CAUSE NO. PLAINTIFFS ORIGINAL PETITION AND REQUEST FOR DISCLOSURE. PLAINTIFF, TIMOTHY PETERS, complains of RICHARD TAMARO, CASEY

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1 2011-CI CAUSE NO. TIMOTHY PETERS, INDIVIDUALLY, Plaintiff, VS. RICHARD TAMARO, INDIVIDUALLY, CASEY MCCLELLAN, INDIVIDUALLY, CASO, INC., a Delaware Corporation Defendants. Filed 11 August 29 P5:24 Donna Kay McKinney District Clerk Bexar District Accepted by: Annabelle Kung IN THE DISTRICT COURT OF BEXAR COUNTY, TEXAS 408th JUDICIAL DISTRICT PLAINTIFFS ORIGINAL PETITION AND REQUEST FOR DISCLOSURE TO THE HONORABLE DISTRICT COURT: PLAINTIFF, TIMOTHY PETERS, complains of RICHARD TAMARO, CASEY MCCLELLAN and CASO, INC., and would show this Court as follows: I. Nature of The Action 1. Plaintiff, Timothy Peters, owns 44% of the outstanding shares of CASO, Inc. ( CASO ), a Delaware corporation. Plaintiff seeks damages and equitable relief for Defendants pattern of oppressive conduct, culminating in his wrongful termination from the business of CASO. Plaintiff alleges breach of fiduciary duty and breach of contract. II. Discovery Control Plan 2. Plaintiff intends that discovery be conducted under Level 2. III. Parties 3. PLAINTIFF, TIMOTHY PETERS ( Plaintiff or Tim ), is a natural person residing in San Antonio, Texas. All pleas, pleadings, motions, discovery, and other matters 1

2 related in whole or in part to this case should be served on Plaintiff s attorney, Mr. Eric Fryar with the Fryar Law Firm, P.C., 1001 Texas Avenue, Suite 1400, Houston, Texas DEFENDANT, RICHARD TAMARO ( Richard ), is a natural person residing in Rockville Center, New York. He may be served with process at his place of employment located at: 134 West 29th Street, 3rd Floor, New York, New York DEFENDANT, CASEY MCCLELLAN ( Casey ), is a natural person residing in Weehawken, New Jersey. He may be served with process at his current residence located at: 438 Gregory Avenue, Weehawken, New Jersey NOMINAL DEFENDANT, CASO, INC. ( CASO or the company ), is a Delaware Corporation, with its principal office located in Bexar County, Texas. CASO may be served with process through the person in charge of its business, Ana Marie Faz, at 3453 Interstate Highway 35 North, Suite 215, San Antonio, Texas IV. Jurisdiction & Venue 7. This Court has jurisdiction over this cause because the matter in controversy is within this Court s general jurisdiction and the amount in controversy exceeds this Court s minimum jurisdictional limits. 8. Venue is proper in Bexar County because all or a substantial part of the events or omissions giving rise to this claim occurred in Bexar County and because the corporate Defendant s principal office is in Bexar County. Tex. Civ. Prac. & Rem. Code (a)(1) and (3). 2

3 V. Petition for Damages & Equitable Relief A. Facts 9. CASO is a Delaware S-Corporation specializing in enterprise content management, business process automation and fully managed scanning services. Casey organized the corporation in 1998 and served as CASO s initial director. Casey held all of the shares of CASO following its incorporation. 10. CASO relied heavily on one customer in New York when it first started its business. CASO operated in the customer s office building in Manhattan, New York to better serve that customer. 11. In 2002, Casey hired Richard as Chief Operating Officer and Tim as Chief Technical Officer of CASO. The hire included a shadow agreement whereby Richard and Tim would receive an increasing percentage of CASO s profits over a 5-year period. Neither party received an ownership interest in CASO. 12. In 2005, CASO lost its major New York customer. In order to survive as a going concern, Casey offered Richard and Tim shares of CASO stock in lieu of profit percentage increases under the shadow agreement. Casey retained 52% of CASO s shares, while Tim and Richard each received a 24% interest in CASO. Pursuant to joint ownership, profits were shared equally and salaries were substantially the same, with the exception of $10,000 in additional salary for Casey. On information and belief, CASO s discretionary spending was allocated in favor of Defendants, with 3 parts of discretionary spending used by Casey, 2 parts used by Richard and 1 part used by Tim. All 3 were appointed to CASO s board of directors. 3

4 13. By 2006, the company had gained new accounts but was still spending too much money. In order to generate new business, CASO acquired DM2000, Inc. in San Antonio, Texas for approximately $400,000. The acquisition necessitated an officer to run CASO s Texas operations. Accordingly, Tim relocated from New York to San Antonio to serve as President of the Texas Division. Casey remained CEO of the corporation in New York and Richard acted as President of the New York Division. 14. In 2007, Richard and Tim discovered that Casey had attempted to take more than his fair share of distributions. At the time, Richard and Tim shouldered most of the responsibilities of the business, as Casey had been despondent over the loss of the New York customer since Richard, Tim and Casey decided to have an off-site executive meeting in Hawaii to determine what they were to do about their roles in CASO going forward. 15. Ultimately, Richard and Tim voted in favor of Tim replacing Casey as new CEO of CASO. The decision was implemented gradually over a period of two years. Tim continued to manage CASO s business operations from their principal office in San Antonio, Texas. 16. Under Tim s leadership the company diversified its client base and maintained sales approaching $3,000,000 for The company continued to grow in 2008 and acquired another company, DocuStep, Inc., for $425, On January 31, 2008, the parties entered into a shareholders agreement ( the agreement ), to memorialize the ownership rights of the parties and to provide better liquidity for CASO stock. Significantly, the agreement guarantees employment to any shareholder for so long as he is a Shareholder of the Corporation. Moreover, the 4

5 agreement only anticipates termination of employment when the shareholder breaches the terms of his employment by committing acts constituting just cause for termination, fails to give his sole attention to the business or competes with the business of the Corporation. 18. Despite CASO s apparent success, Casey again attempted to take more than his fair share of distributions. Casey has been experiencing financial trouble and was in need of money. To accommodate Casey, the parties entered into a September 3, 2008 stock purchase agreement ( purchase agreement ) whereby Richard and Tim would purchase up to 280 shares from Casey. Richard and Tim ultimately increased their respective ownership positions from 24% to 44% pursuant to the purchase agreement. Casey retained a 12% stake in CASO. 19. In 2009, Tim was officially elected CEO of CASO. CASO s sales for 2009 exceeded $4,000, In 2010, CASO began experiencing economic woes. New sales stalled for close to 8 months. Richard marketed a new workflow product that caused at least 3 large contracts to dramatically overrun (i.e., require 2 to 4 times more labor than what is typically required). CASO experienced significant cash flow problems, was forced to layoff several employees and implemented severe budget cuts. Pay was frozen or reduced for nearly all employees. 21. The corporation suddenly won several large contracts from February 2011 through April Although CASO began to restore compensation, the labor budget cuts caused significant employee discontent including departures in San Antonio. The 5

6 combination of the budget cuts in tandem with the large contract wins stimulated CASO s best financial performance on record for the first 5 months of By June 2011, Richard and Casey began focusing on one issue: the staffing problems in San Antonio. This led to a discussion about replacing Tim as CEO of CASO with Richard. Although CASO s prior history dictated a gradual replacement of their corporate CEO (as in the decision to replace Casey with Tim), this decision took approximately 10 days from start to finish. Richard and Casey completely disregarded Tim s efforts to negotiate the aspects of the organizational change or the timing of the events. Strictly speaking, the Defendants message was: New York is taking over all Texas operations; you had your turn. 23. In response to the demotion, Tim expressed concerns over how the CEO change was implemented. Tim asked for a shareholders meeting for the purpose of buying out Casey or Richard s shares prior to the announcement of the CEO change. He specifically requested time to put together an offer that would include a substantial premium for Casey s 12% interest in CASO. He also indicated a willingness to offer the company a substantial cash infusion as part of gaining a controlling interest in the company. These efforts were generally ignored and the company announced Richard as the new CEO of CASO in July Following the announcement, Tim met with Richard and Casey individually to discuss possible changes to the ownership structure of the company. Tim specifically asked Richard if it would be safe to have these discussions without being retaliated against. 6

7 25. Notwithstanding Tim s efforts at diplomacy, Richard terminated Tim on July 18, 2011, two days after Tim s final meeting with the Defendants. The termination letter cites poor financial and staff management as justification for termination. Tim discovered after his termination that Richard offered Casey company money to oust Tim from CASO. Tim also realized that Richard engaged his wife to read all of Tim s important company s, despite the fact that Richard s wife is not employed or on the board of CASO. 26. On August 10, 2011, CASO held their annual shareholders meeting in New York. The agenda for the meeting was to elect directors to the Board of CASO. Although CASO had routinely provided a call-in number for Tim to attend shareholder meetings via teleconference, no call-in number was provided to Tim and consequently he was unable to attend. 27. Prior to the meeting, Tim informed Richard of 4 agenda items he would like to be discussed at the meeting. These included: 1) a 3 rd request for documents verifying his 44% interest in CASO; 2) A 2 nd request for a $50,000 bonus distribution from 2007 that Tim chose to forego (the company decided prior to Tim s termination to distribute $50,000 to Richard and Tim); 3) A request re: the status of mid-year employee bonuses and/or executive distributions, per CASO s general distributions practice (this distribution was previously discussed at an April or May executive meeting); and 4) An objection to the wrongful termination of Tim from the business. Not surprisingly, none of Tim s agenda items were implemented or acknowledged. 28. Casey and Richard did not re-elect Tim to CASO s board of directors. Instead, Tim received a letter from Richard on August 17, 2011, offering to buy-out Tim s 44% 7

8 interest in the company for $165,000. The $165,000 purports to settle all compensation issues with Tim, including the $50,000 deferred bonus distribution from The settlement offer was particularly specious in light of the fact that taxes have not yet been paid on CASO s 2011 profits, which were approximately $500,000 as of June 30, Thus, after Tim receives his bonus, pays CASO s 2011 taxes, foregoes any severance payments and foregoes any interest payments on the settlement offer (per the settlement terms), Tim would receive less than $50,000 for 44% of a corporation worth approximately $5,000, Significantly, the offer is predicated on a provision from the 2008 Shareholders Agreement requiring employees to sell their shares upon termination of employment. The agreement explicitly provides that the purchase price for such shares shall be the value per share in effect as of the month immediately prior to termination. CASO was valued at over $3,000,000 in 2008 and has since acquired another corporation and improved their sales by over 70%. The company can easily be valued at over $5,000,000 as of June 30, Thus, Richard s offer of $165,000 is a material breach of the agreement s pricing requirements. 30. Tim has not been compensated whatsoever since his termination from CASO. He is currently owed: his final paycheck as an employee of CASO; his accrued vacation time; the $50,000 deferred bonus from 2007; his mid-year executive or employee bonus distribution for 2011; and his wages since his wrongful termination from CASO on July 18 th,

9 VI. Causes of Action A. Breach of Fiduciary Duty 31. The laws of the state of incorporation govern the internal affairs of CASO, pursuant to TX BUS ORG Internal affairs include the rights, powers and duties of its governing authority, governing persons, officers, owners and members, and matters relating to membership or ownership interests. TX BUS ORG Thus, the laws of the State of Delaware govern a cause of action for breach of fiduciary duty to Plaintiff, a minority shareholder of CASO. 32. Defendants collectively hold 56% of the outstanding shares of CASO and are officers and directors of the corporation. Defendants owe Plaintiff fiduciary duties of loyalty and care, as majority shareholders exerting dominance and control over CASO s business operations. The fiduciary duty of loyalty requires controlling shareholders to act in good faith and to place the interests of the corporation and its shareholders above their own. Defendants may not engage in oppressive acts toward the minority. 33. As alleged above, Defendants committed a continuing pattern of oppressive acts toward Plaintiff that has the purpose and effect of substantially defeating Plaintiff s objectively reasonable expectation of share ownership, of systematically violating his rights and interests as a shareholder, and of denying the economic value of his share ownership and/or a return on his investment. The net result of Defendant s conduct is to render Plaintiff s share ownership essentially worthless, meaningless, and financially punitive. 34. The oppressive conduct includes, but is not limited to, the following: a. Denying Plaintiff continued employment; 9

10 b. Attempting to force Plaintiff to sell his shares to Defendants; c. Attempting to force Plaintiff to sell his shares for less than their fair value; d. Denying Plaintiff meaningful participation in management; e. Concealing financial information from Plaintiff; f. Engaging in self-dealing transactions to the Plaintiff s detriment; g. Undertaking fundamental organizational changes secretly and in bad faith; 35. Defendants have further violated Plaintiff s legal rights as a shareholder. Defendant s burdensome, harsh, and wrongful conduct visibly departs from standards of fair dealing on which every shareholder has the right to rely. 36. Plaintiff is entitled to equitable relief to remedy the oppressive conduct, including but not limited to, having the Court order an equitable buy-out at a fair price, together with actual and exemplary damages, disgorgement, restitution, and other equitable relief. Furthermore, Defendants conduct was committed willfully and maliciously and Plaintiff is entitled to exemplary damages. B. Breach of Contract/Quantum Meruit 37. Defendants decision to terminate Plaintiff constitutes a breach of the 2008 Shareholders Agreement. The agreement specifically provides that a shareholder shall be employed for so long as he is a shareholder. Plaintiff is still a shareholder of CASO, thus, he is contractually entitled to a job. Further, the agreement only anticipates termination where the shareholder breaches the terms of his employment constituting just cause for termination, or if the shareholder competes with the business. 10

11 38. As alleged above, Defendants have not indicated that Plaintiff breached the terms of his employment or competed with the business. Indeed, their only excuse for Plaintiff s termination from CASO is poor financial and staff management. This is a subjective opinion not in line with the strict termination requirements under the contract. Consequently, Defendant breached the shareholders agreement by terminating Plaintiff. 39. Plaintiff has been damaged in an amount at least equal to his lost wages since July 18, 2011, when his employment was wrongfully terminated. Plaintiff is entitled to any deferred compensation pursuant to his employment with CASO, including the $50,000 bonus distribution from 2007, as well as the mid-year 2011 executive distribution. 40. Defendants have further breached the terms of the shareholders agreement by offering to purchase Plaintiff s shares at a far lesser value than what is specified in the agreement. Specifically, the agreement provides that that the purchase price for an employee s shares, following termination, shall be the value per share as of the month immediately prior to termination. CASO is worth several millions of dollars. Thus, the offer to purchase Plaintiff s 44% interest in CASO for $165,000 was a material breach of the agreement s pricing requirement. 41. Plaintiff is entitled to specific performance of the terms of the shareholders agreement. Defendants must pay the fair value of Plaintiff s 44% interest in CASO, based on the agreement s pricing specifications. 42. In the alternative, Plaintiff is entitled to damages on a quantum meruit basis. Plaintiff has performed services for Defendants, Defendants have accepted the benefit of those 11

12 services and Defendants have refused to pay Plaintiff for his work. Specifically, Defendants continue to withhold Plaintiff s final paycheck, the $50,000 bonus distribution owed to Plaintiff from 2007, the 2011 mid-year executive distribution and Plaintiff s accrued vacation time. VII. Jury Trial 43. Plaintiff demands his right to a trial by jury. VIII. Prayer 44. THEREFORE, Plaintiff respectfully prays for the following: a. That the Defendants be cited and served; b. Upon trial of this cause, judgment may be entered in favor of Plaintiff for actual damages; exemplary damages; equitable relief, including disgorgement, constructive trust, and forced buy-out; c. Pre-judgment and post-judgment interest; a. Reasonable and necessary attorney s fees; a. Costs of suit; and a. Such other and further legal and equitable relief to which Plaintiff may be justly entitled. 12

13 IX. Request for Disclosure 45. Plaintiffs hereby request that Defendants disclose the information or material described in TRCP 194 within fifty days of service of this Original Petition. Respectfully Submitted, FRYAR LAW FIRM, P.C. F. Eric Fryar Texas Bar No Avniel J. Adler Texas Bar No Texas Street, 14 th Floor Houston, Texas Tel. (281) Fax (281) ATTORNEY FOR PETITIONER 13