Watertown businessman Christopher M. Swartz agreed to a $2.5 million judgment against him and three companies he controls to resolve a federal lawsuit brought by several people who had invested in the companies.
A consent judgment was filed Tuesday in U.S. District Court for the Eastern District of Pennsylvania, Philadelphia, granting the judgment in favor of North Country Disbursements LLC, Perkiomenville, Pa., and 13 individual plaintiffs against Mr. Swartz, North Country Capital Inc., North Country Hospitality Inc. and Ultimate Franchise Systems Inc.
At the end of the day, they put money in, I put money in, the companies put money in and the creditors didnt get paid, Mr. Swartz said Saturday.
Mr. Swartz said that, despite the dispute stemming from a total of $900,000 lost by investors, he agreed to a $2.5 million judgment in recognition of interest and additional returns the money could have otherwise yielded investors.
Im still working with them to help them collect, he said. These are friends and associates that Ive done business with for a long time. It wasnt acrimonious at all.
According to a complaint filed in May, the investors claimed that Mr. Swartz approached them in July 2007 with an opportunity to invest with North Country Hospitality in exchange for an annual rate of return on the investment. The investors maintained that they contributed a total of $900,000 toward the venture, with Mr. Swartz personally guaranteeing the investments with a promissory note.
The investors claimed that Mr. Swartz immediately defaulted on the promissory notes, not making any payments until making a $25,000 payment in July 2009. That amount was distributed to the investors on a pro rata basis, but the investors claim that no further payments were made.
According to the complaint, Mr. Swartz told the investors during several meetings that he was about to close a deal in which the Jreck Subs franchise would contract with Watertowns Alteri Bakery to buy all of its sandwich rolls from Alteri. At the time, Mr. Swartz controlled both Jreck and Alteri, although Alteri was acquired by Seaway Valley Capital Corp. in 2008. Seaway Valley and Alteri have since sued Jreck in state Supreme Court claiming Jreck broke the contract requiring that Alteri be its exclusive roll provider. That matter still is pending.
The investors claimed that Mr. Swartz repeatedly said he was going to pay back their principal investments and would make it well worth their having made the investments. They alleged that during a January 2010 conference call with several investors, Mr. Swartz told them that he was on the verge of signing a deal with Canadian investors that would infuse either North Country Hospitality or North Country Capital with between $2.5 million and $6 million in exchange for the two entities franchise development rights. The investors maintained in their complaint that they never heard anything more about the Canadian deal and that no payments on the promissory notes ensued.
Because of Seaway Valleys involvement in the Alteri acquisition, the corporation also was named a defendant in the suit, but its chief executive officer, Thomas W. Scozzafava, said Saturday that any debt due the investors was never disclosed to him at the time of the acquisition.
Id never heard of these people until the suit was filed in May, Mr. Scozzafava said. Seaway Valley certainly doesnt owe this money.