5/19/2017 3:31:26 PM Chris Daniel - District Clerk Harris County Envelope No. 17147070 By: TERESA KIRBY Filed: 5/19/2017 3:31:26 PM NO. 2016-36300 IN MANAGEMENT, LLC, INTER NOS BARKER CYPRESS, LTD., INTER NOS ODESSA, LTD., INTER NOS WICHITA, LTD., NEW ORLEANS IN, LTD., INTER NOS SPACE PLUS, LTD., INTER NOS SPRINGVILLE, LTD., INTER NOS WALKER, LTD., INTER NOS PIPELINE, LTD., INTER NOS TP INVESTMENTS, LTD., MARK HOTZE, STEVEN HOTZE, RICHARD HOTZE AND BRUCE R. HOTZE, SR. HARRIS COUNTY, T E X A S 61ST JUDICIAL DISTRICT hr is DEFENDANTS ist ric t C ler k V. l D PLAINTIFF IN THE DISTRICT COURT OF nie § § § § § § § § § § § § § § § § § § § Da DAVID HOTZE, e ffic TO THE HONORABLE COURT: of C PLAINTIFFS’ SEVENTH AMENDED PETITION AND APPLICATION FOR INJUNCTION O Plaintiff David Hotze files this Sixth Amended Petition and Application for Injunction op y against IN Management, LLC, Inter Nos Ltd., Inter Nos Barker Cypress, Ltd., Inter Nos Odessa, C Ltd., Inter Nos Wichita, Ltd., New Orleans In, Ltd., Inter Nos Space Plus, Ltd., Inter Nos fic ial Springville, Ltd., Inter Nos Walker, Ltd., Inter Nos Pipeline, Ltd., Inter Nos TP Investments, Un of Ltd., (collectively “Defendant Entities” or the "Inter Nos entities") Mark Hotze, Steven Hotze, and Richard Hotze (and their general partnership called Troika Partnership)(collectively “Hotze Defendants”) and Bank of America, N.A.(“Bank”). Donna Hotze, as Trustee of the David N. Hotze 2012 Family Trust (the “Trust”), has joined this case as Plaintiff. Plaintiffs would respectfully show the Court the following: 1 DISCOVERY LEVEL 1. On December 12, 2016, a Rule 190.4 (Level 3) discovery control order was entered in this case. RULE 47 STATEMENT Plaintiffs seek non-monetary relief and monetary relief over $1,000,000 as ist ric t C ler k 2. defined by Rule 47(c)(5). JURISDICTION AND VENUE The Court has jurisdiction over this matter. The damages and relief sought are l D 3. nie within the jurisdictional limits of the Court. Jurisdiction is also proper in this Court under Section Da 11.314 of the Business Organizations Code. The principal place of business of each of the hr Venue is proper in Harris County, Texas because one or more of the Defendant C 4. is defendant entities is in Harris County, Texas. e of Entities maintain their principal offices in Harris County, Texas and all or a substantial part of PARTIES op y O ffic the events or omissions giving rise to the claims asserted occurred in Harris County, Texas. Plaintiff David Hotze is an individual residing in Harris County, Texas. 6. Plaintiff Donna Hotze, Trustee is an individual residing in Harris County, Texas. 7. Defendant IN Management, LLC (“IN Management”) is a Texas limited liability Un of fic ial C 5. company with its principal place of business in Harris County, Texas. IN Management has answered. 8. Defendant Inter Nos Ltd. is a Texas limited partnership with its principal place of business in Harris County, Texas. Inter Nos Ltd. has answered. 2 9. Defendant Inter Nos Barker Cypress, Ltd. (“Barker Cypress”) is a Texas limited partnership with its principal place of business in Harris County, Texas. Barker Cypress has answered. 10. Defendant Inter Nos Odessa, Ltd. (“Odessa”) is a Texas limited partnership with 11. ist ric t C ler k its principal place of business in Harris County, Texas. Odessa has answered. Defendant Inter Nos Wichita, Ltd. (“Wichita”) is a Texas limited partnership with its principal place of business in Harris County, Texas. Wichita has answered. Defendant New Orleans In, Ltd. (“New Orleans”) is a Texas limited partnership l D 12. Defendant Inter Nos Space Plus, Ltd. (“Space Plus”) is a Texas limited Da 13. nie with its principal place of business in Harris County, Texas. New Orleans has answered. hr is partnership with its principal place of business in Harris County, Texas. Space Plus has of Defendant Inter Nos Springville, Ltd. (“Springville”) is a Texas limited e 14. C answered. ffic partnership with its principal place of business in Harris County, Texas. Springville has Defendant Inter Nos Walker, Ltd. (“Walker’) is a Texas limited partnership with C 15. op y O answered. fic Defendant Inter Nos Pipeline, Ltd. (“Pipeline”) is a Texas limited partnership Un of 16. ial its principal place of business in Harris County, Texas. Walker has answered. with its principal place of business in Harris County, Texas. Pipeline has answered. 17. Defendant Inter Nos TP Investments, Ltd. (“TP Investments”) is a Texas limited partnership with its principal place of business in Harris County, Texas. TP Investments has answered. 3 18. Defendant Mark Hotze is an individual residing in Fort Bend County, Texas. Mark Hotze has answered. 19. Defendant Richard Hotze is an individual residing in Harris County, Texas. Richard Hotze has answered. Defendant Steven Hotze is an individual residing in Harris County, Texas. Steven ist ric t C ler k 20. Hotze has answered. 21. Bruce R. Hotze, Sr. was formerly a defendant, but has now filed pleadings to l D realign as a plaintiff and to assert claims as have been asserted by Plaintiffs. Defendant Troika Partnership is a Texas general partnership. It has answered. 23. Bank of America, N.A. is a national banking association. It has answered. Da nie 22. The Trust was organized in 2012. In December 2012, David Hotze conveyed his C 24. hr is DERIVATIVE CLAIMS e of interest in Inter Nos Ltd to the Trust. The Trust has been a limited partner of Inter Nos Ltd. since ffic December 2012. As a result, Donna Hotze as Trustee, joins this action to assert all claims David David Hotze and/or the Trustee has been individually injured by the actions C 25. op y O Hotze has asserted relating to Inter Nos Ltd. ial described below. To the extent any of the claims below must be asserted by any of the named Un of fic Inter Nos entities, David Hotze and/or the Trustee asserts such claims derivatively, as authorized pursuant to Texas Business and Organizations Code Chapter 153. As detailed below, Mark Hotze, Richard Hotze and Steven Hotze have acted to benefit their entity, CECO, and themselves in dealings involving the Defendant entities. Any effort to cause the general partner of the Defendant limited partnerships to bring an action on behalf of the limited partnerships would not likely succeed. IN Management is controlled by five managers, three of which are Mark Hotze, 4 Richard Hotze and Steven Hotze. Asking or causing the general partner of the limited partnerships to bring litigation adverse to the interests of those three managers and CECO would be futile. Their recent actions have been directly contrary to the relief sought here. The declaratory relief and damages sought below involve IN Management resolutions purporting to ist ric t C ler k permit Mark Hotze, Richard Hotze and/or Steven Hotze to act on behalf of the Inter Nos entities. Such resolutions of IN Management were adopted on the vote of Mark Hotze, Richard Hotze and Steven Hotze. Those managers were advised of their breaches of fiduciary duty in adopting the l D resolutions and the fact that all partners of the limited partnerships must approve of the proposed nie actions, but they proceeded anyway. Alternatively, such actions are void as they do not comply Da with Tex. Bus. Org. Code § 101.255. David Hotze and/or the Trustee brings the declaratory hr is action claims on behalf of the Inter Nos entities and IN Management, LLC, derivatively, to the of David Hotze and/or the Trustee has been and is a member of IN Management, e 26. C extent required by law. ffic LLC and a limited partner of the Inter Nos entities at all times material to the matters addressed op y O in this petition. David Hotze and/or the Trustee made no effort to secure initiation of the action C by IN Management, the general partner, or the managers of IN Management, LLC as such efforts BACKGROUND FACTS Un of fic ial would be futile, as described above. 27. Plaintiff David Hotze and Defendants Mark Hotze, Richard Hotze, Bruce R. Hotze, Sr. and Steven Hotze are brothers. Their father, Ernest George Hotze, Jr. founded Compressor Engineering Corporation (“CECO”) in 1964 to manufacture and sell parts associated with compressors and other oilfield equipment. 28. Over the years, the CECO business transitioned to Mr. Hotze’s children and 5 eventually to David Hotze and individual Defendants. For a lengthy period of time, ending in 2015, CECO was owned in essentially equal shares by the Hotze Brothers. Until 2014, each of the Hotze Brothers, except Steven who has an established medical practice, served as employees of CECO. Until 2014, each of the Hotze Brothers served as officers and directors of CECO. Over the years, the Hotze Brothers organized limited partnerships which mainly ist ric t C ler k 29. owned real estate or equipment leased to CECO or its affiliates or otherwise located near CECO’s business operations. IN Management LLC was organized to serve as the general partner l D of the limited partnerships. IN Management is owned in equal shares, with each brother serving IN Management holds a 1% interest in each limited hr named as defendants in this case. Da IN Management serves as general partner of the various limited partnerships is 30. nie as a manager and as a 20% member. C partnership. Each Hotze Brother held an equal share of the remaining 99% of each limited e of partnership. As to Inter Nos, Ltd, David Hotze conveyed his limited partnership interest to the ffic Trust in December 2012. Mark Hotze, Richard Hotze and Steven Hotze claim to have conveyed op y O their limited partnership interests in Inter Nos Space Plus, Ltd to the Troika Partnership at some Most of the Defendant limited partnerships lease real estate and equipment to ial 31. C point in 2015. Un of fic CECO. 32. Over many years, CECO, IN Management and the limited partnerships operated in this way for the mutual and equal benefit of each of the Hotze Brothers. 33. In mid 2014, it was discovered that substantial losses were being incurred in CECO’s business operations in Ohio. CECO’s lender, Comerica Bank, restricted CECO’s use of cash and began making demands in light of significant CECO borrowings. One such demand 6 was the requirement that CECO hire outside personnel to be involved in CECO’s business – and to apparently report to the lender. Somewhere along the way, some combination of these outside personnel, Mark Hotze, Richard Hotze and Steven Hotze determined to cause CECO to fire David Hotze and eventually Bruce R. Hotze, Sr. David was terminated in January 2015. David ist ric t C ler k Hotze was later removed from the CECO board of directors. Bruce’s day to day role and director position was terminated in 2015 and the individual Defendants recently embarked on a plan to terminate his CECO relationship altogether. Comerica Bank also made demands with respect to collateralizing the CECO l D 34. As a result of Bruce Hotze’s and David Hotze’s removal as officers and board Da 35. nie loans and sales of assets owned by some of the Inter Nos entities and leased to CECO. hr is members of CECO, they had no access or limited access to CECO financial information. Mark C Hotze, Richard Hotze and Steven Hotze continued their roles with CECO and had access to all e of CECO information. They were in a position to, and did, use their insider knowledge of CECO to ffic their advantage in causing Inter Nos entities to take or not take actions. As a result, they were op y O managerial officials of CECO and their actions should have been limited under Tex. Bus. Org. On December 3, 2014, at a meeting of IN Management and/or the various limited ial 36. C Code § 101.255. Un of fic partners, a vote was taken and approved to pursue the sale of essentially all assets of the Defendant entities. If successful, the distribution of the sales proceeds to partners and members would essentially accomplish the winding up of each of the Defendant entities. David Hotze understands that the majority of the IN Management managers or members decided that Rick Hotze would pursue this effort. However, other than a sale of some, but not all, of the assets of Inter Nos Space Plus, nothing appears to have been accomplished on this effort. 7 37. David Hotze attempted to call meetings of the various defendant entities to make certain that the business of the defendant entities was operated properly and fairly to all – but on many occasions, Mark Hotze, Richard Hotze and Steven Hotze simply boycotted meetings. 38. By mid 2015, Mark Hotze, Richard Hotze and Steven Hotze had embarked on a ist ric t C ler k scheme, perhaps required by, but at least in concert with Comerica Bank, to sell the assets of Inter Nos Space Plus, to pledge assets of Inter Nos Pipeline and Inter Nos TP to Comerica Bank as collateral for the CECO indebtedness and to subordinate various loans CECO took from three l D of the Inter Nos entities (but not approved by all of the partners) in mid 2014 to Comerica Bank, nie and its eventual successor, Bank of America. They also required and caused the Inter Nos Da entities' who were lessors to CECO and its affiliates to take less than outstanding leases required hr In 2015, Mark Hotze, Richard Hotze and Steven Hotze organized an entity they C 39. is and less than fair market value. e of dubbed “Troika Partnership” to combine their Inter Nos interests and seize control of CECO. ffic They loaned CECO about $2.5 million in exchange for an over market rate loan which allegedly op y O included the right to convert the Troika debt to CECO stock at their election. They made such an C election in 2015, causing CECO to issue new stock to them and purportedly diluting Bruce Hotze ial and David Hotze’s Class A voting stock holding percentages to essentially nil. Once they Un of fic claimed to own over 98% of CECO Class A stock, Mark Hotze, Richard Hotze and Steven Hotze then began taking actions in breach of fiduciary duties to Bruce Hotze and David Hotze to favor CECO in the business dealings between CECO on the one hand and various of the Inter Nos entities on the other hand. 40. Over time, it has become increasingly clear that Mark Hotze, Richard Hotze and Steven Hotze have and will continue to use their inside CECO information to their advantage in 8 causing various of the Inter Nos entities to grant concessions to or for the benefit of CECO. It also seems clear that the Troika Hotze Brothers have no reason to press for the sale of the Inter Nos entities’ assets since they enjoy the benefit of under market leases and favorable subordinated loan terms through their controlling ownership of CECO – even though there was 41. ist ric t C ler k an earlier vote and decision to pursue the asset sales. Examples of actions which are not in the best interest of all limited partners of the Inter Nos entities, but in the interest of CECO, its lender(s) (at the time – Comerica before l D September 2016 and Bank from and after May 2016) and the “Troika” Hotze Brothers, include: Causing the 2015 sale of a significant portion, but not all, of the real estate nie A. Da holdings of Inter Nos Space Plus for less than it should have been sold. The sale stranded hr is a marginally economic portion of the Inter Nos Space Plus land – causing its value to be C harmed. Leasing assets of the Inter Nos entities to CECO for less than fair market e of B. Failing to collect agreed upon rentals and related interest charges owed op y O C. ffic value since 2014. C from CECO to the Inter Nos entities since 2014. Permitting CECO to pay less than agreed upon rental and modifying ial D. Un of fic leases to less than market rates since 2014. E. Delaying or not pursuing the sale of the Inter Nos entities’ assets since F. Causing Inter Nos entities to forgive interest and fees owed to them by 2014. CECO and its affiliate on subordinated loan terms and thereafter extending such debt on non-market terms in May and June, 2016. 9 G. Attempting to again extend the aforementioned loans only days later – purportedly because CECO’s lender was requiring 5 year terms instead of two year terms for the notes in June 2016. H. Confirming pledges and subordinations of Inter Nos assets to permit ist ric t C ler k CECO to meet its lenders’ demands in May and June 2016. I. Since 2014, causing transactions to occur upon the approval of the general partner (IN Management) upon only the vote of three of the IN Management members l D (Mark, Richard and Steven) when: (i) the vote of all partners of the Inter Nos entities is nie required – i.e., including Bruce Hotze and David Hotze and/or the Trust, or, (ii) if IN Da Management could authorize such transactions, failing to comply with Tex. Bus. Org. hr is Code § 101.255 for such approvals. Manipulating obligations of CECO to several of the Inter Nos entities by C J. e of allegedly “offsetting,” in mid-2016, substantial obligations against amounts allegedly ffic owed to CECO by Inter Nos Space Plus for property taxes CECO, Mark Hotze, Richard op y O Hotze and Steven Hotze claim CECO paid for the benefit of Inter Nos Space Plus. (Such C obligations, if ever owed, had long ago lapsed under the applicable statute of frauds.) Attempting to accomplish a refinancing of CECO debt utilizing the Inter ial K. Un of fic Nos Ltd real estate as collateral through the machinations of a several phased loan closing and an alleged Bank purchase of a Comerica note – in substance exactly what CECO (and therefore the Troika brothers) and its loan broker admitted could not be directly done – resulting in Bank of America holding a purported deed of trust on the Inter Nos Ltd real estate to secure CECO’s loans of over $12 million. 42. Because of the divergent interests of the Plaintiffs from the interests of Mark 10 Hotze, Richard Hotze and Steven Hotze now that all of the Hotze Brothers do not have an equal stake in the business of CECO – concessions forced upon the Inter Nos entities by Mark Hotze, Richard Hotze and Steven Hotze are visited almost entirely upon Bruce Hotze and David Hotze. (Mark Hotze, Richard Hotze and Steven Hotze indirectly get virtually all of the benefit to CECO 43. ist ric t C ler k – Bruce Hotze and David Hotze and/or the Trust get essentially no such benefit.) The level of discourse among the Hotze Brothers over these issues – and others – has become embarrassingly hostile to the point that arm’s length business associates would find l D entirely unacceptable. The working relationship is completely inappropriate and unjustified nie among brothers. Regardless of the tone and tenor, requests for basic information to permit David Da Hotze to evaluate business issues and help direct the future of IN Management and the Inter Nos hr is entities are routinely ignored – in breach of fiduciary duties owed among the members and of On limited advance notice, Richard Hotze called an IN Management LLC e 44. C partners and contrary to the requirements of Tex. Bus. Org. Code § 101.255. ffic managers meeting on May 17, 2016. David Hotze and Bruce Hotze requested back up op y O information in advance of the meeting but limited information was supplied. On the vote of C Richard Hotze, Mark Hotze and Steven Hotze, various accommodations from the various Inter ial Nos entities were granted to CECO Pipeline and CECO. The minutes of the meeting, and the Un of fic adopted resolutions are attached as Exhibit A. The resolution is void or voidable. Any and all documents which any of the Troika brothers may have signed or may sign in furtherance of the scheme outlined in the resolution are void or voidable. 45. This lawsuit was filed soon after the May 17, 2016 IN Management, LLC managers meeting. 46. All individual Defendants were provided copies of the lawsuit papers in this case 11 promptly upon filing. They were requested to halt any action or vote dealing with assets of the Defendant entities. However, only hours after this lawsuit was filed, Rick Hotze sent notice to the managers of IN Management proposing that a previously noticed meeting would address a much broader range of topics than previously noticed. The proposed resolution, among other ist ric t C ler k things, suggested that a vote of the majority of IN Management managers could restructure and extend a deed of trust in favor of Comerica covering property owned by Inter Nos Ltd (as described on Exhibit B attached) in connection with a refinancing of CECO debt with Comerica l D and Bank of America. Upon information and belief, the resolution was drawn up by counsel for nie CECO – as counsel for IN Management, Larry Jacobs, had not been previously provided with is Bruce Hotze had previously requested that the Troika brothers provide full details hr 47. Da the resolution. C and copies of documents relating to the financing to the managers in advance of the meeting. At the meeting, there was a significant delay as Troika brothers and even IN ffic 48. e of That request was ignored. The meeting proceeded over David Hotze’s objection. op y O Management counsel who was in attendance did not have the relevant proposed resolutions David Hotze’s request for the documents and C available for presentation to the managers. ial information during the meeting was rejected, as was David Hotze’s motion to postpone the Un of fic meeting to permit full and complete disclosure by the Troika brothers and time for review and consideration by the other IN Management members. The meeting proceeded and a broad ranging resolution was adopted on the 3 – 2 vote, with the Troika brothers voting in favor and David Hotze and Bruce Hotze voting against. Among other things covered by the resolution is authorization for one of the Troika brothers to proceed to execute documents, copies of which had not been provided to David Hotze and Bruce Hotze, altering and extending a lien document 12 covering the Inter Nos Ltd property. 49. Actions to further encumber the Inter Nos Ltd property can only benefit CECO and the Troika brothers and will only be to the detriment of Inter Nos Ltd and the non-Troika partners. Rick Hotze, Mark Hotze and Steven Hotze breached fiduciary duties to the other Inter ist ric t C ler k Nos entities and David Hotze and/or the Trust by concealing and not providing full and complete information. They breached fiduciary duties by serving only their own interests not the interests of those owed their fiduciary duty. They also acted contrary to the governing documents of the l D Inter Nos entities and the Texas Business Organizations Code by forcing actions involving all of nie the real estate assets of Inter Nos Ltd and which go well beyond the stated purpose of Inter Nos Da Ltd upon only the vote of three of the IN Management members instead of the unanimous vote hr is of all Inter Nos entity partners and failed to comply with Tex. Bus. Org. Code § 101.255. The C resolution is void or voidable. Any and all documents which any of the Troika brothers may e of have signed or may sign in furtherance of the scheme outlined in the resolution are void or O The draft meeting minutes and resolutions of the June 2, 2016 meeting are op y 50. ffic voidable. After the June 2, 2016 meeting, the efforts of the Troika brothers to dominate ial 51. C attached as Exhibit C. Un of fic and control IN Management and the Defendant entities to the detriment of Plaintiffs continued. With notice of only about 24 hours, Richard Hotze called for meetings of IN Management managers to approve of IN Management’s cooperation with Bank of America to move remaining CECO debt owed to Comerica to Bank of America. By doing so, the debt claim for which the primary real estate asset of Inter Nos, Ltd allegedly served as collateral, would go from about $2.5 million to more than $10 million – an action obviously not in the best interest of Inter Nos, 13 Ltd or its partners. Apparently by forcing this action through, the Troika brothers would be able to drop CECO’s interest rate on its loans from something near 11% to something in the range of 2% -- a benefit for CECO, but not for Inter Nos. The Troika brothers attempted to secure IN Management managers' approval to cause Inter Nos, Ltd to participate at a meeting noticed for ist ric t C ler k that purpose to occur on August 31, 2016. At the August 31, 2016 meeting, Richard Hotze admitted that issues raised by David Hotze were “good ones” and elected not to present the matter for a vote to permit time to see about changing the Bank of America requirements. But, l D Bank of America would not eliminate the cross collateralization requirement and Richard Hotze nie attempted to again push the deal through. He noticed a meeting for 11 am September 2, 2016 for is The Troika brothers forced through IN Management hr Comerica loan to Bank of America. Da the IN Management managers to vote on the Inter Nos, Ltd participation in moving the CECO C managers' approval on the vote of the Troika brothers for the transaction with Bruce Hotze and e of David Hotze voting against the transaction. The Troika brothers had already proceeded with the ffic transaction – papers in favor of Bank of America had already been signed on August 30, 2016 op y O (stating they would be effective as of September 2, 2016). The Troika brothers never informed C the IN Management members (or the other partners of Inter Nos Ltd.) of this fact. A deed of ial trust modification was later filed in the Harris County Real Property Records at 2016-399361. Un of fic The approval or resolution is void or voidable. Any and all documents which any of the Troika brothers may have signed (including the deed of trust modification) or may sign in furtherance of the scheme outlined in the approval or resolution are void or voidable. 52. After this lawsuit started, Plaintiffs have learned that CECO – under the control of Richard Hotze, Mark Hotze and Steven Hotze – circulated requests for financing to various proposed lenders in Fall 2015, specifically acknowledging that the three Troika brothers could 14 not cause the Inter Nos entities to continue to pledge Inter Nos entity assets to collateralize CECO loans and therefore a requested refinancing of Comerica CECO debt would need to proceed without Inter Nos property serving as collateral. In concert with Bank of America, the three Troika partners intentionally structured the CECO refinancing to occur in two stages with ist ric t C ler k the second stage being done as an out of the ordinary “loan sale” of the remaining Comerica CECO debt secured by the Inter Nos, Ltd property as a scheme to avoid the acknowledged limitation on the ability to pledge the property to a new take-out loan. The transactions were not l D fair. And, by proceeding in the face of the admitted limited authority as they did, Richard Hotze, nie Mark Hotze, Steven Hotze and Bank of America breached fiduciary duties, induced breaches of Da fiduciary duty or conspired to breach fiduciary duties for their own interests and against the hr Bank participated in, benefited from, conspired to, and apparently induced the C 53. is interests of the Plaintiffs. During the same week Richard Hotze was noticing the meetings described in the ffic 54. e of breach of fiduciary duties outlined in the preceding paragraph. op y O preceding paragraphs, David Hotze attempted to schedule a meeting of IN Management C managers for 9:30 am on September 2 (just before an 11 am meeting noticed by Rick Hotze) to ial address business issues facing the Defendant entities and to make it clear that the votes of all of Un of fic the partners and not just the decision of Troika brothers controlling IN Management manager votes would be sufficient for out of the ordinary course of business transactions. The Troika brothers did not attend the 9:30 am meeting, preventing a quorum. They did attend the 11 am meeting. At the meeting of the IN Management managers noticed by Rick Hotze at 11 am on September 2, the Troika brothers forced a vote of the managers to approve of moving the Inter Nos, Ltd deed of trust to Bank of America to support greatly increased CECO debt. But, no such 15 resolution was presented to the Bank in support of the Deed of Trust transaction. Instead, Bank proceeded to close on an “officer’s certificate” in which Mark Hotze represented that a 2013 authorization in alleged in favor of Comerica continued to be valid and in full force and effect. The officer’s certificate was prepared by CECO’s counsel and no Inter Nos Ltd counsel was ist ric t C ler k involved. CECO, Bank and the Troika brothers had already determined to proceed in that fashion even before the September 2 meeting. 55. At the September 2 meeting, David Hotze presented one issue about pursuing l D litigation against CECO for unpaid rents and interest on such rents. The Troika brothers killed nie the proposal. David Hotze attempted to raise his other unresolved/unaddressed issues from his Da proposed agenda from the 9:30 am meeting but the meeting was adjourned on the motion of hr is Steven Hotze and the vote of the Troika brothers and even discussion of David Hotze’s business of Richard Hotze again noticed an IN Management managers meeting to occur on e 56. C items was blocked. ffic September 13 with only about 24 hours advance notice. He included an agenda item for the op y O appointment of IN Management officers to approve and conduct all business that would C otherwise require the vote of more than 60% of the IN Management members. His proposed ial resolution was passed at the September 13, 2016 meeting. Mark Hotze, Richard Hotze and Un of fic Steven Hotze voted yes, Bruce Hotze and David Hotze voted no. A copy is attached as Exhibit D. Richard Hotze was named the new IN Management President. Mark Hotze was named the new IN Management Vice President. These actions effectively disenfranchised David Hotze as an IN Management manager. Equally significant, the Troika brothers apparently now believe they may cause IN Management to do whatever they decide – without even first making required fiduciary disclosures (as to not only the background or supporting information relevant to the 16 decisions and actions but also as to each of the actions of Richard Hotze) to David Hotze and without complying with the Tex. Bus. Org. Code § 101.255. The Troika brothers apparently believe they have now effectively eliminated David Hotze from the management and decision making structure of the Defendant entities. Based on their past actions, the Troika brothers will ist ric t C ler k continue to do what they want, for their interests and the interests of CECO which they dominate, and to the detriment of the other members and partners of the Defendant entities. 57. Because almost all business transactions of the Defendant entities involve CECO l D and affiliates and because Richard Hotze and Mark Hotze are "managerial officials" of CECO, nie all actions which Richard Hotze or Mark Hotze, as President or Vice President of IN Da Management, may cause the Inter Nos entities to take with respect to CECO will be void or hr is voidable pursuant to Tex. Bus. Org. Code § 101.255. Further, the past actions of IN Management C managers with respect to CECO transactions and which were dependent on the vote of Richard e of Hotze, Mark Hotze and Steven Hotze since David Hotze was removed from the CECO board are O David Hotze timely noticed an IN Management, LLC managers meeting to take op y 58. ffic void or voidable. C place on September 14, 2016 to address the various items noticed for the 9:30 am September 2, ial 2016 meeting which were not addressed because the Troika brothers would not participate in the Un of fic meeting. The Troika brothers failed to participate in the September 14, 2016 meeting – again boycotting the meeting requested by David Hotze. 59. Rick Hotze caused the Inter Nos entities to assert claims in this case for a declaratory judgment on the claim that he intended to pursue, on his own decision, asset sales of all of the Inter Nos entities and to distribute the proceeds of such sales to the partners. He caused the Inter Nos entities’ lawyer, Keith Jaasma, to file a motion and various responses (which 17 included affidavits of Rick Hotze) seeking a summary judgment order on such claims and Plaintiffs were required to incur costs to respond to the motion. On April 29, Jaasma advised that Rick Hotze had made no effort to sell assets (other than 5402A Alder) and did not intend to do so – notwithstanding the claims asserted in the motion. The costs incurred by the Plaintiffs to ist ric t C ler k respond to such motion should be imposed on Rick Hotze pursuant to the Texas Declaratory Judgment Act if not previously addressed as sanctions pursuant to the Texas Civil Practices and Remedies Code Chapter 10. In late April 2017, counsel for the Inter Nos entities, based on the direction of l D 60. . nie Rick Hotze, advised Plaintiffs that three of the Inter Nos entities had failed to timely extend Da leases to CECO in the third quarter of 2016, thereby exposing David Hotze and Bruce Hotze to hr is guarantor liability to Amegy Bank. Rick Hotze and Mark Hotze breached their fiduciary duties C to David Hotze to properly handle the business of the Inter Nos entities in their alleged position e of as President and Vice President of IN Management. The alleged default to Amegy is, upon ffic information and belief, an event of default under the CECO loan documents and the Inter Nos, op y O Ltd property was exposed to such loan default at the very same time it was caused to sign deed C of trust amendments and to participate in the forced pledge of its property to secure CECO debt. ial Rick Hotze, Mark Hotze and Steven Hotze were aware of or should have been aware of the Un of fic circumstances and breached fiduciary duties to Plaintiffs by forcing such pledge of property which was in default from the inception of the “loan purchase” by Bank of America from Comerica. ADDITIONAL FACTS RELATING TO BANK 61. At the time this case was starting, CECO was in the process of attempting to move its credit arrangements from Comerica to the Bank. At the request of Bank, the Troika 18 brothers had begun efforts to ram through votes of IN Management managers to support and accommodate CECO’s efforts to refinance with Bank. At various meetings called usually on only 24 hours’ notice the Troika brothers, caused IN Management to approve of transactions between certain of the Inter Nos entities and CECO and affiliates (or their lenders – Comerica ist ric t C ler k and Bank) providing for subordinations, restructuring of subordinated loans, waivers and releases as to the full amounts owed, extensions of subordinated loans and confirmation of prior collateral pledges. Such IN Management approvals were unauthorized as they were done only by l D the vote of three interested IN Management managers and against the vote of the other two IN nie Management managers, were not votes of the entire membership of IN Management and were Da not votes of all of the partners of the various Inter Nos entities. Such votes were also orchestrated hr is without full disclosure to David Hotze, Bruce Hotze and the partners of the Inter Nos entities and C were in violation of fiduciary duties owed to such persons and entities. And, as should be e of obvious to all, the pledges of Inter Nos entity assets to support CECO borrowing is not in the ffic ordinary course of business of the Inter Nos entities. As a result, the transactions were not op y O properly authorized. CECO, under the direction of Richard Hotze, Mark Hotze and Steven C Hotze, through its agent, Statesman Financial, expressly noted to Bank of America (and other ial potential refinancing lenders) that the three Troika partners could not cause the Inter Nos Un of fic collateral to be pledged to secure CECO borrowings with its proposed refinancing. Notwithstanding, Bank of America accepted, and the Troika brothers proceeded to sign, instruments binding IN Management and the Inter Nos entities in favor of CECO and affiliates and Comerica and Bank. The transactions were intentionally structured by Bank of America and the Troika brothers as a two stage closing to give the appearance that the second transaction was an out of the ordinary course of business sale of the remaining $2.5 million CECO loan from 19 Comerica to Bank of America and the immediate execution of amended loan documents to make the Inter Nos, Ltd real estate again secure CECO loans totaling far in excess of the value of the real estate. Bank benefited by improving the CECO credit rating and gaining a better secured position than existed before the transaction. Bank was aware that the CECO management ist ric t C ler k (Troika brothers) could not accomplish the deed of trust transaction directly as CECO’s loan broker admitted in papers submitted to Bank in October 2015. Comerica and Bank had actual knowledge of the earlier defective authorizations, including the claims asserted in this case about All transactions forced upon the Inter Nos entities for the benefit of CECO and its nie 62. l D such defective authorizations at the times of the transactions with the Inter Nos entities. Da affiliates suffer from this same lack of authorization and are void. Such transactions were in hr is breach of fiduciary duties owed by Mark Hotze, Richard Hotze, Steven Hotze and IN C Management and resulted from Bank of America’s inducement to breach such duties or e of participation in and conspiracy to breach such fiduciary duties and include at least the following: concessions and/or accommodations for CECO’s benefit as to rent rates ffic A. op y O and lease terms. transactions voted upon by IN Management since May 2016 through the C B. deed of trust and confirmation /amendments by Inter Nos Ltd in favor of Un of fic C. ial present; Comerica; D. restructured and amended subordinated notes payable from CECO and affiliates to Inter Nos entities and related waivers or forgiveness as to default interest and late fees owed; E. subordination agreements by Inter Nos entities in favor of Bank of 20 America; F. deed of trust confirmation/amendments by Inter Nos Ltd in favor of Bank; G. any transaction or undertaking by Richard Hotze as president of IN Management or Mark Hotze as vice president of IN Management since they were 63. ist ric t C ler k allegedly elected to such positions. All such transactions, including those benefiting Bank, are void or voidable. JOINT AND SEVERAL LIABILITY l D 64. Mark Hotze, Richard Hotze, Steven Hotze the Troika Partnership have conspired to nie cause the harm and damage outlined in this Petition. They each knowingly participated in and/or Da induced the breaches of duty – including breaches of fiduciary duties as outlined above. They hr is each knowingly participated in the conduct described. They are each jointly and severally liable. C 65. Bank of America induced, participated in and conspired to breach such fiduciary e of duties and is jointly and severally liable for such damages. ffic 66. All conditions precedent to the following claims and causes of action have occurred, op y O have been performed or have been waived. Mark Hotze, Richard Hotze and Steven Hotze owe various duties to the Plaintiffs as ial 67. C CLARIFICATION REGARDING CECO Un of fic officers and directors of CECO – but those duties are not the subject of the claims for relief asserted in this case. Plaintiffs assert no claims for damages or other relief for breaches of duties and wrongs committed by any of the defendants as officers and directors of CECO and owed to Plaintiffs as shareholders of CECO. The claims asserted here are for breaches of duties as partners, members and managers of the Defendant Inter Nos entities. Any claims for damages or other relief arising out of CECO duties will be addressed in a separate proceeding. 21 REQUEST FOR WINDING UP AND TERMINATION 68. Pursuant to §11.314 of the Business Organizations Code, Plaintiffs request the Court to order the dissolution, winding up and termination of the Defendant Entities. 69. Section 11.314 provides, a district court has jurisdiction to order the winding up and ist ric t C ler k termination of the domestic partnership or limited liability company on application by: “(1) a partner in the partnership if the court determines that: (A) the economic purpose of the partnership is likely to be unreasonably frustrated; or (B) another partner has engaged in conduct l D relating to the partnership’s business that makes it not reasonably practicable to carry on the nie business in partnership with that partner; or (2) an owner of the partnership or limited liability Da company if the court determines that it is not reasonably practicable to carry on the entity’s hr is business in conformity with its governing documents.” C 70. The various partnership agreements include provisions recognizing the Plaintiffs’ e of rights to seek dissolution, winding up and termination. Further, a vote has already been taken to ffic pursue the sale of assets to effectuate such a dissolution and winding up, but the sales have not op y O been pursued and various votes forced through IN Management managers since then have and C will continue to thwart that effort. Mark Hotze, Richard Hotze and Steven Hotze have conceded ial that at least a few of the Inter Nos entities should be dissolved, wound up and terminated – they Un of fic apparently contest this should happen as to the others, notwithstanding their December 3, 2014 vote to sell all Inter Nos assets. 71. Each of the listed bases for winding up and terminating the Defendant entities are present here. 22 72. Plaintiffs believe equitable adjustments must be made upon final dissolution, winding up and distribution of assets to equalize matters in light of past benefits shifted to the advantage of the Troika Hotze Brothers and their company, CECO and its affiliates. 73. All conditions precedent to the requested relief have occurred, been performed or ist ric t C ler k waived. DECLARATORY JUDGMENT 74. The votes and resolutions of the May 17, June 2, September 2 and September 13, They also address matters that only the l D 2016 meetings are in breach of fiduciary duties. nie unanimous vote of the various Inter Nos entities' partners may approve. The resolutions should Da be declared void. Any resolution signed in 2013 in favor of Comerica that was not authorized by hr is each of the partners of the particular Inter Nos partnership should also be declared void. C 75. Any documents or instruments that may be signed by any of the Troika brothers e of pursuant to the void resolutions should be declared void. Such instruments will likely include, op y O described on Exhibit B attached. ffic but not limited to, real estate financing documents impacting the real estate of Inter Nos Ltd, as C 76. Transactions with and involving any of the Defendant entities and CECO entities ial since early 2015 are void. During that time, Richard Hotze, Mark Hotze and Steven Hotze were Un of fic interested IN Management, LLC managers and the various transactions do not meet the test for validity under Tex. Bus. Org. Code § 101.255. Resolutions and decisions based upon votes of the IN Management, LLC managers involving or dependent on votes of interested managers who were then managerial officials of CECO and its affiliates since early 2015 when David Hotze was removed from his board and officer position with CECO should be declared void, as they do not comply with Tex. Bus. Org. Code § 101.255. 23 77. The rights of Bank under all such transactions and documents should also be declared void and not meeting any exception as stated in Texas Business Organizations Code §152.302, made applicable to the Inter Nos entities by Texas Business Organizations Code §153.152. Such documents are also void due to Bank of America’s inducement, participation in ist ric t C ler k and conspiracy to breach fiduciary duties. CAUSES OF ACTION FOR DAMAGES 78. The breaches of fiduciary duties, breaches of the organizational documents of the l D Inter Nos entities and IN Management and breaches of obligations arising under the Texas nie Business Organizations Code by Mark Hotze, Richard Hotze and Steven Hotze have diminished Da the value of the business and assets of the Inter Nos entities and the Plaintiffs’ interests in the hr is Defendant entities. Plaintiffs seek judgment for damages as may be required to restore such C values to the levels at which they should have been or would be absent the breaches of fiduciary e of duty, unauthorized acts and breaches of the organizational agreements of the Inter Nos entities. ffic 79. Bank of America induced, participated in and conspired with the fiduciaries to cause op y O the breaches of fiduciary duty. It is jointly and severally liable with the fiduciaries for such C damages. ial 80. The court may order forfeiture or disgorgement of profits, benefits and payments Un of fic received or to be received by Mark Hotze, Richard Hotze, Steven Hotze, Troika Partnership (as members, managers and partners of the Inter Nos entities) and Bank of America and should do so to redress such parties’ breaches of duties and obligations. 81. Plaintiffs are entitled to an award of attorney’s fees and expenses pursuant to Tex. Bus. and Comm. Code Chapter 38 and Tex. Bus. Org. Code §101.461, 101.463 and 153.405. 24 82. Defendants conduct was intentional, willful and malicious. Exemplary damages should be imposed. INTERIM RELIEF 83. Defendants (except Bank) should be enjoined and restrained to preserve the status ist ric t C ler k quo and prevent further irreparable harm and damage to Plaintiffs while this case is pending and until the main issues in the case can be resolved. Richard Hotze, Mark Hotze and Steven Hotze have acted and have caused the various Defendant entities to take actions which have not been l D properly approved by disinterested governing persons or by the required unanimous vote of the nie partners of the various Defendant entities. Defendants have taken actions to alter the status quo Da since this case commenced and their vote to grant full authority to Richard Hotze or Mark Hotze hr is to conduct all business for these various entities threatens further irreparable harm and damage to of e after notice and hearing as follows: C Plaintiffs’ rights. Plaintiffs request a temporary restraining order and a temporary injunction Enjoining and restraining any act by any of the Defendants (except Bank) ffic a. op y O dealing, in any manner, with the assets and rights of the Defendant entities without the C prior unanimous consent of all partners or members of the entity; Enjoining Defendants (except Bank) from causing or permitting any ial b. Un of fic person or entity from acting as an officer of IN Management, LLC without the prior unanimous consent of all partners or members of the entity; c. Enjoining Defendants (except Bank) from taking any action that will encumber any asset of any of the Defendant entities without the prior unanimous consent of all partners or members of the entity; 25 d. Enjoining Defendants (except Bank) from permitting or causing any of the Defendant entities from incurring any liability without the prior unanimous consent of all partners or members of the entity; e. Enjoining and restraining Defendant Richard Hotze from acting in any ist ric t C ler k manner as the “President” of IN Management, LLC and Defendant Mark Hotze from acting in any manner as the “Vice President and Secretary” of IN Management, LLC based upon the IN Management, LLC resolution adopted on the split vote of the l D managers of IN Management, LLC on September 13, 2016. All instruments and documents signed by any person or entity granting collateral, Da 84. nie RELIEF AS TO BANK hr is subordination or other accommodations by any of the Defendant entities to, or for the benefit of, C CECO should be declared void. The Bank is jointly and severally liable for damages and PRAYER op y O ffic e of attorneys’ fees as outlined above. Also, exemplary damages should be ordered against the Bank. C WHEREFORE, Plaintiffs request that the Court order the dissolution, winding up and ial termination of the Defendant Entities, award actual and exemplary damages (together with Un of fic prejudgment and post judgment interest at the highest rate allowed by law), impose forfeitures and disgorgement, grant declaratory judgment relief, award attorneys fees, prejudgment interest as allowed by law (at the highest available rate) and award such additional relief to which they may be entitled. 26 Respectfully submitted, JOYCE + MCFARLAND LLP l D ist ric t C ler k /s/ Jeff Joyce Jeff Joyce Texas State Bar No. 11035400 Direct Dial: 713.222.1113 712 Main, Suite 1500 Houston, Texas 77002 Telephone: 713.222.1112 Fax: 713.533.5577 jjoyce@jmlawyers.com Un of fic ial C op y O ffic e of C hr is Da nie ATTORNEYS FOR PLAINTIFFS DAVID HOTZE AND DONNA HOTZE, TRUSTEE 27 CERTIFICATE OF SERVICE I certify that a true and correct copy of the foregoing was served in a manner prescribed by the Texas Rules of Civil Procedure on May 19, 2017 to: ist ric t C ler k Jesse R. Pierce Pierce & O'Neill, LLP 4203 Montrose Blvd. Houston, Texas 77006 jpierce@pierceoneill.com nie l D Adrian V. Villacorta The Villacorta Law Firm PC 530 Lovett Boulevard Houston, Texas 77006 avillacorta@avvlaw.com C hr is Da Keith Jaasma Ewing & Jones, PLLC 6363 Woodway Drive, Suite 1000 Houston, Texas 77057 kjaasma@ewingjones.com C op y O ffic e of Kent Adams Wilson Elser Moskowitz Edelman & Dicker, LLP 2 Houston Center 909 Fannin St., Ste. 3300 Houston, Texas 77010 Kent.Adams@wilsonelser.com Un of fic ial /s/ Jeff Joyce Jeff Joyce 28