no. d-1-6n-10-1001466 plaintiff's verified plaintiff's verified application for temporary...

No. D-1-6N-10-1001466

SRIKANTA Plaintiff

vs

IN CORPORA TED, CYNTHIA GERRY VAN MARSH , AND

SURESH Defendants

§ § § § § § § § §

IN THE DISTRICT COURT

TRAVIS COUNTY, TEXAS

53rd JUDICIAL DISTRICT

· PLAINTIFF'S VERIFIED APPLICATION FOR TEMPORARY RESTRAINING ORDER, AND TEMPORARY INJUNCTION

PLAINTIFF, SRIKANTA files his Verified Application for Temporary

Restraining Order and Temporary Injunction as a supplement to his Plaintiffs Original Petition

and incorporates by reference all allegations and causes of action alleged therein, and would

respectfully show this Court as follows:

INTRODUCTION

2. Plaintiff is Srikanta (" Defendants are Incorporated,

(" or "the Corporation"), Cynthia (" Gerry (" Van

(" Marsh (" and Suresh ("

3. Plaintiff sued Defendants for damages and equitable relief for shareholder oppression

and breach of fiduciary duties in a derivative action.

FACTS ON WHICH THIS APPLICATION IS BASED

A. Plaintiff's Reasonable Expectations and Defendants' Oppressive Conduct.

4. Plaintiff currently owns· 7% of the outstanding shares of Defendants

and are all current board members

5. Plaintiff joined the original company in 1989 and worked in a variety of technical and

managerial roles and was promoted to Director, Waste Isolation Services in January, 2009. As a

PLAINTIFF'S VERIFIED APPLICATION FOR TEMPORARY RESTRAINING ORDER -1

http://www.FryarLawFirm.com

http://www.ShareholderOppression.com

founding shareholder of he invested $50,050.00 in 2002 and received 36,400 split

adjusted shares, which today represents a 7% shareholder interest in the company. Plaintiffs

share ownership is governed by an October 30, 2009 Shareholder Agreement. See a true and

correct copy attached as Exhibit 1.

6. The shareholder agreement required the Corporation to repurchase a shareholder's

shares if there was a severance of employment. See Exhibit 1. Section 6 provided the

Corporation the right, but not the obligation, to defer payment to a selling shareholder. In the

case of severance of employment, the Corporation had the discretion to make a 1 0-year straight

payout (with the principal being paid out over the first 5 years, and any appreciation paid out

over the next 5 years), but the shareholder agreement made clear that the lengthy payout was not

mandatory. See Exhibit 1.

7. Plaintiffs understanding was that the multi-year payout provisions were only for the

protection of the Corporation in the event of financial difficulties, and his reasonable expectation

was always that the Corporation would exercise its discretion to deal fairly with selling

shareholders and would pay selling shareholders as quickly as possible, subject to whatever

financial constraints might exist at the time. He also understood and reasonably expected that his

shares would be treated the same as other shares and that the controlling shareholders would not

use their power to make their own shares more valuable granting preferential redemption terms.

8. The Corporation acted consistently with these reasonable expectations in 2006, when

fellow shareholder Richard Jackson left the company and received an immediate, one-time

payment for his 1.2% stock interest. Again in 2008, Defendant Defendant John

(" and Senior Scientist, Dennis (" sold their shares back

to the Corporation. The Corporation purchased 34% interest, 17% interest,




Pickens' 11% interest and Longsine's 2.8% interest for approximately $8 Million dollars at

$9.90 per share. Again, the Corporation paid the purchase price in an immediate, one-time

payment, even though this payment required the company to take on a $4 Million dollar loan.

9. On April 1, 2010 Plaintiff gave his written notice of employment resignation to

Defendant and cited his last day as April 16, 2010. He requested that the Corporation

make an immediate, one-time payment for his shares as it had done in every other share

purchase. Plaintiffs request to redeem his shares was a request to enter into a voluntary

transaction with the Corporation. In response, flatly refused to redeem Plaintiffs

shares as requested, and he told Plaintiff that he would not be treated like all other shareholders

had been in the past.

10. Initially, told Plaintiff that he would convene a board meeting and let Plaintiff

make his case to the Board as to the length of the payout. However, given dominance

and control, the decision had been made, which became abundantly clear a week later when

Plaintiff met with La venue, and made the following statements:

"The Board is not going to consider your request until after we have an appraisal done, which will be more than a month from now."

"Shareholders have no rights to company confidential information. You don't have any right to examine the books."

"You can come to the Board meeting and make your own case for why you should be paid out sooner than 1 0 years. You should tell us what concessions you are willing to make to receive an expedited payout. You should also show some humility."

"You should not be hung up on the one-time payout of some shareholders. Those · were different situations."

"You should get over this shareholder entitlement mentality and the idea that shareholders are entitled to receive a share of the profits."

PLAINTIFF'S VERJFIED APPLICATION FOR TEMPORARY RESTRAINING ORDER -3



"If you sue us, we'll sue you. You won't get a verdict for 3 years and you will just end up spending a lot of money for nothing."

11. The last statement is the most alarming because did not mention any

wrongdoing on the part of Plaintiff. Rather, made this threat of some trumped up

litigation against Plaintiff in order to dissuade Plaintiff from seeking to exercise any of his rights

as a shareholder.

12. While Plaintiff concedes that the shareholders agreement gives the board of directors a

measure of discretion in setting the payout, the law requires that discretion be exercised in good

faith and with respect for the rights and expectations of the minority shareholder. This situation,

in which the decision is made arbitrarily and vindictively by the controlling shareholder because

of the Plaintiffs "shareholder entitlement mentality" and lack of "humility," is a textbook

example of bad faith.

13. As a final act of retaliation, on April 14, 2010, while Plaintiff was out of town teaching

a training class, left Plaintiff a voicemail terminating his employment. told

Plaintiff not to come into work on April 15, and April16, 2010. Thereafter, he was locked out

and barred access to the corporate offices-even to retrieve his personal belongings.

14. Plaintiffwas fired on April14, 2010 as a result of asserting his rights as a shareholder.

This termination of employment triggered a compulsory buyout under the 2009 shareholder

agreement. See Exhibit 1.

15. On May 5, 2010, the Corporation stated its intent to invoke the buy out provision,

"Notice is hereby provided pursuant to Section 2.3 of the Shareholder Agreement to which you

are a party. The Company is purchasing your shares and has ordered an independent appraisal."

See a true and correct copy of the letter from Bob Powell to Srikanta dated May 5, 2010




and attached as Exhibit 2. Therefore, Defendants have indicated their clear intent to exercise

their powers over the corporation so as to substantially defeat Plaintiffs objectively reasonable

expectations and to cause his shares to be treated in a disparate manner that greatly reduces their

value relative the those of the controlling shareholders.

16. Plaintiff filed suit against Defendants on May 7, 2010, claiming Shareholder

Oppression.

B. Defendants' Misappropriation of Funds and Constructive Dividends.

1 7. It was also Plaintiffs understanding and reasonable expectation that he would share in

the profits of the Corporation in significant part based on his ownership interest in shares in the

company. From 2002 to 2008, the Corporation acted consistently with these expectations by

distributing operating profits as follows: 40% of operating profits were paid back into company,

the other 60% was split 30% based on ownership and 30% based on performance.

18. In 2009, board changed the profit allocation policy so as to eliminate any

distribution on the basis of share ownership. Now operating profits were allocated 50% to

performance-based bonuses and 50% to retained earnings. The new policy substantially defeats

the Plaintiffs reasonable expectation of economic return on his share ownership and constitutes

malicious suppression of dividends. Furthermore, the new policy effectively gives total

discretion on distribution of corporate profits and has resulted· in significant increases in the

compensation paid to and the other board members.

19. Defendants and current board members and

breached their fiduciary duties by self dealing with regard to profit distributions. In 2009, the

current board members changed the profit sharing plan from the previous plan where 40% of

operating profits were paid back into company and the other 60% was split 30% based on




ownership and 30% based on performance to a new plan where operating profits were split 50%

performance-based bonus to employees and 50% retained earnings to the company. The new

profit sharing scheme eliminated payments based on shareholder status and allowed the

Defendants to distribute profits as they saw fit, and they saw fit to enrich themselves. This use of

the Defendants power of dominance and control over the corporation to benefit themselves

constitutes a breach of their fiduciary duties to the corporation and the minority shareholders in

that their conduct constitutes a misappropriation of corporate funds to make preferential

constructive dividends to themselves.

20. Plaintiff's May 7, 2010 lawsuit asserts breach of fiduciary duties in derivative claims

brought by Plaintiff on behalf of the corporation and as an individual action.

C. Defendants' Violation of Plaintiff's Inspection Rights.

21. In early April 2010, Plaintiff made a verbal request to INTERRA's president Marsh

for access to basic financial and other information contained in the books and records of

the Corporation. categorically refused and stated unequivocally that Plaintiff had no

rights as a shareholder to access the books and records of the corporation. Following this gross

violation of Plaintiff's rights as a shareholder, Plaintiff's counsel, Joe Fulwiler, made repeated

written requests for access to the corporate records to Bob Powell, the Corporation's lawyer.

Consistent with the position stated by the Corporation's president, Powell refused, delayed and

stonewalled. Finally, on April 19, 2010, Powell conceded that Plaintiff might have a right to .

some inspection of corporate records, but claimed that Fulwiler's prior written requests had not

stated a proper,purpose.

22. In response, on April23, 2010, counsel for Plaintiff made a formal written demand on

counsel for the Corporation via e-mail requesting to conduct an inspection of corporate books




and records on April26, 2010 at corporate office; a true and correct copy of which is

attached hereto as Exhibit 3. The request for inspection stated:

The purpose of Mr. inspection is as follows: to determine the value of his shares, to determine the financial status and performance of the corporation, and to investigate the possibility of mismanagement, breach of fiduciary duty or other wrongdoing by its current and recent management.

Mr. intends to inspect all documents relevant to these purposes which will include without limitation, monthly and annual income statements and balance sheets from 2002 to present month, records showing all bonuses paid to shareholders and senior management 2005 to present, records showing all other disbursements, payments, loans, compensation of any sort paid to shareholders or senior management 2005 to present, all minutes and resolutions of shareholder and board of director minutes with all attachments thereto, shareholder ledger showing all transfers and redemptions, and all documents relating to any prior redemption, purchase, or payout in exchange for shares in the company.

23. The contents of the April 23, 2010 written demand were delivered electronically on

April 23, 2010 by e-mail to Bob counsel for The written demand stated a

proper purpose and the date, time and place at which Plaintiff intended to commence the

inspection were reasonable.

24. In April 23, 2010, counsel responded to the request for inspection of the

corporate documents and stated, "If your client or any of his representatives appear at the

Company Monday, or at any other time without invitation from Dr. or counsel on his

behalf, they will be considered to be trespassing." See a true and correct copy of the e-mail from

Bob Powell to Joe Fulwiler dated April 23, 2010 and attached as Exhibit 4. Thus, Defendant

both personally and through counsel, not only denied the existence of Plaintiff's

inspection rights, refused to comply with Plaintiff's inspection rights, but actually made a very

thinly veiled threat of arrest and criminal prosecution if Plaintiff attempted to exercise his

statutory rights pursuant to a proper request.




25. On April 28, 2010, counsel slightly modified their position and stated that

Plaintiff would be allowed a limited inspection of hand-picked documents on April 30, 2010 at

INTERRA's counsel's office, subject to Plaintiff signing a confidentiality agreement, which he

did. Plaintiff personally inspected records provided. Because of the illegal manner of the

conduct of the inspection, it is not possible to know which documents were selected for

production and which were concealed. However, none of the documents produced fell within the

following categories: records showing all bonuses paid to shareholders and senior management

2005 to present, records showing all other disbursements, payments, loans, compensation of any

sort paid to shareholders or senior management 2005 to present, attachments to the minutes and

resolutions of shareholder and board of director minutes, shareholder ledger records showing all

transfers and redemptions, and documents relating to any prior redemption, purchase, or payout

in exchange for shares in the company. These categories of corporate records were specifically

requested in writing and are clearly related to Plaintiffs stated purposes for the inspection.

26. On May 7, 2010, Plaintiffs lawsuit requested that this Court enter a writ of mandamus

to compel the Defendants to permit inspection of the withheld records.

D. Defendants Are Threatening Immanent Harm to Plaintiff.

27. Despite Plaintiffs lawsuit, Defendants have pressed ahead to close the purchase of the

shares and to dispossess Plaintiff of his share ownership on disparate and unfair terms. The board

will likely meet this week to adopt the appraisal and set the closing on the share purchase. As of

the date of this pleading, Defendants have not notified Plaintiffs of the appraisal value or the

closing date on the share purchase, although it is expected to be set this week.

28. Plaintiff requested that Defendants agree to a temporary injunction on the closing to

preserve the status quo, but Defendants refused. See Letter from Camille Tankersley to Bob




Powell dated May 18, 2010 a true and correct copy of which is attached as Exhibit 5, and see

Letter from Bob Powell to Camille Tankersley dated May 19, 2010 a true and correct copy of

which is attached as Exhibit 6. Plaintiff also requested sufficient prior notice of the board

meeting so he could seek the intervention of the Court, but Defendants refused. See Exhibits 5

and6.

29. The Defendants obviously hope that by voting to close the purchase, they will

dispossess Plaintiff of his share interest before the Court can order inspection of corporate

records and before the Court can address his claims for breach of fiduciary duties. Defendants

will undoubtedly argue that Plaintiff will have lost his standing as a shareholder to assert

derivative claims and the right of inspection and that his oppression claims are moot. See Zauber

v. Murray Sav. Asso., 591 S.W.2d 932 (Tex. Civ. App. Dallas 1979), and Somers v. Crane, 295

S.W.3d 5 (Tex. App. Houston 1st Dist. 2009).

30. While Plaintiff will contend that the buy-out is tainted by fraud and therefore does not

deprive him of standing, the closing of the purchase will drastically change the status quo. This

change is all the more egregious because the Defendants are attempting to avoid inspection of

the very documents necessary to determine whether the buy-out price is fair. Furthermore, the

value of the claims that Plaintiff is asserting against Defendants very much affect the assets and

value of the corporation and the price that would be found in any honest appraisal.

31. Plaintiff requests that this Court enter a temporary restraining order and tempor~

injunction prohibiting Defendants from closing the sale of Plaintiffs Incorporated

shares until such time as the Court has entered a judgment on Plaintiffs claims.




APPLICATION FOR TEMPORARY RESTRAINING ORDER, AND TEMPORARY INJUNCTION

32. Plaintiff will suffer immediate and irreparable injury unless the temporary restraining

order is granted. Plaintiff is willing to post a bond, and Plaintiff requests that the bond be

nominal.

33. Plaintiffhas stated a valid claim which involves immanent harm and on which Plaintiff

has a reasonable likelihood of success. Harm will result to Plaintiff if the temporary restraining

order is not issued because the sale of his stock will strip him of his rights as a shareholder.

Plaintiff is without adequate remedy at law. Therefore, Plaintiff requests that this Court enter a

temporary restraining order prohibiting Defendants from closing the sale of Plaintiffs shares

until such time as the Court has entered a judgment on Plaintiff's claims.

34. This relief is authorized under TEX. CIV. PRAC. & REM. CODE§ 65.011(1) and (3).

WHEREFORE, Plaintiff respectfully requests that the named Defendants be cited to

appear and answer herein and that, upon trial of this cause, that he have relief as follows:

(a) grant Plaintiffs application for temporary restraining order;

(b) schedule an evidentiary hearing on Plaintiffs application for temporary

injunction;

(d) after a hearing, grant Plaintiff's application for temporary injunction.

(e) after trial, enter a final judgment awarding Plaintiff damages in an amount in

excess of the minimum jurisdictional limits of this Court, including exemplary damages,

according to the proof at the time of trial;

PLAINTIFF'S VERIFIED APPLICATION FOR TEMPORARY RESTRkiNING ORDER-10



(f) award Plaintiff his reasonable attorneys' fees incurred in connection with the

prosecution of this action, costs of suit incurred herein, and interest awardable to Plaintiff by

law; and any other relief to which Plaintiff may be entitled.

Respectfully submitted,

Fryar Law Firm, P.C.

By:[rfr Eric Fryar Texas Bar No. 07495770 Camille Tankersley Texas Bar No. 24004828 1001 Texas Ave., Suite 1400 Houston, TX 77002-3194 Tel. 281-715-6396 Fax 281-715-6397 Email: [email protected] ATTORNEYS FOR PLAINTIFF


mailto:[email protected]



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