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CASE NO. PR-0081495-C
IN THE ESTATE OF § IN THE PROBATE COURT
§
MARY A. JAMES, § OF
§
DECEASED § GALVESTON COUNTY
BRANDY LISS, Executor for the Estate §
of Mary James §
PLAINTIFF, §
§
v. §
§
Murray Lobb, PLLC §
§
DEFENDANT. §
PLAINTIFF BRANDY LISS’ ORIGINAL PETITION
COMES NOW Plaintiff Brandy Liss (“Liss”), executor for the Estate of Mary James
(“Mary James”), and files this Original Petition against Defendant Murray Lobb, PLLC (“Murray
Lobb”) and in support thereof, Plaintiff would show the Court as follows:
I. DISCOVERY CONTROL PLAN
1. Discovery is being conducted under Level 3 of Texas Rule of Civil Procedure 190.
II. STATEMENT OF RELIEF
2. Liss seeks monetary relief over $1,000,000.
III. PARTIES
3. Brandy Liss, executor of the Estate of Mary James, is an individual residing in
Galveston County, Texas.
4. Murray Lobb, PLLC is a Texas limited liability corporation, that may be served at
2200 Space Park Dr, #350, Houston, TX 77058, or anywhere it may be found.
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IV. JURISDICTION AND VENUE
5. This Court has jurisdiction over this case because this is a matter incident to the
decedent’s probate proceeding in this Court. Tex. Estates Code §§ 32.001, 32.002, and 32.005.
6. Venue is mandatory in this Court because the claims are related to the decedent’s
(Mary James) probate proceeding in this Court. Tex. Estates Code § 33.002.
V. FACUAL BACKGROUND
7. James and Gary Spangler (“Spangler”) formed Essential Hospice and Palliative
Services, LLC (“Essential”) in 2017 with James owning 29.6% of Essential and Spangler owning
55.7% of Essential. Spangler also sought investment from Guadalupe Rivas (“Rivas”) and two
other angel investors, each owning a 4.9% interest.
8. James hired Kyle Dickson and his law firm, Murray Lobb, whom she regularly
hired to represent her in various business ventures, to help her with the formation of Essential.
Murray Lobb drafted the Amended and Restated Company Agreement for Essential (“Company
Agreement”) which was the formation document for Essential. Exhibit A [Company Agreement].
Then, less than a year later, when Spangler learned he was being investigated (and subsequently
indicted) for federal Medicare fraud claims, Murray Lobb drafted an assignment assigning
Spangler’s 51% interest in Essential to James. Exhibit B [Assignment]. Murray Lobb represented
James in the formation of the Company Agreement and in the drafting of the assignment. After
initially denying that James was a client, Murray Lobb has acknowledged to this Court that it
represented James.
9. After James’ untimely death in 2021 due to COVID, in blatant disregard for its
fiduciary duties, Murray Lobb filed suit on behalf of Spangler against Liss, in her capacity as the
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executor of James’ estate. In that suit, Murray Lobb sought to invalidate the very Assignment it
drafted for James.
VI. CAUSES OF ACTION
Breach of Fiduciary Duty
10. Loyalty is an essential element in a lawyer’s relationship to a client. It is a
fundamental principle that a lawyer who has represented multiple parties in a matter shall not
thereafter represent any of such parties in a dispute among the parties arising out of the matter
unless prior consent is obtained from all such parties to the dispute. This prohibition applies when
an actual attorney-client relationship was established even if the lawyer withdrew from the
representation before the client had disclosed any confidential information. Texas Disciplinary
Rules of Professional Conduct 1.06 and 1.09.
11. As Mary James’ attorneys, Murray Lobb owed a fiduciary duty to James. And
when Murray Lobb sued James’ estate on behalf of Spangler arguing that the very assignment it
drafted for James was invalid, Murray Lobb breached that fiduciary duty.
12. Murray Lobb’s representation of Spangler in litigation against James’ estate is and
was in violation of the Texas Disciplinary Rules of Professional Conduct 1.06 and 1.09.
13. Murray Lobb’s breach of fiduciary duty proximately caused (and continues to
cause) Liss to suffer damages.
14. Liss is entitled to recover exemplary damages because Murray Lobb’s breach of
fiduciary duty was intentional.
VII. ATTORNEYS’ FEES
15. As a result of Murray Lobb’s conduct, Liss was forced to hire the undersigned
lawyers to enforce its rights. Liss is entitled to recovery of her reasonable and necessary attorneys’
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6363 Woodway Drive, Suite 700
Houston, Texas 77057
(713) 917-0024 (Telephone)
(713) 917-0026 (Facsimile)
ATTORNEYS FOR PLAINTIFF
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing document has been delivered
in the appropriate manner to all known parties and/or counsel of record on May 21, 2024.
Kyle Dickson
Murray Lobb, PLLC
2200 Space Park Dr, #350
Houston, TX 77058
kdickson@murray-lobb.com
/s/ Sarah J. Ring
Sarah J. Ring
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EXHIBIT A
AMENDED AND RESTATED COMPANY AGREEMENT
FOR
ESSENTIAL HOSPICE AND PALLIATIVE SERVICES, L.L.C.
A Texas Limited Liability Company
THE OWNERSHIP INTERESTS THAT ARE THE SUBJECT OF THIS AMENDED AND
RESTATED COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE
INTERESTS MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED,
OR OTHERWISE DISPOSED OF UNTIL THE HOLDER THEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE MEMBERS (WHICH, IN THE DISCRETION OF
THE MEMBERS, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO
THE MEMBERS) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER
DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE
SECURITIES LAWS. THE OWNERSHIP INTERESTS THAT ARE THE SUBJECT OF
THIS AMENDED AND RESTATED COMPANY AGREEMENT ARE SUBJECT TO
RESTRICTIONS ON THE TRANSFER, SALE, PLEDGE, OR OTHER DISPOSITION AS
SET FORTH IN THIS AMENDED AND RESTATED COMPANY AGREEMENT.
ARTICLE I
DEFINITIONS
1.1. Certain Definitions. As used in this Agreement, each of the following terms has
the meaning given to it below:
"Affiliate" shall mean any individual, partnership, corporation, limited liability company,
trust, or other Entity or association, directly or indirectly through one or more intermediaries,
controlling, controlled by, or under common control with a Member. The term "control," means,
with respect to a corporation, the right to exercise, directly or indirectly, more than 50 percent of
the voting rights attributable to the controlled corporation, and, with respect to any individual,
partnership, trust, other entity or association, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of the controlled Entity.
"Agreement" means this Amended and Restated Company Agreement as amended from
time to time.
"Assignee" means a Person who receives a Transfer of all or a portion of the Membership
Interest of a Member, but who has not been admitted to the Company as a Member in connection
with such transfer.
"Available Cash" of the Company means all cash funds of the Company on hand from
time to time (other than cash funds obtained as contributions to the capital of the Company by the
Members and cash funds obtained from loans to the Company) after (i) payment of all operating
expenses of the Company as of that time, (ii) provision for payment of all outstanding and unpaid
current obligations of the Company as of that time.
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"Bankruptcy" means, and a Member is deemed a "Bankrupt Member" on (i) the entry of
a decree or order for relief against the member by a court of competent jurisdiction in any
involuntary case brought against the Member under any bankruptcy, insolvency, or other similar
law (collectively, "Debtor Relief Laws") generally affecting the rights of creditors and relief of
debtors now or hereafter in effect, (ii) the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar agent under applicable Debtor Relief Laws for the
Member or for any substantial part of its assets or property, (iii) the ordering of the winding up or
liquidation of the Member's affairs, (iv) the filing of a petition in any such involuntary bankruptcy
case that remains un-dismissed or suspended pursuant to Section 305 of the Federal Bankruptcy
Code (or any corresponding provision of any future United States bankruptcy law), (v) the
commencement by the Member of a voluntary case under any applicable Debtor Relief Law now
or hereafter in effect, (vi) the consent by the Member to the entry of an order for relief in an
involuntary case under any such law or to the appointment of or the taking of possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar agent under any
applicable Debtor Relief Laws for the Member or for any substantial part of its assets or property,
or (vii) the making by a Member of any general assignment for the benefit of its creditors.
"Business Day" means any day other than Saturday, Sunday, or holiday on which national
banks in the State of Texas are permitted to be closed.
"Capital Account" means, with respect to any Member, the capital account maintained
for a Member in accordance with the rules of Section 1.704-1(b) (2) (iv) of the IRS Code and
Article Four (4) herein.
"Capital Contribution" means the total value of cash and agreed fair market value of
property (other than money) contributed by a Member, (or their respective predecessors in interest)
with respect to their Membership Interest in the Company reduced by any indebtedness either
assumed by the Company in connection with such contribution or to which such property is subject
when contributed. Additional contributions and cash calls can be required by a Majority of all
Members.
"Certificate" means, at any time, the certificate of formation of the Company, which has
been filed with the Secretary of State pursuant to the TBOC, or any later amended or restated
version submitted by the legal representative of the Company.
"Claims" means all losses, costs, liabilities, damages, and expenses (including court costs
and fees and disbursements of counsel) incurred in connection with a Proceeding.
"Code" means the Business Organization Code of the State of Texas, as amended, or, from
and after the date any successor statue becomes, by its terms, applicable to the Company, such
successor statue, in each case as amended at such time by amendments that are, at that time,
applicable to the Company. All references to sections of the Business Organization Code include
any corresponding provision or provisions of any such successor statue.
"Company" refers to ESSENTIAL HOSPICE AND PALLIATIVE SERVICES,
L.L.C..
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"Distributable Cash" means all cash funds of the Company on hand at any time after
payment of all expenses of the Company due as of such time, as reduced by the amount of the
Working Capital Reserve, if any, at such time.
"Effective Date" means July 1, 2017, the date that the Members have entered into this
Agreement.
"Entity" means any association, corporation, general partnership, limited partnership,
limited liability partnership, limited liability company, joint stock association, joint venture, firm,
trust, business trust, cooperative, and foreign associations of like structure.
"Fair Value" means, the fair value of the item being valued, as determined by the
Members or an appraiser selected in accordance with the terms of this Agreement.
"Fiscal Year" means the fiscal year of the Company's operations as selected by the
Members of the Company for accounting purposes.
"Gross Asset Value" means the value of any asset contributed to the Company as
determined by the contributing Member and the Members, and if no such agreement is reached,
the asset's adjusted basis for Federal income tax purposes.
"IRS Code" means at any time, the Internal Revenue Code of 1986, as amended, or, from
and after the date any successor statute becomes, by its terms, applicable to the Company, such
successor statute, in each case as amended at such time by amendments that are, at the time,
applicable to the Company. All references to sections of the IRS Code include any corresponding
provision or provisions of any such successor statute.
"Liquidation Reserve" means that reserve of Company funds held by the Company in
connection with its process of winding up for the purpose of addressing obligations of the
Company which may become due during the winding up process or after the termination of the
Company.
"Majority" shall constitute FIFTY-ONE PERCENT (51%) of all Membership Interest
and Managers entitled to vote, in accordance with this Agreement.
"Manager" means any Person named in the Certificate of Formation as a manager of the
Company and any Person hereafter elected as a manager of the Company as provided in this
Agreement, but does not include any Person who has ceased to be a manager of the Company.
"Member" means each of the persons who execute this Agreement as a Member or is
admitted to the Company as a Member, at a later date, under the terms of this Agreement and is
subject to all rights and restrictions imposed herein.
"Membership Interest" in the Company means the entire Membership Interest of a
Member in the Company at any particular time, including the right of the Member to any and all
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benefits to which a Member may be entitled as provided in this Agreement and under Title One
(1) and Title Three (3) of the Code, together with the obligations of the Member to comply with
all of the terms and provisions of this Agreement.
"New Member' means as defined in this Agreement.
"Percentage of Membership Interest" means the percentage of ownership each Member
possess as set forth in Exhibit "A" to this Agreement, which may be adjusted from time to time.
"Person" includes an individual, partnership, limited partnership, limited liability
partnership, limited liability company, foreign limited liability company, trust, estate, corporation,
custodian, trustee, executor, administrator, nominee or entity in a representative capacity.
"Principal Office" means the office of the Agent as shown in the Certificate of Formation,
or the other address as may be established pursuant to Section 2.4., of Article Four (4) of this
Agreement.
"Proceeding" means any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative, or investigative, any appeal in such action, suit,
or proceeding, and any inquiry or investigation that could lead to such an action, suit, or
proceeding.
"Profits and Losses" means the Company's taxable income or taxable loss as determined
under the IRS Code but with the following adjustments:
(a) Any income of the Company that is exempt from Federal income tax and not
otherwise taken into account in computing Profits and Losses pursuant to this definition of
"Profits" and "Losses" will be added to such taxable income or loss;
(b) Any expenditures of the Company described in IRS Code Section 705 (a) (2) (B)
or treated as IRS Code Section 705 (a) (2) (B) expenditures pursuant to Section 1.704-1 (b) (2)
(iv) (i) of the IRS Regulations that are not otherwise taken into account in computing Profits and
Losses will be subtracted from such taxable income or loss.
"Section" means a section of this Agreement, unless the text indicates otherwise.
"Sharing Ratio" means the ratio in which the Members share Profits and Losses, from
time to time, as set out under the terms of this Agreement.
"Transfer" means (a) any sale, transfer, encumbrance, gift, donation, assignment, pledge,
hypothecation, or other transfer of any Membership Interest therein, whether voluntary or
involuntary, and whether during the transferor's lifetime or upon or after the transferor's death,
including any transfer by operation of law, by court order, by judicial process, or by foreclosure,
levy, or attachment; or (b) the act of making any of the foregoing.
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"Pro Rata Part" means the proportion that a Percentage Membership Interest of a
Member bears to the aggregate Membership Interest in the Company of all Members.
"Substitute Member" means any person or Entity who, or which is admitted to
Membership on the written consent of all Members pursuant to this Agreement.
ARTICLE II
ORGANIZATIONAL MATTERS
2.1. Formation. The Company was formed pursuant to the regulations set forth in the
Code. ,
2.2 Company Name. The name of the Company is "ESSENTIAL HOSPICE AND
PALLIATIVE SERVICES, L.L.C.". The business of the Company will at all times be conducted
under such name and such other name or names as a Majority of the Members select, from time to
time.
23. Name and Address of Initial Members. The name and address of each Member
is set forth on Exhibit "A". Each such person shown on Exhibit "A" on the Effective Date of this
Agreement is admitted to the Company as a Member. The Members may substitute a new Exhibit
"A" (indicating its effective date) to reflect any changes in the name, address of a Member or such
additional and/or different information as required including the admission of a New Member. The
records of the Company will be prima facie evidence of the status of any person as a Member.
2.4. Registered Office and Registered Agent. The address of the registered office of
the Company in the State of Texas and the name of the registered agent of the Company shall be
Mary James, located at 578 Southampton Lane, League City, Texas 77573. A Majority of the
Members may at any time, and from time to time, designate a new or successor registered office
or registered agent, or both.
2.5. Principal Office and Other Offices. The principal address and place of business
of the Company will be in League City, Texas, or such other place that is consistent with the
purpose of the Company by a Majority of the Members, as they may designate from time to time.
The Company may have such other office or offices as a Majority of Members designate.
2.6. Purpose. The purpose for which the Company is organised is for the transaction of
any and all lawful objective for which a limited liability company may be organized under the
Texas Business Organization Code, as cited in the Certificate of Formation and the Amended
Certificate of Formation.
2.7. Certificate and Foreign Qualifications. The Certificate of Formation was filed
and adopted by the Secretary of State on March 26, 2014, and in the sole discretion of a Majority
of the Members, said Certificate may be amended, provided any amendments meet the
requirements of the Business Organization Code. Upon the request of Majority of Members, each
Member will immediately execute all Certificates and other documents consistent with the terms
of this Agreement that a Majority of Members thinks is necessary to accomplish any acts that may
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ESSENTIAL HOSPICE AND PALLIATIVE SERVICES, L.L.C.
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be required or appropriate to comply with all requirements to operate, qualify, and continue the
Company as a (a) limited liability company under the Code and the laws of the State of Texas and
(b) limited liability company, or a company in which each Member has limited liability in all other
jurisdictions where the Company proposes to operate.
2.8. Term. The Company's existence commenced on March 26, 2014, and shall
continue until the Company terminates pursuant to the terms of this Agreement.
2.9. Merger, Conversion, Interest Exchange. The Company may effect or participate
in a merger, conversion, or interest exchange (with such terms being defined by the Code) or enter
into an Agreement to do so with the consent of a Majority of the Members of the Company.
2.10 Amended and Restated Agreement. This Agreement is an amended and restated
agreement as a result of a purchase sale agreement of the membership interests from the previous
sole member to the current Members listed in Exhibit "A". The previous sole member did not
have a written company agreement, but elected to utilize the default rules provided for in the Texas
Business Organizations Code.
ARTICLE HI
MEMBERS; MEMBERSHIP INTERESTS
3.1. Names and Addresses of Members. The Members of the Company are the
Persons executing this Agreement as Members as of the date of execution wherein each Person
executing this Agreement is admitted to the Company as a Member effective contemporaneously
with the execution by such Person of this Agreement. Each Member's respective address and
Percentage of Membership Interest in the Company are set forth on Exhibit "A", which is attached
hereto and made a part of this Agreement. Each Member has made the initial contribution as set
forth in Exhibit "A".
3.2. New Members. The Members may admit additional Members and issue additional
Membership Interest in the Company on the terms and conditions that are approved by a Majority
of the Members of the Company. In the event a new Member is admitted to the Company the
overall Membership Interest of the Company shall be adjusted to reflect the terms and conditions
upon which the new Member has been admitted. Any New Members allocation of gains, losses,
income or expenses shall be determined by the method provided for in this Agreement or in the
agreement that set forth the terms of acquisition, and if no method is specified, then as may be
permitted by Section 706(d) of the Internal Revenue Code.
3.3. Certificates for Membership Interest. A certificate of membership, which
evidences the respective Member's percentage of interest and date of acquisition, may be issued
by the Company, but is not required, and will represent each Member's Membership Interest in
the Company. Upon proper execution of the respective certificate, each Member shall retain
individual control and possession of said certificate.
3.4. Transfer of Membership Interest. Membership Interest MAY NOT be
transferred, conveyed, sold, or assigned to any person, party or entity, unless approved in
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ESSENTIAL HOSPICE AND PALLIATIVE SERVICES, L.L.C.
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writing, and according to the terms set forth in such writing, by a Majority of the Members, if
such Membership Interest is transferred, conveyed, sold, or assigned, by approval, then any
such holder of the transferred, conveyed, sold or assigned interest shall be an Assignee and have
no more than a right to receive profits, losses, distribution, in the amount relative to the
transferred Members interest, unless the holder is accepted in writing as a Member by a Majority
of the Members and then all rights, powers and privileges granted in such writing evidencing
the acceptance shall apply to the new holder of such Membership Interest
ARTICLE IV
CAPITAL CONTRIBUTIONS AND LOANS
4.1. Initial Contribution. Prior to the execution of this Agreement, each Member has
contributed various services and/or financial resources to the Company. In consideration of each
individual contribution, the Company may cause to be issued to the Member a Membership Interest
in the Company. This initial contribution shall be limited to the Members on Exhibit "A", and shall
be determined by the terms set forth in the agreement negotiated between the Member and
Company.
4.2. Additional Contribution. Subsequent contributions shall be in such amounts and
may be in any type of property as determined by a Majority of the Members. Each Member shall
be required to make Additional Capital Contributions to the Company as prescribed and directed
by a Majority of the Members. The additional contribution agreement must express the terms of
each Contribution and shall incorporate this Agreement, by reference. In the event that an
Additional Contribution is required of all the Members and any one Member does not contribute
(the "Non-Contributing Member") as so required by the additional contribution agreement then
those Non-Contributing Member's Membership Interest shall be subject to any of the following:
(a) Any Member (the "Paying Member") may make the contribution on behalf
of the Non-Contributing Member provided such amount is paid by the other Member in accordance
with the terms, conditions and provisions set forth in the additional contribution agreement. The
Paying Member shall have the right to charge the Non-Contributing Member interest on the
amount tendered on behalf of the Non-Contributing Member, which shall begin to accrue as of the
date paid and shall be no more than Ten Percent (10%) annually. All distributions paid by the
Company that are due and owing to the Non-Contributing Member shall be paid to the Paying
Member until the Paying Member is fully satisfied including interest. If the Company's and/or all
of its assets are sold, then any amounts owed to the Non-Contributing Member shall first be paid
to the Paying Member before being distributed to the Non-Contributing Member. The Paying
Member shall provide the Company and the Non-Contributing Member a quarterly statement that
reflects the remaining amount owed and amounts paid. If this option is elected by any Member,
then the Non-Contributing Member's Percentage of Membership Interest shall not be impacted by
the above; or
(b) If any Member fails to tendered the additional contribution as so required
pursuant to the terms of the additional contribution agreement then a Majority of the Members
shall have the right to offer for purchase to any Member the Non-Contributing Member's
Percentage of Membership Interest that would be reduced based on the amount of additional
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contribution required. One or more Member shall have the right to purchase the Non-Contributing
Member's Percentage of Membership Interest by providing written notice to the Company of his
intention to purchase such interest. Each Member who acquires a portion of the Non-Contributing
Member's reduced Membership Interest shall receive the distributed interest pro rata in accordance
with the amount of the Non-Contributing Member's additional contribution paid by such Member.
Upon receipt of the additional contribution, paid by the other Member or Members, the Company
shall cause the Exhibit "A" to be update accordingly.
4.3. Return of Contribution. No Member is entitled to the return or demand of any
part of his or her Capital Contribution, initial or additional, or to be paid interest in respect of either
his or her Capital Account or Capital Contributions, except as is specifically provided for in this
Agreement or required by law. An unreturned Capital Contribution is not a liability of the
Company or of any particular Member.
4.4. Loans by Members. Any Member, with the consent of a Majority of the Members
may loan funds to or on behalf of the Company, yet no Member shall be required to loan any funds
to the Company. All the terms, of the loan, will be determined by a Majority of the Members at
the time the Members agree to accept and receive the borrowed funds from the lending Member
or Members; however, animus must be evidenced by a written interest bearing note and shall be
payable on demand, no exceptions. Any and all loans shall not be treated as a contribution to the
capital of the Company and shall bind the Company as any other debt assumed by the Company;
however, no Member or Members shall be individually liable to the repay the loan unless
personally guaranteed, by such Member or Members.
4.5. Capital Accounts. An individual capital account must be established and
maintained on behalf of each Member, including any additional or substituted Member who
hereafter receives a Membership Interest in the Company. The Capital Account of each Member
consists of (i) the amount of cash the Member has contributed to the Company, plus (ii) the agreed
fair market value of any property the Member has contributed to the Company, less any liabilities
assumed by the Company or to which the property is subject, plus (iii) the amount of profits or
income (including tax-exempt income) allocated to the Member, less (iv) the amount of losses and
deductions allocated to the Member, less (v) the amount of all cash distributed to the member, less
(vi) the fair market value of any property distributed to the Member, net of any liability assumed
by the Member or to which the property is subject, less (vii) the Member's share of any other
expenditures that are not deductible by the company for federal income tax purposes or which are
not allowable as additions to the basis of Company property, and (viii) subject to other adjustments
that may be required under the IRS Code. The Capital Account of a Member is not affected by
adjustments to basis made pursuant to Section 743 of the Internal Revenue Code but must be
adjusted with respect to adjustments to basis made pursuant to Section 734 of the IRS Code.
4.6. Restoration of Capital Accounts. Except as is specifically provided otherwise in
this Agreement or in the Code, none of the Members have any liability or obligation to restore a
negative or deficit balance in that Member's Capital Account.
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4.7. Limitation on Liability. No individual Member is liable under a judgment, decree
or order of the court, or in any other manner, for any debt, obligation or liability of the Company,
except as provided by law.
4.8. No Individual Authority. Unless expressly provided for in this Agreement, no
Member, acting alone, has any authority to act for, or to undertake or assume, any obligation, debt,
duty or responsibility on behalf of, any other individual Member.
4.9. No Member Responsible for Other Member's Commitment. In the event that a
Member has incurred any indebtedness or obligation prior to the effective date of the Company as
determined by the Certificate issued by the Texas Secretary of State which relates to or otherwise
affects the Company, neither the Company nor any other Member has any liability or responsibility
with respect to the indebtedness or obligation unless the indebtedness or obligation is assumed by
the Company pursuant to a written instrument signed by all the Members. In the event that any
Member, either prior to or after the Effective Date of the Company, incurs (or has incurred) any
debt or obligation for which neither the Company nor any of the other Members is responsible or
liable, that Member must indemnify and hold harmless the Company and the other Members from
any related liability or obligation they may incur.
ARTICLE V
MANAGEMENT AND CONTROL OF THE COMPANY
5.1. Overall Management of Company Affairs. Except as expressly provided otherwise
in this Agreement, the management of the Company is vested in the Manger, who shall have the
full, complete, and exclusive authority to manage and control the business, affairs, and properties
of the Company, to make all decisions regarding those matters, and to perform any and all other
acts or activities customary or incident to the management of the Company's business. In addition
to the powers now or hereafter granted, the Manager of the Company will have the power, for and
on behalf of and in the name of the Company, to carry out and implement the purpose of the
Company as set forth in Section 2.6 and to do all things necessary or desirable or expedient in
connection therewith or incidental thereto and to manage, conduct, and supervise the day-to-day
business affairs of the Company and, without limiting the generality of the foregoing, MAY cause
the Company to do the following:
(a) To sell assets of the Company; and
(b) Approve any licensing and operating agreements related to any business
relationship created; and
(c) Mortgage or encumbrance on all or substantially all assets of the Company; and
(d) Change the character of the business of the Company; and
(d) Borrow or lend money; and
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(g) Commission of any act in the operation of the business provided that any such act
would not make it impossible for the Company to carry on its business; and
(h) Any other decision or act that is expressly provided for in this Agreement; and
(i) Amend this Agreement or the Certificate of Formation.
5.2. Decisions. Except as otherwise expressly provided for in this Agreement, the
Manager may take any act, expend any sum or make any decision or incur any obligation on behalf
of the Company; it being the intent of the Members to allow the Manager to act independently and
to bind the Company accordingly.
5.3. Additional Expressed Powers of the Manager. Unless expressly provided
otherwise, the Manager shall have all necessary powers to carry out the purposes, business, and
objectives of the Company, including, but not limited to, the following:
(a) To acquire, purchase, own, hold, maintain, develop, operate, sell, exchange, lease,
sublet, assign, transfer, or otherwise dispose of tangible and intangible properties of any kind and
character;
(b) To enter into, become bound by, and perform obligations under contracts,
agreements and instruments and to make all decisions and waivers as needed;
(c) To open, maintain, and close bank accounts, make withdrawals, designate and
change signatories on such accounts;
(d) To procure and maintain responsible insurance coverage, including general
liability, bodily injury, and property damage insurance, in amounts that are available and that are
generally carried by similar entities that engage in similar activities;
(e) To incur all legal, accounting, investment banking, independent financial consulting,
litigation, brokerage, registration, and other fees and expenses as it may deem necessary or
appropriate for carrying on and performing the powers and authorities herein conferred;
(0 To possess Company property or assign rights held by the Company regarding its
property;
(g) To borrow funds or otherwise commit the credit of the Company; and
(h) To employ employees, agents, consultants and advisors on behalf of the Company.
5.4. Reliance on Authority. In dealings with the Company, a third party may rely on
the authority of the Manager to bind the Company without the need to review any provisions of
this Agreement or confirming compliance with such Manager or Company representative. Every
contract, deed, mortgage, lease and other instrument executed by the Manager is conclusive
evidence in favor or the third party, who relied on the fact that at the time the instrument was
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executed and delivered (i) the Company was in existence, (ii) neither this Agreement nor the
Amended Certificate of Formation had been further amended in any manner to restrict the
delegation of authority granted the Manager, and, (iii) the execution and delivery of the instrument
was duly authorized by the Manager. In addition, any third party may rely on any document
addressed to him or her and signed by a Manager regarding the following:
(a) The identity of the Manager who has the authority to act on behalf of the Company;
(b) The authenticity of any copy of the Certificate of Formation, this Agreement, and
any other document relating to the conduct of the affairs of the Company; and
(c) The existence or non-existence of any fact that constitutes a condition precedent to
acts by the Manager or in any other manner germane to the affairs of the Company.
5.5. Compensation. Beginning the Effective Date of this Agreement, the Manager shall
have the right to receive compensation for services he or she performs on behalf of the Company.
5.6. Reimbursement. Each Manager is entitled to reimbursement from the Company
of all expenses that are reasonably incurred and paid by the Manager on behalf of the Company.
5.7. Standards of Performance. Except as otherwise provided for in this Agreement,
the Manager will perform his duties with respect to the Company in good faith and will devote
such time and effort to the Company's business and operations as the Manager believes is
reasonably necessary to manage the affairs of the Company. The Manager shall not be liable to
the Company for any losses sustained or liabilities incurred as a result of any act or omission of
such Manager, provided said Manager acted in good faith and in a manner that the Company
believed to be in, or not opposed to, the best interest of the Company. In the event a liability
question or claim should arise against the Manager in connection with the performance of his
duties and the Manager acted in good faith then he shall be deemed to have acted in accordance
with his duties and responsibilities and will be released from any such liability.
ARTICLE VI
DISTRIBUTIONS AND
ALLOCATIONS OF PROFITS AND LOSSES
6.1. Allocations of Net Income, Capital Gains and Losses.Net income, net losses or
capital gains of the Company for each fiscal year, or at any time distributions are made to the
Members of the Company, will be allocated in accordance with the Membership Interest of each
Member, as shown on Exhibit "A", subject to any restrictions set forth in this Article Six (6) or
throughout this Agreement, if any.
6.2. Distribution of Available Cash. If determined by the Manager, and a Majority of
the Members, that a surplus exists that exceeds the amount of working capital needed by the
Company, the Manager may distribute available Cash. Distributions of cash or property in respect
of a Percentage of Membership Interest will be made only to the Person who, according to the
books and records of the Company, is a holder of a Membership Interest in the Company on the
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date of such distribution. The Manager in his sole discretion will determine the date for any
distribution of Available Cash. The Available Cash of the Company, if any, shall be distributed to
the Members, pro rata in accordance with their Membership Interest, as cited in Exhibit "A';
provided that any outstanding indebtedness, which is due and owing to any Member, as evidenced
by a promissory note remains unpaid, regardless if such note or notes are current and not yet
matured. Prior to making any distributions as provided for above all such indebtedness held by
any Member must be fully satisfied.
6.3. Prohibited Distributions. Distributions may not be made to the Members of the
Company if, immediately after the making of the distribution, the liabilities of the Company will
exceed the Fair Market Value of the Company's assets in the manner determined in Section
101.206 of the Code.
6.4 Disproportionate Distributions. Nothing in this Agreement shall prohibit or
prevent the Members from electing to payout distributions in amounts different from the
allocations set forth in Exhibit "A"; provided that all the Members agree in writing to such
disproportional allocation. All such written agreements evidencing alternate allocations shall be
accompanied by a Company resolution authorizing and adopting such agreement and shall be
maintained with the Company's records.
6.5. Distribution in Kind. The Manager may distribute assets in-kind, regardless of
any potential unrealized depreciation or appreciation in respect thereof. Any in-kind distributions
will be made proportionately among the Members in accordance with the percentage of the
distributions the Members are entitled to receive, as set out in this Agreement.
6.6. Allocation of Profits and Losses. Profits and Losses for each Adjustment Period
will be allocated among the Members in accordance with their Membership Interest as set out in
this Agreement and Exhibit "A" and as amended from time to time.
6.7. Qualified Income Offset. Notwithstanding any other provision of this Article, in
the event any Member unexpectedly receives any adjustments, allocations, or distributions
described in Regulations Sections 1.704(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(IRS), or 1.704-
1(b)(2)(ii)(d)(6) of the IRS Code, items of Company income and gain shall be specifically
allocated to each such Member in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, the Adjusted Capital Account Deficit of such Member as quickly as
possible, provided that an allocation pursuant to this Section shall be made if and only to the extent
that such Member would have an Adjusted Capital Account Deficit after all other allocations
provided for in this Article have been tentatively made as if this Section were not in the Agreement.
For the purpose of this Agreement, the term Adjusted Capital Account shall mean that Members
Capital Account after (i) crediting to the Capital Account any amount which the Member is deemed
to be obligated to restore pursuant to 1.704-1(b)(2)(g)(1) and 1.704-1(b)(2X5), crediting to the
Capital Account any sums the Member is unconditionally obligated to contribute to the Company,
and (ii) debiting the items set out in 1.704(1)(b)(ii)(dX4), (5) and (6). An Adjusted Capital Account
Deficit means the deficit balance in such Adjusted Capital Account.
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6.8. Minimum Gain Chargeback. Except as otherwise provided in Section 1 .7f14-2(f)
of the Treasury Regulations relating to the IRS Code, notwithstanding any other provision to this
Article, if there is a net decrease in the Member's Minimum Gain during any Company fiscal year
and it is required for the allocations under this Article to have substantial economic effect, each
Member shall be specially allocated items of Company income and gain for such year (and, if
necessary, subsequent years) in an amount equal to such Members share of the net decrease in
Members Minimum Gain, determined in accordance with Treasury Regulation Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto. The items to be so allocated
shall be determined in accordance with applicable Treasury Regulations. This Section is intended
to comply with the minimum gain chargeback requirements of Section 1.704-2(f) of the Treasury
Regulations and shall be interpreted consistently therewith.
6.9. Basis Adjustments. To the extent an adjustment to the adjusted tax basis of any
Company asset is required pursuant to IRS Code Section 732(d), Code Section 734(b), or Code
Section 743(b), the Capital Accounts of the Member will be adjusted pursuant to Section 1.704-1
(b)(2)(iv)(m) of the Regulations.
6.10. Allocations Under Section 704(c) of the IRS Regulations. In accordance with
IRS Section 704(c) and the Treasury Regulations promulgated thereunder, income, gain, loss, and
deduction with respect to any asset contributed to the capital of the Company will, solely for tax
purposes, be allocated among the Members so as to take account of any variation between the
adjusted basis of such asset to the Company for federal income tax purposes and the Gross Asset
Value of the property. Allocations under this Section are solely for purposes of federal, state, and
local taxes and will not affect, or in any way are taken into account in computing, any Member's
Capital Account or share of Profits and Losses or other items or distributions under any provision.
6.11. Curative Allocations. The allocations set forth in this Article Six (6) (the
Regulatory Allocations) are intended to comply with certain requirements of Regulations Sections
1.704-1(b). Notwithstanding any other provisions of this Article Six (6), the Regulatory
Allocations shall be taken into account in allocating other Profits and Losses and items of income,
gain, loss, and deduction among the Members so that, to the extent possible, the net amount of
such allocations of other Profits and Losses, and other items and the Regulatory Allocations to
each Member shall be equal to the net amount that would have been allocated to each such Member
if the Regulatory Allocations had not occurred. The Manager shall have the discretion