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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

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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

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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.

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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

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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

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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

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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: eric@fryarlawfirm.com ATTORNEY FOR PLAINTIFF