Case 1:15-cv-00494-PAB-NYW Document 71-1 Filed 07/21/15 USDC Colorado Page 1 of 22

Exhibit A

Case 1:15-cv-00494-PAB-NYW Document 71-1 Filed 07/21/15 USDC Colorado Page 2 of 22

JUDICIAL ARBITER GROUP, INC.

_______________________________________________
Claimants: JDK LLC, a Colorado limited liability
company, DEBORAH KOLASSA, JERRY KOLASSA, and
S. MARK SPOONE,
v.
Respondents: GENERAL PAYMENT SYSTEMS, INC., a
Colorado corporation, d/b/a EZ CARD & KIOSK;
GENERAL PAYMENT SYSTEMS, INC., a Nevada
corporation, d/b/a EZ CARD & KIOSK; and DANIEL
COOK.
________________________________________________
Attorneys for Claimants:
Brown & Kannady, LLC
Scott T. Kannady, Atty. Reg. # 29995
David J. Meretta, Atty. Reg. # 44409
2000 S. Colorado Blvd., Suite 2-610
Denver, CO 80222
Phone: (303) 757-3800
Fax: (303) 757-3815
Email: [email protected], [email protected]

_________________________
JAG Case Number:
15-0307

AMENDED DEMAND FOR ARBITRATION

COME NOW the Claimants, JDK LLC, Deborah Kolassa, Jerry Kolassa and S. Mark
Spoone, by and through their attorneys, Brown & Kannady, LLC, and for their Amended Demand
for Arbitration allege as follows:
I. PARTIES
1.
Claimant JDK LLC (JDK) is a Colorado limited liability company with its
principal office located at 6 Greenridge Road, Greenwood Village, Colorado.
2.
Claimant Deborah Kolassa (Deborah) is an individual who has a residential
address of 6 Greenridge Road, Greenwood Village, Colorado.
3.
Claimant Jerry Kolassa (Jerry) is an individual who has a residential address of
6 Greenridge Road, Greenwood Village, Colorado.

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4.
Claimant S. Mark Spoone (Spoone) is an individual who has a residential address
of 4833 Front Street, Ste. B405, Castle Rock, Colorado.
5.
Respondent General Payment Systems, Inc. d/b/a EZ Card & Kiosk, f/k/a
Continental Prison Systems, Inc. is a Colorado corporation (GPSI-Colorado) with its principal
office located at 15375 Barranca Parkway, Ste. C102, Irvine, California.
6.
Respondent General Payment Systems, Inc. d/b/a EZ Card & Kiosk, f/k/a
Continental Prison Systems, Inc. is a publicly-traded Nevada corporation (GPSI-Nevada) with
its principal office located at 15375 Barranca Parkway, Ste. C102, Irvine, California, and a satellite
office located at 125 Main St. #105, Dillon, Colorado.
7.
Respondent Daniel Cook (Cook) is an individual who, upon information and
belief, has a residential address of 2701 Orange Way, Unit 2, Spring Valley, California, and who
is a former investor and licensee of GPSI in the State of Ohio, and who has acted as a sales agent
on behalf of GPSI, in addition to acting on his own behalf.
II. JURISDICTION
8.
The subject Licensing Agreements and Buy-Sell Agreement (attached to the
original Demand) each contain an arbitration clause; the former provide that the disputes at issue
in this matter shall be arbitrated by a single arbiter who shall be a retired Colorado state court or
federal judge or attorney licensed to practice law in Colorado.
III. GENERAL ALLEGATIONS
A. Pertinent Background Facts
9.
The corporate Respondents operate numerous related payment processing entities
that provide jails and municipalities with proprietary hardware and cloud-based software
technology used to electronically collect payments from the general public through kiosks and
secure websites in the form of cash, debit and credit, for such items as licenses, parking tickets,
municipal bills, child support, real estate and school taxes, court fines and fees. These automated
systems deliver payment acceptance, real-time accounting and payment risk-mitigation services.
These entities operate under the brand, trademark and logo EZ Card & Kiosk, EZ Pay
Corporate, as well as numerous iterations of EZ payment systems (collectively, the EZ Pay
System).
10.
Since 2006, the corporate Respondents, first through a Nevada corporation called
Continental Prison Systems, Inc. d/b/a EZCard and Kiosk (CPSI) and later through GPSIColorado, GPSI-Nevada and/or through a Colorado Corporation called Municipal Holdings
Solutions Corp. (CPSI, GPSI-Colorado, GPSI-Nevada and Municipal Holdings Solutions Corp.
will hereafter collectively be referred to as GPSI), have provided such payment services directly
to jails and prisons, and have also licensed this system to third parties. The EZ Pay System earns
revenue through transaction fees, which are paid by the general public at a kiosk at the time of the
transaction, which are similar to ATM fees.

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11.
In approximately 2009 GPSI began offering the same payment services to
municipalities under the EZ Pay System.
12.
At all times relevant to this Demand, Paul A. Talbot (Talbot) has acted as a
managing partner and/or a sales and/or operational agent on behalf of GPSI, as well as the
President of Municipal Holdings Solutions Corp., a Colorado corporation doing business under
the name of EZ Pay Corporate (EZ Pay Corporate). Talbot was or has been employed and/or
affiliated with GPSI, and has worked for the Chairman, President and Chief Executive Officer of
GPSI, Ronald K. Hodge (Ronald) and the Vice President of Marketing and Sales of GPSI, Gregg
K. Hodge (Gregg), since approximately 2006. Talbot has acted in a sales capacity for GPSI,
and has helped to grow GPSIs business by recruiting licensees, and by pursuing business
opportunities on the jail and municipal side. Talbot generated over $7 million in GPSI licensing
fees rights through sales to investors such as JDK and Spoone, and he represented to each that the
investment would be passive, in that Talbot would, at no further cost to the investor, furnish the
sales team and operational staff necessary to operate the businesses, in exchange for receiving a
percentage of revenue or ownership in the business.
B. The Pennsylvania Municipal License
On or about July 12, 2011 JDK and GPSI-Colorado entered into a written Licensing
13.
Agreement (the Pennsylvania License) pursuant to which JDK was granted an exclusive license
to develop, market, distribute, sell, lease or otherwise transfer GPSIs payment processing services
and technology to municipal court systems, probation departments and police departments within
the State of Pennsylvania, using GPSIs brand, trademarks and logos. James E. Sylvester
(Sylvester), who has acted as the Chief Financial Officer of GPSI at all times relevant to this
Demand, executed the Pennsylvania License on behalf of GPSI-Colorado.
In exchange for the rights granted to JDK pursuant to the Pennsylvania License,
14.
JDK was required to pay to GPSI a license fee in the initial amount of $640,000, with an additional
$710,000 in license fees that would become due to GPSI, contingent upon JDKs achievement of
various gross revenue thresholds. On behalf of GPSI, Frank O. Hofmeister (Hofmeister), who
was a founder and an officer of GPSI between January 2010 and January 2013 (and who was also
the mastermind of the GPSI municipal licensing scheme, as set forth infra) received the $640,000
in funds paid by JDK pursuant to the Pennsylvania License.
15.
Pursuant to the Pennsylvania License, as well as through the actions of GPSIs
agent, Talbot, GPSI maintained significant control over JDKs business and/or provided
significant assistance (albeit counterproductive) to JDK in the operation of the subject business.
For example, while engaging in contract negotiations with prospective municipal clients in
Pennsylvania, Talbot refused to keep Deborah or Jerry apprised of same, and refused to disclose
any information regarding the negotiations.
16.
JDK invested the initial $640,000 in license fees, as well as $360,000 for kiosks,
labor and other equipment for the Pennsylvania License.
17.
The Respondents sold the municipal business to JDK on the aggressive premise
that JDK would passively earn a twenty percent (20%) return on its investment, with Talbot serving
3

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as both the operational and sales side of the business, and that he would be utilizing his extensive
experience and familiarity with GPSIs business, as well as his business contacts and knowledge
of the Pennsylvania market, to provide substantial ongoing support to the business.
18.
The Respondents represented to Deborah and Jerry that JDKs primary role in this
arrangement, following its initial investment, would be to simply sit back and collect checks on
the successful operations that Talbot would be running in Pennsylvania. According to the
Respondents, JDKs only other material contributions would be to cover the cost of travel and
equipment.
19.
On repeated occasions prior to the execution of the Agreement, Talbot and Cook,
acting as franchise agents or brokers for GPSI and/or otherwise acting on GPSIs behalf, made
false and highly misleading oral and written Financial Performance Representations (FPRs) to
Deborah and Jerry. Certain of these FPRs were transmitted by Cook with Talbots knowledge,
assent and/or direction.
20.
In communicating with Deborah and Jerry regarding the GPSI investment
opportunity, Talbot and Cook failed to disclose and/or fraudulently withheld material information
from Deborah and Jerry, including but not limited to: information regarding Pennsylvania state
money transmitter laws, the Unified Judicial System of Pennsylvania/APOC (which effectively
has a monopoly on the payment software for all courts and related departments throughout the
state), GPSIs corporate business plan, financial information, information concerning GPSIs
competitors in the municipal space in Pennsylvania (many of which offer the same services for
less than the cost of doing business under the EZ Pay System), credit card and banking expenses,
the limitations of GPSIs software, GPSIs inability and/or unwillingness to meaningfully support
the business and/or to provide critical documentation as required, and the absence of a successful
or proven business model on the municipal side.
21.
On June 14, 2011 Cook forwarded by e-mail to Leanna Carette Cox (Cox), who
is Deborahs sister, a news article about GPSI along with e-mail comments from Talbot boasting
that, through a single county in Michigan, GPSI would be generating over 200K every two
weeks, and that the same county was going to exclusively accept child support payments through
GPSIs kiosks, which would generate 75 million annually.
On June 14, 2011 Cook also forwarded by e-mail to Cox a pro forma containing
22.
various projected gross revenues in Ohio over a five-year period, including projected gross
revenues of $2,436,480 during the first year of operations, along with an e-mail from Talbot
asserting that the jail side is small compared to what GPSI was doing on the municipal payment
side of things.
23.
On June 26, 2011 Talbot and Cook met face-to-face with Cox, Deborah and Jerry
to discuss the investment opportunity being offered by GPSI in the State of Pennsylvania. Both
Talbot and Cook acted as representatives or sales agents of GPSI in this regard.

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24.
On June 27, 2011 Talbot e-mailed Cox, Deborah and Jerry with additional
information about the investment opportunity, and furnished a list of five names, including Cook,
for them to contact to ask if the company and I have done everything as promised.
25.
On or about June 27, 2011 Talbot furnished Cox, Deborah and Jerry with a
spreadsheet, which he proceeded to discuss in detail, which projected that, by 2012, the municipal
business in Pennsylvania would generate gross revenue of approximately $86 million through
approximately 270,000 transactions.
26.
On June 28, 2011 Talbot e-mailed Cox, Deborah and Jerry and included monthly
revenue figures for four jails ranging between $66,894.40 and $267,577.73, explaining that they
should keep in mind that these figures represent a fraction of what we would do [on the
municipal side] because the number of people in the facilities is so small and they only take 3
payments as we will take over 50+ payments and our customer base is 100+ times more!
27.
On June 30, 2011 Talbot e-mailed to Cox and Jerry a spreadsheet dated January 1,
2011 that was entitled 3-Year Market Universe Revenue Projections. This spreadsheet stated
that GPSI licensees could expect to collect a fee of $4.00 per transaction. It stated that $4.00 per
transaction was, in fact, a "conservative average" and provided information showing that the
"actual" average would be more than $6.50 per transaction. The spreadsheet also stated that, for
payments to municipal police departments, a conservative fee estimate was $10.50 per transaction,
but the "actual" average fee would be approximately $13.60.
28.
Upon information and belief, the Respondents were aware at or prior to the date
that the Pennsylvania License was executed that JDKs investment in the Pennsylvania License
was highly likely to fail.
C. The Ohio Municipal License
29.
Approximately six weeks before JDK signed the Pennsylvania License, on or about
June 1, 2011, GPSI-Colorado had entered into a written Licensing Agreement (the Ohio License)
with C & T Holdings, LLC (C&T), a Colorado limited liability company formed by Cook and
Talbot in 2009, pursuant to which C&T was granted an exclusive license to develop, market,
distribute, sell, lease or otherwise transfer GPSIs payment processing services and technology to
municipal court systems, probation departments and police departments within the State of Ohio,
using GPSIs brand, trademarks and logos. Cook and Talbot each owned 50% of the shares of
C&T.
30.
In exchange for the rights granted to C&T pursuant to the Ohio License, C&T was
required to pay to GPSI a license fee in the initial amount of $540,000, with an additional $710,000
in license fees that would become due to GPSI, contingent upon C&Ts achievement of various
gross revenue thresholds.
31.
Pursuant to the Ohio License, as well as through the actions of GPSIs agent,
Talbot, GPSI maintained significant control over C&Ts business and/or provided significant
assistance (albeit counterproductive) to C&T in the operation of the subject business. For example,

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Talbot furnished a dwindling amount of information to Spoone concerning the customer leads that
Talbot and his team were pursuing.
32.
On behalf of GPSI, Talbot and Thomas J. Gilhooly (Gilhooly), who has acted at
all relevant times as a sales agent for GPSI and the Vice President of EZ Pay Corporate, began
soliciting Spoone to invest in the EZ Pay System in early 2012. Over the course of several months,
Talbot and Gilhooly repeatedly furnished Spoone with oral and written FPRs and told Spoone
about the over-the-top success and returns in excess of 20 percent that Talbot and the other
investors in the EZ Pay System supposedly were enjoying.
33.
In approximately February 2012 Spoone met with Talbot and Talbots direct
supervisor at GPSI, Gregg, at Talbots home. Talbot and Gregg expanded upon the FPRs
furnished by Talbot and discussed in detail the business model, the growth of the EZ Pay System
growth and its lucrative returns.
34.
Talbot and Gilhooly continued to entice Spoone into investing in the EZ Pay
System by furnishing various insider reports from GPSI and showing Spoone documents and
data reflecting the returns in excess of 20 percent that they claimed that Talbot, Gregg and the EZ
Pay investors supposedly were enjoying.
35.
During the months that followed, Talbot arranged for numerous follow-up meetings
with Spoone during which Talbot and Gilhooly shared online and paper reports of what Talbot
claimed were GPSIs revenues from various jails across the country. The reports and information
that were shared with Spoone did not delineate between jail and municipal revenues, and Talbot
assured Spoone that the municipal business was really taking off. Talbot also progressively
intimated that the really big money was not even in the jails, but on the municipal side of the
business, because there were so many more opportunities for revenue, such as using the EZ Pay
System for items such as parking and traffic tickets, child support, court fees and
permitting. Talbot represented to Spoone that Talbot had been instrumental in the designing and
crafting of the municipal solution and that GPSI was already seeing even faster growth on the
municipal side than with the jail business.
36.
Talbot invited Spoone to his office in Colorado on numerous occasions to witness
Talbots team in action. Part of Talbots regular sales pitch was the fact that he had equity interests
in a number of GPSI state licenses and kiosk leases and that Talbot had assembled an entire team
whose full time job was to call on various counties, jails and courts across the list of states that he
had interests in and close deals. Talbot claimed to have closed several large deals and regularly
pulled up the GPSI web site to show the various payments that were being processed and collected
on.
37.
Talbot made numerous promises and commitments to Spoone that his role and full
time focus was solely upon developing and closing new opportunities in the states that his team
was calling on. Talbot further assured Spoone that since Talbot had a larger equity stake in Ohio
than any other state that Talbot would be highly focused on creating revenue in Ohio, Talbot
represented that his operations and sales were the value that he would be bringing to the table in
exchange for his equity interest in the business, in order to create the promised return well in excess

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of 20 percent. Talbot repeatedly conveyed to Spoone that this would be an armchair style
investment for Spoone while Talbot leveraged his existing team to close big deals and create sales.
38.
In the spring of 2012 Talbot and Gilhooly told Spoone about a list of huge
opportunities that were pending in Ohio both on the jail and municipal side - with Talbots then
partner, Cook. Talbot related that Cook had another big project that he wanted to focus on and
that Cook had put his sisters money into the venture and that she needed it back right away for a
family emergency. Talbot, Gilhooly and Cook proceeded to solicit Spoone to purchase Cooks
interest in the Ohio License.
Gilhooly, along with Talbot and Cook, told Spoone on several occasions that GPSI
39.
had a ton of great leads that they supposedly were really close to getting done and that they
would be closing deals within just a few weeks. Gilhooly represented to Spoone that they were
on the verge of closing deals in Canton, Ohio, Lucas County, Ohio and Cuyahoga County, Ohio,
as well as with the administrator of the statewide child support program for the State of Ohio, as
well as with San Antonio, Texas, which Gilhooly told Spoone essentially was a done deal. They
showed him a lengthy list of leads on the SUGAR database system in Talbots EZ Pay Corporate
office. As it turned out, none of these deals ever closed.
40.
Gilhooly, along with Talbot, boasted to Spoone on several occasions about the
success that GPSI had enjoyed in areas such as Broward and Dade Counties in Florida, Orange
County, California, the Rikers Island penitentiary in New York, Eagle County, Colorado, the
Aurora, Colorado Detention Center, the Boulder County Jail in Colorado, as well as Pueblo
County, Colorado. They represented to Spoone that the tremendous success in those counties
would pale in comparison to the amount of revenue that the state of Ohio offered. They showed
Spoone live, real-time updates of the amount of money that they indicated was pouring in from all
over the country through GPSI kiosks and suggested that Spoone would enjoy comparable
revenues in Ohio. They told Spoone that he would soon be generating $80,000 in monthly
revenues through each municipality, and that this would soon be generating statewide revenues in
excess of $1,000,000 per month.
41.
Gilhooly, acting in conjunction with GPSI, Talbot and others, made FPRs to
Spoone on at least three separate occasions, FPRs that Gilhooly either knew to be false, or
recklessly made without reasonable substantiation, knowing and intending that Spoone would rely
upon Gilhoolys representations to decide to invest in the Ohio License. These FPRs included
data revealed to Spoone by Gilhooly through a customer relations management system called
SUGAR.
42.
During the course of their solicitations, the Respondents furnished Spoone with a
spreadsheet that had been created by Hofmeister entitled License Fee Schedule All States. The
spreadsheet identified a market universe for each state, based on its population and counties, and
specifically listed Ohio as having a market universe in the amount of $243,648,000.
43.
In addition to the License Fee Schedule, during the course of their solicitations,
Talbot and others shared with Spoone FPRs that were substantially similar or identical to the presale FPRs that the Respondents furnished to Deborah and Jerry, as detailed in Paragraphs 17
through 27, infra. Typically, Talbot would present such written FPRs for Spoones in-person

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perusal, then take the documents back into Talbots possession while promising to furnish copies
to Spoone at a later date. Talbot would also present data on his personal computer that Talbot
claimed was data accessed through GPSI internal databases.
44.
Upon information and belief, the actual reason behind Cooks desire to sell his
interest in the Ohio License was that he fully understood that GPSI did not have a profitable
business plan on the municipal side.
45.
On repeated occasions prior to the execution of the Buy-Sell Agreement referenced
below, Cook, Talbot and Gilhooly, acting as franchise agents or brokers for GPSI and/or otherwise
acting on GPSIs behalf, made false and highly misleading oral and written FPRs to Spoone.
Certain of these FPRs were furnished to Spoone by Cook with Talbots knowledge, assent and/or
direction.
46.
Cook furnished FPRs and made numerous material misrepresentations to Spoone
regarding the Ohio License and his reasons for wanting to exit the business, including the
representation that his sister was a judge in Ohio and that she was on board with the EZ Pay system
and would be supporting the efforts to ensure the establishment of several kiosks in counties in
Ohio.
47.
In April 2012 Cook, Talbot and Spoone reached an agreement (the Buy-Sell
Agreement) for Spoone to purchase Cooks 50 percent share of the Ohio License held by C&T
for $540,000. Of this amount, Spoone paid $200,000 up front and made one subsequent payment
to Cook in the amount of $25,000.
The Buy-Sell Agreement specifically required Cook to disclose all material and
48.
non-material facts pertaining to his ownership and involvement in C&T, as well as his relationships
with GPSI.
49.
As it turned out, Cook failed to disclose to Spoone all material and non-material
facts pertaining to his ownership and involvement in C&T, as well as regarding his relationships
with GPSI.
50.
During the April 2012 meeting (arranged by Talbot) in which the Buy-Sell
Agreement was finalized, Talbot assured Spoone that he would soon thereafter be providing
Spoone with a copy of the Ohio License and other reports, as well as Talbots list of customer
leads. Spoone understood from representations made by Talbot, Cook and Gilhooly that the Ohio
License in which he was investing included both the jail and municipal sides in the State of Ohio.
51.
As it turned out, other than the license agreement, Talbot failed to furnish Spoone
with any of the information that he had promised.
52.
During various meetings, Talbot claimed to have a huge deal pending with the
county Treasurer of Lucas County, Ohio, Wade Kapszukiewicz, and Talbot represented that he
had already received verbal approval from Kapszukiewicz to begin placing kiosks for the
collection of property taxes. Talbot claimed that he had secured that deal though an attorney in
Chicago who is close friends with Kapszukiewicz. As it turned out, no such deal in Lucas County
was ever finalized.
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53.
When Spoone was finally furnished with a copy of the Ohio License a few weeks
later, he discovered that the license agreement was solely for the municipal side of the business in
Ohio and had no rights to the jail side. Spoone further discovered that the Ohio License called for
the mandatory payment of ongoing royalties to GPSI as well as an additional license fee, and
contained mandatory minimum performance requirements and events of default that could
invalidate the license.
54.
GPSI was made aware of, and consented to, the Buy-Sell Agreement. In fact, GPSI
actively took steps to facilitate the Buy-Sell Agreement.
55.
Upon information and belief, the Respondents were aware at or prior to the date
that the Buy-Sell Agreement was executed that Spoones investment in the Ohio License was
highly likely to fail.
D. Actual Performance of the Pennsylvania Municipal Investment
Far from the seven-figure first-year and eight-figure second-year gross revenues
56.
forecast by the Respondents, JDK generated negative gross revenue in 2011 and 2012, only
$25,408 in 2013 gross revenue and only $77,425 in 2014 gross revenue, through less than 13,000
total transactions for the two years combined.
Even after operating under the Pennsylvania License for almost four years, JDK
57.
still has not generated enough profit to cover the $360,000 expended by JDK on kiosks,
installations and other operating expenses (such as accompanying labor). JDK has received no
return on its substantial investment.
58.
It has become apparent that the Respondents do not have, and never had to begin
with, a profitable business plan for JDKs investments in Pennsylvania on the municipal side.
59.
Contrary to how the GPSI investment opportunity was presented and sold to them,
JDK has been profoundly impacted in a negative fashion in Pennsylvania by numerous undisclosed
surprises, including but not limited to:
a. The existence of Pennsylvania state Money Transmitter regulations, which impose
substantial barriers on the operation of JDKs business;
b. The effective monopoly held by the Unified Judicial System of Pennsylvania/AOPC
through its proprietary payment software for all courts and related departments throughout
the state, which prevents any opportunity for JDK to process court payments;
c. The competitive disadvantage faced by JDK, as GPSIs primary competitors offer the same
services for less than JDKs cost of doing business under the EZ Pay System;
d. The existence of a previous investigation and substantial administrative fine levied against
GPSI by the State of Pennsylvania as a result of a finding by the state that GPSI had violated
Money Transmitting Laws;

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e. That GPSIs cyber insurance policy does not cover JDK or other Licensees, all of which
are completely dependent on GPSI for software;
f. That the Respondents software was deficient in numerous material respects, including but
not limited to the softwares inability to determine licensee profitability; and
g. That GPSI executives would be unresponsive and unsupportive, even regarding key
operational requests (such as a letter requested by the City of Harrisburg in July 2014
supporting an internal auditing and service report) despite repeated verbal and written
requests from JDK.
60.
Talbots participation in the JDKs business turned out to be disastrous, culminating
with Talbots abandonment of his operational and sales roles for JDK on or about February 24,
2014.
As a direct result of Talbots abandonment of all operations, JDK, through Deborah
61.
and Jerry, has been forced to expend substantial time and resources procuring and supporting the
business, despite having explicitly been told by Talbot and Cook that this would not be required.
62.
Notwithstanding his pre-investment FPRs (made on behalf of GPSI and with the
knowledge and authorization of GPSI, Ronald, Gregg, Hofmeister and/or Sylvester), Talbot failed
to deliver results to JDK on the municipal side that came anywhere close to those projections.
63.
Talbot also engaged in numerous instances of post-investment misconduct,
including but not limited to knowingly making false representations of material fact to JDK in
connection with a dubious self-dealing arrangement that Talbot unilaterally finalized with his wife,
Brooke Talbot (Brooke)s credit card company, Max 1 Financial LLC (Max 1 Financial), of
5335 Mesa Drive, Castle Rock, Colorado, an arrangement that Talbot and Brooke falsely assured
JDK would result in significant cost savings to JDK. At all times relevant to this Demand, Brooke
has acted a sales agent and employee of EZ Pay Corporate and the President of Max I Financial.
64.
Without JDKs consent or authorization, and without making proper disclosures,
Talbot and Brooke signed both the City of Harrisburg and Montgomery County as merchants of
record for the accounts, and then proceeded to covertly deduct excessive charges from JDKs bank
account, also without approval from or disclosure to JDK.
65.
After withholding critical credit card information from JDK for five months, in
December 2013, Talbot and Brooke finally revealed to JDK that the credit card processing fees
that Max 1 Financial was charging to JDK were over 6% of gross revenues during that five-month
period, rather than the 3.8% rate that Talbot and Brooke had promised to JDK.
66.
At that time, Max 1 Financial was controlling all fee revenue that JDK was
generating through the City of Harrisburg and Montgomery County.
67.
When JDK requested additional information documenting the establishment of the
subject credit card accounts, Talbot and Brooke refused, claiming that Harrisburg and

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Montgomery Counties in Pennsylvania were the merchants of record, and that JDK would receive
no further disclosures.
68.
JDK has also been saddled with unprofitable contracts in Pennsylvania that were
negotiated by one or more of the Respondents without JDKs approval or consultation. Acting
unilaterally and without authority, Talbot also entered into a contract with Montgomery County as
the purported President of JDK, again without any review, disclosure or consent from JDK.
69.
By March 2013, as JDKs investment on the Municipal side continued to flounder,
Talbot approached Deborah and Jerry on behalf of GPSI with a second business opportunity: the
Jail side. Talbot offered them the opportunity to invest in a License Agreement with GPSI for the
Pennsylvania jails, an opportunity that he assured them would assist with JDKs substantial cashflow deficit resulting from its Municipal investment. Talbots offer included two established jail
contracts in Pennsylvania, and he guaranteed that Deborah and Jerry would earn at least a 20%
return on their investment.
70.
Talbot represented to Deborah and Jerry that Talbot would serve as both the
operational and sales side of the jail business, and that he would be utilizing his extensive
experience and familiarity with GPSIs jail business, as well as his business contacts and
knowledge of the Pennsylvania market, to provide substantial ongoing support to the jail business
in which Deborah and Jerry would be investing.
71.
Talbot further proposed that he, Deborah and Jerry would become business partners
on the jail side of the business and that the parties would split the revenues from any jail kiosks
located in the Westmoreland and Butler County jails in Pennsylvania in proportion to the parties
respective funds invested in the business.
On or about April 30, 2013, an entity formed by Deborah, Jerry and Talbot, JDP
72.
LLC (JDP), entered into a written Licensing Agreement (the Jail Agreement) with CPSI,
pursuant to which JDP was granted an exclusive license to develop, market, distribute, sell, lease
or otherwise transfer GPSIs payment processing services and technology to jails within the State
of Pennsylvania, using GPSIs brand, trademarks and logos.
73.
In exchange for the rights granted to JDP pursuant to the Jail Agreement, JDP was
required to pay to CPSI a license fee in the initial amount of $310,000.
74.
Per their agreement with Talbot, Deborah and Jerry were to pay to CPSI $217,000
of the $310,000 license fee, and Talbot was to pay $93,000. In order to become entitled to an
ownership interest in the Jail License, Talbot was obligated to pay $93,000 to CPSI as Talbots
capital contribution.
75.
Although Deborah and Jerry paid their $217,000 to CPSI, it was later disclosed that
Talbot never paid anything to CPSI for the license fee, and, on information and belief, Talbot never
had any intention to pay $93,000 to CPSI.

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76.
The Agreement further requires the payment by JDP to GPSI of a monthly royalty
fee of fifteen percent (15%) of net revenue throughout the term of the Jail Agreement, other than
for two established jails in Butler and Westmoreland Counties.
77.
Pursuant to the Jail Agreement, as well as through the actions of GPSIs agent,
Talbot, GPSI maintained significant control over JDPs business and/or provided significant
assistance (albeit counterproductive) to JDP in the operation of the subject business. For example,
while engaging in contract negotiations with prospective jail clients in Pennsylvania, Talbot
refused to keep Deborah or Jerry apprised of same, and refused to disclose any information
regarding the negotiations, and instead merely submitted invoices that he demanded that Deborah
and Jerry pay.
78.
As it turned out, in addition to discovering that Talbot had never made the initial
capital contribution to JDP, Deborah and Jerry discovered that the Respondents had failed to
disclose numerous pieces of material information concerning the investment opportunity,
including but not limited to the existence of a kick back arrangement between GPSI and the jails,
through which the jails receive fifty cents per transaction in exchange for allowing GPSI to install
its kiosks there, as well as the significant degree to which banking and credit card fees impact the
profitability of the jail business, depending on how often money is wired to the facility and the rate
that is paid.
Talbots participation in the JDPs business turned out to be disastrous, culminating
79.
with Talbots abandonment of his operational and sales roles for JDP on or about February 24,
2014.
E. Actual Performance of the Ohio Municipal Investment
Notwithstanding the Respondents constant pre-sale representations that numerous
80.
huge deals in Ohio were bound to close within a few weeks, and that Talbot would soon be
making money at a rate exponentially higher than many of the existing GPSI jail deals, the
Respondents failed to deliver to Spoone or C&T even a single account municipal or jail in the
State of Ohio. Spoone is out every penny of his $225,000 investment.
81.
During the months and years that followed Spoones execution of the Buy-Sell
Agreement, Talbot furnished a diminishing amount of information regarding the investment.
Talbot periodically repeated the same assertions to Spoone as before - that Talbot and his team
were, yet again, onto a big one that was bound to close, but invariably, something always went
wrong.
On December 27, 2014, in response to Spoones demand for answers and
82.
information as to the progress of the investment to which Talbot had been ignoring for months,
Talbot demanded that Spoone cease all communications with him and instead communicate solely
through Talbots attorney.
F. The Respondents Fraudulent Scheme

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83.
Through a fraudulent scheme, which Hofmeister claims to have generated for GPSI,
the Respondents have deceived JDK, Deborah, Jerry, Spoone and other GPSI licensees into
investing millions of dollars.
84.
In connection with the FPRs made to JDK, Deborah, Jerry and Spoone regarding
the GPSI investment opportunity, Cook engaged in one or more acts, practices or course of
business which operated as a fraud or deceit upon JDK, Deborah, Jerry and/or Spoone, or would
operate as a fraud or deceit upon any person.
85.
At no time did the Respondents furnish JDK, Deborah, Jerry or Spoone with any
prospectus or Franchise Disclosure Document.
86.
The Respondents did not furnish JDK, Deborah, Jerry or Spoone with complete or
accurate information regarding the GPSI investment opportunity, and did not place them in a
position to make an informed decision as to whether or not to invest or to be able to evaluate the
potential risks and benefits of investing in GPSI.
87.
The Respondents furnished projected sales volumes to JDK, Deborah, Jerry and
Spoone, just as they have repeatedly done with other investors and potential investors, projections
that the Respondents knew or should have known were unattainable.
88.
Cook, who is a longtime friend of Talbot, played an important role in the
Respondents solicitation of JDK, furnishing sales projections and other representations in
conjunction with Talbot. The Respondents falsely represented to JDK that Cook would work with
Talbot to ensure the success of JDKs operations in Pennsylvania. Upon information and belief,
both Talbot and Cook received compensation from GPSI in connection with JDKs investment in
the Pennsylvania License.
89.
Cook also played an integral role in the Respondents solicitation of Spoone, and
knew first hand from his experience as a GPSI licensee in Ohio that GPSI did not have a profitable
business plan on the municipal side, yet he failed to disclose this fact to Spoone. Cook, acting in
conjunction with GPSI, Talbot, Gilhooly and others, further made numerous misleading FPRs to
Spoone and deliberately misled Spoone into believing that the Ohio License included both the jail
and municipal sides.
G. Damages
In addition to their original $640,000 investment in the Pennsylvania License fee,
90.
Deborah and Jerry, through JDK, have invested $360,000 in expenses related to the Pennsylvania
License, purchasing and installing seven kiosks along with travel, advertising and marketing costs
to promote the business, all without turning a profit or recouping any of JDKs investment.
Through JDP, Deborah and Jerry have also invested an additional $230,525.91 in the Pennsylvania
Jail License, including expenses.
91.
Spoone invested $225,000 in the Ohio Municipal License, all without turning a
profit or recouping any of his investment.

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First Claim For Relief

Breach of License Agreement/Breach Of Duty Of Good Faith And Fair Dealing - GPSI
92.
Claimants restate and incorporate herein by this reference all above-stated
paragraphs as if fully set forth herein.
93.

GPSI, through its conduct, has materially breached the Pennsylvania License.

GPSI owed a duty of good faith and fair dealing to JDK with regard to the
94.
Pennsylvania License.
95.
GPSI breached its duty of good faith and fair dealing to JDK in connection with the
Pennsylvania License.
96.

GPSI prevented JDK from realizing the intended fruits of the Pennsylvania License.

97.
As a direct and proximate result of GPSIs material breach of the Pennsylvania
License, as well as its breaches of its duty of good faith and fair dealing, JDK has sustained
damages in an amount to be proven at the Arbitration.
Second Claim For Relief
Breach of Buy-Sell Agreement/Breach Of Duty Of Good Faith And Fair Dealing - Cook
98.
Claimants restate and incorporate herein by this reference all above-stated
paragraphs as if fully set forth herein.
99.

Cook, through his conduct, has materially breached the Buy-Sell Agreement.

100. Cook owed a duty of good faith and fair dealing to Spoone with regard to the BuySell Agreement.
101. Cook breached his duty of good faith and fair dealing to Spoone in connection with
the Buy-Sell Agreement.
102.
Agreement.

Cook prevented Spoone from realizing the intended fruits of the Buy-Sell

103. As a direct and proximate result of Cooks material breach of the Buy-Sell
Agreement, as well as his breaches of his duty of good faith and fair dealing, Spoone has sustained
damages in an amount to be proven at the Arbitration.
Third Claim For Relief
Civil RICO
104. Claimants restate and incorporate herein by this reference all above-stated
paragraphs as if fully set forth herein.

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105. The Respondents were employed by or associated with one or more affiliated
enterprises that were engaged in or affected interstate or foreign commerce.
106. During the period 2011 through 2014, the Respondents conducted or participated
in the conduct of the affairs of the enterprise(s), and did so through a pattern of racketeering activity
which included the numerous fraudulent misrepresentations and material omissions directed to the
Claimants, as set forth infra.
107. The Respondents, working in concert with one another, knowingly carried out and
participated in their fraudulent scheme.
108. The Respondents carried out and participated in the fraudulent scheme through the
use of the mail and wires in furtherance of their scheme, and by promising to perform an act in the
future which, at the time of making the promise, they had no intention of ever performing.
109. As a direct and proximate result of the Respondents racketeering activity, the
Claimants were damaged in an amount to be determined at the Arbitration.
Fourth Claim For Relief
Fraudulent Inducement
110. Claimants restate and incorporate herein by this reference all above-stated
paragraphs as if fully set forth herein.
111. The Respondents fraudulently induced the Claimants to invest in GPSI by entering
into the Pennsylvania License, the Jail License and the Buy-Sell Agreement.
112. As specifically set forth, infra, the Respondents, by and through their authorized
representatives, furnished written and oral financial performance representations, projections,
profit forecasts and other statements (the Misrepresentations) to the Claimants which were false
or materially misleading, contained material misrepresentations of past or existing facts, were
made without a reasonable basis or written substantiation, and/or which omitted one or more
material facts necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading.
113. At the time the Respondents, by and through their authorized representatives, made
the Misrepresentations, they knew the information contained therein to be false, or they made such
Misrepresentations with reckless ignorance of their false or misleading nature.
114. The Respondents, by and through their authorized representatives, made the
Misrepresentations with the intent that the Claimants would rely on them, and with the intent that
the Misrepresentations would cause the Claimants to invest in the GPSI system.
115. The Claimants reasonably relied upon the Misrepresentations by entering into the
Pennsylvania License, the Jail License and the Buy-Sell Agreement, and by investing significant
sums of money into GPSI and particularly into the ongoing operation and development and
operation of the business in Pennsylvania and Ohio, to the Claimants substantial detriment and
damage.
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116. But for the Misrepresentations, the Claimants would not have entered into the
Pennsylvania License, the Jail License and the Buy-Sell Agreement.
117. The Claimants have been damaged by the Misrepresentations made by the
Respondents in an amount to be determined at the Arbitration.
118. The damages incurred by the Claimants were proximately caused by the
Respondents Misrepresentations.
Fifth Claim For Relief
Fraud
119. Claimants restate and incorporate herein by this reference all above-stated
paragraphs as if fully set forth herein.
120. The Respondents, by and through their authorized representatives and agents,
engaged in fraudulent conduct in connection with the Pennsylvania License, the Jail License and
the Buy-Sell Agreement.
121. In particular, as described above, the Respondents, acting in concert with one
another, implemented and executed a scheme through which the Respondents sold the Claimants
on what amounts to a Ponzi Scheme, doing so through the use of numerous illegal FPRs and other
misrepresentations, as well as through the concealment of critical facts. The Respondents used the
Claimants as a bank to fund their fraudulent activities, and ultimately to put money in their own
pockets at the Claimants expense.
122. The Respondents carried out this fraudulent scheme through a series of
misrepresentations and material omissions made to the Claimants concerning the Pennsylvania
License, the Jail License and the Buy-Sell Agreement over a four-year period, including but not
limited to the acts and omissions set forth in Paragraphs 17 through 55 of the Demand.
123. As described above, Cook personally participated and furthered the fraud described
herein by, among other things, sanctioning the fraud and directly interfacing with the Claimants.
124. Cook knew or reasonably should have known that the Misrepresentations were false
and that they were concealing critical facts. He was aware that the Claimants were relying upon
the Respondents representations.
125.
detriment.

The Claimants reasonably relied upon the Misrepresentations to their substantial

126. As a direct and proximate result of the Respondents Misrepresentations and

fraudulent non-disclosure, the Claimants have suffered damages in amount to be proven at the
Arbitration.
Sixth Claim For Relief
Violation of Colorado Consumer Protection Act

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127. Claimants restate and incorporate herein by this reference all above-stated
paragraphs as if fully set forth herein.
128. The Respondents violated the Colorado Consumer Protection Act, 6-1-101 et seq.
(the CCPA) by engaging in an unfair or deceptive trade practice when they made the
representations detailed above and by concealing facts as detailed above, and by selling a franchise
to claimant without providing an FDD as required by the Federal Trade Commissions Franchise
Rule, 16 C.F.R. 436 et seq.
129. Cook participated in violations of the CCPA described herein by, among other
things, personally conceiving of and/or orchestrating the fraudulent or unfair trade practices and
then participating in the execution thereof, by approving and sanctioning the fraudulent and unfair
trade practices.
130. Cook participated in violations of the CCPA described herein by, among other
things, personally participating in the execution of the fraudulent or unfair trade practices.
131. The Respondents made the above-referenced misrepresentations in the course of
the EZ Pay System, for the purpose of inducing the Claimants to invest in GPSI through the
Pennsylvania License, the Jail License and/or the Buy-Sell Agreement. The Respondents unfair
and deceptive trade practices were fraudulent, willful, knowing and intentional.
132. The Respondents unfair and deceptive trade practices significantly impact the
public as actual or potential consumers, and their methods have a tendency and capacity to attract
customers.
133. As a direct and proximate result of the Respondents violations of the CCPA, the
Claimants have suffered injuries in fact to legally protected interests.
134. The Claimants have been damaged by the Respondents violations of the CCPA in
an amount to be determined at the arbitration of this matter, but believed to be in excess of
$1,600,000.00.
Seventh Claim For Relief
Civil Theft/Conversion
135. Claimants restate and incorporate herein by this reference all above-stated
paragraphs as if fully set forth herein.
136. GPSI and Cook, acting directly, in concert, and/or through representatives,
employees and/or agents, has knowingly retained, obtained and/or exercised control over funds
belonging to JDK, JDP, Deborah, Jerry and Spoone without authorization.
137. In particular, one or more of the Respondents obtained funds from Deborah and
Jerry in connection with JDK or the Pennsylvania License or with JDP or the Jail License, and/or
from Spoone in connection with C&T or the Ohio License, being fully aware that the Claimants

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would receive no consideration for their investments, and being fully aware that the investments
would fail.
138. Working in concert, one or more of these Respondents obtained possession of the
Claimants funds by fraud or deception.
139. As a result of the utter absence of any consideration furnished by the Respondents
to the Claimants in return for their investment in the Pennsylvania, Jail and Ohio Licenses, rightful
ownership of these funds continues to belong to the Claimants.
140. Upon information and belief, one or more of these Respondents intended to
permanently deprive the Claimants of the use or benefit of these funds.
141. As a direct and proximate result of the actions of one or more of these Respondents,
the Claimants have suffered and/or will suffer damages in an amount to be determined at the
arbitration.
Eighth Claim For Relief
For Constructive Trust
142. Claimants restate and incorporate herein by this reference all above-stated
paragraphs as if fully set forth herein.
143. All revenue and profits that the Respondents have wrongfully and unjustly obtained
as a result of their acts of infringement are subject to an equitable lien and constructive trust for
the benefit of the Claimants.
144. The Claimants therefore request that the Arbiter impose a constructive trust on the
proceeds from the use of any infringing acts or products, wrongfully in the hands of the
Respondents, as well as the portion thereof which are in the hands of others, whether or not the
Respondents herein, in order to preserve said proceeds for the Claimants.
Ninth Claim For Relief
Accounting GPSI
145. Claimants re-allege and incorporate by reference each and every allegation
contained in the previous paragraphs, as though fully set forth herein.
146. The actions of GPSI, which include the unauthorized taking and/or redirecting of
funds belonging to the Claimants, have resulted in improper profits, revenues, and other financial
gains to GPSI for which the Claimants, in equity and good conscience, are rightfully entitled to
reimbursement.
147. The Claimants not know the amount of revenue and profits wrongfully realized by
GPSI, which information is uniquely within the knowledge of the Respondents. The Claimants
are, therefore, entitled to an accounting, at GPSIs expense, to determine the amount of revenue
and profits that GPSI has unjustly obtained through its wrongful acts.
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148. The Claimants accordingly demand a full and complete forensic accounting of
GPSIs books and records, as well as the books and records of all affiliated entities as well as any
other entity under GPSIs ownership or control, dating back to July 1, 2011.
Additional Claims For Relief
149.

Claimants reserve the right to add additional claims during or following discovery.

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IV. PRAYER FOR RELIEF

WHEREFORE, the Claimants respectfully request that the Arbiter enter an Award in their
favor, and against the Respondents, jointly and severally, for the following relief:
a. Rescission of the Pennsylvania License and the Buy-Sell Agreement;
b. Damages in the amount of $1,600,000, trebled pursuant to statute, together with preand post-judgment interest, attorneys fees, costs, expert witness fees and all other
expenses of the Arbitration;
c. Disgorgement of all profits generated by the Respondents through the Pennsylvania
License, the Buy-Sell Agreement, the Ohio License, and the Jail License;
d. An order requiring an immediate accounting of all of the respective revenues and
profits derived by GPSI through its wrongful activities set forth herein, at GPSIs
expense;
e. An order imposing a constructive trust on all revenues and profits from the
Respondents wrongful activities and conduct;
f. For such other relief as the Arbiter deems just and proper.
Dated this 13th day of March 2015.
BROWN & KANNADY, LLC
By: /s/ David J. Meretta
..
David J. Meretta
Scott T. Kannady
Attorneys for Claimants
JDK LLC, Deborah Kolassa, Jerry Kolassa and
S. Mark Spoone
Original Signature on File

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Certificate of Service
I hereby certify that on this 13th day of March 2015, I served, by electronic mail, a true and
correct copy of the foregoing document to the following recipients:
Lawrence W. Horwitz, Esq. <[email protected]>
John R. Armstrong, Esq. <[email protected]>
Susan E. Lewis, Esq. <[email protected]>
Horowitz & Armstrong
6475 Rancho Parkway South
Lake Forest, CA 92630
Robert J. Bruce, Esq. < [email protected]>
1543 Champa St., #400
Denver, CO 80202

By: /s/ Karin West

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