren (“Goren”), proposed a potential business opportunity for HDR Farms to LauBach. The opportunity concerned HDR Farms providing CBD to be used in branded creams and formulas in the cosmetics industry.
At the time of negotiations between HDR Farms and AB, LauBach and Goren were brothers-in-law.
On September 7, 2019, LauBach introduced the potential synergy with AB to HDR Farms’ board of directors (the “HDR Board”). LauBach pitched the opportunity as the final piece of HDR Farms’ business strategy.
Shortly after LauBach’s smear campaign, Plyler resigned from the board of directors but retained his 280 shares in HDR Farms. Plyler indicated at that same time that he would relinquish 80 of those shares in exchange for payment of $200,000.00 from HDR Farms.
In mid-September, LauBach informed Plyler that the HDR Board accepted his resignation but would not remit $200,000.00 for the 80 shares until HDR Farms could afford payment.
LauBach privately indicated that he had no intention of HDR Farms ever paying $200,000.00 to Plyler. LauBach also stated his intention to have counsel review the potential for a legal malpractice claim against HDR Farms’ former attorney for failure to require executives and shareholders to execute standard non-compete and non-disclosure agreements.
Throughout September, LauBach continued to allege improper conduct by Plyler and sought legal advice from Cozen regarding same.
Also throughout September, LauBach continued to pursue new investment in or dissolution of HDR Farms.

In September 2019, LauBach met investment brokers and potential investors including Mercer, who was then affiliated with Merrill Lynch. The purpose of such meetings was to court investor interest in HDR Farms.
By the end of September 2019, Mercer had connected LauBach to a lead on a potential investment of $2.5 million into HDR Farms from his client, Tony Mouser (“Mouser”).
On October 5, 2019, LauBach informed the HDR Board that Mercer was very optimistic that his client wanted to make a substantial investment in HDR Farms despite any issues with Plyler.
On October 14, 2019, LauBach sent Mercer proprietary information of HDR Farms for Mercer to share with Mouser.
LauBach asked Mercer to keep HDR Farms’ proprietary information confidential but did not require either Mercer or Mouser to execute a binding confidentiality agreement. Instead, LauBach accepted Mercer’s assurances that LauBach was “safe.”
On October 16, 2019 LauBach informed Johnson that HDR Farms had added

Bedwick as a legal advisor and Goren medical advisor.

LauBach suggested to Johnson that HDR Farms, XSI Canada, and Vitality Health CBD could merge to take advantage of HDR Farms’ burgeoning footprint and CBD extraction bandwidth.
On October 24, 2019, LauBach sought legal advice and assistance from Bedwick to set up a company distinct from HDR Farms that would receive a large investment from an investor, and offered Bedwick a 2% stake in the company to be formed.
At the time of LauBach’s request and proposal to Bedwick, LauBach remained an officer of HDR Farms and HDR Farms was Cozen’s client.

Throughout the fall of 2019, LauBach continued sharing HDR Farms’ proprietary information, including without limitation its standard operating procedures, operating agreement, potential clients, and cannabis industry research and development, with persons and entities who were neither employees or officers of HDR Farms or otherwise bound by non-competition or nondisclosure agreements.
Near the end of October 2019, LauBach scheduled travel to Canada to discuss a potential partnership or merger for HDR Farms with XSI Canada and Vitality Health CBD as well as additional business and potential investments that would benefit HDR Farms.
On November 3, 2019, Goren recommended that LauBach consider transforming

HDR Farms into a biotech company or explore other markets.

Also on November 3, 2019, Heather Goren, an officer of AB (as well as LauBach’s sister and Goren’s wife), advised LauBach that HDR Farms’ business model was unsustainable under new regulations and controls.
On or about November 9, 2019, LauBach met with Johnson in Canada and planned the formation of a new entity that would use HDR Farms’ business plan and become a direct competitor of HDR Farms.
LauBach caused HDR Farms to reimburse his international travel expenses where he and Johnson conspired to harm HDR Farms’ business prospects. The funds used to reimburse LauBach had been raised through contributions from HDR Farms’ Class B shareholders.
By mid-November 2019, LauBach began sharing with prospective investors an electronic file titled “XSi USA Deck” that boasted of the capabilities of LauBach’s nascent company.
The “XSi USA Deck” re-packaged HDR Farms’ capabilities, processes, operations, facilities, local benefits, photographs, and address as assets of another company. The only items

that distinguished the “XSi USA Deck” from HDR Farms’ proprietary information were logo changes which promoted “XSi USA Inc.” and pages that described LauBach as CEO, Johnson as CFO, and Bedwick and Andy Goren as key advisors.

On November 15, 2019, LauBach announced to the HDR Board that a new

individual wanted to invest in HDR Farms. LauBach identified the prospective investor as Mercer, his former fraternity brother.

On November 19, 2019, LauBach met with Mercer and Cox about an investment in HDR Farms.
The prospective investment from Cox was at least $2.5 million, while Mercer was prepared to invest $100,000.00.
On November 22, 2019, without the knowledge or approval of the HDR Board or

HDR Farms’ shareholders, LauBach executed a letter of intent by and between XSI and HDR Farms. A true and correct copy of the letter of intent (the “LOI”) is attached hereto as Exhibit B.

By the end of November 2019, LauBach was preparing to tell HDR Farms’ investors that a letter of intent would be executed between HDR Farms and XSI. Ultimately, LauBach refrained from disclosing the LOI to the HDR Board or shareholders at Bedwick’s

direction.

On December 3, 2019, while CEO of HDR Farms, LauBach reiterated to Cozen his plan for the anticipated $2.6 million investment to be outside the reach of HDR Farms and its shareholders.
On or around December 4, 2019, Cox and Mercer visited HDR Farms’ facilities, including its greenhouse and CBD processing laboratory. While meeting with officers of HDR Farms, Cox communicated to HDR Farms’ Chief Operations Officer, Steve Bragg (“Bragg”), that she was interested in investing funds in HDR Farms.

On December 6, 2019, Cozen began assisting LauBach with formation of XSI as a cannabis company that would compete directly against Cozen’s client HDR Farms. Cozen, through Bedwick, represented XSI and HDR Farms with LauBach as the sole point of contact for both

entities.

As early as December 10, 2019, LauBach began diverting resources and business opportunities from HDR Farms to XSI by soliciting scientific expertise from individuals, including

Goren, who had previously expressed willingness to consult and advise HDR Farms’ operations. LauBach designated Goren as a member of XSI’s Medical Advisory Board.

On December 12, 2019 XSI was officially incorporated and LauBach was identified as its CEO, responsible party, and primary financial controller. XSI identified as a company involved in Manufacturing Industrial Hemp CBD.
On December 16, 2019 LauBach informed the HDR Board that HDR Farms had partnered with a CBD bottling company that HDR will sell CBD isolate to instead of trying to sell on the open market.
On December 26, 2019 Cozen informed LauBach that a conflict of interest waiver was necessary for the firm to continue representing both HDR Farms and XSI. Bedwick advised LauBach to sign for HDR Farms and to have someone else sign for XSI.
From December 2019 through January 2020, LauBach, as CEO of HDR Farms, directed HDR employees to perform duties that solely benefitted XSI.
In mid-January 2020, LauBach advised the HDR Board that no one would invest in HDR Farms because of Plyler. LauBach suggested to the HDR Board that he needed to move over to a new company to secure investments that would primarily benefit HDR Farms.

On January 9, 2020 Bedwick advised LauBach that getting HDR Farms

shareholders’ approval of his resignation was important to ensure a clean break with no potential liability claims against him or XSI going forward.

On January 11, 2020 LauBach expressed his confidence to Bedwick that “anyone who has the resources to sue won’t and anyone who wants to sue won’t have the resources.”
LauBach then informed the HDR Board that XSI had offered to make him CEO upon his resignation from HDR Farms.
LauBach also informed the HDR Board that he needed to transfer ownership of his equity shares in HDR Farms. He subsequently transferred 100 of his shares to HDR Board member

Stewart Wakeley (“Wakeley”) and 100 to Bragg.

Upon LauBach’s resignation, Bragg was appointed CEO of HDR Farms.
On January 15, 2020 LauBach informed Cox and Mercer, just six (6) weeks after they toured HDR Farms’ facilities, that their investment into XSI would have no legal obligation or exposure to HDR Farms. Cox thanked LauBach for the clarification and confirmed that she was fine with their agreement.
LauBach coordinated distribution of Bragg’s investor newsletter that communicated to HDR Farms’ investor-creditors that LauBach—in his capacity as CEO of HDR Farms—was pursuing a partnership that would enable HDR Farms to repay the investor notes.
Following LauBach’s resignation from HDR Farms and while HDR Farms remained Cozen’s client, Bedwick continued advising LauBach on how to avoid exposure on his fiduciary responsibilities to HDR Farms.
As late as March 6, 2020, approximately six (6) weeks after he had resigned as CEO of HDR Farms, LauBach continued accessing his HDR email account to retrieve HDR

Farms’ proprietary information and divert potentially valuable information intended for HDR’s

Bragg to LauBach’s new email account used for XSI. Upon Bragg’s realization, Bragg cutoff LauBach’s access to HDR Farms email.

HDR Farms’ records reflect an investment of $100,000 from the Goren Family Trust and issuance of 10 Class B shares as well as a promissory note payable to the Goren Family

Trust (the “Goren Note”). The Goren Note was signed by LauBach during his tenure as CEO of HDR Farms.

HDR Farms’ records also reflect that on or around March 7, 2020, the Goren Family Trust, by and through Heather Goren, acknowledged and accepted that payments under the Goren Note would be delayed until July 2020.
On April 12, 2020, Wakeley received an unsolicited email from Johnson, purportedly as representative of XSI’s board of directors. Johnson’s email implored Wakeley to encourage HDR Farms’ shareholders to approve an offer lower than the value of HDR Farms’ assets from XSI in exchange for a 3% share of XSI.
Johnson’s communications to Wakeley characterized XSI’s offer to HDR Farms as an opportunity for HDR Farms’ investors to receive approximately 2.5 times their original investments within 3 to 5 years if XSI was able to obtain HDR Farms’ valuable assets without the existing liabilities to investors and other creditors.
Johnson provided Wakeley with a list of HDR Farms investors’ personal

information and their prospective ownership interest in XSI relative to each investor-owned shares of HDR Farms.

Johnson instructed Wakeley to keep confidential the HDR Farms investor information that Johnson had provided.
Johnson also instructed Wakeley to direct investors’ questions to Johnson rather than LauBach.

After the HDR Board elected to conduct due diligence on XSI’s offer, XSI withdrew the offer. The HDR Board was informed that XSI received comments and inquiries from

HDR Farms’ investors, including from an investor and employee who expressed grave concern for Bragg’s management of HDR Farms.

At the time the only remaining employee of HDR Farms who was also an investor was Elijah Thompson (“Thompson”). Thompson was also the only remaining person at HDR Farms who knew how to produce CBD isolate. All other HDR Farms’ employees who knew the process had been lured away by LauBach, Johnson, and XSI.
Johnson’s depiction of Thompson’s concerns caused animosity and tension between Bragg and Thompson who was key personnel for HDR Farms’ continued operations.
Within days of XSI terminating its offer, Thompson resigned from employment with HDR Farms in part due to the tension between he and Bragg caused by Johnson’s statements. 82. After Thompson’s resignation, HDR Farms could no longer produce CBD isolate.
On April 29, 2020, AB’s attorney, Scott D. Olsen, sent HDR Farms a letter alleging that HDR Farms owed AB $121,000 for default on a promissory note to AB from HDR Farms signed by LauBach and dated the same as the Goren Note.
The books and records of HDR Farms did not reflect receipt of any investment, money, or other consideration from AB for which a promissory note was issued.
On or around May 18, 2020, AB filed a lawsuit against HDR Farms to collect on the alleged promissory note from HDR Farms.
At the time AB’s lawsuit was filed, HDR Farms was operating on a shoestring budget and could not afford the additional burden of financing a legal defense to fight AB’s fraudulent claim.

COUNT I BREACH OF FIDUCIARY DUTY – KAWEL LAUBACH

Plaintiff incorporates Paragraphs 1 through 86 as if fully restated herein.
At all times relevant herein, LauBach was acting in his capacity as an officer of

HDR Farms.

As an officer of HDR Farms, LauBach owed HDR Farms a fiduciary duty.
LauBach breached his fiduciary duty by colluding with Johnson to form XSI in direct competition with HDR Farms.
LauBach breached his fiduciary duty by concealing Johnson’s signed NDA.
LauBach breached his fiduciary duty by knowingly and intentionally engaging in conduct designed to deprive HDR Farms of investments into the corporation from Cox and Mercer.
LauBach breached his fiduciary duty by failing to disclose to HDR Farms and the Debtor his correspondence and transactions with Cox and Mercer for the investment into HDR Farms.
LauBach breached his fiduciary duty by delivering HDR Farms’ confidential financial and other proprietary information to Cox without requiring any binding commitment from Cox to preserve confidentiality thereof and restrict competitive actions by Cox that could harm HDR Farms.
LauBach breached his fiduciary duty by delivering HDR Farms’ confidential financial and other proprietary information to Mercer without requiring any binding commitment from Mercer to preserve confidentiality thereof and restrict competitive actions by Mercer that could harm HDR Farms.
LauBach breached his fiduciary duty by diverting the combined $2.6 million investment from Cox and Mercer away from HDR Farms and into XSI.
As a direct and proximate result of LauBach’s actions as described hereinabove,

HDR Farms suffered damages.

The Trust, as assignee of the HDR Farms’ claims, is entitled to judgment against LauBach in an amount to be determined at trial for damages resulting from LauBach’s breach of fiduciary duty.

COUNT II AIDING AND ABETTING BREACH OF FIDUCIARY DUTY – DEAN JOHNSON

Plaintiff incorporates Paragraphs 1 through 98 as if fully restated herein.
LauBach breached his fiduciary duty to HDR Farms.
Johnson colluded with LauBach to form XSI and deprive HDR Farms of the cumulative $2.6 million investment from Cox and Mercer.
Johnson gave substantial assistance and financial incentives to LauBach to aid and abet him in breaching his fiduciary duty to HDR Farms.
Johnson knew or should have known that LauBach’s conduct breached his fiduciary duty to HDR Farms.
As a direct and proximate result of Johnson’s actions as described hereinabove,

HDR Farms suffered damages.

The Trust, as assignee of HDR Farms’ claims, is entitled to judgment against Johnson in an amount to be determined at trial for compensatory and punitive damages resulting from Johnson’s aiding and abetting LauBach’s breach of fiduciary duty.

COUNT IIIBREACH OF NON-DISCLOSURE AGREEMENT – JOHNSON

Plaintiff incorporates Paragraphs 1 through 105 as if fully restated herein.
Johnson breached the NDA when he, inter alia, applied knowledge of proprietary information obtained through his business dealings with HDR Farms to establish and solicit investments into XSI.

Johnson, by and through XSI, competed directly against HDR Farms for market share, labor, and other capital in the hemp farming and CBD manufacturing industry.
As a direct and proximate result of Johnson’s actions and omissions as described hereinabove, HDR Farms suffered damages.
The Trust, as assignee of HDR Farms’ claims, is entitled to judgment against Johnson in an amount to be determined at trial for damages resulting from Johnson’s breach of the

NDA.

COUNT IVAIDING AND ABETTING BREACH OF FIDCUARIY DUTY – COZEN O’CONNOR

Plaintiff incorporates Paragraphs 1 through 110 as if fully restated herein.
LauBach breached his fiduciary duty to HDR Farms.
As counsel to HDR Farms, Cozen knew or should have known that LauBach owed fiduciary duties to the corporation.
Cozen provided legal advice to LauBach through and after his resignation as an officer of HDR Farms.
Prior to his resignation from HDR Farms, LauBach informed Cozen that new investments from Mercer and Cox would be treated as capital investments in XSI rather than HDR Farms.
Cozen assisted LauBach in incorporating XSI and soliciting new business opportunities on behalf of XSI.
Cozen knew or should have known that XSI and LauBach were planning to compete directly against HDR Farms.
By assisting LauBach with the establishment of XSI and other acts, Cozen gave substantial assistance to LauBach to aid and abet him in breaching his fiduciary duty to HDR

Farms.

Cozen knew or should have known that LauBach’s conduct breached his fiduciary duty to HDR Farms.
As a direct and proximate result of Cozen’s actions as described hereinabove, HDR

Farms suffered damages.

The Trust, as assignee of HDR Farms’ claims, is entitled to judgment against Cozen in an amount to be determined at trial for compensatory and punitive damages resulting from

Cozen’s aiding and abetting LauBach’s breach of fiduciary duty.

COUNT VLEGAL MALPRACTICE – COZEN

Plaintiff incorporates Paragraphs 1 through 121 as if fully restated herein.
HDR Farms engaged Cozen as counsel in September 2019 to advise HDR Farms on regulatory compliance, corporate governance, and business strategy.
Cozen owed HDR Farms duties of loyalty and the exercise of independent judgment.
Between September 2019 and January 2020, Cozen communicated exclusively with LauBach as the representative of HDR Farms in rendering legal services to HDR Farms.
Cozen advised LauBach with respect to formation of XSI and provided legal services to XSI no later than December 6, 2019.
Cozen advised Laubach with respect to his personal legal exposure to potential claims that could be asserted by HDR Farms or its shareholders.
Cozen knew or should have known that LauBach was acting as CEO of both HDR

Farms and XSI.

Cozen knew or should have known that its concurrent representation of HDR

Farms, LauBach, and XSI created a direct conflict of interest.

Cozen did not attempt to obtain HDR Farms’ informed consent to concurrent representation of HDR Farms and LauBach.
Cozen knew or should have known that LauBach was not capable of giving informed consent to Cozen’s concurrent representation of XSI on behalf of HDR Farms.
Cozen knew or should have known that the waiver of conflict of interest executed by LauBach purportedly as CEO of HDR Farms was not sufficient informed consent by HDR Farms.
Cozen’s concurrent representation of HDR Farms and LauBach did not meet the minimum standard of care required of legal professionals in Kentucky.
Cozen’s concurrent representation of HDR Farms and XSI did not meet the minimum standard of care required of legal professionals in Kentucky.
As a direct and proximate result of Cozen’s acts and omissions described hereinabove, HDR Farms suffered damages.
The Trust, as assignee of HDR Farms’ claims, is entitled to judgment against Cozen in an amount to be determined at trial for damages resulting from Cozen’s legal malpractice.

COUNT VIAIDING AND ABETTING BREACH OF FIDUCIARY DUTY – ANNETTE COX

Plaintiff incorporates Paragraphs 1 through 136 as if fully restated herein.
LauBach breached his fiduciary duty to HDR Farms.
By negotiating the terms of investing $2.5 million in HDR Farms and then colluding with Johnson and LauBach to form XSI and deprive HDR Farms of the investment, Cox gave substantial assistance and financial incentives to LauBach to aid and abet him in breaching his fiduciary duty to HDR Farms.
Cox knew or should have known that LauBach’s conduct breached his fiduciary duty to HDR Farms.

As a direct and proximate result of Cox’s actions as described hereinabove, HDR

Farms suffered damages.

The Trust, as assignee of HDR Farms’ claims, is entitled to judgment against Cox in an amount to be determined at trial for compensatory and punitive damages resulting from Cox’s aiding and abetting LauBach’s breach of fiduciary duty.

COUNT VIIAIDING AND ABETTING BREACH OF FIDUCIARY DUTY – TODD MERCER

Plaintiff incorporates Paragraphs 1 through 142 as if fully restated herein.
LauBach breached his fiduciary duty to HDR Farms.
By negotiating the terms of Annette Cox’s $2.5 million and Mercer’s $100,000.00 thousand investment in HDR Farms and then colluding with Johnson and LauBach to form XSI and deprive HDR Farms of the investments, Mercer gave substantial assistance and financial incentives to LauBach to aid and abet him in breaching his fiduciary duty to HDR Farms.
Mercer knew or should have known that LauBach’s conduct breached his fiduciary duty to HDR Farms.
As a direct and proximate result of Mercer’s actions as described hereinabove, HDR

Farms suffered damages.

The Trust, as assignee of HDR Farms’ claims, is entitled to judgment against Mercer in an amount to be determined at trial for compensatory and punitive damages resulting from Mercer’s aiding and abetting LauBach’s breach of fiduciary duty.

COUNT VIIIAIDING AND ABETTING BREACH OF FIDUCIARY DUTY -APPLIED BOTANICS LLC f/k/a XSI USA, LLC

Plaintiff incorporates Paragraphs 1 through 148 as if fully restated herein.
LauBach breached his fiduciary duty to HDR Farms.

By accepting the cumulative $2.6 million investment from Cox and Mercer, XSI gave substantial assistance and financial incentives to LauBach to aid and abet him in breaching his fiduciary duty to HDR Farms.
XSI knew or should have known that LauBach’s conduct breached his fiduciary duty to HDR Farms.
As a direct and proximate result of XSI’s actions as described hereinabove, HDR

Farms suffered damages.

The Trust, as assignee of HDR Farms’ claims, is entitled to judgment against XSI in an amount to be determined at trial for compensatory and punitive damages resulting from XSI’s aiding and abetting LauBach’s breach of fiduciary duty.

COUNT IXAIDING AND ABETTING BREACH OF FIDUCIARY DUTY -APPLIED BIOLOGY LLC

Plaintiff incorporates Paragraphs 1 through 154 as if fully restated herein.
LauBach breached his fiduciary duty to HDR Farms.
By providing XSI with the commitment of medical advice and patents AB gave substantial assistance and financial incentives to LauBach to aid and abet him in breaching his fiduciary duty to HDR Farms.
AB knew or should have known that LauBach’s conduct breached his fiduciary duty to HDR Farms.
As a direct and proximate result of AB’s actions as described hereinabove, HDR

Farms suffered damages.

The Trust, as assignee of HDR Farms’ claims, is entitled to judgment in an amount to be determined at trial for compensatory and punitive damages resulting from AB’s aiding and abetting LauBach’s breach of fiduciary duty.

COUNT XFRAUDULENT MISREPRESENTATION – LAUBACH & XSI

Plaintiff incorporates Paragraphs 1 through 160 as if fully restated herein.
LauBach represented to HDR Farms that there were no potential investors in HDR

Farms and that XSI, upon formation, would provide substantial cash flow for HDR Farms.

At the time LauBach made those representations to HDR Farms, LauBach was acting on behalf of XSI.
At the time LauBach made those representations to HDR Farms, LauBach knew that Cox and Mercer were prepared to invest in HDR Farms.
At the time LauBach made those representations to HDR Farms, LauBach knew that XSI would be separate from HDR Farms and not provide cash flow or financial support to HDR Farms.
LauBach and XSI had no intentions of conducting any business with HDR Farms.
LauBach and XSI knew at the time they made those representations to HDR Farms that they were false.
LauBach and XSI made those representations intending for HDR Farms to rely upon their statements and assurances.
HDR Farms did rely upon those representations to its detriment.
As a direct and proximate result of LauBach’s and XSI’s actions as described hereinabove, HDR Farms suffered damages.
The Trust, as assignee of HDR Farms’ claims, is entitled to judgment against LauBach and XSI in an amount to be determined at trial for damages resulting from LauBach’s and XSI’s fraudulent misrepresentations.

COUNT XI FRAUDULENT OMISSION – LAUBACH & XSI

Plaintiff incorporates Paragraphs 1 through 171 as if fully restated herein.
In their statements to HDR Farms, LauBach and XSI omitted material facts concerning Cox’s interest in investing in HDR Farms.
As an officer of HDR Farms, LauBach had a duty to disclose to HDR Farms material facts concerning Cox’s interest in investing in HDR Farms.
LauBach concealed or failed to disclose Cox’s interest in investing in HDR Farms.
As a result of LauBach’s concealment or failure to disclose Cox’s potential investment, HDR Farms relied upon and acted to its detriment by allowing LauBach to form XSI and divert Cox’s investment unbeknownst to HDR Farms.
As a direct and proximate result of LauBach’s and XSI’s actions as described hereinabove, HDR Farms suffered damages.
The Trust, as assignee of HDR Farms’ claims, is entitled to judgment in an amount to be determined at trial for damages resulting from LauBach’s and XSI’s fraud.

COUNT XIIUSURPATION OF CORPORATE OPPORTUNITY – LAUBACH, JOHNSON & XSI

Plaintiff incorporates Paragraphs 1 through 178 as if fully restated herein.
HDR Farms had an opportunity to derive substantial value from its assets and business enterprise through the investments from Cox and Mercer or other similarly situated

parties.

LauBach, Johnson and XSI knew that such an opportunity existed for HDR Farms and devised an artifice to profit from said investment opportunity without sharing the benefits of the investment opportunity with HDR Farms.
LauBach utilized his position as officer of HDR Farms to appropriate and divert

HDR Farm’s opportunity to LauBach, Johnson, and XSI.

As a direct and proximate result of LauBach’s, Johnson’s and XSI’s actions, as described hereinabove, HDR Farms has suffered damages.
The Trust, as assignee of HDR Farms’ claims, is entitled to judgment against LauBach, Johnson, and XSI in an amount to be determined at trial for damages resulting from

LauBach’s, Johnson’s, and XSI’s usurpation of corporate opportunity.

COUNT XIII MALICIOUS PROSECUTION – AB

Plaintiff incorporates Paragraphs 1 through 184 as if fully restated herein.
Prior to commencement of HDR Farms’ chapter 11 bankruptcy case, AB filed a civil suit against HDR Farms in Mercer Circuit Court to attempt to collect amounts due under an alleged promissory note.
The civil action against HDR Farms was enjoined by the automatic stay.
HDR Farms did not deliver a promissory note to AB.
AB did not have reasonable grounds to support its alleged cause of action stated in the civil action filed in Mercer Circuit Court.
AB is owned or controlled by individuals related to LauBach.
AB is owned or controlled by individuals who were advising and providing other services to XSI.
AB knew or should have known that HDR Farms was financially decimated following LauBach’s resignation and the departure of several HDR Farms employees for XSI.
AB initiated the civil action in Mercer Circuit Court to exploit HDR Farms’ vulnerabilities and exacerbate its operational challenges.
As a direct and proximate result of AB’s actions as described hereinabove, HDR

Farms has suffered damages.

The Trust, as assignee of HDR Farms’ claims, is entitled to judgment against AB in an amount to be determined at trial for damages resulting from AB’s malicious prosecution of the Mercer Circuit Court action.

COUNT XIVFRAUDULENT CONVEYANCE – XSI

Plaintiff incorporates Paragraphs 1 through 195 as if fully restated herein.
Through their statements and statements of their agents, Cox and Mercer expressed to LauBach an interest in investing in a CBD manufacturer such as HDR Farms.
Cox, Mercer, and their agents discussed the terms of potential investments with

LauBach in his capacity as an officer of HDR Farms.

LauBach was an insider of HDR Farms.
On or around December 5, 2019, Mercer was prepared to invest $100,000.00 into

HDR Farms (the “Mercer Investment”).

On or around December 5, 2019, Cox was prepared to invest $2.5 million into HDR

Farms (the “Cox Investment,” and collectively with the Mercer Investment, the “Investments”).

On or around January 22, 2020, the Investments were diverted to XSI and no value was given to HDR Farms for the transfer.
XSI promised HDR Farms substantial business and cash flow that never came to fruition. HDR Farms received nothing from XSI in exchange for the Investments.
HDR Farms received less than reasonably equivalent value from XSI for the

Investments.

HDR Farms was insolvent at all times between the period of January 2020 and June

2020.

HDR Farms was rendered insolvent following conveyance of the Investments to

XSI.

Following conveyance of the Investments, HDR Farms was left with assets that constituted unreasonably small capital to be engaged in business.
The conveyance of the Investments was not made in the ordinary course of HDR

Farms’ business.

But for conveyance of the Investments to XSI, the Investments would have enhanced HDR Farms’ capital structure and HDR Farms would not have been rendered insolvent.
The conveyance of the Investments to XSI was made for the benefit of XSI,

LauBach, Johnson, Cox, and Mercer.

XSI received transfers of property which are avoidable pursuant to 11 U.S.C. §548.
The value of the Investments is automatically preserved for the benefit of the estate.
The Trust, as assignee of HDR Farms’ claims, is entitled to judgment against XSI and any mediate and/or immediate transferee(s) in an amount to be determined at trial as the reasonably equivalent value of the transfers.
The Trust, as assignee of the HDR Farms Claims, is entitled to its attorneys’ fees and costs incurred in pursuing this action.

WHEREFORE, Plaintiff demands judgment for compensatory and punitive damages, including the following:

Avoidance, pursuant to 11 U.S.C. §548, of all conveyances of HDR Farm’s interests in the Investments to XSI and any mediate and/or immediate transferee(s) of said asset, and preservation of the value of said asset for the benefit of Plaintiff;
Money judgment against XSI and any entity for whose benefit any transfer avoided pursuant to paragraph A was made, in an amount equal to the value of the property so transferred;
Money judgment against each immediate or mediate transferee of any transfer avoided pursuant to paragraph A in an amount equal to the value of the property so transferred;
Disallowance of Cozen’s claim against the Debtor and disgorgement of any amounts recovered by Cozen pursuant to the Plan;

Disallowance of AB’s claim against the Debtor and disgorgement of any amounts recovered by AB pursuant to the Plan;
Damages against LauBach for breach of fiduciary duty, usurping corporate opportunity, and fraud in an amount to be proven at trial;
Damages against Johnson for aiding and abetting LauBach’s breach of fiduciary duty and usurping corporate opportunity in an amount to be proven at trial;
Damages against Johnson for breach of Non-Disclosure Agreement in an

amount to be proven at trial;

Damages against Cozen for aiding and abetting LauBach’s breach of fiduciary duty in an amount to be proven at trial;
Damages against Cozen for legal malpractice in an amount to be proven at trial;
Damages against AB for aiding and abetting LauBach’s breach of fiduciary duty in an amount to be proven at trial;
Damages against AB for malicious prosecution in an amount to be proven at trial.
Damages against Cox for aiding and abetting LauBach’s breach of fiduciary duty in an amount to be proven at trial;
Damages against Mercer for aiding and abetting LauBach’s breach of fiduciary duty in an amount to be proven at trial;
Damages against XSI for aiding and abetting LauBach’s breach of fiduciary duty, usurping corporate opportunity, and fraud in an amount to be proven at

trial;

Punitive damages against LauBach in an amount to be proven at trial;
Punitive damages against Johnson in an amount to be proven at trial;
Punitive damages against Cozen in an amount to be proven at trial;
Punitive damages against AB in an amount to be proven at trial;
Punitive damages against Cox in an amount to be proven at trial;
Punitive damages against Mercer in an amount to be proven at trial;
Punitive damages against XSI in an amount to be proven at trial;
All costs and attorney’s fees herein incurred; and
For such other and further relief as is just and proper.

Respectfully submitted,

/s/ Tyler R. Yeager

CHARITY S. BIRD

TYLER R. YEAGER

Kaplan Johnson Abate & Bird, LLP

710 W. Main Street, 4^th Floor

Louisville, Kentucky 40202

Telephone: (502) 416-1630

Facsimile: (502) 540-8282

Email: cbird@kaplanjohnsonlaw.com Email: tyeager@kaplanjohnsonlaw.com

Counsel for Plaintiff