Complaint Review: Kevin Erdmann - Gilbert, AZ Arizona

The Burton family purchased a business, known as Kebko from a conman named Kevin Erdmann from Gilbert, Arizona in June of 2010, paying him $55,000 cash down, and with a $55,000 note for 4 years at 6% ($110,000 purchase price).

Within the first few weeks of owning Kebko, the Burtons realized there was something very wrong with the Business they purchased from Erdmann, and that they had been cheated and defrauded. 

The Burtons soon realized that Erdmann had intentionally, flagrantly lied and misrepresented several key facts regarding the business, including:

1. The dollar volume of the contracts the Burtons were buying from Erdmann (Erdmann represented $269,000 vs. the reality of $172,000);

2. The quality and margin of those contracts (33% gross margin represented vs. 8.5% factual);

3. The timeframe for when those contracts were due (Erdmann represented these contracts were due in “the next few months of 2010” but only $105,875 in contracts were due to be completed in 2010;

4. The number of days Kebko was accustomed to carrying accounts receivables (Erdmann’s represented “average days outstanding on accounts receivable is 45 days” vs. actual documented receivables being well over 100 days);

5. The fact that Erdmann regularly factored his invoices for cash, a fact that was not disclosed to Burton prior to the sale.  This is an important fact because factoring companies require a first position lien on the company’s assets, and the only way to get Erdmann’s cooperation to subordinate the Kebko note was to comply with Erdmann’s demands that Burton pay 70%+ APR terms;

6. Erdmann did not disclose to Burton that the Accounts Receivables - which were not included in the sale - represented the "most important" asset of the company;

7. Erdmann had omitted from the P&L statements factoring fees that would have led the Burtons to realize that factoring and high interest fees were a cost Erdmann had realized while owning Kebko;

8. Erdmann enjoyed 30-day terms from suppliers, and alleged that such terms would carry over to the new Buyers (such terms did not carry over to the Burtons as promised).

As a result, the Burton's anticipated positive cashflow of $70,000 from Kebko for 2010, turned out to be closer to a $60,000 loss.  A $130,000 swing loss as a direct result of Erdmann's fraud.

The Burton family's forecast was flawed from day one, and in a short amount of time, the Burtons were running out of money.  Erdmann offered to "help" the Burtons by loaning them the working capital they would need for the next several months.  At first the agreed upon term was for 10% interest annualized, then he upped it to 15%. 

After the Burton's had incurred a trade debt balance of $30,000, Erdmann told them that factoring invoices for cash was required as the next step, and that he "knew this would happen", and that "he did it all the time" and that it "wasn't a big deal to factor". 

The only problem was, in order to factor invoices for cash, Erdmann would have to first agree to subordinate his first-lien position on the note so that the factoring company could have the required first position.  He gave the Burtons no choice: go bankrupt, or agree to his revised terms of 43% annualized interest in exchange for the note being subordinated, by entering into an Extension Agreement.

The Burtons entered into the extension agreement with Erdmann in September of 2010.  Shortly thereafter, Erdmann tried to get the Burtons to enter into yet another Extension agreement, this time for 70% annualized interest.

The Burtons continued to run short on cash, and by December of 2010, they were down to their last $3.84 from all their personal and business checking and savings accounts.  Still, the Burtons completed every single job order - profitable or not - on time.  In addition, the Burton always paid on the Kebko note to Erdmann on time, on time and never defaulted until after a FINAL Settlement Agreement was entered into in April of 2011.

The Final Settlement Agreement (FSA) stated very plainly that it was to remove ALL claims once and for all.  As such, Burton reading the FSA verbatim, stopped paying on the Kebko note.

As part of the consideration for paying off the $30,000 in trade debt Burton had incurred, Burton caused a note due to Zyrax, LLC - an unrelated company that Burton owned - to be assigned to pay off approximately $20,000 worth of payments over the next 30 months to Erdmann ($827/mo). 

By late spring and early summer of 2011, Burton had worked through and fixed many of the problems with Kebko, and the business was ready to be sold as a clean and operable business.

By July 2011, Burton was in the process of selling Kebko to another buyer.  Erdmann had "heard it through the grapevine" that Burton was courting buyers at this time.  As such Erdmann sought to enforce an expired U.C.C. lien that had already been released as per the "all claims removed" clause in the FSA.  Erdmann sent letters to each of Burton's clients telling them to cease all payment and to forward them payment to him instead.  

As a result of Erdmann freezing the Kebko accounts-receivables, Burton was once again up against the wall for much-needed cash.  Although the FSA released the UCC lien and forgave all claims between the parties, Burton agreed to put the two payments that were "behind" into escrow so that the already-forgiven note would not be in "default."  However, Erdmann refused to accept the catch-up payments, fees, and interest, and chose instead to accelerate the entire principal balance of the note due - in full. The principal amount due on the note at this time was about $38,000.

Erdmann's actions in calling the note due in full caused the Burtons to have to settle and sell the resurrected Kebko for a firesale price of just $150,000, rather than the previously agreed-upon price of $235,000 (the Burtons had received another offer for $285,000 that was turned down). 

Erdmann refused to accept anything short of the total principal as payoff.  The disputed UCC lien was still attached to Kebko at the time Burton sold Kebko to the new buyers.  As such, the new buyers were unable to obtain free-and-clear title unless Burton agreed to allow the majority of the money locked up in escrow to payoff Erdmann (Erdmann was paid over $52,000 at close of escrow even though the principal value of the note was only $38,000).

Once again, Erdmann was overpaid, at Burton's expense.

Unfortunately, the payer on the Zyrax note stopped paying Erdmann after he had made 3 of the 30 note payments due.  The approximately $17,000 that was still due to Erdmann from the Zyrax note was without warranties or representations of any kind - but Erdmann still chose to sue Burton for this other individual's default (Kerry Lechner is the man who stopped paying Zyrax/Erdmann), once again violating the terms of the "all claims forgiven" provisions in the FSA he entered into with Burton.

Burton offered several times to pay Erdmann off in full for Lechner's default (offering on more than one occasion to pay Erdmann $24,000, an amount equal to more than what Erdmann would have even received from Lechner had Lechner made all his payments as Burton hoped and intended.

In spite of Burton forgiving Erdmann his fraud, and turning the cheek repeatedly over and over, Erdmann continued a costly legal battle against Burton for the $17,000 that Lechner owed Erdmann by way of the Zyrax note assignment. 

As of last month, Erdmann's lying and manipulative attorney successfully convinced a confused, uneducated, and emotionally-charged jury that Burton should pay Erdmann an amount exceeding $400,000.  This represents an amount exceeding more than 20 time the original amount in dispute.  Most of this amount was in punitive damages.  Erdmann alleged Burton committed fraud by "tricking" him into taking the Zyrax note payments as a payoff of the trade debt.  As a result of the fraud allegation against the Burtons, the judgment against the Burtons apparently will not be dismissed through a bankruptcy.

The Burtons never brought their fraud claims against Erdmann, all the time holding that the FINAL Settlement Agreement holds and that they would live by its provisions; namely that all claims against one another were to be dropped, once and for all.

Make no mistake that Kevin Erdmann is an emotionally-charged, emotionally unstable character who will violate a contract at the drop of a hat.  He is one of the greatest liars and fraudsters ever.  He will never be content.  Do yourself a favor and do not ever, EVER do business with this shark of a man.  Kevin Erdmann is truly a monster from hell.