1

No. _____________

Garren, § IN THE DISTRICT COURT

Plaintiff §

v.

§

§

§

OF HARRIS COUNTY, TEXAS

Gilley,

.,

§

§

§

Defendants § ________ JUDICIAL DISTRICT

PLAINTIFF’S ORIGINAL PETITION, REQUEST FOR

DISCLOSURE, AND REQUEST FOR PRODUCTION

Plaintiff individually and on behalf of Encompass Security, Inc. brings this

shareholder oppression and derivative action against R G , R H ,

Encompass Enterprises, Inc., and would show the Court as follows:

Discovery Control Plan

1. Plaintiff intends to conduct discovery under Level 2.

Parties

2. Plaintiff is an individual residing in Harris County,

Texas. Plaintiff is and at all relevant times has been a shareholder in Encompass Security, Inc.

and brings this action both on behalf of himself and derivatively on behalf of the corporation.

3. Defendant R G is an individual residing at

. Defendant may be served at his usual place of employment,

.

4. Defendant R H is an individual residing at

. Defendant Hambrick may be served at his usual place of employment,

.

Filed07 July 26 A11:36Charles BacarisseDistrict ClerkHarris District

2

5. Defendant Encompass Security, Inc. is a Texas corporation and may be served

through its registered agent at his usual place of employment,

. Encompass Security, Inc. is joined as a nominal

defendant only on all but the claims asserted in the alternative.

6. Defendant Encompass Enterprises, Inc. is a Texas corporation and may be served

through its registered agent at his usual place of employment,

.

Jurisdiction and Venue

7. This court has original jurisdiction of the subject matter and over all parties in this

action.

8. Venue is proper in Harris County because the Defendants at all times relevant to

this action did business and committed torts in Harris County and because a substantial portion

of the acts or occurrences giving rise to the causes of action pleaded herein occurred in Harris

County. In particular and without limitation, Plaintiff has been accused of the theft of company

property in Harris County. Plaintiff has been accused of intentionally refusing to perform in

Harris Count certain legal obligations to the company regarding two company vehicles located in

Harris County. Plaintiff is accused of committing in Harris County certain acts wrongdoing with

regard to contracts relating to a job performed by the company in Harris County. The

Defendants are withholding from Plaintiff certain funds owed to him and payable in Harris

County and are further withholding his original signed share certificates, which are deliverable in

Harris County. The foregoing acts and occurrences are substantially the basis of the declaratory

judgment claims and contract claims alleged herein, but also form the basis of Defendants’

3

proffered justification for violation of Plaintiff’s statutory rights to inspect documents and

oppression of Plaintiff as a minority shareholder.

Facts

9. Defendant G , Defendant H , Plaintiff, and others formed and

incorporated R2 Security and Loss Prevention Solutions, Inc. on April 21, 2004. Plaintiff

personally invested $100,000.00 in cash into the new venture, as well as his time, efforts and

expertise. The name of the corporation was changed by amendment to its articles of

incorporation to Encompass Security, Inc. on February 1, 2005. Throughout its existence,

Encompass Security, Inc. has been dominated and controlled by Defendant G and by

Defendant Ha , who control a majority of the shares and both of the two places on the

board of directors. Additionally, Defendant is the president of the corporation.

10. The business of Encompass Security, Inc. is the installation and monitoring of

alarm and security systems for commercial customers. The principal office and business of the

corporation is located in the Dallas area; however, Plaintiff and a small staff of primarily contract

employees provided services in the Houston area. In early 2007, Encompass Security, Inc. sold

its Houston operations to another company for more than $100,000 and signed a five-year

noncompete agreement prohibiting it from doing business in the Houston area. As a result of

this transaction, Plaintiff no longer had a job with Encompass Security, Inc., and (with the

knowledge and consent of the corporation) accepted employment with the buyer during the

period of transition, and has now started his own business in the Houston area.

11. Upon the sale of the Houston operations, Defendants

conspired to squeeze out Plaintiff as a shareholder. Plaintiff received absolutely nothing from

the sale of the Houston operations. Defendants refused to provide him with an accounting of the

4

receipt and use of proceeds, other than an email claiming that all the proceeds had been paid to

the two defendants to reimburse them for company payables on their personal credit cards.

Defendants have also refused to provide any detailed financial information or information

regarding recent acquisitions.

12. Throughout the history of the corporation, profits have never been distributed to

shareholders by means of dividends, but have always been paid out in the form of salary and

commission. At the time of the sale of the Houston operations, Plaintiff was still owed

significant amounts of commissions and was also owed substantial expense reimbursements;

however, Defendants have failed and refused to pay those amounts in an effort to deny Plaintiff

any economic return on his investment and further to apply economic pressure.

13. Defendants’ next salvo in their campaign of oppression came on July 2, 2007,

when counsel, presumably paid with corporate funds, sent Plaintiff a demand letter attached

hereto as Exhibit A. That letter was a blatant effort to generate false issues to allow the

Defendants to gain leverage over Plaintiff to force him to abandon his investment in the

corporation. Plaintiff responded to each item raised in an effort to eliminate any basis for dispute

in a letter sent by his counsel on July 12, 2007, attached hereto as Exhibit B. On July 19, 2007,

Defendants responded in a letter attached hereto as Exhibit C.

14. In Exhibit A, Defendants falsely charged Plaintiff with the theft of tools that were

the property of the company that had been in the possession of certain contract employees in

Houston at the time of the sale. This charge was false and made in bad faith. In fact, Plaintiff

never had possession of the tools while he worked for the company and was not responsible for

them at that time. Plaintiff further did not have possession of the tools at the time the Defendants

sent the demand letter and had alerted the company to that fact a month prior to the demand

5

letter. The tools had been purchased by two contract installers on a company Home Depot credit

card. The purchases were approved directly by the company, and Plaintiff had no direct

knowledge or involvement. The tools were kept by two contract employees in their trucks.

Plaintiff did not even receive an inventory of the tools to be returned until after he had already

ceased to be an employee. Nevertheless, Plaintiff cooperated and assisted in every way to make

sure that all the property was returned to the company. He inquired with the purchaser,

contacted the former contract employees, and otherwise attempted to locate the items, and was in

fact able to locate and return a few of the items. Plaintiff reiterated these facts in Exhibit B and

requested that Defendants either retract the accusation or give a reasonable legal justification for

their demand that Plaintiff pay the company the value of the tools. In Exhibit C, the Defendants

did neither.

15. Also in Exhibit A, Defendants purported to charge Plaintiff a “per diem” rental

for his use of two company vehicles in Houston. While he was an employee, the company had

leased two vehicles for Plaintiff’s use, which were paid through reductions in salary and

commissions. As part of the sale of the Houston operations, the company offered to allow

Plaintiff to keep the two vehicles provided that he have the lease transferred into his name. After

the sale and the termination of his employment with the company, Plaintiff submitted an

application with GMAC to have the vehicle leases transferred. That application was denied.

Plaintiff subsequently submitted a second application, but has received no response and has been

told that GMAC will deal only with the company on the question of the lease. All of these facts

were reported at the time to the Defendants. Nevertheless, the Defendants have done absolutely

nothing to facilitate the transfer and have refused to take back the vehicles. Furthermore, the

Defendants have claimed that Plaintiff intentionally violated his legal obligations to the company

6

and are charging him a daily rental rate whereby the company would profit from his continued

possession of the vehicles. In Exhibit B, Plaintiff again explained the situation, offered to pay

any actual costs incurred by the company during the process of his applying to transfer the lease

into his name, and offered to return the vehicles if the company was no longer willing to wait,

but stated that Plaintiff had not agreed to a daily rental arrangement with the company. In

Exhibit C, Defendants maintained their outrageous position that it was Plaintiff who “failed and

refused” to transfer the lease and asserted an intention to aggressively pursue legal action against

Plaintiff.

16. In Exhibit A, Defendants further threatened legal action against Plaintiff for

signing a customer’s name to certain contracts for an installation job done in Houston prior to the

sale of the Houston operations. Plaintiff has never denied that he did this or that it was improper.

At the time, Plaintiff had a series alarm system installation jobs for a Houston customer.

Because this particular customer was a trusted friend of Plaintiff’s and because Plaintiff was

under enormous time pressure, Plaintiff filled out the paperwork on the job for his customer.

The job was then performed according to the terms of that very paperwork, and the customer

accepted and paid for the work. Afterward, Plaintiff realized that he had made a mistake and

fully disclosed the situation to the company. Defendant Gilley requested that Plaintiff obtain

signatures from the customers on those contracts. Plaintiff did so, and attached the originals of

the signed contracts to Exhibit B. Plaintiff also fully made full disclosure to his new employer,

the company that bought all the Houston business, including the jobs in question; and the new

employer expressed that he had no concern about the situation. However, despite the fact that

the job had been completely performed and paid for, despite the fact that the Houston business

had been purchased by another company, and despite the fact that the Plaintiff had complied with

7

the company’s demand to rectify the mistake by obtaining actual signatures, the Defendants

refused to accept the signed contracts and stated in Exhibit C their intent to continue to prosecute

legal actions against Plaintiff.

17. Finally, in Exhibit B, Plaintiff noted that he no longer participated in company

profits through salary and commissions and, therefore, the past policy of paying out all company

profits through salary and compensation would no longer be fair going forward. Plaintiff alerted

the company that the time was appropriate for the board of directors to re-examine that past

policy or to consider the redemption of his shares. As an “outside” minority shareholder,

Plaintiff noted his need for information relating to the corporation and stated specifically that his

purposes in requesting inspection of corporate records under art. 2.44 of the Texas Business

Corporations Act was “to gain knowledge regarding the financial and operations status of the

company, the governance and ownership of the company, the nature and substance of all

transactions subject to disclosure, and the value of Mr. Garren’s shares.” The demand for

inspection complied exactly with the statutory requirements of art. 2.44, but went further to

attempt to avoid any unnecessary burden on the company by offering to change the time and date

of the inspection to some other mutually agreeable arrangement, and by stating: “I am willing to

work with you to minimize any inconvenience of this document request; provided that the

company proceeds in good faith to honor my client’s rights as a shareholder. If July 20 is not

convenient, I am willing to discuss the schedule. Also if there is some particular item that is

uniquely difficult to pull together, there is no sense in delaying the entire inspection. Please alert

me as to any particular problems, as I may be able to forgo or modify some of the requests if I

have more information about the nature of the matters and the state of the company’s records.”

8

Finally, Exhibit B reiterated a request that Plaintiff had made on June 4 for the signed paper

originals of his stock certificates, a request that had been ignored by the company.

18. In Exhibit C, Defendants flatly refused to allow Plaintiff to inspect any corporate

records at any time under any circumstances in flagrant violation of the Texas Business

Corporations Act. Defendants falsely claimed that the written demand did not comply with art.

2.44. Defendants falsely claimed that Plaintiff must “demonstrate” a proper purpose and that he

did not have a proper purpose. Defendants cited their complaints and false claims against

Plaintiff as a former employee as justification for denying him his rights as a shareholder.

Finally, Defendants claimed that they were entitled to withhold all documents on the grounds

that Plaintiff was employed by a “competitor.” This last claim was particularly in bad faith

because Defendants knew that Plaintiff was at that time employed by the company that had

purchased the Houston operations and that, as a part of that transaction, Defendants Gilley and

Hambrick signed a five-year noncompete agreement that prohibited Encompass Security, Inc.

and any other company controlled by them from competing against Plaintiff’s employer.

19. Furthermore, Plaintiff has reason to believe that Defendants may have been guilty

of usurpation of corporate opportunities and acting illegally to dilute and diminish his share

interest in the corporation. In particular, in reviewing the company’s filings with the Texas

Secretary of State for the purpose of preparing Exhibit B, Plaintiff and his counsel discovered

that Defendant was the registered agent and sole director of a company named Encompass

Enterprises, Inc., which had been incorporated on February 23, 2007. While this corporation

clearly is using the name belonging to Encompass Security, Inc., so far as Plaintiff knows,

neither he nor the company has any interest in this new corporation. Plaintiff specifically

9

requested information regarding this entity and other transactions in Exhibit B. The Defendants

illegally refused that request in Exhibit C.

Causes of Action

20. CAUSE OF ACTION NO. 1: Declaratory Judgment against Defendants

and with respect to Encompass Security, Inc. A justiciable dispute exists among

the parties, and Plaintiff requests this Court declare the rights, status, and other legal relations

with respect to the following matters:

a. That Plaintiff has no liability to Defendants as a result of signing a customer’s

name to certain job-related contracts by reason of absence of damages, ratification

by the customer, estoppel, and otherwise;

b. That Plaintiff has no liability or other obligation to Defendants as a result of the

lessor refusing to transfer the lease on the two company vehicles;

c. That Plaintiff has no liability to Defendants as a result of certain tools and

property of the company being lost or stolen after the sale of the Houston

operations;

d. That Plaintiff is a shareholder of Encompass Security, Inc. and the share interest

of Plaintiff;

e. That Plaintiff is entitled to possession of the original signed share certificate.

21. Attorney Fees. Plaintiff is entitled to recover reasonable and necessary attorney

fees that are equitable and just under Texas Civil Practice & Remedies Code section 37.009

because this is a suit for declaratory relief.

22. CAUSE OF ACTION NO. 2: Violation of Rights of Inspection. By their refusal

to allow an inspection of documents, Defendants violated Plaintiff’s rights to inspect corporate

10

records under the common law and pursuant to art. 2.44 of the Texas Business Corporations Act.

Plaintiff is a shareholder of Encompass Security, Inc. and was a shareholder of in excess of 5%

of all outstanding shares of the company and had been a shareholder for a period in excess of six

months at the time of the written demand. Plaintiff made written demand, stating a proper

purpose, and requested inspection through his attorney at a reasonable time. Defendants refused

the demand. Plaintiff is therefore entitled to a writ of mandamus requiring the Defendants to

comply with his rights of inspection, and Plaintiff is entitled to his expenses, costs, and attorneys

fees in bringing this action to obtain redress pursuant the common law and to art. 2.44(D).

23. CAUSE OF ACTION NO. 3: Shareholder Oppression against Defendants

The conduct of Defendants constitutes shareholder

oppression. Defendants have engaged in a pattern of conduct which has in the past and will in

the future substantially defeat Plaintiff’s objectively reasonable expectations that were central to

his decision to join the venture, and further constitute burdensome, harsh and wrongful conduct,

a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its

members, or a visible departure from the standards of fair dealing and a violation of fair play on

which every shareholder who entrusts his money to a company is entitled to rely. Plaintiff is

entitled to the award of equitable remedies suitable and sufficient to redress the harm and to deter

further wrongdoing, including without limitation actual or restitutionary damages, disgorgement,

constructive trust, costs and reasonable and necessary attorneys fees, exemplary damages, and

judicially-ordered buy-out of Plaintiff’s shares at a price determined by the Court to be fair.

24. CAUSE OF ACTION NO. 4: Breach of Fiduciary Duties against Defendants

By their conduct Defendants have breached fiduciary duties owed to

Encompass Security, Inc. and to Plaintiff individually, by wrongful diminution of Plaintiff’s

11

share percentage, misappropriation of corporate funds and assets, usurpation of corporate

opportunities, and otherwise. As fiduciaries, Defendants have the duty to fully and faithfully

account for all transactions involving corporate assets and opportunities and to disgorge all

profits and compensation acquired as a result of their defalcation. Plaintiff is entitled to legal

and equitable remedies on behalf of himself and on behalf of Encompass Security, Inc. pursuant

to Tex. Bus. Corp. Act art. 5.14. Alternatively, if this Court finds that justice so requires,

Plaintiff is entitled to bring this action directly as an individual action for his own benefit

pursuant to Tex. Bus. Corp. Act art. 5.14(L). Plaintiff requests that this Court order an

accounting and award actual damages, restitutionary damages, disgorgement, costs, and

attorneys fees.

25. Exemplary Damages. Defendants have committed breach of fiduciary duties

willfully, wantonly, intentionally, maliciously, and with gross disregard of the rights of others.

Plaintiff is therefore entitled to exemplary damages both individually and on the derivative

claims. Furthermore, these damages are not limited because the conduct alleged violates the

Texas Penal Code.

26. Attorneys Fees. Plaintiff is entitled to recover his expenses, including all costs

and reasonable and necessary attorneys fees, pursuant to Tex. Bus. Corp. Act art. 5.14(J).

27. CAUSE OF ACTION NO. 5: Breach of Fiduciary Duty against Encompass

Enterprises, Inc. On information and belief, Encompass Enterprises, Inc. knowing participated

in, benefitted from and conspired with Defendants to breach fiduciary

duties owed to Encompass Security, Inc. and to usurp corporate opportunities and is therefore

liable to the same extent as if it owed those fiduciary duties directly. Plaintiff, individually and

12

on the derivative claims, is entitled to all remedies pleaded against Defendants Gilley and

Hambrick.

28. CAUSE OF ACTION NO. 6: Breach of Contract or Quantum Meruit against

Encompass Security, Inc. In the alternative, in the event that Plaintiff has not received full

compensation for the amounts that Defendants caused Encompass Security, Inc. to withhold as

damages or equitable relief on the above-pleaded causes of action, then Plaintiff is entitled to

recover the full amount of his compensation, commissions, and unreimbursed expenses that have

been withheld from him; or in the alternative, Plaintiff is entitled to recover the reasonable value

of the services that he rendered and that Encompass Security, Inc. accepted and the amount of

expenses he advanced on behalf of the company with the mutual understanding that he would be

paid and reimbursed, so as to prevent unjust enrichment.

29. Attorneys Fees. Pursuant to section 38.001 et seq. of the Texas Civil Practice and

Remedies Code, plaintiff is entitled to recover his reasonable and necessary attorney’s fees, costs

and expenses incurred in the enforcement of claims for services rendered and breach of an oral or

written contract. Presentment has been made.

Demand for Jury

30. Plaintiff demands a jury trial and tenders the appropriate fee with this petition.

Conditions Precedent

31. All conditions precedent to plaintiff’s claim for relief have been performed or

have occurred.

13

Request for Disclosure

32. Under Texas Rule of Civil Procedure 194, plaintiff requests that defendant

disclose, within 50 days of the service of this request, the information or material described in

Rule 194.2.

Request for Production of Documents

33. Under Texas Rule of Civil Procedure 196, Plaintiff requests that Defendant

respond to this request for production of the categories of documents enumerated below within

50 days after the service of this request. Defendants must produce all requested documents for

inspection and copying as they are kept in the ordinary course of business or organized and

labeled to correspond with categories in each request. Production is to be made on the date of

the response and at the offices of Plaintiff’s counsel at the address stated herein, or at such other

date and place as the parties may mutually agree.

34. Instructions:

a. Respond in writing to each request for documents separately by listing the

documents and by describing them as defined below. If documents produced in

response to this request are numbered or otherwise labeled for production, in each

response provide both the information that identifies the document and the

document’s number.

b. For a document that no longer exists or that cannot be located, identify the

document in your response, state how and when it passed out of existence, or

when it could no longer be located, and the reasons for the disappearance. Also,

identify each person having knowledge about the disposition or loss of the

document, and identify any other document evidencing the lost document’s

existence or any facts about the lost document.

18

22. All documents reflecting or relating to any claim for indemnification or

advancement of expenses relating to this litigation, and documents reflecting all

billings from and payments to attorneys relating to this litigation.

23. All photographs, film, video, or other images in your possession, custody or

control depicting Plaintiff or otherwise relating to the subject matter of this

litigation.

24. All sound recordings of Plaintiff or otherwise relating to the subject matter of

this litigation.

25. All documents relating to or referring to the value of Encompass Securities, Inc.

or its shares, including without limitation, appraisals, personal financial

statements, loan applications, and documents relating to actual or potential

purchases and sales of shares.

Prayer

37. For these reasons, plaintiff asks that Defendants be cited to appear and answer and the

court grant the following relief:

a. Declaratory Judgment;

b. Writ of Mandamus;

c. Accounting;

d. Actual Damages at law and forced buy-out, restitution, disgorgement,

constructive trust, and quantum meruit at equity;

e. Exemplary Damages;

f. Attorneys Fees, expenses, and costs;

g. Pre-judgment and post-judgment interest;

h. Such other and further relief to which Plaintiff may be justly entitled.

19

Respectfully Submitted,

FRYAR LAW FIRM, P.C.

_______________________________

F. Eric Fryar

Texas Bar No. 07495770

4606 FM 1960 Rd. W., Ste 400

Houston, Texas 77069-4604

Tel. (281) 315-8860

Fax (281) 605-1888

Email: eric@fryarlawfirm.com