David Netto, a former design consultant for stroller maker Maclaren USA, is suing his old boss CEO Farzad Rastegar for fraud.
On Tuesday, Netto filed a complaint in federal district court in southern New York demanding that Rastegar pay him $1.11 million that he said Rastegar owes him for Maclaren USA's 2009 purchase of NettoCollection, as well as punitive damages and legal fees.
Maclaren USA, a privately owned stroller company, quietly declared bankruptcy in Connecticut last December. This was roughly two years after its November 2009 recall of 1 million strollers. A total of 20 children's fingers had been amputated by such strollers. The type of bankruptcy filed, Chapter 7, calls for the total dissolution of the company without the possibility of restructuring and allows it to write off debt.
David Netto, an interior and furniture designer, had sold to Maclaren USA his high-end nursery furniture company, NettoCollection in June 2009. Maclaren USA also hired Netto as a designer for $50,000 a year plus royalties on any sales of his lines, according to his complaint. The payment of $1.11 million for the purchase of NettoCollection was scheduled to take place by Tuesday.
During his two plus years of serving as a design consultant, Netto directed the Maclaren Nursery line and performed various tasks for Rastegar, an Iranian private equity investor who took over all of Maclaren's global businesses in 2001. Netto helped Rastegar draft personal statements to send to the media about the recall, assisted him in the purchase of artwork by Damien Hirst and David Hockney and traveled to Hong Kong to negotiate leases on new retail space, according to Netto's complaint.
Meanwhile, Rastegar failed to take any action to address falling sales, according to Netto. In late 2011, as sales dwindled to zero, Rastegar denied the rumors that the company was considering bankruptcy and told Netto he would be paid on the agreed date of June 12, 2012, according to the complaint. When Netto learned of the bankruptcy in February and asked whether he would be paid, Rastegar "erupted in a profanity-laced tirade, swearing that NettoCollection would never be paid," according to the complaint.
Netto accuses Rastegar of lying about his future plans for Maclaren USA so as to eventually elude making the $1.11 million payment as well as several royalty payments. "Rastegar fraudulently induced Plaintiff Netto to forego business opportunities and offer his design consulting services at reduced costs by stating that he had every intention of enacting plans to develop and further the Maclaren Nursery brand," Netto's counsel wrote in the complaint. "At the time these statements were made, Rastegar knew that they were false."
In addition Netto alleged that Maclaren USA's bankruptcy is itself a fraud. Dwindling sales were a result of Rastegar's attempts to transfer healthy assets away from the company to other international Maclaren entities so as to write off Maclaren USA's debt and lawsuit liabilities, Netto said.
Maclaren strollers and products are still being distributed and sold around the world, including in the United States. A single corporate site, Global.maclarenbaby.com, lists countries where the company sells its products.
"Maclaren USA was merely a shell for Rastegar to engage in corporate shenanigans," Netto's counsel wrote. "Rastegar methodically bankrupted Maclaren USA for his own personal benefit through a series of fraudulent transactions."
The Chapter 7 bankruptcy filed by Maclaren also puts a temporary hold on the company's pending lawsuits; Netto's suit is not affected as it is new and against Rastegar himself.
Of many personal injury lawsuits brought against Maclaren USA by the families of children who had fingers amputated or lacerated by its products, seven suits are still pending. These suits were all halted when Maclaren filed for bankruptcy, though the bankruptcy judge has since allowed four families to continue pursuing their claims. Maclaren USA has an insurance policy that will cover some of the claims, according to the plaintiffs' lawyers.
The Consumer Product Safety Commission is also investigating Maclaren USA, according to bankruptcy filings.
So far, Maclaren USA has said little in its defense. In fact, the company has barely released any information about the details of its bankruptcy. In April, the independent trustee appointed to investivate the bankruptcy ordered Maclaren USA and its accountants to hand over documents that they have thus far been witholding.
At that time, Maclaren USA had provided only a single "storage pod" containing "various paper books and records arranged in no discernable order," according to trustee Roberta Napolitano's motion.
On Thursday, trustee Napolitano filed a new motion asking if she could retain law firm Pullman & Comley to aid in her investigation. She identified the potential of fraudulent transfers as a possible reason for her to pursue legal action against Maclaren USA.