February 24, 2010 On July 16, Nathan Rothschild, President of the East Ramapo School Board, was served at his home with a summons to respond to a $34.7 million lawsuit. There are 12 different accusations in the lawsuit, including breach of contract, fraud, breach of fiduciary duty, conversion, unjust enrichment, interference with contractual relations, and negligent misrepresentation. The plaintiffs who filed the complaint were Elliot Kahan and Daryl Hagler, Rothschild’s business partners.

The situation was not a novel one for Nathan Rothschild. He has faced at least a half-dozen personal lawsuits as well as a tax warrant from New York State in the last decade. The most recent judgment against him was a hefty $187,605.64 awarded to the New Jersey Economic Development Authority. But this time it was not a bank or agency sending papers to his house—it was the two people with whom he partnered in two businesses over the last three years. The defendants named in the suit include Rothschild, his wife Toba, and Kathryn Mazzella an employee of one of the companies.

The Two Triangles
The lawsuit involves two companies that have Rothschild and the two plaintiffs as principal partners.

According to the allegations in the lawsuit, the NAPD Company was losing money, so "Elliot and Daryl gave Nathan the right to operate Yeshmayayn a.k.a. Bill-Mar. The purpose for giving Nathan the right to operate Yeshmayayn," according to the suit, "was to allow Nathan a source of income to repay his outstanding obligations to Elliot, Daryl, and NAPD."

The members of the second triangle are alleged to be Nathan Rothschild, Toba G. Rothschild (Nathan’s wife), and Kathryn Mazzella. All three are named as defendants in the lawsuit.

The two business partners claim that at one point Nathan’s indebtedness to them reached such a substantial level that "to forestall Elliot and Daryl from taking action against Nathan, Nathan guaranteed to repay [them] fifty percent of any money Elliot invested in NAPD in the event NAPD ceased operating. Nathan pledged as collateral. . .the ownership in his family home." But "Nathan falsely represented to Elliot that [the home] is without mortgage and has a value exceeding $1,200,000.00" The lawsuit further claims "the sole owner of [the home] is Toba G. Rotschild" a person whom the plaintiffs believe is the same as Toba G. Rothschild, Nathan’s wife.

Kathryn Mazzella, an employee of NAPD, is identified in the lawsuit papers in a section titled "Nathan’s Improper Use of NAPD Funds." The plaintiff’s attorney writes: "Upon information and belief, Nathan is having and/or had an extramarital affair with Katie. Nathan and/or Katie used NAPD’s credit card to pay for travel expenses, including domestic and international plane tickets for Nathan and/or Katie." Destinations listed in the complaint include Barbados, Israel, Las Vegas, Los Angeles, China, Taiwan, San Francisco, England, Ireland, Italy, Maryland, Marco Island, Florida, St. Moritz, Switzerland, and others.

In papers filed Jan. 22, 2010, the attorneys for the defendants petitioned the court to remove the line in the lawsuit alleging the improper relationship between Nathan and Katie and also the emails submitted to the court to establish that relationship. Judge Margaret Garvey agreed to strike the material as "scandalous and prejudicial" and as something that "adds nothing, at this point in the proceedings, in furtherance of the claims made against those parties and is unnecessary for the Complaint’s sufficiency." The Judge did add in her decision, "The movants (lawyers) are cautioned, however, that this decision does not purport to address the possible relevancy of such material at the trial of this action." The emails might return during the course of the trial.

Curiously, at the same time that Judge Garvey said the allegation of impropriety is not necessary because the other charges are sufficient for the next stage to begin, she did express concern over the fact that the same attorney defending Toba Rothschild is representing Katie Mazzella. Garvey explained, "Since the other defendant, Toba G. Rothschild is the spouse of the Defendant Nathan Rothschild, there would seem to be at least the possibility of an inherent conflict in one attorney representing each of these parties. Consequently, counsel is directed to be ready to address that issue when the matter first appears in court (March 5)." At that 9:30 meeting, she ordered "Defendant Nathan Rothschild, Defendant Kathryn Mazzella, and Defendant Toba G. Rothschild shall also be present for the preliminary conference so the issue of whether or not there is a conflict of interest in their joint representation can be addressed."

What the Lawsuit Charges
There are 12 Causes of Action, each with its own penalty (monetary relief sought). Keep in mind that Elliot Kahan and Daryl Hagler have to persuade the court of the validity of the charges in order to win the amounts they are claiming as damages. What follows are the allegations presented in SU-2009-006568 filed with the NY State Supreme Court.

BACKGROUND (from the lawsuit): "Once they formed NAPD, Elliot and Nathan were responsible for procuring their own clients for the company. Once Elliot or Nathan found a client, he was responsible for pitching NAPD’s services and to act independently to produce a sale. If a sale was produced, they would complete certain paperwork and order promotional items from NAPD’s suppliers for resale.

Starting in Jan. 2007, Nathan produced purchase orders and invoices to Elliot and Daryl demonstrating he was successfully making sales to many clients. Despite the large orders that Nathan produced, Elliot and Daryl became aware that Nathan’s customers were not paying their balances owed.

In March 2007, NAPD was in financial distress and required a capital infusion from its members. Elliot and Daryl infused capital into NAPD, but Nathan claimed he was unable to make such infusion and refused to infuse money into the company. Instead, Nathan entered into a security agreement with his partners secured with a promissory note of $1.5 million.

About the same time that Elliot and Daryl realized Nathan was collecting little to no monies, Elliot and Daryl approached Nathan and confronted him about his failure to collect monies. Nathan reassured them that he would collect any outstanding monies and balances.

Elliot and Daryl learned that many, if not all of the invoices and purchase orders that Nathan showed them were fake, forged, exaggerated and/or manufactured with the intent of deceiving them, and that Nathan had made little to no sales. Elliot and Daryl also learned that Nathan was sending invoices to potential clients that had never placed a single order with NAPD or that had never ordered the goods specified on the invoices sent to them.

Thereafter, Elliot and/or Daryl were forced to infuse additional monies into NAPD to maintain the liquidity of the company and to allow it to keep operating.

At this point, Nathan pledged as collateral to Elliot the ownership in his family home. Nathan represented that he had an ownership interest in the home.

The two partners subsequently came to believe that Nathan had falsely represented to Elliot that the home had no mortgage, was worth more than $1.2 million, and that he had ownership rights.

Nathan’s lies and false invoices to clients and potential clients tarnished the name of NAPD and EJK Productions. As a result of NAPD’s tarnished reputation, Elliot and Daryl refused to publicly associate themselves with NAPD and gave Nathan the exclusive right to operate under the NAPD name and, without waiving their roles as members, Elliot and Daryl ceased to work for NAPD. To compensate Elliot and Daryl for their infusions into NAPD and their efforts for building NAPD’s business, Nathan executed an agreement on Nov. 22, 2008 in which Nathan personally guaranteed certain of NAPD’s obligations.

The Yeshamayayn company was formed in 2008 and Elliot and Daryl gave Nathan the right to operate Yeshmayayn and Bill-Mar to allow Nathan a source of income to repay his outstanding obligations to Elliot, Daryl, and NAPD."

Additional improper uses of NAPD funds itemized in the court papers included: Nathan’s use of NAPD’s funds and credit cards for his own personal use; use of NAPD’s credit card to infuse funds into Bill-Mar/Yeshmayayn and to pay Bill-Mar/Yeshmayayn’s expenses; and use of the NAPD’s credit card to pay for his own personal travel expenses, including domestic and international plane tickets.

A Good Steward?
As President of the East Ramapo School Board, Nathan Rothschild and the other board members are making decisions about one of the largest budgets in the County--$190 million according to Superintendent Oustatcher. If you look at Rothschild’s ability to responsibly manage his own financial matters through the filter of the legal actions taken against him, and won by others, it’s not very reassuring. Here are some of the actions found in current County records along with the judgments against him.

If Nathan Rothschild loses this current lawsuit, especially if he is found to have violated civil law, his 15-year tenure on the board would merit a review by the NYS Public Integrity Bureau.

And besides the question of personal responsibility, there is another possible problem for anyone who finds themselves in this kind of position. Consider the most recent judgment against Rothschild. A sudden significant debt of almost $200,000 would make a person a poor risk if they were looking for any kind of security clearance, and for the same reason it could make a person in a public position vulnerable.

Conflict of Interest?
There is one other area that might benefit from a closer look. The two business partners who are suing Rothschild have substantial ties to private schools. Daryl Hagler is President of the Board of Directors of the Adolph H. Schreiber Hebrew Academy of Rockland County (ASHAR) www.ashar.org/articles/about-us-17/contact-us-96.html,  and Elliot Kahan is a Trustee on the Board of Kehillas Bais Yehudah http://www.kbyshul.org/board.html. Both of these Yeshivas have had business dealings with the East Ramapo School District whose Board President, Rothschild, is their partner in these failing business ventures.

The appearance reminder has been issued, and the principals of Kahan and Hagler v. Rothschild, Mazzella, and Rothschild will appear in New York Supreme Court a week from this Friday. We will update the story as events develop.