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1 equitable manner. DEFENDANT was and is required to act in furtherance of the best interests of

2 SAMG and its shareholders so as to benefit all shareholders equally and not in furtherance of his

3 personal interest or benefit.

4 10. Each director and officer of SAMG owes to SAMG and its shareholders the

5 fiduciary duty to exercise good faith and diligence in administration of the affairs of SAM G and in

6 the use and preservation of its property and assets, and the highest obligations of fair dealing.

7 11. DEFENDANT, because of his position of control and authority as a

8 director and officer of SAMG, was able to and did, directly and/or indirectly, exercise control over

9 the wrongful acts complained of herein.

10 12. To discharge his duties, DEFENDANT, as an officer and director of SAMG, was

11 required to exercise reasonable and prudent supervision over the management, policies, practices,

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and controls of the financial affairs of SAMG. By virtue of such duties, DEFENDANT was and is

required to, among other things:

a. Ensure that all compensation and bonus distributions to shareholders and

employees were made in compliance with SAMG's Bylaws and/or with the knowledge and

consent of SAM G's other officers, directors, and shareholders;

b. Conduct the affairs of the Company in an efficient, business-like manner so

18 as to make it possible to provide the highest quality performance of its business and to avoid

19 wasting SAMG's assets;

20 c. Promptly notify SAMG's other officers, directors, and/or shareholders of

21 material facts that may affect SAMG's business, including, but not limited to, claims and suits

22 brought against SAMG and/or its officers, directors, or shareholders;

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d.

e.

Not take or use SAMG's assets for his own purposes; and

Ensure that SAMG was operated in a diligent, honest, and prudent manner in

25 compliance with all applicable laws, rules, and regulations.

26 13. DEFENDANT, by virtue of his position as a director and officer, owed to SAMG

27 and to its shareholders the fiduciary duties of loyalty, good faith, and the exercise of due care and

28 diligence in the management and administration of the affairs of SAMG, as well as in the use and

4 SHAREHOLDER DERIVATIVE COMPLAINT

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4 general account. Moreover, all payments for expenses would be made from SAMG's general

5 account. Other express conditions of any new compensation approach were that the SAMG' s line

6 of credit be kept in place and that PLAINTIFF and DEFENDANT would enter into subleases with

7 SAMG, both which never happened.

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24. PLAINTIFF and DEFENDANT were unable to agree on the proposed

reconfiguration. DEFENDANT, however, began directing all revenue generated from his cases

into his sub-account, including approximately $331,062.97 generated from cases originating pre-

January 1, 2013 that without dispute belonged to SAMG.

25. In or about February 2014, SAMG's line of credit was terminated by its bank due in

part to DEFENDANT's refusal to extend it.

26. In or about early May 2014, DEFENDANT's wife quit working for SAMG.

Shortly thereafter, DEFENDANT began routing all revenue generated from his cases directly into

his shareholder sub-account without running that revenue through SAMG's general account.

Moreover, he caused the accounting reporting system to be modified such that it prevented

PLAINTIFF from determining the amount of revenues received from the cases he was working on.

27. Moreover, since DEFENDANT's wife quit working for SAMG, DEFENDANT has

refused to consent to the hiring of a third-party bookkeeper/accountant to review and organize

SAMG's financial information.

28. Ultimately, communication between the PLAINTIFF and DEFENDANT broke

down and no final agreement to reconfigure SAMG was reached. Throughout this time, however,

DEFENDANT continued to keep all firm revenues received from cases he was working on

(regardless of when they originated), and unilaterally make decisions regarding SAMG's finances and management without PLAINTIFF's knowledge and consent, including, but not limited to,

writing off amounts owed from various client matters and entering into agreements with third-party

28 "contract" attorneys.

7 SHAREHOLDER DERIVATIVE COMPLAINT

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1 34. As a result of these lawsuits, SAMG has been damaged by, among other things, (1) 2 having to pay an insurance deductible in the amount of $25,000.00 for the Hardy case and likely

3 additional $25,000.00 deductibles for each additional case; (2) being exposed to potential 4 uninsured costs and damages; and (3) suffering a potentially negative impact to its insurability 5 going forward.

6 35. Additional breaches of fiduciary duties and instances of gross mismanagement and

7 corporate waste by DEFENDANT will be demonstrated by facts and information obtained through

8 discovery and other means during this case.

9 DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS

10 36. PLAINTIFF brings this action derivatively in the right and for the benefit of SAMG

11 to redress DEFENDANT's breaches of fiduciary duties, gross mismanagement, corporate waste,

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and unjust emichment. 37. PLAINTIFF is an owner of SAMGstock and was an owner of SAMG stock during

all times relevant to DEFENDANT's illegal and wrongful course of conduct alleged herein.

38. PLAINTIFF will adequately and fairly represent the interests of SAMG and its

shareholders in enforcing and prosecuting its rights.

3 9. As a result of the facts set forth herein, PLAINTIFF has not made any demand on

18 the SAMG Board of Directors to institute this action against DEFENDANT. Such demand is

19 excused because (1) making a demand would be a futile and useless act because the Board is 20 incapable of making an independent and disinterested decision to institute and vigorously

21 prosecute this action; and (2) the wrongful conduct of DEFENDANT is not subject to protection 22 under the business judgment rule. Under such circumstances, the demand requirement is excused 23 because making such a demand on the Board would be futile, Shields v. Singleton, 15 Cal.App.4th

24 1611 (1993), particularly for the following reasons:

25 a. At the time this action was commenced, the Board consisted of two

26 directors: PLAINTIFF and DEFENDANT. Moreover, PLAINTIFF and DEFENDANT are the

27 only officers of SAMG, as well as the sole shareholders of SAMG stock - each owning 50% of the

28 outstanding shares. Accordingly, there are no directors or other persons of comparable authority

9 SHAREHOLDER DERIVATIVE COMPLAINT

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