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1
No. _________________
MIKE Plaintiff
§ §
IN THE DISTRICT COURT
VS
§ § §
HARRIS COUNTY, TEXAS
STEPHEN , SUPPORT, LLC,
SOLUTIONS, LLC, and Defendants
§ §
_____ JUDICIAL DISTRICT
PLAINTIFF’S ORIGINAL PETITION, REQUEST FOR DISCLOSURE
AND REQUEST FOR PRODUCTION OF DOCUMENTS
Plaintiff, MIKE complains of defendants STEPHEN and
SUPPORT, LLC, and joins nominal defendant SOLUTIONS,
LLC. Plaintiff would show the Court as follows:
A. DISCOVERY CONTROL PLAN
1. Plaintiff intends to conduct discovery under Level 2 of Rule 190.2.
B. PARTIES
2. Plaintiff is Mike a natural person residing in Harris County, Texas. Plaintiff
brings these claims both individually and on behalf of Solutions, LLC pursuant to art. 8.12
of the Texas Limited Liability Company Act and art. 5.14 of the Texas Business Corporations
Act. Plaintiff is and was at all relevant times a member of Solutions, LLC and the owner
of 350 LLC Units (35%) in that company.
3. Defendant Stephen is a natural person residing in Galveston County, Texas,
and may be served with process at his residence .
4. Defendant Support, LLC is a Texas limited liability company with its
principal office in Galveston County, Texas and may be served with process through its
registered agent, Stephen .
Filed09 February 21 P10:11Loren JacksonDistrict ClerkHarris District
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5. Nominal defendant Solutions, LLC is a Texas limited liability company with its
principal office in Harris County, Texas and may be served with process through its registered
agent, Stephen .
C. VENUE
6. Venue is proper in Harris County because one of the defendants, Solutions, LLC,
is not a natural person and has its principle office at 6824 Lindbergh St., Houston, Texas 77087,
which is within Harris County. Independently, all or a substantial part of the events or omissions
giving rise to the claims occurred in Harris County. As further alleged herein, at all relevant
times to the lawsuit, plaintiff resided in Harris County and worked at defendant Solutions,
LLC’s only facility, then located at 5858 Waltrip Street, Houston, Texas 77087, which is also in
Harris County. All the acts and omissions giving rise to the cause of action, including all
communications from the defendants, either happened to Plaintiff at work or at his home.
D. Conclusion
7. Plaintiff and defendant formed Solutions, LLC on December 20, 2004
by filing Articles of Organization with the Texas Secretary of State. The two members also
executed an Operating Agreement on that date. Solutions was set up as a member-
managed LLC, with as the 65% owner and plaintiff as the 35% owner. Voting was set
up on the basis of ownership percentage. Therefore, had effective unilateral control
over the company from the outset in all but a few matters set out in the Operating Agreement that
required a supermajority of 66%. was also given exclusive control over the company’s
financial reporting in the Operating Agreement. While had effective control, plaintiff
retained the right to participate in management and to be fully informed. Not only did plaintiff
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have the contractual and statutory rights to inspect the company’s records, but the member
management structure created a fiduciary duty of full disclosure as to all the members.
8. In the express terms of the Operating Agreement, both members committed to work
full-time for Solutions, LLC, with plaintiff contributing sales and shop expertise and
defendant contributing management and engineering expertise. and plaintiff each
made capital contributions in the amounts of $39,000.00 and $21,000.00, respectively.
9. Solutions, LLC did business under the assumed name of “ Power” and
provided “ products and services,” which included design and manufacture of
couplings, bearings and seals, as well as other products and services in the
market. had originally suggested to plaintiff that they structure the business so that
plaintiff would own a minority interest only in a subsidiary that would manufacture couplings,
while would own 100% interest in all other operations of the business. Plaintiff
refused, and the parties agreed that there would be only one company that would operate in all
areas of the products and services market. and plaintiff located and
rented space in a warehouse facility in Houston. They purchased equipment and outfitted the
office so that both could work there. and plaintiff were the only two employees.
10. Almost from the beginning, however, refused to work in the space that the
company was paying for, choosing instead for his own convenience to work from home. This
situation made work for plaintiff very difficult, being the only person in the shop and having to
handle both the actual production work and much of the administration of the company. This
situation also had the effect of isolating plaintiff from information and from any real
participation in the management decision-making process. was extremely secretive
about company financial matters, denying plaintiff access to any financial records, and refusing
4
to provide any detailed financial information. Plaintiff was not given any financial records or
reporting and was denied knowledge of the company’s financial status, cash flow and
expenditures.
11. In mid-2005, plaintiff and agreed to look for property on which the company
could build its own facility that would be nearer to equidistant from both their homes. Plaintiff
learned of a piece of land that was being sold in a tax auction on Highway 35 in Brazoria County
and suggested to that this was a good candidate. attended the auction and
purchased the property for far less than its market value, but he did so in his own name. When
later disclosed to plaintiff that owned the property individually, and plaintiff
objected, promised to put the property in the name of the company or to get plaintiff’s
name on the deed, but he did neither.
12. In August 2005, secretly formed Shackelford Services, LLC, which he then
renamed Support, LLC. On information and belief, operated this
company to provide engineering and design services in the market. These
services were clearly in Solutions’ line of business, and the sale of these services through
a different entity would both violate fiduciary duties to Solutions and to
plaintiff and would breach the operating agreement committing him to full-time work for
Solutions. never disclosed the existence of or business of Support.
13. During 2005 and 2006, exercised his domination and control over the
company to manipulate the finances and to take secret benefits that were not shared with
plaintiff. On information and belief, looted the company by charging personal
expenses and reimbursing himself for the use of his house, even though the company was already
paying for office space for him. effectively gave himself preferential distributions that
5
should have been shared with the plaintiff. For example, when preparing the company’s 2005
tax return, instructed plaintiff to give him plaintiff’s cell phone records for the previous
year so that the company could claim these expenses as deductions; however, neither
actually paid plaintiff the reimbursement for the cell phone nor credited plaintiff’s capital
account for that amount.
14. Solutions’ business was successful. The company never lost money, and was
never forced to incur debt. The business grew continuously during 2005 and 2006. Both
plaintiff and received their initial capital back in distributions. Nevertheless,
domination and control over the business became increasingly objectionable to
plaintiff. refused to work in the corporation’s offices. refused plaintiff’s
repeated requests for information, particularly financial information, and for a meaningful
participation in management decisions. was also absent for extended periods of time
on non-company matters and may have been working on projects for Support.
also put increasing pressure on plaintiff to keep up with the demands of a growing
company, while did not do his fair share.
15. As a result, plaintiff approached on October 24, 2006 and stated that he could
not continue to work under these conditions and requested that buy him out at a fair
price that they would negotiate. agreed. However, immediately began
referring to their agreement as a “withdrawal” by plaintiff, and wrote: “ Solutions
LLC accepts your withdrawal effective 10-24-06.” The reason that did this was to try
to fabricate a record that his agreement to buy-out plaintiff’s interest for a fair price to be
negotiated was actually a unilateral “Withdrawal of Member” under Section 7.2 of the Operating
Agreement. Under that section, a member is not permitted to withdraw without the approval of a
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supermajority of 66%. A member desiring to withdraw under that section is required to give at
least 30 days written notice prior to the proposed effective date of withdrawal, which must be on
the last day of a month. If the withdrawal is approved, then the members are required to pay a
“Withdrawal Compensation Amount” equal to 100% of the value of the member’s capital
account on the effective date. The members are required to “cause a reasonably prompt
preparation of financial statements for the LLC as of the effective date of withdrawal for said
Member,” and then to pay the Withdrawal Compensation Amount within one year of the
effective date. obviously believed that it was to his advantage to characterize their
buy-out agreement as a “withdrawal” because payment of the value of the capital account would
not include the going-concern value of this successful and growing business.
16. The agreement between plaintiff and was not a withdrawal under the terms of
the Operating Agreement. Plaintiff did not propose to withdraw, but to be bought out at a
negotiated price. Plaintiff did not give written notice. The so-called effective date was not at the
end of a month. There was no vote of a supermajority to approve the withdrawal. was
fully aware that the agreement was not for a withdrawal and was also fully aware that plaintiff
did not understand and appreciate the significance of his characterizing the agreement as a
“withdrawal.” Yet in violation of his fiduciary duties, knowingly took advantage of
plaintiff’s ignorance. For his part, plaintiff continued to request that give him an offer
for the buy-out, and plaintiff objected to giving up his keys on the grounds that he was still an
owner until he and agreed on a price. protested that he was too busy to put
the financial information together at that time and offered to pay plaintiff a down payment of
$10,000.00 and that they would negotiate the rest of the deal when time permitted. Plaintiff
agreed and was paid on October 27, 2006. wrote “Partial Withdrawal Compensation”
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in the memo section of the check. Again, plaintiff did not understand or appreciate the meaning
and significance of use of the phrase, and knowingly took advantage of
plaintiff’s ignorance.
17. After October 24, 2006, despite the fact that he had not paid or offered to pay a fair
price for plaintiff’s LLC units, denied that plaintiff was an owner, and reported to the
IRS on a Form K-1 that plaintiff’s ownership interest was zero.
18. Despite plaintiff’s repeated requests, never prepared or forwarded financial
statements to plaintiff and never made an offer; rather he continued to delay and stonewall for
more than a year. On or about November 30, 2007, plaintiff received a letter from
demanding that he sign a release and tendering a check for $24,020.59 as the remainder of his
“withdrawal compensation.” did not provide any explanation, back-up or financial
information. In response to plaintiff’s demands, on December 7, 2007, accountant
provided a summary Income Statement and incomplete Balance Sheet for the period ending
October 24, 2006, showing how the withdrawal compensation amount was calculated. However,
the accountant admitted to plaintiff that he had merely arranged these numbers on the page and
had no idea on what they were based and could not vouch for their accuracy. When plaintiff
reviewed the financial statements, even though he had been given no access to any real financial
information relating to the company, plaintiff knew immediately that the documents had been
manipulated and were inaccurate. There were equipment values that Plaintiff knew did not
reflect amounts of purchases. The equipment list also had glaring omissions. Large amounts
were listed as expenditures that plaintiff knew the company did not incur, such as almost $4000
for utilities when plaintiff knew that utilities had been included in the rent.
8
19. Plaintiff refused to accept the check or sign the release. Ultimately, in a sworn court
filing, repudiated his position that there had been a withdrawal under the Operating
Agreement, claiming instead that plaintiff had breached the Operating Agreement by failing to
give 30 days written notice before withdrawing and that therefore did not owe anything
more. However, continued to maintain that plaintiff was not an owner—thereby
depriving plaintiff of his ownership interest for far less than fair value.
E. CAUSES OF ACTION
CAUSE OF ACTION NO. 1—BREACH OF FIDUCIARY DUTIES
20. As member and officer of Solutions LLC, defendant owed fiduciary
duties of good faith, utmost honesty, undivided loyalty, and due care to the company and its
other members. By the acts and omissions alleged herein, violated his fiduciary duties
by usurping corporate opportunities, looting the company, manipulating the company’s finances
for personal gain, failing to disclose matters to the members, and otherwise. These acts and
omissions proximately caused harm and financial damage to Solutions LLC and to
plaintiff. Therefore, Solutions LLC and plaintiff are entitled to actual damages, and further
to equitable relief including constructive trust and an accounting. Because breached
his fiduciary duties willfully, intentionally, maliciously and with reckless disregard to the rights
and welfare of the company and its members, Solutions and plaintiff are entitled to an
award of exemplary damages in an amount to be determined by a jury and not subject to
limitation because the wrongdoing constitutes a violation of the Texas Penal Code as provided in
Texas Civil Practice and Remedies Code §41.008.
21. Plaintiff has standing to bring a derivative action on behalf of Solutions, LLC.
All conditions precedent have been satisfied. Plaintiff is entitled to recover his expenses and
9
reasonable and necessary attorney’s fees pursuant to TBCA art. 5.14(J). Solutions LLC is
“closely-held” within the meaning of TBCA art. 5.14(L), and justice requires that this action be
treated by the Court as a direct action brought by plaintiff for his own benefit and that the
recovery be paid directly to the plaintiff.
CAUSE OF ACTION NO. 2—OPPRESSION
22. The acts and omissions of defendant as alleged above constitute a pattern of
oppressive conduct that substantially defeated the objectively reasonable expectations of plaintiff
that were central to his decision to invest and that were harsh and burdensome and violative the
duty of good faith and fair dealing. Because of defendant’s oppressive conduct, plaintiff has
been deprived of any real value of his ownership, and therefore plaintiff is entitled to an order
from this Court requiring defendant or defendant Solutions, LLC to buy out
Plaintiff’s interest for a fair value as determined by the Court, or other equitable remedy
necessary and sufficient to do equity to plaintiff. Plaintiff is without adequate remedy at law.
All conditions precedent have been satisfied.
CAUSE OF ACTION NO. 3—DECLARATORY JUDGEMENT
23. An actual, ripe controversy exists between plaintiff and defendants as to the rights,
status, and legal relations between the parties and as to the construction and validity of the
Operating Agreement. Therefore, plaintiff is entitled to a declaratory judgment pursuant to
CPRC § 37.001 et seq as to (1) whether he is a member and owner of Solutions LLC, (2)
whether he withdrew on October 24, 2006 pursuant to §7.02 of the Operating Agreement, (3)
whether any such withdrawal was waived or was invalid as a result of non-disclosure,
fraud, or breach of fiduciary duty. Plaintiff is entitled to equitable relief to enforce and sustain
10
the declaration by the Court, and plaintiff is entitled to recover his expenses and reasonable and
necessary attorney’s fees pursuant to the Declaratory Judgment Act.
CAUSE OF ACTION NO. 4—BREACH OF THE OPERATING AGREEMENT
24. In the alternative, in the event that the Court determines that §7.02 of the Operating
Agreement does govern the transaction, then defendant breached the Operating
Agreement by failure to provide financial statements reasonably promptly, by failure to tender
payment within one year of the effective date, and by failure to tender the correct Withdrawal
Compensation Amount. Plaintiff is entitled to actual damages in the amount of full Withdrawal
Compensation Amount, including the amounts that should have been credited to that account if
defendant had not looted the company and usurped corporate opportunities. Plaintiff is
further entitled to his reasonable and necessary attorney’s fees pursuant to CPRC §38.001 et seq.
Presentment has been made. Plaintiff is further entitled to prejudgment interest on the award at
the contractual rate of 10% compounded annually. All conditions precedent have been satisfied.
CAUSE OF ACTION NO. 5—AIDING AND ABETTING/KNOWING PARTICIPATION
25. Defendant Support, LLC materially aided and abetted and knowingly
participated in defendant breaches of fiduciary duties as to Solutions LLC and
to plaintiff. Therefore, Support, LLC is jointly and severally liable for any
damages awarded against Furthermore, Support LLC’s conduct was
committed willfully, intentionally, maliciously and with reckless disregard to the rights and
welfare of the Solutions and plaintiff; therefore plaintiff, individually and on behalf of
Solutions, is entitled to an award of exemplary damages in an amount to be determined by
a jury and not subject to limitation because the wrongdoing constitutes a violation of the Texas
Penal Code as provided in CPRC §41.008.
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F. PRAYER
26. Therefore, on the basis of the foregoing, plaintiff Mike respectfully requests that
defendants named herein be cited and served and that, upon trial of these claims, plaintiff be
awarded his actual damages, exemplary damages, expenses, costs, attorney’s fees, equitable
remedies including accounting, constructive trust and forced buy-out, declaratory judgment,
prejudgment and post-judgment interest, and such other and further relief to which plaintiff may
be justly entitled. Plaintiff demands his right to trial by jury.
H. REQUEST FOR DISCLOSURE
27. Pursuant to Rule 194, defendants are each requested to disclose, within 50 days of
service of this request, the information or material described in Rule 194.2.
H. REQUEST FOR PRODUCTION OF DOCUMENTS
28. Pursuant to Rule 196, defendants are each requested to produce for inspection or
copying all documents in their possession, custody or control responsive to the categories and
descriptions listed below, including all email or other documents or files in electronic or
magnetic form, which should be produced as searchable PDFs or printed, and all pictures, audio,
video in readable or playable format. The response to this request for production is due no later
than 50 days after service of this request, and shall be produced at the office of plaintiff’s counsel
listed in the signature block. Please produce the following:
a. All email, correspondence or other communications to or from plaintiff.
b. All documents authored, in whole or in part, by plaintiff.
c. All financial records and tax filings of each of the defendants for the years 2005-
present.
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d. All bank statements, accounting ledgers, financial records or other documents
showing or relating to the revenue, income, cost of goods sold, expenses, assets,
liabilities, equity, cash flow, fixed assets, tools and equipment, tangible or
intangible property, cash or capital of Solutions, LLC from the date of
formation to present.
e. All bank statements, checks, billing documents, purchase orders, receipts,
customer files and other documents showing or relating to any revenue, income,
refunds, contributions, investments or other money or property coming into or
earned by Solutions LLC during 2005 and 2006.
f. All bank statements, checks, billing documents, purchase orders, receipts, vendor
files and other documents showing or relating to any purchases, expenses,
payments, disbursements, distributions or other money paid by or otherwise going
out of Solutions during 2005 or 2006.
g. All documents showing or relating to the amount of accounts receivable, accounts
payable or work in process for Solutions LLC as of October 24, 2006.
h. All tax returns, pay stubs, invoices, receipts, checks, deposits, bank statements, or
other documents showing or relating to any fees, income, revenue, reimbursement
or compensation earned or acquired by defendant or by defendant
Support LLC in any way relating to products or services in the
market from 2005 to present.
i. All documents, receipts, bank statement, checks, work sheets, computations, notes
or other documents showing, evidencing, or relating to each and every number
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entry on all Form 1065s, Form K-1s, or other form filed with the Internal Revenue
Service by Solutions LLC for tax years 2005 and 2006.
j. All documents, receipts, bank statements, checks, work sheets, computations,
notes or other documents showing, evidencing, or relating to each and every
number entry on the income statement, balance sheet and capital account
calculations provided to Mike to support the amount of the check tendered
in 2007, and all email, correspondence, notes, drafts, or other documents relating
to the creation of the financial information provided to Mike to support the
amount of the check tendered in 2007.
k. All documents relating to the purchase, maintenance, improvement and value of
the property on Hwy 35, Alvin Texas 77511.
l. All audio or video recordings or photographs or digital images depicting plaintiff
in any way.
m. All documents showing or relating to all tools and equipment owned by
Solutions LLC on October 24, 2006, including the purchase price of such tools or
equipment, the maintenance and repair of such tools and equipment, depreciation
and the value of such tools and equipment.
n. All documents showing or relating to any money or property paid to, contributed
to, invested in, loaned to, paid or spent on behalf of, or paid, spent or used for the
benefit of Solutions LLC by either of its members during 2005-2006.
o. All documents showing or relating to any money or property paid to, contributed
to, reimbursed to invested in, loaned to, paid or spent on behalf of, or paid, spent
14
or used for the benefit of either of its members by Solutions LLC during
2005-2006.
p. All documents relating to the formation, ownership, and governance of
Solutions LLC or Support, LLC.
q. All documents evidencing or relating to any work done by or goods or services
sold or provided by Support LLC, all sales, receipts and revenue
of Support LLC, and all profits or income generated by
Support LLC.
Respectfully submitted, Fryar Law Firm, P.C. By: Eric Fryar Texas Bar No. 07495770 4606 FM 1960 W, Ste 400 Houston, TX 77069 Tel. 713-826-0523 Fax 281-605-1888 Email: [email protected] ATTORNEY FOR PLAINTIFF