|According to the Miracle Flights consolidated audit of April 30, 2018 (Note 8, Legal Matters):
"On June 26, 2015, MFFK [Miracle Flights for Kids] filed suit against Med Lien Management, Inc., ('Med Lien') and its two principals, Brad Esposito and Lincoln Lee, as a result of their default on a 2.2 million dollar loan obligation. Pursuant to a Lending Agreement dated April 30, 2013, MFFK agreed to loan Med Lien $2,200,000 in exchange for Med Lien's repayment of the money plus interest, for a total repayment obligation of $3,520,000. The Lending Agreement was secured by a Promissory Note and Assignment of Liens. Both principals, Lee and Esposito expressly agreed to personally guaranty Med Lien's obligations under the Lending Agreement and Promissory Note. Med Lien borrowed funds from MFFK with the express written understanding that it would make six interest only payments of $220,000 each, at six month intervals beginning October 30, 2013, with the final repayment of the principal amount of $2,200,000 due on April 30, 2016. As collateral for the Lending Agreement, Med Lien executed a written agreement providing for the assignment of numerous medical liens in the event of a default. Med Lien made its first three interest payments but failed to remit the $220,000 due on April 30, 2015.
"During the course of Christiansen Law Office's ('CLO') prosecution of the state court breach of contract action against Med Lien, Esposito and Lee, discovery revealed that the original $2.2 million dollar loan was induced by fraud and further involved self-dealing and breaches of fiduciary duties by MFFK former Board Member, Michael McDonald. Additionally, the named Defendants had co-mingled funds with various sham alter ego entities. Accordingly, MFFK filed an Amended Complaint to add causes of action against McDonald, Southern Nevada Medical Associates ('SNMA'), Critical Care Medical Consultants ('CCMC') and Quality Care Medical ('QCM').
"On May 19, 2016, the district court issued an order striking the answers of Esposito and Med Lien and subsequently held an evidentiary hearing to determine the amount of damages. On May 19, 2016, the court entered its Findings of Fact, Conclusions of Law and Order, holding the Defendants jointly and severally [sic]
"Concealment, and Fraudulent Conveyance/Transfer [sic]. On June 22, 2016, a Judgment was entered in favor of MFFK and against Defendants for each and every cause of action (independently and severally), resulting in an award of $2,782,096 in compensatory damages. Each of the Defendants was also assessed $100,000 in punitive damages for a total award to MFFK in the amount of $2,982,096. The financial solvency of both debtors however, is questionable at best and thus, CLO cannot determine the likely amount of total recovery based upon the judgment.
"MFFK also brought claims under its Directors and Officer's Liability insurance policy to recoup the losses it sustained as a result of McDonald's misconduct and self-dealing but the insurance carrier initially denied coverage. On September 7, 2016, the parties stipulated to allow McDonald to amend his Answer to assert third-party claims against the Federal Insurance Company -- Chubb Group of Insurance Companies ('Federal' and/or 'Chubb') regarding its denial of insurance coverage to MFFK and McDonald. Thereafter, MFFK went to mediation with McDonald and Chubb on September 20, 2016, and again on December 8, 2016. The parties were able to reach a confidential global settlement agreement to resolve this matter, wherein Chubb paid MFFK a total of $387,500 and McDonald's benefactors made a charitable donation of $262,500 to MFFK on his behalf. Based upon Defendants satisfaction of their settlement obligations, MFFK's claims against McDonald were dismissed with prejudice.
"MFFK further learned of an approximately $350,000 breach of contract action that Med Lien filed against third party lien and medical services entities, Solution Providers Associates, its principal, Dr. John Nelson, and Centenniel Medical Imaging. MFFK intervened as a Plaintiff in that action and Med Lien concedes MFFK would be entitled to any proceeds recovered as a result of that litigation. On or about June 20, 2017, the parties agreed to resolve the matter for the sum of $460,000, with $68,000 to be paid on or before September 1, 2017, monthly payments of no less than $5,500 for October, November and December 2017, and an additional balloon payment to bring the total paid to $100,000 on or before January 1, 2018. Thereafter, the Defendants will make $5,500 monthly payments for an additional thirty-one (31) months with a final balloon payment of $235,400 due on or before September 1, 2020. This agreement has yet to be formalized in writing, but will include confessions of judgment, a 30-day cure period and credit for amounts paid to be applied to any judgment that may ultimately be taken in the event that the Defendants fail to meet their payment obligations.
"Additionally, MFFK, as a lienholder, was served with two separate interpleader actions, wherein the total amount of the liens for medical treatment and services exceeds the amount of the settlement funds available. Accordingly, it is up to the court to determine how the proceeds should be divided based on the number of parties that answer the complaint. Accordingly, on March 21, 2017, MFFK filed its Answer in Glen Lerner Injury Attorneys v. Cleveland Powe, et al., Case No. A-16-745663-C, and on April 6, 2017, MFFK filed its answer in Glen Lerner Injury Attorneys v. William Woods, Sr. et al, Case No. A-17-751653-C, in order to protect its right, interest, entitlement and/or benefit to the settlement funds based upon its existing lien. While MFFK is zealously pursuing all avenues of financial recovery with respect to losses sustained as a result of the Med Lien loan, the likelihood of success in collecting on the full amount owed is subject to a number of unresolved variables. Thus, the timing and full extent of collection remains unknown at this point and all balances have been written off."