Preview
Filed 12J une 12 P4:39
Chris Daniel - District Clerk
Harris Coun!
ED101) 016924859
By: daunshae n. willrich
CAUSE NUMBER: 2004-59790
MICROCHECK SYSTEMS, INC, AND § IN THE DISTRICT COURT OF
MICROCHECK SOLUTIONS, INC.
Plaintiffs,
VS.
HARRIS COUNTY, TEXAS
ZIGROSSI & MURPHY, L.L.C., Ind.
and d/b/a EDUCATED SOLUTIONS;
CHRIS ZIGROSSI; SCOTT MURPHY;
MIKE SMITH Individually and d/b/a
CMS
TECHNOLOGY a/k/a CMS
TECHNOLOGIES; MICHOICE
TECHNOLOGY SYSTEMS, INC; JIM
HAYDEN; ALEX CAMPBELL; AND
JASON JABLECKI
Defendants 125T JUDICIAL DISTRICT
DEFENDANT, MIKE SMITH’S FIFTH AMENDED ORIGINAL ANSWER
TO THE HONORABLE
JUDGE OF SAID COURT:
NOW COMES MIKE SMITH, Indfividually, D/B/A CMS Technology D/B/A CMS Technologies,
(collectively referred to herein as Mike Smith), Defendant, in the above styled and numbered cause, and respectfully
files herein, his Fifth Amended Original Answer, and will further show unto this Honorable Court the following:
I
GENERAL DENIAL
Pursuant to Rule 92 of the Texas Rules of Civil Procedure, Defendant, Mike Smith, enters this his
General Denial, and Defendant denics generally, each and every, all and singular, the allegations contained in
Plaintiffs’ most recently filed Amended Original Petition and Application for Injunctive Relief and demands strict
proof thereof
IL
Defendant, Mike Smith, admits he was the president and CEO of Microcheck for avery long time,
approximately 20 years, and for some portion of that time, Scott Murphy acted as Microcheck’s computer
Programmer. Mike Smith specifically denies he ever violated his fiduciary duty to Microcheck or that he ever
conspired to destroy Microcheck, Mike Smith would specifically deny that for months as alleged in
Plaintitf's most recently filed Amended Petition, that he had improperly or illegally siphoned off
thousands of dollars or any sum of money for his own personal use and benefit. Mike Smith would
specifically deny as alleged in Plaintiffs’ petition that he made expenditures that were not approved. by
Microcheck's Board. of Directors, In that regard Mike Smith would state there never was a meeting
of the Board of Directors in the 20 years he was president and CEO of Microcheck, These allegations of
Board of Directors meetings are nothing
but a fabrication by John Manning. Mike Smith would specifically
deny that he committed any theft of property pursuant to § 134.002(2) of the Texas Civil Practices and
Remedies Code, specifically the Defendants deny violating §31,003(a) of the Texas Penal Code.
Tt.
Affirmative Defense
Defendant, Mike Smith, would allege that John Maiming, the claimed owner of Microcheck Systems,
Ine. and Microcheck Solutions, Inc., was an absentee owner, that very rarely, if ever, participated in the
day in and day out functions of Microcheck Systems, Inc, and only showed up on fare occasions to withdraw
sums of money to pay outstandin
personal
g debt, oftentimes
to the peril
, of Microcheck, which created a cash
flow crises on many occasions, In that regard, Mike Smith would plead that the actions he took which
are complained of as, “conspiracies to destroy the company” were, in fact, efforts to protect the clients
of Microcheck and to keep Mictocheck on an even keel so they could comply with contractualobligations
owed to their customers.
IV.
Affirmative Defense
Tis alleged in the Plaintiffs’ petition that Mike Smith, Defendant has converted the source code
and/or trade secrets for his own use which the Defendant specifically denies. Alternatively, however, Mike
Smith would allege that he war and is a partner and part owner of Microcheck Systems, Inc., and as
such was a part owner of all the inventory, assets, and/or source codes for trade secrets, if any existed,
which is not admitted but expressly denied and, therefore, could not have possibly converted these assets to
his own use as he was already a part owner.
Mike Smith would specifically state that he was the president and CEO and had absohute authority
to perform all business functions on behalf of Microcheck Systems, Inc. and had doneso for 20 years,
and as
such had the absolute authority to enter into the PSA Agreement with Educated Solutions on. October4, 2004,
and into any other agreement that was necessary and proper and justified, As such, Defendant’s actions fall
within the protection of the “Business Judgment Rule.” Defendant specifically request that the proper
instruction regarding the defense of the business judgment nile be submitted to the jury,
v,
Affirmative Defense
Defendant, Mike Smith, affirmatively pleads §18,091 of the TCPRC, requesting Plaintiff be required to
present evidence of its economic loss damages in "Net" value, as required by the TCPRC, § 18.091.
Defendant, Mike Smith, requests that the jury be instructed to segregate any damages, between.
(compensatory/ non-compensatory), found in favor of the Plaintiffs, if any.
VI
Affirmative Defens
Defendant Mike Smith, aflirmatively pleads that the damages, if any, asserted by Plaintiff in this
lawsuit were caused in whole or in part by the Plaintiffs failure to mitigate its own damages. By reason of
Plaintiffs’ breach of Microcheck’s agreement with Educated Solutions. Without limitation, Defendant will
show that Plaintiff breached the Performance Servicing Agreement, (PSA), with Educated Solutions, In
2004, Mictocheck entered into a PSA agreement with Educated Solutions, whereby Microcheck was
projected to be able to significantly reduce it’s monthly overhead while receiving a 15 % royalty from
Educated Solutions. Microcheck breached the PSA with Educated Solutions
by failing to pay themonthly
obligation for the service and sales of Microcheck’s products. By teason of such breach, any damages
incurred by Microcheck was the result of it's own failure to mitigate or take advantage of the PSA with
Educated Solutions. Microcheck further failed to mitigate it’s own damages, if any, by teason of it’s
failure to properly fund Microcheck as well as it’s failure to implement and effectuate amarketing plan and
to provide a workforce to further develop it’s software products in order to remain competitive in the
marketplace as well as it’s failure to properly and timely service the existing products in the market,
VIL.
Affirmative Defense
In further answer, Defendant, Mike Smith, will show that Plaintiff's damages, if any, were caused
by the negligence or fault of John Manning, Therefore, pursuant to Chapter 33 of the Texas Civil Practices
and Remedies Code, MICHOICE requests this jury to make a determination as to the proportionate
responsibility of the damages, if any, asserted by Plaintiff in this lawsuit,
VI.
Affirmative Defense
Defendant, Mike Smith, affirmatively pleads by reason of a defense, that the damages alleged by
Plaintiff in this lawsuit, if any, were caused by and were the result of its own financial instability, and
were not caused in any way by the actions of the Defendant in this lawsuit.
IX.
Affirmative Defense
Defendant, Mike Smith affirmative pleads defenses of failure to perform conditions precedent
and lack of notice in defense of the Plaintiff's claims for recovery of attorncy’s fees pursuant to Texas
Theft Liability Act and Ch. 38, TCPRC, and as set forth in Plaintiff's most recently filed Amended
Petition.
X.
Affirmative Defense
Defendant, MIKE SMITH, will show that the damages, if any, as alleged by Plaintiff in this
lawsuit, were caused in whole or in part by the acts and omissions of third parties over which
Defendant did not have control. Specifically, Plaintiffs assert they have been caused damages due to
the acts/ omissions of Defendants, Chris Zigrossi and/or Scott Murphy. Defendant would assert that
any damages incurred by Plaintiff, (which Defendant denics), were the result of acts and omissions
of Chris Zigrossi and Scott Murphy, for which this Defendant should not be held responsible.
Defendant requests the jury to make a determination as to the proportionate responsibility of such
third persons as the evidence may show, including Chris Zigrossi and Scott Murphy.
XI
Affirmative Defense
Defendant, MICHOICE, pleads the affirmative defense of Plaintiff, John Manning’s material
breach of the parties agreement. At all time, John Manning was obligated to provide the financial
security of Microcheck, In 2003 and 2004, Mike Smith informed John Manning that Microcheck was
in desperate need of additional financing, Mr, Smith made several request for John Manning to fulfill
his obligation by securing the necessary financing in order that Microcheck could continue to operate,
build the sales ofthe company and simply to cover overhead, Mr. Smith arranged for a loan from a
local bank only to have John Manning refuse to sign off on the loan unless Mr. Smith personally
guaranteed the loan which was never a part of Mr. Smith’s responsibilities, Mr. Manning’s prior
material breach the his agreement as the solvency of Microcheck depended upon and relied upon Mr.
Manning to provide the requisite financing necessary for the continued existence of Microcheck and
his breach was detrimental as to the financial instability of Microcheck and its failure to be in a
position to cover overhead, pay employees and cover the remaining of the operating costs. The
material breach on the part of Mr. Manning predated any alleged breach of Mike Smith, which he
specifically denies, and operates as to excuse any breach of the fidicuary or contractual duties on the
part of Mike Smith.
Secondly, Mike Smith was a 30% owner of Microcheck. Despite repeated requests for
issuance of stock to be place in his name to represent and protect his ownership interest, Defendant,
John Manning and/or Microcheck materially breached his agreement by failing to issue stock
ownership to Mike Smith.
Defendant, MICHOICE, requests the jury to be instructed regarding the defense of the
Plaintiff's prior material breaches of the parties’ agreement.
XIL
Affirmative Defense
Defendant affirmatively pleads the defenses of estoppel as to the allegations of Plaintiff that
Defendants breached their fiduciary duty and as to any claims that Defendants failed to disclose or
otherwise require board of director’s approval for any actions taken by Defendants as concems
Microcheck Systems, Inc. and/or Microcheck Solutions, Inc., (hereinafter referred to as
“Microcheck”). Defendants will show that Microcheck filed it’s Articles of Incorporation with the
State of Texas on June 7, 1984. Throughout the period of the business operations of Microcheck,
Mike Smith was authorized to make decisions and to take such action as he felt was in the best interest
of the company.
Majority owner of Microcheck, John Manning, was an absentee board member, and
acquiesced or otherwise approved the actions ofMicrocheck’s president, Mike Smith. John Manning
did not require board approval for important company decisions involving Microcheck, including but
not limited to, moving the location of the corporate office on two prior occasions, purchases of
vehicles and contracting with third parties involving the business dealings of Microcheck.
As throughout the previous period ofsome 19 years ofbusiness, John Manning never required
board approval regarding the financial decisions of Mike Smith. As the majority shareholder and
officer of the corporation, John Manning, was charged with the duty and had the opportunity to
fequire board approval and to hold scheduled board meetings.
Defendants will show that as Microcheck did not regularily hold board meeting or require
board approval, Microcheck is estopped from arbitrarily asserting that Mike Smith owed a duty to
Microcheck, to seek board of director approval for the formation and outsourcing of services through
Educated Solutions.
XII.
Affirmative Defense
Defendant, MICHOICE, further pleads, that the damages asserted by Plaintiff in this lawsuit,
ifany, were caused by and were the result of the corporations own financial instability, and were not
caused in any way by the actions of Defendants in this lawsuit. Defendant will show that John
Manning, an absentee board member, officer and majority shareholder of Microcheck, with drew
significant sums of cash from Microcheck beginning
in the year 1999 and continuing through the year
2004. Defendant will show that as a result of Mr. Manning’s withdrawals of the financial resources
of Microcheck, the corporation did not have sufficient financial cash in order to make improvements
to their products, market their products and/or to continue providing the necessary servicing of their
clients, Defendant will further show that Microcheck’s financial instability, began in 2001 and has
continued to present. Defendant will show that Microcheck’s damages, if any, were caused in whole
or in part by the financial instability of the corporation and not the result of the actions or inactions
of the Defendants in this lawsuit.
XIV.
Affirmative Defens:
Defendant, Mike Smith will further show that the actions or inactions of himself: during the
year 2004 were not a breach of any fiduciary duty owed by Mr. Smith to Microcheck, but rather that
Mike Smith was based upon sound business judgment in his actions regarding the outsourcing with
Educated Solutions. Defendants will show that the actions of the Defendants in outsourcing with
Educated Solutions was done honestly, in good faith, and in furtherance of arational business purpose
for the benefit of Plaintiff and therefore, the Plaintiffs" claims are subject to the Business J udgment
Rule. Defendants will show they are not liable to Plaintiffs as their conduct falls within the protection
of the “Business Judgment Rule.” Defendants specifically request that the proper instruction
regarding the defense of the business judgment rule be submitted to the jury.
XV.
Affirmative Defense
Defendant, Mike Smith, requests the jury to be instructed to segregate Plaintiff’s damages, if
any, between (Compensatory / Non-Compensatory), as required by Ch. 41 of the Texas Civil Practices
and Remedies Code.
Defendant, Mike Smith, would show and request for recovery of attorney’s fees, if any, as
plead by Plaintiffs, be segregated from any attorney fees for which no legal recovery is
recognized. incurred which are not submission of any request on the part of Plaintiff for recovery of
attorney fees Plaintiff's damages, if any, between (Compensatory/ Non-Compensatory), as required
by Ch. 41 of the Texas Civil Practices and Remedies Code
XV1
Affirmative Defens
Defendant, Mike Smith, pleads the affirmative defense of anticipatory repudiation on the
part of John Manning in which he, by his actions indicated that he was not going to perform his
obligations under the terms of the agreement in the future, showing as fixed intention to abandon,
renounce, and refuse to perform the agreement.
XVII.
Affirmative Defense
Defendant, Mike Smith, pleads the limitations of Chapter 41 as regarding Plaintiffs’ claims
for exemplary damages.
XVIIL
Attorney Fees
Defendant, Mike Smith, prays for the recovery
of all necessary and reasonable attorney fees
incurred by Defendant in defending Plaintiffs claims arising under the Texas Theft Liability Act,
claims of conversion as well as claims for breach of contract as well as all other claims asserted by
Plaintiff herein, whether in tort or in contract or by statute, which provide for the recovery of
attorney fees incurred by this Defendant. Defendant requests the jury to award their reasonable and
necessary attorney fees incurred for:
(1) Defending the claims at the trial of this lawsuit;
@) Post-trial, pre-appeal legal services;
(3) An appeal to the court of appeals in the event an appeal is taken;
(4) Making or responding to a petition for review to the Supreme Court
of Texas;
G) An appeal to the Supreme Court of Texas in the event the petition for
review is granted; and
(6) Post-judgment discovery and collection in the event execution on the
Judgment is necessary,
XIX.
Defendant, Mike Smith, pleads to the extent that any affirmative defenses plead herein are
actually verified denials, Defendant pleads the same defenses be considered as verified denials, as
evidenced by the attached verification of Mike Smith.
To the extent necessary to conform as a unified response to the pleadings of Plaintiffs, and
as MICHOICE is alleged to be alter ego of Defendant, Mike Smith, with both parties having
intertwined affirmative defenses, Mike Smith incorporates herein by reference for all purposes the
most recently filed answer on behalf of Defendant, MICHOICE,
XX.
Defendant, Mike Smith prays for the recovery ofall necessary and reasonable attorney's fees
incurred by Defendant in defending Plaintiffs’ claims arising under the Texas Liability Act as well as
all other claims, whether by statute or in tort or in contract, which provide for Defendant's recovery of
attorney's fees incurred by the defense herein,
WHEREFORE, PREMISES CONSIDERED, Defendant, Mike Smith prays that upon final
trial herein, (1) Plaintiffs shall take nothing from Defendant: (2) that Defendant shall have and recover
from Plaintiffs, Microcheck Systems, Inc. and Microcheck Solutions, Inc. and John Manning,
jointly and severally, Defendant, Mike Smith’s ownership of 30% of the Microcheck Systems, Inc.
And MicroCheck Solutions, Inc., plus all reasonable and necessary attomey fees as plead for herein,
as well as cost of court and post judgment interest; and for such other relief as this Honorable Court
may find this Defendant justly entitled.
Respectfully submitted,
The Law Offices of
DAVID P. PEXERSEN, P.C.
DA . PETERSEN
TBA: 15826400
8303 3.W. Freeway, Ste. 810
Houston, Texas 77074
(713) 779-8500
(713) 779-8648 (Fax)
Attomey for Defendant: Mike Smith
CERTIFICATE OF SERVICE
Thereby certify that on this 12 day of April, 2012, a true and correct copy of the foregoing
instrument,Defendant, Mike Smith’s Fifth Amended Original Answer, was forwarded to all
parties of record by and through their attorney of record, in accordance with the Texas Rules of Civil
Procedure.
DAVID P, PETERSEN
CAUSE NUMBER: 2004-59790
MICROCHECK SYSTEMS, INC, AND IN THE DISTRICT COURT OF
MICROCHECK SOLUTIONS, INC.
Plaintiffs,
VS.
HARRIS COUNTY, TEXAS
ZIGROSSI & MURPHY, L.L.C., Ind.
and d/b/a EDUCATED SOLUTIONS;
CHRIS ZIGROSSI; SCOTT MURPHY;
MIKE SMITH Individually and d/b/a CMS
TECHNOLOGY a/k/a CMS
TECHNOLOGIES; MICHOICE
TECHNOLOGY SYSTEMS, INC; JIM
HAYDEN; ALEX CAMPBELL; AND
JASON JABLECKI
Defendants 125™ JUDICIAL DISTRICT
VERIFICATION
STATE OF TEXAS §
HARRIS COUNTY §
BEFORE ME, the undersigned authority, on this day personally appeared MIKE
SMITH, who, after being duly swom and deposed, states as follows: “My name is Mike Smith,
Defendantin the above styled and numbered cause and having read Defendant's Mike Smith's
Fifth Original Answer verifies that all facts and statements set forth in DEFENDANT'S FIFTH
AMENDED ORIGINAL ANSWER are true and correct based upon his personal knowledge,”
SUBSCRIBED AND SWORN TO BEFO!
2012, to certify which witnd § my hand/ap s5 ST
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OUNCE.
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7ot\ aay of
NOFARY PUBL
TRINIDAD R VAN SLYKE
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My Commission Expires
April 18, 2018
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Filed 12J une 12 P4:39 Chris Daniel - District Clerk Harris Coun! ED101) 016924859 By: daunshae n. willrich CAUSE NUMBER: 2004-59790 MICROCHECK SYSTEMS, INC, AND § IN THE DISTRICT COURT OF MICROCHECK SOLUTIONS, INC. Plaintiffs, VS. HARRIS COUNTY, TEXAS ZIGROSSI & MURPHY, L.L.C., Ind. and d/b/a EDUCATED SOLUTIONS; CHRIS ZIGROSSI; SCOTT MURPHY; MIKE SMITH Individually and d/b/a CMS TECHNOLOGY a/k/a CMS TECHNOLOGIES; MICHOICE TECHNOLOGY SYSTEMS, INC; JIM HAYDEN; ALEX CAMPBELL; AND JASON JABLECKI Defendants 125T JUDICIAL DISTRICT DEFENDANT, MIKE SMITH’S FIFTH AMENDED ORIGINAL ANSWER TO THE HONORABLE JUDGE OF SAID COURT: NOW COMES MIKE SMITH, Indfividually, D/B/A CMS Technology D/B/A CMS Technologies, (collectively referred to herein as Mike Smith), Defendant, in the above styled and numbered cause, and respectfully files herein, his Fifth Amended Original Answer, and will further show unto this Honorable Court the following: I GENERAL DENIAL Pursuant to Rule 92 of the Texas Rules of Civil Procedure, Defendant, Mike Smith, enters this his General Denial, and Defendant denics generally, each and every, all and singular, the allegations contained in Plaintiffs’ most recently filed Amended Original Petition and Application for Injunctive Relief and demands strict proof thereof IL Defendant, Mike Smith, admits he was the president and CEO of Microcheck for avery long time, approximately 20 years, and for some portion of that time, Scott Murphy acted as Microcheck’s computer Programmer. Mike Smith specifically denies he ever violated his fiduciary duty to Microcheck or that he ever conspired to destroy Microcheck, Mike Smith would specifically deny that for months as alleged in Plaintitf's most recently filed Amended Petition, that he had improperly or illegally siphoned off thousands of dollars or any sum of money for his own personal use and benefit. Mike Smith would specifically deny as alleged in Plaintiffs’ petition that he made expenditures that were not approved. by Microcheck's Board. of Directors, In that regard Mike Smith would state there never was a meeting of the Board of Directors in the 20 years he was president and CEO of Microcheck, These allegations of Board of Directors meetings are nothing but a fabrication by John Manning. Mike Smith would specifically deny that he committed any theft of property pursuant to § 134.002(2) of the Texas Civil Practices and Remedies Code, specifically the Defendants deny violating §31,003(a) of the Texas Penal Code. Tt. Affirmative Defense Defendant, Mike Smith, would allege that John Maiming, the claimed owner of Microcheck Systems, Ine. and Microcheck Solutions, Inc., was an absentee owner, that very rarely, if ever, participated in the day in and day out functions of Microcheck Systems, Inc, and only showed up on fare occasions to withdraw sums of money to pay outstandin personal g debt, oftentimes to the peril , of Microcheck, which created a cash flow crises on many occasions, In that regard, Mike Smith would plead that the actions he took which are complained of as, “conspiracies to destroy the company” were, in fact, efforts to protect the clients of Microcheck and to keep Mictocheck on an even keel so they could comply with contractualobligations owed to their customers. IV. Affirmative Defense Tis alleged in the Plaintiffs’ petition that Mike Smith, Defendant has converted the source code and/or trade secrets for his own use which the Defendant specifically denies. Alternatively, however, Mike Smith would allege that he war and is a partner and part owner of Microcheck Systems, Inc., and as such was a part owner of all the inventory, assets, and/or source codes for trade secrets, if any existed, which is not admitted but expressly denied and, therefore, could not have possibly converted these assets to his own use as he was already a part owner. Mike Smith would specifically state that he was the president and CEO and had absohute authority to perform all business functions on behalf of Microcheck Systems, Inc. and had doneso for 20 years, and as such had the absolute authority to enter into the PSA Agreement with Educated Solutions on. October4, 2004, and into any other agreement that was necessary and proper and justified, As such, Defendant’s actions fall within the protection of the “Business Judgment Rule.” Defendant specifically request that the proper instruction regarding the defense of the business judgment nile be submitted to the jury, v, Affirmative Defense Defendant, Mike Smith, affirmatively pleads §18,091 of the TCPRC, requesting Plaintiff be required to present evidence of its economic loss damages in "Net" value, as required by the TCPRC, § 18.091. Defendant, Mike Smith, requests that the jury be instructed to segregate any damages, between. (compensatory/ non-compensatory), found in favor of the Plaintiffs, if any. VI Affirmative Defens Defendant Mike Smith, aflirmatively pleads that the damages, if any, asserted by Plaintiff in this lawsuit were caused in whole or in part by the Plaintiffs failure to mitigate its own damages. By reason of Plaintiffs’ breach of Microcheck’s agreement with Educated Solutions. Without limitation, Defendant will show that Plaintiff breached the Performance Servicing Agreement, (PSA), with Educated Solutions, In 2004, Mictocheck entered into a PSA agreement with Educated Solutions, whereby Microcheck was projected to be able to significantly reduce it’s monthly overhead while receiving a 15 % royalty from Educated Solutions. Microcheck breached the PSA with Educated Solutions by failing to pay themonthly obligation for the service and sales of Microcheck’s products. By teason of such breach, any damages incurred by Microcheck was the result of it's own failure to mitigate or take advantage of the PSA with Educated Solutions. Microcheck further failed to mitigate it’s own damages, if any, by teason of it’s failure to properly fund Microcheck as well as it’s failure to implement and effectuate amarketing plan and to provide a workforce to further develop it’s software products in order to remain competitive in the marketplace as well as it’s failure to properly and timely service the existing products in the market, VIL. Affirmative Defense In further answer, Defendant, Mike Smith, will show that Plaintiff's damages, if any, were caused by the negligence or fault of John Manning, Therefore, pursuant to Chapter 33 of the Texas Civil Practices and Remedies Code, MICHOICE requests this jury to make a determination as to the proportionate responsibility of the damages, if any, asserted by Plaintiff in this lawsuit, VI. Affirmative Defense Defendant, Mike Smith, affirmatively pleads by reason of a defense, that the damages alleged by Plaintiff in this lawsuit, if any, were caused by and were the result of its own financial instability, and were not caused in any way by the actions of the Defendant in this lawsuit. IX. Affirmative Defense Defendant, Mike Smith affirmative pleads defenses of failure to perform conditions precedent and lack of notice in defense of the Plaintiff's claims for recovery of attorncy’s fees pursuant to Texas Theft Liability Act and Ch. 38, TCPRC, and as set forth in Plaintiff's most recently filed Amended Petition. X. Affirmative Defense Defendant, MIKE SMITH, will show that the damages, if any, as alleged by Plaintiff in this lawsuit, were caused in whole or in part by the acts and omissions of third parties over which Defendant did not have control. Specifically, Plaintiffs assert they have been caused damages due to the acts/ omissions of Defendants, Chris Zigrossi and/or Scott Murphy. Defendant would assert that any damages incurred by Plaintiff, (which Defendant denics), were the result of acts and omissions of Chris Zigrossi and Scott Murphy, for which this Defendant should not be held responsible. Defendant requests the jury to make a determination as to the proportionate responsibility of such third persons as the evidence may show, including Chris Zigrossi and Scott Murphy. XI Affirmative Defense Defendant, MICHOICE, pleads the affirmative defense of Plaintiff, John Manning’s material breach of the parties agreement. At all time, John Manning was obligated to provide the financial security of Microcheck, In 2003 and 2004, Mike Smith informed John Manning that Microcheck was in desperate need of additional financing, Mr, Smith made several request for John Manning to fulfill his obligation by securing the necessary financing in order that Microcheck could continue to operate, build the sales ofthe company and simply to cover overhead, Mr. Smith arranged for a loan from a local bank only to have John Manning refuse to sign off on the loan unless Mr. Smith personally guaranteed the loan which was never a part of Mr. Smith’s responsibilities, Mr. Manning’s prior material breach the his agreement as the solvency of Microcheck depended upon and relied upon Mr. Manning to provide the requisite financing necessary for the continued existence of Microcheck and his breach was detrimental as to the financial instability of Microcheck and its failure to be in a position to cover overhead, pay employees and cover the remaining of the operating costs. The material breach on the part of Mr. Manning predated any alleged breach of Mike Smith, which he specifically denies, and operates as to excuse any breach of the fidicuary or contractual duties on the part of Mike Smith. Secondly, Mike Smith was a 30% owner of Microcheck. Despite repeated requests for issuance of stock to be place in his name to represent and protect his ownership interest, Defendant, John Manning and/or Microcheck materially breached his agreement by failing to issue stock ownership to Mike Smith. Defendant, MICHOICE, requests the jury to be instructed regarding the defense of the Plaintiff's prior material breaches of the parties’ agreement. XIL Affirmative Defense Defendant affirmatively pleads the defenses of estoppel as to the allegations of Plaintiff that Defendants breached their fiduciary duty and as to any claims that Defendants failed to disclose or otherwise require board of director’s approval for any actions taken by Defendants as concems Microcheck Systems, Inc. and/or Microcheck Solutions, Inc., (hereinafter referred to as “Microcheck”). Defendants will show that Microcheck filed it’s Articles of Incorporation with the State of Texas on June 7, 1984. Throughout the period of the business operations of Microcheck, Mike Smith was authorized to make decisions and to take such action as he felt was in the best interest of the company. Majority owner of Microcheck, John Manning, was an absentee board member, and acquiesced or otherwise approved the actions ofMicrocheck’s president, Mike Smith. John Manning did not require board approval for important company decisions involving Microcheck, including but not limited to, moving the location of the corporate office on two prior occasions, purchases of vehicles and contracting with third parties involving the business dealings of Microcheck. As throughout the previous period ofsome 19 years ofbusiness, John Manning never required board approval regarding the financial decisions of Mike Smith. As the majority shareholder and officer of the corporation, John Manning, was charged with the duty and had the opportunity to fequire board approval and to hold scheduled board meetings. Defendants will show that as Microcheck did not regularily hold board meeting or require board approval, Microcheck is estopped from arbitrarily asserting that Mike Smith owed a duty to Microcheck, to seek board of director approval for the formation and outsourcing of services through Educated Solutions. XII. Affirmative Defense Defendant, MICHOICE, further pleads, that the damages asserted by Plaintiff in this lawsuit, ifany, were caused by and were the result of the corporations own financial instability, and were not caused in any way by the actions of Defendants in this lawsuit. Defendant will show that John Manning, an absentee board member, officer and majority shareholder of Microcheck, with drew significant sums of cash from Microcheck beginning in the year 1999 and continuing through the year 2004. Defendant will show that as a result of Mr. Manning’s withdrawals of the financial resources of Microcheck, the corporation did not have sufficient financial cash in order to make improvements to their products, market their products and/or to continue providing the necessary servicing of their clients, Defendant will further show that Microcheck’s financial instability, began in 2001 and has continued to present. Defendant will show that Microcheck’s damages, if any, were caused in whole or in part by the financial instability of the corporation and not the result of the actions or inactions of the Defendants in this lawsuit. XIV. Affirmative Defens: Defendant, Mike Smith will further show that the actions or inactions of himself: during the year 2004 were not a breach of any fiduciary duty owed by Mr. Smith to Microcheck, but rather that Mike Smith was based upon sound business judgment in his actions regarding the outsourcing with Educated Solutions. Defendants will show that the actions of the Defendants in outsourcing with Educated Solutions was done honestly, in good faith, and in furtherance of arational business purpose for the benefit of Plaintiff and therefore, the Plaintiffs" claims are subject to the Business J udgment Rule. Defendants will show they are not liable to Plaintiffs as their conduct falls within the protection of the “Business Judgment Rule.” Defendants specifically request that the proper instruction regarding the defense of the business judgment rule be submitted to the jury. XV. Affirmative Defense Defendant, Mike Smith, requests the jury to be instructed to segregate Plaintiff’s damages, if any, between (Compensatory / Non-Compensatory), as required by Ch. 41 of the Texas Civil Practices and Remedies Code. Defendant, Mike Smith, would show and request for recovery of attorney’s fees, if any, as plead by Plaintiffs, be segregated from any attorney fees for which no legal recovery is recognized. incurred which are not submission of any request on the part of Plaintiff for recovery of attorney fees Plaintiff's damages, if any, between (Compensatory/ Non-Compensatory), as required by Ch. 41 of the Texas Civil Practices and Remedies Code XV1 Affirmative Defens Defendant, Mike Smith, pleads the affirmative defense of anticipatory repudiation on the part of John Manning in which he, by his actions indicated that he was not going to perform his obligations under the terms of the agreement in the future, showing as fixed intention to abandon, renounce, and refuse to perform the agreement. XVII. Affirmative Defense Defendant, Mike Smith, pleads the limitations of Chapter 41 as regarding Plaintiffs’ claims for exemplary damages. XVIIL Attorney Fees Defendant, Mike Smith, prays for the recovery of all necessary and reasonable attorney fees incurred by Defendant in defending Plaintiffs claims arising under the Texas Theft Liability Act, claims of conversion as well as claims for breach of contract as well as all other claims asserted by Plaintiff herein, whether in tort or in contract or by statute, which provide for the recovery of attorney fees incurred by this Defendant. Defendant requests the jury to award their reasonable and necessary attorney fees incurred for: (1) Defending the claims at the trial of this lawsuit; @) Post-trial, pre-appeal legal services; (3) An appeal to the court of appeals in the event an appeal is taken; (4) Making or responding to a petition for review to the Supreme Court of Texas; G) An appeal to the Supreme Court of Texas in the event the petition for review is granted; and (6) Post-judgment discovery and collection in the event execution on the Judgment is necessary, XIX. Defendant, Mike Smith, pleads to the extent that any affirmative defenses plead herein are actually verified denials, Defendant pleads the same defenses be considered as verified denials, as evidenced by the attached verification of Mike Smith. To the extent necessary to conform as a unified response to the pleadings of Plaintiffs, and as MICHOICE is alleged to be alter ego of Defendant, Mike Smith, with both parties having intertwined affirmative defenses, Mike Smith incorporates herein by reference for all purposes the most recently filed answer on behalf of Defendant, MICHOICE, XX. Defendant, Mike Smith prays for the recovery ofall necessary and reasonable attorney's fees incurred by Defendant in defending Plaintiffs’ claims arising under the Texas Liability Act as well as all other claims, whether by statute or in tort or in contract, which provide for Defendant's recovery of attorney's fees incurred by the defense herein, WHEREFORE, PREMISES CONSIDERED, Defendant, Mike Smith prays that upon final trial herein, (1) Plaintiffs shall take nothing from Defendant: (2) that Defendant shall have and recover from Plaintiffs, Microcheck Systems, Inc. and Microcheck Solutions, Inc. and John Manning, jointly and severally, Defendant, Mike Smith’s ownership of 30% of the Microcheck Systems, Inc. And MicroCheck Solutions, Inc., plus all reasonable and necessary attomey fees as plead for herein, as well as cost of court and post judgment interest; and for such other relief as this Honorable Court may find this Defendant justly entitled. Respectfully submitted, The Law Offices of DAVID P. PEXERSEN, P.C. DA . PETERSEN TBA: 15826400 8303 3.W. Freeway, Ste. 810 Houston, Texas 77074 (713) 779-8500 (713) 779-8648 (Fax) Attomey for Defendant: Mike Smith CERTIFICATE OF SERVICE Thereby certify that on this 12 day of April, 2012, a true and correct copy of the foregoing instrument,Defendant, Mike Smith’s Fifth Amended Original Answer, was forwarded to all parties of record by and through their attorney of record, in accordance with the Texas Rules of Civil Procedure. DAVID P, PETERSEN CAUSE NUMBER: 2004-59790 MICROCHECK SYSTEMS, INC, AND IN THE DISTRICT COURT OF MICROCHECK SOLUTIONS, INC. Plaintiffs, VS. HARRIS COUNTY, TEXAS ZIGROSSI & MURPHY, L.L.C., Ind. and d/b/a EDUCATED SOLUTIONS; CHRIS ZIGROSSI; SCOTT MURPHY; MIKE SMITH Individually and d/b/a CMS TECHNOLOGY a/k/a CMS TECHNOLOGIES; MICHOICE TECHNOLOGY SYSTEMS, INC; JIM HAYDEN; ALEX CAMPBELL; AND JASON JABLECKI Defendants 125™ JUDICIAL DISTRICT VERIFICATION STATE OF TEXAS § HARRIS COUNTY § BEFORE ME, the undersigned authority, on this day personally appeared MIKE SMITH, who, after being duly swom and deposed, states as follows: “My name is Mike Smith, Defendantin the above styled and numbered cause and having read Defendant's Mike Smith's Fifth Original Answer verifies that all facts and statements set forth in DEFENDANT'S FIFTH AMENDED ORIGINAL ANSWER are true and correct based upon his personal knowledge,” SUBSCRIBED AND SWORN TO BEFO! 2012, to certify which witnd § my hand/ap s5 ST x“ OUNCE. 3 7ot\ aay of NOFARY PUBL TRINIDAD R VAN SLYKE a Se My Commission Expires April 18, 2018 d for the Stated pererenerern Terr reTeTTY