FILED UNDER SEALDallas Division SELECT INTERIOR CONCEPTS, INC. and ARCHITECTURAL GRANITE & Answer to Complaint and MARBLE, LLC Counterclaims Plaintiffs, v. Civil Action No. 3:20-CV-295-L

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

Dallas Division

JOHN DOE, § §

Plaintiff, § §

vs. § §

JOHN DOE. §

Defendant. § § SEALED CASE

DEFENDANT PENTAL’S PARTIAL ANSWER TO PLAINTIFFS’ COMPLAINT AND PENTAL’S COUNTERCLAIMS

FILED UNDER SEAL

Judge Sam A. Lindsay 1100 Commerce Street, Room 1544

Dallas, Texas 75242-1003 Courtroom: 1546

Case 3:20-cv-00295-L Document 10 Filed 03/20/20 Page 1 of 65 PageID 60Case 3:20-cv-00295-L Document 10 Filed 03/20/20 Page 1 of 65 PageID 60

IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS

Dallas Division

SELECT INTERIOR CONCEPTS, INC. § and ARCHITECTURAL GRANITE & § Answer to Complaint and MARBLE, LLC § Counterclaims § Plaintiffs, § § v. § Civil Action No. 3:20-CV-295-L § PARMINDER PENTAL § § SEALED CASE Defendant. § __________________________

DEFENDANT PENTAL’S PARTIAL ANSWER1 TO PLAINTIFFS’ COMPLAINT AND PENTAL’S COUNTERCLAIMS

Defendant Parminder Pental (“Mr. Pental”), by and through his attorneys, hereby files his

Answer to Select Interior Concepts, Inc. (“SIC”) and Architectural Granite & Marble, LLC’s

(“AGM”) Complaint, and further files his Counterclaims against both SIC and AGM. In support

thereof, Mr. Pental states the following:

NATURE OF THE ACTION

1. Admitted in part, denied in part. Mr. Pental denies that he stole highly valuable

confidential information and trade secrets from Plaintiffs. He admits that he sold his company,

Pental Granite and Marble, LLC (“PGM”) to Plaintiffs for the stated amount. Mr. Pental further

admits that following the transaction, he accepted employment with Plaintiffs to help integrate

and grow the combined business. He denies that at any time during his employment, he secretly

1 Concurrently with this filing, Mr. Pental has filed a Partial Motion to Dismiss Counts 3, 4, and 5 of the Complaint. As a result, Mr. Pental has not responded to those claims, but will do so upon the resolution of his pending motion.


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stole highly valuable confidential information and trade secrets belonging to Plaintiffs.

2. Admitted in part, denied in part. Mr. Pental admits that he received the stated

amount in exchange for the sale of PGM, which included the sale of all of PGM’s confidential

information and trade secrets. Mr. Pental denies that he stole confidential information and trade

secrets from Plaintiffs in December 2018, at which time he still worked for Plaintiffs, or any time

thereafter. Mr. Pental denies that he secretly stole confidential information by emailing it to his

personal email account. Mr. Pental forwarded the subject emails to his personal email account

because they contained evidence pertinent to his legal claims against Plaintiffs. Mr. Pental

denies that he intended to use, or actually used, this information to his competitive advantage.

3. Admitted in part, denied in part. Mr. Pental admits that he forwarded to his

personal email account a spreadsheet entitled, “Inventory Comparison 2017 & 2018 values.xlsx,”

which he predicted he would need to defeat Plaintiffs’ pre-textual arguments for the reasons it

constructively discharged him. Mr. Pental further admits that he forwarded to his personal email

account contact information for AGM’s international suppliers. Mr. Pental lacks knowledge or

information sufficient to admit or deny that he emailed himself price lists for all of AGM’s

product offerings or “key business correspondence and negotiations with AGM’s primary

international supplier for AGM’s Western United States business.” Mr. Pental denies that any

such email, to the extent it exists, evidences any intent, or that he had any intent, to use this

information to his competitive advantage. Rather, Mr. Pental forwarded some emails to his

personal email account because they contained evidence pertinent to his legal claims against

Plaintiffs.

4. Denied. Mr. Pental denies that he stole proprietary information or violated any of

his legal duties. Mr. Pental forwarded the subject emails to his personal email account because


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they contained evidence pertinent to his legal claims against Plaintiffs. Mr. Pental denies that he

intended to use, or actually used, this information to his competitive advantage. Mr. Pental lacks

knowledge or information sufficient to admit or deny that the parties ascribed the stated value to

intangible assets and goodwill, including confidential information, and therefore, denies that

averment.

5. Admitted in part, denied in part. Mr. Pental denies that he “abruptly terminated

his own employment.” Rather, Plaintiffs constructively discharged Mr. Pental on January 29,

2019, in retaliation for his protected activity under Section 806 of the Sarbanes Oxley Act, 18

U.S.C. §1514A (“SOX”). Mr. Pental denies that he refused to return his company-issued laptop

to AGM. Plaintiff admits that he lost his company laptop on either March 17 or 18, 2019, after

which he filed two police reports, seeking return of the laptop, because it was stolen from his

vehicle, which Mr. Pental presumes he must have left unlocked. To the extent Plaintiffs imply

that Mr. Pental’s laptop was not stolen from him, or that he kept the laptop, he expressly denies

those unfounded allegations. Mr. Pental further denies that he secretly recorded certain

executives in discussions concerning confidential information and trade secrets, and demands

strict proof thereof.

6. Denied. Plaintiffs bring this action in retaliation for Mr. Pental’s assertion of his

legal rights under Section 806 of the Sarbanes Oxley Act. After Mr. Pental sent Plaintiffs an

advance copy of his SOX complaint on January 13, 2019, Plaintiffs rushed to the courthouse and

filed the instant action against him. Mr. Pental denies that he engaged in any unlawful conduct,

or that Plaintiffs sustained any damages as a result of any of his conduct, or that Plaintiffs are

entitled to judgment in their favor.


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I.

PARTIES

7. Admitted.

8. Denied. Mr. Pental lacks knowledge or information sufficient to admit or deny

this paragraph, and therefore, denies the averment.

9. Admitted in part, denied in part. Mr. Pental admits that he resides at the stated

address. The remainder of Paragraph 9 contains conclusions of law, to which no response is

required. To the extent a response is deemed required, Mr. Pental denies this paragraph.

II.

JURISDICTION AND VENUE

10. Denied. Paragraph 10 contains conclusions of law, to which no response is




Further, Mr. Pental denies that a forum-selection clause in an employment agreement provides

an appropriate basis for venue under 28 U.S.C. § 1391(b).

III.

FACTUAL BACKGROUND

12. Admitted.

13. Admitted.

a. Purchase Agreement

14. Admitted.

15. Admitted.


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16. Paragraph 16 seeks to paraphrase or characterize the contents of a written

document. That document speaks for itself, and Mr. Pental denies the allegations to the extent

that they are inconsistent with that document.








that the parties ascribed the stated value to intangible assets and goodwill, including confidential

information, and therefore, denies that averment.

b. The Employment Agreement

20. Admitted.

21. Admitted in part, denied in part. Mr. Pental admits that prior to the acquisition,

he was an owner and executive of PGM. He admits that after February 28, 2017, he became an

employee of AGM. Mr. Pental further admits that he was employed for a period as the President

of AGM. He denies that he subsequently assumed the role of COO of AGM. Rather, he

subsequently assumed the role of COO of SIC.

22. Admitted in part, denied in part. Mr. Pental admits that he owed obligations to

Plaintiffs under the Purchase Agreement and Employment Agreement. He denies that he served

as AGM’s COO. Mr. Pental further denies that he owed SIC ay obligations pursuant to the

Employment Agreement, to which SIC was not a party. The remainder of Paragraph 22 contains


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conclusions of law, to which no response is required. To the extent a response is deemed

required, Mr. Pental denies this paragraph.









that they are inconsistent with that document. Further, Mr. Pental denies that he served as the

COO of AGM.

26. Admitted.






that they are inconsistent with that document. Further, Plaintiffs have not specified the written

document which Paragraph 28 paraphrases. To the extent that Paragraph 28 attempts to

paraphrase the Employment Agreement, Mr. Pental denies that he owed any obligations under

that agreement to SIC.



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that they are inconsistent with that document. Further, Mr. Pental denies that he owed any

obligations under the Employment Agreement to SIC, which was not a party to the agreement.

30. Admitted in part, denied in part. Mr. Pental admits that the Employment

Agreement contains the stated language. Mr. Pental denies that Section (f) of the Employment

Agreement entitles SIC to the stated relief, because SIC was not a party to that agreement.

c. Pental’s Theft of Trade Secrets, Confidential Information, and Self-Dealing

31. Admitted in part, denied in part. Mr. Pental admits that he sold all rights and title

to PGM’s Confidential Information to Plaintiffs. Mr. Pental denies the remainder of this

paragraph.


Plaintiffs’ allegations about the date on which he purportedly emailed Mr. Spiller or the content

of that email. In any event, upon information and belief, Mr. Spiller left the Company because

Plaintiffs pushed him out, in retaliation for his protected activity under Section 806 of SOX, not

because Mr. Pental solicited, or attempted to solicit, him to leave.

33. Denied. Mr. Pental denies that he “orchestrated and deployed a plan to secretly

steal Confidential Information” from Plaintiffs. Mr. Pental admits that Plaintiffs paid the stated

amount in exchange for PGM’s confidential information. Further, Mr. Pental denies that for the

two-month period before Plaintiffs constructively discharged him, he systematically took highly

sensitive confidential information by emailing Company documents to his personal email

account. Rather, as Plaintiffs continued to push Mr. Pental out of SIC and AGM in retaliation

for his protected activity under Section 806 of SOX, he emailed himself documents which

contained pertinent evidence of his legal claims, in order to have his legal claims investigated


8

and evaluated by counsel and the government.

• Mr. Pental admits that on December 14, 2018, he forwarded to his personal email

account eighteen separate emails. Mr. Pental denies that these emails contained

confidential information. Rather, the emails contained evidence of his legal claims

under Section 806 of SOX—specifically, information about the way in which

Plaintiffs reduced his job responsibilities after he engaged in protected activity.

• Admitted.

• Admitted in part, denied in part. Mr. Pental admits that on January 23, 2019, while

still employed by Plaintiffs, he forwarded an email to his personal email account, to

which he attached a spreadsheet entitled “Inventory Comparison 2017 & 2018

values.xlsx.” To the extent this paragraph seeks to paraphrase or characterize the

contents of that written document, and to the extent this paragraph is inconsistent with

that written document, Mr. Pental denies the allegations. Further, Mr. Pental denies

that he forwarded any spreadsheets, other than “Inventory Comparison 2017 & 2018

values.xlsx,” to his personal email account on January 23, 2019.

• Denied. Mr. Pental denies that on January 23, 2019, he forwarded to his personal

email account “sensitive contract negotiations” with AGM’s primary international

supplier for its Western United States business.

34. Denied. Mr. Pental denies that the contents of the emails he forwarded to his

personal email account contained trade secrets. Rather, the emails contained evidence pertinent

to his SOX-retaliation claims against Plaintiffs.

35. Admitted in part, denied in part. Mr. Pental admits that he did not inform

Plaintiffs that he forwarded the subject emails to his personal email account. To the extent this


9

paragraph implies that Mr. Pental acted illegally when he forwarded the emails to his personal

email account, he denies this paragraph because the emails contained evidence pertinent to his

SOX-retaliation claims against Plaintiffs.

36. Admitted in part, denied in part. Mr. Pental admits that Plaintiffs did not consent

to Mr. Pental’s forwarding of emails to his personal email account. To the extent this paragraph

implies that Mr. Pental was legally required to obtain Plaintiff’s consent, Mr. Pental denies this

paragraph. The emails he forwarded to his personal email account contained evidence pertinent

to his SOX-retaliation claims against Plaintiffs.

37. Admitted in part, denied in part. Mr. Pental lacks knowledge or information

sufficient to admit or deny that Plaintiffs had no knowledge of the fact that Mr. Pental forwarded

emails to his personal email account. Mr. Pental admits that Plaintiffs asked him to assume a

new role at SIC. However, to the extent that Plaintiffs imply the new role would have increased

his responsibilities, Mr. Pental expressly denies this paragraph. Rather, after Mr. Pental engaged

in protected activity under Section 806 of SOX, Plaintiffs constructively discharged him. On

January 29, 2019, SIC’s Chief Executive Officer, Tyrone Johnson, told Mr. Pental that moving

forward, he would have “no day to day operational responsibilities or decision-making

requirements, except as explicitly requested by myself or Sunil Palakodati. . . . In your new role,

you will not be required to come to any of the branch facilities, except when explicitly requested.

In your new capacity, you will be working remotely.” Mr. Pental admits that he rejected

Plaintiffs’ attempt to diminish his job responsibilities.

38. Admitted in part, denied in part. Mr. Pental admits that on February 8, 2019, his

prior counsel sent Plaintiffs a letter. Mr. Pental denies that pursuant to the letter, he voluntarily

terminated his employment with the Plaintiffs. Rather, the letter stated that Mr. Pental had “been


10

subjected to multiple adverse employment actions by SIC that appear to be in retaliation for

reports that [he had] made regarding legally questionable activities of the company.” Mr.

Pental’s letter further demanded that Plaintiffs take “corrective action” to remedy their

retaliation, which included Mr. Pental’s constructive discharge. Mr. Pental admits that he did not

notify Plaintiffs that he forwarded emails evidencing his legal claims against them to his personal

email account, or return those emails to Plaintiffs. To the extent this paragraph implies that Mr.

Pental was legally obligated to do so, he denies this paragraph. Further, Mr. Pental denies that

the entire value of PGM’s purchase price was attributable to its “confidential information.” He

further denies that he stole some of the same information for his self-dealing. Rather, Mr. Pental

forwarded emails to his personal email account because they contained evidence of his legal

claims against Plaintiffs under Section 806 of SOX.

39. Denied. Mr. Pental denies that he secretly recorded certain executive meetings

during his employment and demands strict proof thereof.

40. Denied. Mr. Pental denies that he stole confidential information from Plaintiffs.

Rather, Mr. Pental forwarded emails to his personal email account because they contained

evidence of his legal claims against Plaintiffs under Section 806 of SOX. Mr. Pental denies that

he refused to return his company-issued laptop. Mr. Pental lost his company laptop on either

March 17 or 18, 2019, after which he filed two police reports, seeking return of the laptop,

because it was stolen from his vehicle. To the extent Plaintiffs imply that Mr. Pental’s laptop

was not stolen from him, or that he kept the laptop, he expressly denies those unfounded

allegations. Because Mr. Pental could not return his laptop to Plaintiffs, he paid them an amount

in excess of the laptop’s fair-market value. In fact, Plaintiffs never filed a police report,

evidencing any belief that Mr. Pental stole the laptop, and after Mr. Pental paid them for it, they


11

took no action to seek its return, until Mr. Pental shared an advance copy of his SOX lawsuit

with Plaintiffs.

41. Denied. Mr. Pental denies that after Plaintiffs constructively discharged him, he

directly contacted Plaintiffs’ current employees for purposes of soliciting them for employment,

or inducing or encouraging them to leave their employment with Plaintiffs.

42. Denied. Mr. Pental denies that Plaintiffs have suffered, or are legally entitled to

recover, any damages.

IV.

CAUSES OF ACTION

Count 1: Breach of Contract (Purchase Agreement)

43. Denied. Mr. Pental incorporates his answers to Paragraphs 1 through 42, as if set

forth fully herein.












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Count 2: Breach of Contract (Employment Agreement)


forth fully herein.



Further, to the extent SIC attempts to imply that it was a party to the Employment Agreement,

Mr. Pental expressly denies this paragraph.



Further, Mr. Pental denies that SIC had any obligations, or performed any obligations, under the

Employment Agreement, to which it was not a party.









Further, Mr. Pental denies that SIC has standing to sue him for breach of the Employment

Agreement, given that SIC was not a party to the agreement.


13

Count 3: Breach of Fiduciary Duties


forth fully herein.

57. Because Paragraph 57 concerns Plaintiffs’ allegation that Mr. Pental breached his

fiduciary duties, which is the subject of Mr. Pental’s Partial Motion to Dismiss, no response is














Count 4: Texas Theft Liability Act


forth fully herein.

63. Because Paragraph 63 concerns Plaintiffs’ allegation that Mr. Pental violated the

Texas Theft Liability Act, which is the subject of Mr. Pental’s Partial Motion to Dismiss, no


14

response is required. To the extent a response is deemed required, Mr. Pental denies this

paragraph.




paragraph.




paragraph.




paragraph.

Count 5: Injunctive Relief


forth fully herein.

68. Because Paragraph 68 concerns Plaintiffs’ purported independent cause of action

for injunctive relief, which is the subject of Mr. Pental’s Partial Motion to Dismiss, no response

is required. To the extent a response is deemed required, Mr. Pental denies this paragraph.





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V.

CONDITIONS PRECEDENT


forth fully herein. Paragraph 74 contains conclusions of law, to which no response is required.

To the extent a response is deemed required, Mr. Pental denies this paragraph.

VI.

ATTORNEYS’ FEES


forth fully herein.




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VII.

DEMAND FOR JURY TRIAL



VIII.

PRAYER

79. Denied. Defendant Peter Pental requests that the Court enter judgment in his

favor and against Plaintiffs, that the Complaint be dismissed in its entirety with prejudice, that

Defendant recover his costs in this action, and for such other relief, as this Court deems just and

appropriate.

AFFIRMATIVE DEFENSES

By pleading the following defenses, as provided for pursuant to Rule 8(c) of the Federal

Rules of Civil Procedure, Mr. Pental does not concede that he possesses or assumes the burden to

prove each or any of them. Mr. Pental maintains that Plaintiffs retain the burden of proof on all

matters necessary to state and sustain the claims asserted in their Complaint.

FIRST AFFIRMATIVE DEFENSE

Plaintiffs have failed to state a claim for which relief may be granted.

SECOND AFFIRMATIVE DEFENSE

Some or all of Plaintiffs’ claims are preempted by the Texas Uniform Trade Secrets Act,

Tex. Civ. Prac. & Rem. Code Ann. § 134A.001 et seq.


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THIRD AFFIRMATIVE DEFENSE

Defendant is immune from criminal or civil liability under any Federal or State Trade

Secret Law for any alleged disclosures of confidential or trade secrets pursuant to 18 U.S.C. §

1833(b).

FOURTH AFFIRMATIVE DEFENSE

Plaintiffs fail to state a prima facie case under any of the claims or causes of action they

have asserted.

FIFTH AFFIRMATIVE DEFENSE

Some or all of Plaintiffs’ claims are barred by the statute of limitations, laches, res

judicata, collateral estoppel, settlement and release, or accord and satisfaction.

SIXTH AFFIRMATIVE DEFENSE

Defendant reserves the right to assert additional defenses, affirmative or otherwise, upon

further investigation and discovery into the matters alleged. Defendant asserts all applicable

statutory limitations with respect to Plaintiffs’ damage claims.

WHEREFORE, Defendant Pental requests that the Court enter judgment in his favor and

against Plaintiffs, that the Complaint be dismissed in its entirety with prejudice, that Defendant

recover his costs in this action, and for such other relief, as this Court deems just and appropriate.


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COUNTER-PLAINTIFF PENTAL’S COUNTERCLAIMS AND JURY DEMAND

Counter-plaintiff Pental hereby asserts the following counterclaims against Counter-

defendants SIC and AGM:

Preliminary Statement

1. Parminder (“Peter”) Pental brings this action against his former employers, SIC

and its wholly-owned subsidiary, AGM, for declaratory relief and compensatory damages in the

form of backpay, front pay or reinstatement, emotional distress damages, reputational damages,

and attorney’s fees and costs, under Section 806 of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A

(“SOX”), and against AGM for breach of its Employment Agreement with Mr. Pental.

2. As the Chief Operating Officer of SIC, and former President of its subsidiary,

AGM, Mr. Pental reported to Tyrone Johnson, SIC’s Chief Executive Officer, that SIC and

AGM engaged in fraud when they orchestrated a sham “sale” of their product to a third party and

artificially inflated the revenue they reported on their consolidated financial statements, to make

their financial status “look better” to prospective shareholders before publicly selling their

common stock.

3. In retaliation for Mr. Pental’s protected activity, Counter-defendants terminated

his employment.

4. Alternatively, Mr. Pental brings a claim for breach of contract against AGM,

which violated his employment agreement when it refused to provide him one year’s severance

following his termination of the agreement for “good reason.”

Jurisdiction and Venue

5. Subject matter jurisdiction in this Court is proper pursuant to 28 U.S.C. § 1331

because Mr. Pental’s claims against Counter-defendants arise under Section 806 of the Sarbanes-


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Oxley Act, 18 U.S.C. § 1514A, and present federal questions.

6. Subject matter jurisdiction over Mr. Pental’s breach of contract claim against

AGM is proper in this Court pursuant to 28 U.S.C. § 1332(a), because: (a) Mr. Pental is a citizen

of the State of Washington; (b) Counter-defendant AGM is a citizen of the State of Delaware, in

which it is incorporated, and the State of Texas, where it maintains its principal place of

business; and (c) the amount in controversy exceeds $75,000.

7. 28 U.S.C. § 2201(a) authorizes this Court to grant declaratory relief.

Parties

8. Mr. Pental is a citizen of the United States and currently resides at 3340 Shorecliff

Drive, N.E., Tacoma, Washington 98422. SIC and its wholly owned subsidiary, AGM,

employed Mr. Pental from February 28, 2017 through January 29, 2019.

9. Counter-defendant SIC is a domestic corporation, located at 400 Galleria

Parkway, Suite 1760, Atlanta, Georgia 30339, which is organized and exists under the laws of

Delaware. SIC installs and distributes interior building products nationwide.

10. Counter-defendant SIC has a class of securities registered under Section 12 of the

Securities Exchange Act of 1934, 15 U.S.C. § 78l, and its stock trades on the National

Association of Securities Dealers Automated Quotations (“NASDAQ”) under ticker symbol

“SIC.”

11. Counter-defendant AGM is a wholly owned subsidiary of Architectural Surfaces

Group, LLC (“ASG”), which, in turn, is a wholly owned subsidiary of Counter-defendant SIC.

12. AGM is organized and exists under the laws of Delaware, and upon information

and belief, it has a principal place of business at located at 401 Center Ridge Drive, Suite 100,

Austin, Texas 78753.


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13. Counter-defendant SIC includes Counter-defendant AGM’s financial information

in the consolidated financial statements SIC files with the U.S. Securities and Exchange

Commission (“SEC”).

Factual Allegations

Mr. Pental’s Background Made Him an Ideal Candidate to Lead SIC.

14. Mr. Pental has an extensive background in business management and, more

specifically, the marble and stone industry.

15. In 1999, Mr. Pental and his brother co-founded Pental Granite & Marble, LLC

d/b/a Pental Surfaces (“PGM”), an independent distributor of natural stone, engineered stone,

and tile, headquartered in Seattle, Washington.

16. Mr. Pental served as President of PGM, and he bore primary responsibility for

managing PGM’s sales, operations, and human resources function.

17. Mr. Pental played a key role in product development, oversaw vendor

relationships, and managed customer relationships with PGM’s top customers.

18. By 2016, Mr. Pental and his brother had expanded their business to five locations,

with an annual gross revenue of $97 million, and over $17 million in earnings before interest,

taxes, depreciation, and amortization.

19. At PGM, Mr. Pental built a stellar reputation among worldwide vendors,

customers, and employees.

Sale of PGM.

20. As of 2017, Trive Capital G&M Blocker Corporation (“Trive Capital”), a Dallas-

based private-equity investment firm, owned and controlled the businesses which eventually

consolidated under SIC.


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21. Specifically, Trive Capital controlled two lines of business: (a) the business line

led by ASG, a surface importer and distributor, and its wholly owned subsidiary, AGM; and (b)

the business line led by Residential Design Services, LLC (“RDS”) and its subsidiary, L.A.R.K.

Industries, Inc.

22. The ASG line of business distributes natural and engineered stone through its

national network of distribution centers and showrooms, whereas the RDS line of business

provides integrated design, sourcing, and installation solutions to customers.

23. At the time, Trive Capital sought to raise additional funding for the businesses, in

anticipation of SIC’s initial public offering (“IPO”), then expected to occur in 2018.

24. On or about February 28, 2017, pursuant to a confidential Securities Purchase

Agreement, Mr. Pental and his brother sold PGM to AGM. This sale caused PGM to join the

ASG line of business:

25. On February 28, 2017, Mr. Pental also entered into an Employment Agreement

with AGM, which provided for his continued employment, for a three-year term, as an

(“ASG”)

(“AGM”)

(“PGM”)


22

“executive” (President) of AGM, with an annual base salary of $250,000. See Peter Pental’s

Employment Agreement with AGM (Feb. 28, 2017) (attached hereto as “Exhibit 1”) § 2(a); id. §

3; id. § 4(a).

26. Section 5 of the Employment Agreement governed terminations, and stated that

AGM could terminate Mr. Pental’s employment for cause, id. § 5(b), without cause, id. § 5(c), or

by Mr. Pental for “good reason,” id. § 5(d).

27. With respect to no-cause terminations, Section 5(c) of the Employment

Agreement stated, “The Company may terminate the Executive’s employment without Cause at

any time.” Ex. 1, id. § 5(c).

28. With respect to Mr. Pental’s termination for “good reason,” the Employment

Agreement provided:

Termination by Executive for Good Reason. Except as otherwise set forth below, subject to the Company’s right to cure as set forth in the last sentence of this §5(d), the Executive may terminate Executive’s employment for Good Reason at any time upon thirty (30) days’ prior written notice to the Company. “Good Reason” shall mean the following:

(i) Any reduction by the Board of the Base Salary without Executive’s consent, unless such reduction is part of a reduction of the salaries of all Company executives;

*** (iii) any material breach of this Agreement by the Company.

To terminate Executive’s employment for Good Reason, the Executive must provide notice to the Company of the Good Reason condition within sixty (60) days of the initial existence of the condition, upon which receipt, the Company shall have a period of thirty (30) days to cure. The Executive must terminate his employment with the Company within ninety (90) days of the initial existence of the Good Reason condition to terminate for Good Reason . . . .

Ex. 1, § 5(d).


23

29. Further, Section 5(f) of the Employment Agreement provided:

If the Executive’s employment hereunder is terminated during the Term of this Agreement by the Executive for Good Reason or by the Company without Cause, the Executive shall be entitled to receive, as severance payment, the Executive’s Base Salary . . . for a period of twelve (12) months from the date of such termination (“Severance”). Executive also shall be entitled to receive all Accrued Benefits.

Ex. 1, § 5(f)(ii).

30. With respect to choice of law, the Employment Agreement stated:

This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of Texas, and the Parties waive the application of conflicts of laws provisions or principles of any state or jurisdiction. Further, the prevailing party in any legal proceeding based upon this Agreement shall be entitled to reasonable attorney’s fees and court costs, in addition to any other recoveries allowed by law.

Id. § 11(i).

31. At the time Mr. Pental began his employment as the President of AGM in

February 2017, he reported to Sunil Palakodati, who then served as the CEO of ASG.

32. At all times relevant to this complaint, Mr. Palakodati worked in Austin, Texas,

and took all action, and rendered all decisions, with respect to Mr. Pental’s employment in

Austin, Texas.

SIC Acquisitions

33. In November 2017, Trive Capital restructured its assets, including its ASG and

RSD lines of business, through a Rule 144A private-placement offering.

34. Pursuant to the restructuring, SIC acquired from Trive Capital all outstanding

equity interests in ASG, RSD, and their respective wholly owned subsidiaries, and SIC became a

holding company for the consolidation and management of the SIC subsidiary companies.

35. Following the consolidation, in November 2017, Mr. Pental became the Chief


24

Operating Office (“COO”) of SIC and ceased his employment as the President of AGM.

36. Alternatively, Mr. Pental became the COO of SIC and maintained his

employment as an Executive of AGM.

37. Mr. Pental did not enter into an employment agreement with SIC, but rather,

became an at-will employee of the corporation.

38. Similarly, Mr. Pental did not enter into a new employment agreement with AGM.

39. As the COO of SIC, Mr. Pental managed SIC’s relationships with vendors and

high-level customers, handled product development for the Pental Quartz and other AGM

brands, and bore responsibility for the supply chain.

40. Mr. Pental also participated in quarterly financial review meetings, key

performance indicator meetings, strategy meetings, and monthly managers meetings.

41. Following the consolidation, in November 2017, Mr. Palakodati ceased his

employment as the CEO of ASG and, pursuant to his employment agreement with SIC, became

an “executive” of SIC.

42. Under his employment agreement with SIC, Mr. Palakodati’s formal job title

became “President—ASG.”

43. Upon the formation of SIC in November 2017, SIC appointed Tyrone Johnson,

who previously served as the CEO of RDS, as its CEO.

44. Because of Mr. Pental’s hard work and dedication to SIC and AGM, on or about

February 5, 2018, SIC entered into a Restricted Stock Agreement with him, pursuant to which

SIC awarded him 70,000 restricted shares of SIC’s common stock, with a vesting schedule of

one-third on each anniversary of the award date (February 5, 2019, February 5, 2020, and

February 5, 2021).


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45. The Restricted Stock Agreement required Mr. Pental to remain employed in order

for his restricted stock units to vest on each anniversary date.

Bedrock Transactions

46. In November 2017, SIC’s ASG line of business was in the process of acquiring

the assets of Elegant Home Design, LLC (“Bedrock”), a stone distributor in the Midwest.

47. In or around the same time, SIC was preparing for an anticipated IPO in 2018.

48. In anticipation of the public offering in 2018, and end-of-the-year incentive

payments for 2017, then-Vice President of AGM, Dan Lenahan, and SIC’s then-President-ASG,

Sunil Palakodati, sought to artificially increase the revenue of AGM and SIC for the end of 2017

and early 2018.

49. Therefore, the executives decided to fix the books to make it look as though AGM

was selling its Metro Quartz brand surface products to Bedrock for an inflated price.

50. This falsification of the accounting records significantly increased AGM’s and

SIC’s revenue for FY17 and the first quarter of 2018, as well as for the anticipated public

offering.

51. SIC files consolidated financial statements with the SEC. In its consolidated

filings with the SEC, SIC collectively provides the aggregate reporting for all of its subsidiaries

and divisions, including ASG and AGM.

52. Upon information and belief, under Mr. Palakodati’s employment agreement with

SIC, Mr. Palakodati was eligible for annual bonuses for fiscal years (“FY”) 2017 and 2018, with

a target annual cash bonus of seventy-five percent (75%) his base salary of $375,000 per year, or

$281,250 per year (prorated for 2017).

53. Additionally, Mr. Palakodati was entitled to a substantial award of restricted


26

stock, if he satisfied his performance metrics for the fourth quarter of 2017 and for FY18.

54. Furthermore, Mr. Palakodati was eligible for annual phantom stock awards, based

on the satisfaction of his annual performance goals for each year, starting with FY17.

55. Mr. Palakodati directed Tim Way, Vice President of Sales for AGM, to arrange

the “sale” of Metro Quartz to Bedrock at an inflated price of approximately $2.0 million.

56. Mr. Way contacted Byron Dougherty, Bedrock’s then-President, and proposed

that AGM “sell” Metro Quartz to Bedrock, in exchange for $2.0 million, at least several months

before ASG acquired Bedrock.

57. Mr. Dougherty expressed concern that the sale was not an arms-length transaction

and said that Bedrock would not pay $2.0 million for the product, if ASG’s acquisition of

Bedrock’s assets did not go through.

58. Historically Mr. Dougherty had purchased the materials directly from overseas

factories, at much lower, negotiated prices, and had he done that in this case, the materials would

have cost much less than $2.0 million.

59. The proposed $2.0 million sale would result in adjusted earnings before interest,

taxes, depreciation, and amortization (“EBITDA”) of twenty-five percent (25%), reflected on the

books for AGM, and thus, SIC.

60. In contrast, in 2017, AGM’s EBITDA was only thirteen percent (13%), or half of

the profit proposed on the Metro Quartz sale to Bedrock.2

61. Previously, Mr. Dougherty never purchased surface materials from SIC or any of

its subsidiaries, so that the transaction made Bedrock a first-time customer of SIC.

2 Before Trive Capital acquired PGM, PGM sold a high-quality product, Pental Quartz, to some distributors at a profit of ten to twelve percent (10% to 12%). This profit margin was consistent with industry practice, whereas a twenty-five percent (25%) profit margin was not.


27

62. Mr. Dougherty also was concerned because if Bedrock purchased the surface

materials for $2.0 million, he could not sell the materials to Bedrock’s customers at a profit,

given that the fair market value of the materials did not leave room for a markup.

63. In response to Mr. Dougherty’s concerns, and after consulting with Mr.

Palakodati, Mr. Way told Mr. Dougherty that if ASG did not acquire Bedrock’s assets, Bedrock

could return the products for a refund of the full $2.0 million.

64. This agreement made the proposed $2.0 million transaction contingent upon

ASG’s acquisition of Bedrock, meaning that the Metro Quartz sale did not become final until

ASG acquired Bedrock.

65. To the extent Bedrock paid for the Metro Quartz, AGM and SIC should not have

recognized any revenue from the sale until ASG acquired Bedrock, because up until that point,

the sale remained contingent.

66. Consistent with AGM’s and SIC’s representations, Mr. Dougherty noted the

conditional nature of the “sale” on the purchase orders he sent to AGM by stating that Bedrock

purchased the products on “consignment,” meaning that Bedrock could return the products, if the

sale of Bedrock to ASG did not go through.

67. However, by the date ASG planned to acquire Bedrock, and therefore, the “sale”

would become final, the transfer of product from AGM to Bedrock became an intercompany

transfer between two SIC subsidiaries, rather than a sale between AGM and an outside company.

68. Because a parent company must exclude intercompany transfers between its

subsidiaries from its consolidated financial reports, to the extent Bedrock paid AGM for the

Metro Quartz, the proceeds would not have helped AGM’s or SIC’s, financial performance, if

properly recognized at the time the sale became final and was no longer contingent.


28

69. Upon information and belief, Bedrock never paid AGM for the Metro Quartz, and

the alleged “sale” took place only on paper, meaning that AGM transferred the Metro Quartz to

Bedrock and recognized approximately $2.0 million in revenue from Bedrock, but never

received any sale proceeds from Bedrock.

70. Upon information and belief, although AGM transferred most of the Metro Quartz

to Bedrock in December 2017, Mr. Palakodati backdated several of the invoices to early

November 2017, and AGM and SIC recognized the “revenue” from the “sale” for that inventory

in November 2017, before the end of the calendar year 2017.

71. Additionally, AGM sent Bedrock at least some of the containers with the products

several months earlier than agreed upon, in order to realize the revenue from the purported “sale”

months earlier.

72. Upon information and belief, AGM shipped the orders early to Bedrock, and as a

contingent sale, as part of a channel-stuffing scheme.

73. Channel-stuffing is a method of fraudulently inflating a company’s revenue or

sales immediately prior to a reporting period, such as the end of a fiscal quarter or the fiscal year,

to make it appear that the company’s financial performance is better than it is.

74. Instead of waiting to recognize revenue until the agreed-upon sales became

definite or final, AGM, and thus SIC, recognized revenue upon shipment, and included in the

recognized revenue products for which Bedrock had not paid, and may never have paid.

75. Because AGM shipped the products to Bedrock months earlier than agreed,

Bedrock was not prepared to receive some of the shipments.

76. Upon information and belief, Bedrock could not unload all of the shipment

containers from the carrier when they arrived, which resulted in additional expenses for


29

demurrage.

77. SIC recognized between $1.9 and $1.95 million of the revenue from the purported

Bedrock sales on its consolidated financial sheet in the fourth quarter of 2017, and $50,000 to

$100,000 more in the first quarter of 2018, even though the sales remained contingent on ASG’s

acquisition of Bedrock, and upon information and belief, never led to any revenue to ASG or

SIC.

78. On or about January 31, 2018, SIC’s ASG line of business acquired Bedrock.

79. On this date, to the extent Bedrock paid any money for the Metro Quartz, the

“sale” of Metro Quartz became final.

80. However, because the sale of Metro Quartz became final only after ASG acquired

Bedrock, the transfer of Metro Quartz from AGM to Bedrock (or ASG, which purchased

Bedrock’s assets) constituted an intercompany transfer between SIC’s subsidiaries.

Mr. Pental Reported Fraud, as SIC Prepared to List Its Stock Publicly.

81. In 2017 and early 2018, SIC had planned to participate in an IPO, but it ultimately

decided to sell its shares through a direct public offering (“DPO”), instead.

82. On July 9, 2018, in preparation for its DPO, SIC filed a registration statement

with the SEC. In the section entitled, “Management’s Discussion and Analysis of Financial

Condition and Results of Operations,” SIC stated:

Basis of Presentation and Combination The financial information contained herein presents consolidated financial statements, including the accounts of RDS and ASG, and their wholly owned subsidiaries, and are presented using the accrual basis of accounting in accordance with GAAP. All significant intercompany accounts and transactions have been eliminated in combination. References to “ASC” hereafter refer to the Accounting Standards Codification, and references to “ASU” hereafter refer to the Accounting Standards Update, each established by the Financial Accounting Standards Board (which we refer to as “FASB”) as the source of authoritative


30

GAAP.

SIC, Registration Statement (Form S-1) (July 9, 2018), at 75 (emphasis added).

83. With respect to the Consolidated Financial Statements for 2016 through

December 31, 2017, and for the first quarter of 2018, SIC reiterated, “[a]ll significant

intercompany accounts and transactions have been eliminated in combination.” SIC, Registration

Statement (Form S-1) (July 9, 2018), at F-5, F-34.

84. In its registration statement, SIC represented its net revenue for FY17 as $353

million, and its net revenue for the first quarter of 2018, as $104.4 million. Id. at 61.

85. SIC stated that it excluded from these figures $1.4 million and $0.3 million,

respectively, in intercompany sales. Id. at 61, 63.

86. However, SIC did not exclude the $2.0 million in revenue from the intercompany

transfers between Bedrock and AGM.

87. Two weeks later, on July 23, 2018, Mr. Pental and Luke Spiller, then-Vice

President of Purchasing for ASG, scheduled a telephone call with Tyrone Johnson, CEO of SIC,

to report their concerns about AGM’s and SIC’s improper recognition of revenue of $2.0 million

from Bedrock, when the contract between Bedrock, on the one hand, and AGM, on the other

hand, was contingent.

88. During the conversation, Mr. Pental and Mr. Spiller questioned the legitimacy of

the “sale” and told Mr. Johnson that they had concerns over the accounting treatment of the sale

and whether it was bona fide, given that it: (1) was made to make AGM’s and SIC’s November

and December 2017 and early 2018 financial statements “look better” prior to SIC’s public

offering and year-end incentive determinations; (2) was not an arms-length transaction and was

not negotiated; (3) was made while the sale of Bedrock’s assets to ASG was pending; (4) was


31

conditioned on ASG’s acquisition of Bedrock; and (5) was a “sale” on paper only, and did not

involve payment from Bedrock to AGM.

89. Given these issues, Mr. Pental and Mr. Spiller told Mr. Johnson that SIC may be

subject to substantial legal exposure with respect to AGM’s “sale” to Bedrock, and they

cautioned Mr. Johnson that Mr. Dougherty may pursue legal action with respect to those

transactions.

90. Further, Mr. Pental and Mr. Spiller told Mr. Johnson that due to their concerns,

they had consulted outside lawyers about SIC’s potential securities violations in recognizing the

proceeds from the conditional “sale” of Metro Quartz to Bedrock as revenue.

91. Mr. Johnson grew furious that they had contacted an attorney.

92. Mr. Pental explained that when he learned of the Bedrock transaction, it “did not

sound right,” and although he had nothing to do with it, he grew worried because he was the

COO of SIC after the November 2017 consolidation, and he formerly served as the President and

a board member of AGM.

93. Mr. Pental and Mr. Spiller pressed Mr. Johnson to correct the accounting of the

transaction—that is, to exclude the $2.0 million AGM and SIC had improperly recognized as

revenue in SIC’s consolidated financial statements, before SIC went public.

94. Mr. Johnson responded that since SIC’s auditors had approved the sale in 2017,

the accounting treatment of the sale was proper. Upon information and belief, Mr. Johnson’s

statement was false.

95. Mr. Johnson continued to express his anger toward Mr. Spiller and Mr. Pental for

their consultation of an outside law firm about the legality of the income recognition, and they

explained that they needed to ensure that the accounting treatment of the sale was improper


32

before they escalated their concerns.

96. Mr. Spiller explained that he previously reported the issue to Mr. Palakodati and

Tim Reed, Chief Financial Officer of AGM, but that Mr. Palakodati and Mr. Reed told him that

everything was “fine.”

97. Mr. Pental and Mr. Spiller specifically complained about the conditional nature of

the sale, and the fact that Bedrock could return the product for a full refund, if ASG did not

acquire Bedrock.

98. Mr. Johnson told Mr. Pental and Mr. Spiller that if Mr. Spiller merely failed to

respond to any emails from Mr. Dougherty, Mr. Dougherty would not have any “proof” that he

could return the products.

99. Mr. Spiller and Mr. Pental explained that Mr. Way previously made an oral

representation to Mr. Dougherty on behalf of AGM and SIC, and stated that Bedrock could

return the product for a full refund, if ASG did not acquire Bedrock.

100. They told Mr. Johnson that they did not want to be in a situation where SIC went

public and had not been honest in its financial reports, as was SIC’s plan.

101. Mr. Johnson agreed to discuss the transaction with Mr. Palakodati. Mr. Pental

cautioned him to handle the matter carefully, to ensure that the relationship Mr. Pental and Mr.

Spiller had developed with Mr. Palakodati did not go “sideways.”

102. The following day, on July 24, 2018, Mr. Johnson sent Mr. Pental and Mr. Spiller

an email which stated that SIC maintains significant D&O insurance, should a claim arise.

103. Mr. Johnson also stated that the agreement which governed ASG’s acquisition of

Bedrock included a merger clause, meaning that it superseded any prior oral or written

understandings with Bedrock. Mr. Johnson’s statement was intended to argue that SIC or AGM


33

did not have to honor its contract with Bedrock on AGM’s sale of quartz to Bedrock.

104. Mr. Johnson also stated that Mr. Dougherty’s restrictive covenant included a non-

disparagement provision, which prohibited him from disparaging SIC or its employees. Mr.

Johnson threatened that if Mr. Dougherty breached the non-disparagement provision, SIC would

seek equitable relief and reimbursement of its attorneys’ fees.

SIC Continued to Misrepresent Its Financial Condition to the SEC and Prospective Shareholders Before Its DPO.

105. On July 25, July 31, August 10, and August 13, 2018, SIC filed amended

registration statements with the SEC.

106. Specifically, in its August 13, 2018 filing, SIC represented that its net revenue for

FY17 was $353 million, and its net revenue for the first quarter of 2018 was $104.4 million. SIC,

Amendment No. 4 to Form S-1, Registration Statement (Aug. 13, 2018), at 61.

107. Upon information and belief, those filings were false as they included $2.0

million in sham revenue from the fake “sale” of Metro Quartz to Bedrock.

108. Further, in describing its method of accounting in its SEC filings, SIC stated, “All

significant intercompany accounts and transactions have been eliminated in combination.” Id. at

F-5, F-34, 75.

109. Again, SIC stated that it excluded $1.4 million and $0.3 million, respectively, in

intercompany sales from these revenues, which suggested that it had excluded all intercompany

sales. Id. at 61.

110. However, to the extent that AGM received a portion of the $2.0 million from

Bedrock, neither AGM nor SIC excluded the revenue, even though that sale did not become final

until ASG purchased Bedrock, and therefore, the transaction between Bedrock and AGM

constituted an intercompany transfer.


34

111. Mr. Johnson certified as true and accurate all financial statements filed with the

SEC, as he was the CEO and Director of SIC, even though he knew his certification was false.

112. On August 13, 2018, the SEC declared SIC’s registration form effective, and on

August 16, 2018, SIC investors began trading their Class A Common Stock on NASDAQ under

the ticker symbol “SIC.”

113. In a Final Prospectus also filed on August 16, 2018, SIC reiterated that its net

revenue for FY17 was $353 million, with $1.4 excluded in intercompany sales, and its net

revenue for the first quarter of 2018 was $104.4 million, with $0.3 million excluded in

intercompany sales. SIC, Final Prospectus (Aug. 16, 2018), at 61, 63.

114. In the prospectus, SIC continued to represent the $2.0 million transaction to

Bedrock as booked “revenue” in 2017 and 2018, when it was not realized revenue, but at most,

upon the sale of Bedrock to AGM, an intercompany transfer.

115. In reliance on the inflated revenues SIC reported in its public filings, members of

the public purchased shares of SIC stock from investors when SIC went public on August 16,

2018.

SIC and AGM Undertook a Campaign of Retaliation to Force Out Mr. Pental.

116. Following Mr. Pental’s protected activity on July 23, 2018, SIC and AGM

undertook a series of retaliatory actions against him, to push him out of the business.

117. Specifically, almost immediately after the July 23, 2019 conversation, SIC and

AGM began to exclude Mr. Pental from weekly meetings on key performance indicators

(“KPI”), monthly SIC financial meetings (held by telephone), operational meetings, strategy

meetings, managers’ meetings, and quarterly financial meetings.

118. From February 2017, until the time Mr. Pental reported AGM’s and SIC’s fraud


35

on July 23, 2018, neither AGM nor SIC conducted a review of Mr. Pental’s performance.

119. However, after he engaged in protected activity, SIC scheduled a performance

evaluation in October 2018.3

120. During the review, Mr. Palakodati asked Mr. Pental a series of questions about the

business, all of which Mr. Pental answered appropriately. Mr. Palakodati did not provide any

performance feedback to Mr. Pental.

121. No one at SIC or AGM identified any deficiencies with Mr. Pental’s performance

during his tenure. At all times during Mr. Pental’s employment, his performance was

outstanding.

122. On January 8, 2019, Mr. Johnson told Mr. Pental that he planned to reduce Mr.

Pental’s salary from $250,000 to $100,000 per year, with no justification.

123. Mr. Johnson also stated that he planned to reduce Mr. Pental’s responsibilities

significantly from those of COO to the following:

1. Work with Vicastone and the company to find mutually beneficial terms to extend our exclusive agreement well beyond the current 2020 expiration.

2. Simultaneous to ongoing negotiations with Vicastone, develop

potential alternative suppliers to Vicastone for production of Pental sku’s [stock-keeping units] currently produced by Vicastone.

3. Develop new relationships and seek potential JV or acquisition

targets for the SIC production of Quartz products.

Email from Tyrone Johnson to Peter Pental, re: “Recap” (Jan. 8, 2019).

124. On January 17, 2019, Mr. Pental rejected the salary reduction and demotion and

explained that his primary job responsibilities included purchasing stones for the Pental brand,

3 Upon information and belief, SIC also scheduled Mr. Spiller for his first-ever performance review in or around October 2018.


36

procuring Pental Quartz, and handling all issues regarding Pental Quartz. However, SIC hired

Ming Xu to take over the Pental Quartz brand.

125. Moreover, Mr. Pental explained his rejection of the new arrangement:

I have been given some assignments below by you but they all seem very temporary assignments. I know my pay rate is the same but at one time you wanted to reduce my pay rate to $100,000 and ask[ed] me to work less. When I mentioned that I can do more and I would not want the pay cut, you mentioned that you would give me some more duties but below appear to be my walk to the door from where I will be pushed out.

Email from Peter Pental to Tyrone Johnson, “re: Recap” (Jan. 17, 2019).

126. On January 23, 2019, Mr. Pental emailed Mr. Johnson and reiterated that he

would not accept a demotion from his role as COO.

127. With respect to the first duty Mr. Johnson proposed in his January 8, 2019 email,

Mr. Pental explained that he had nearly completed the task. He stated that the assignment would

end when Mr. Johnson, Mr. Palakodati, and Vicostone met to discuss the deal, and that he had

been working to arrange the meeting.

128. Mr. Pental also explained that he could not accept the second and third duties Mr.

Johnson proposed because another employee, Jerry Salveson, already had those assignments.

129. Mr. Pental expressed his desire to continue working as SIC’s COO and requested

that Mr. Johnson direct Mr. Palakodati to include him in all future meetings.

130. Further, after Mr. Pental learned that Mr. Palakodati had told employees that they

should not approach Mr. Pental about questions or for help, Mr. Pental called Mr. Palakodati on

the morning of January 17, 2019, and asked him why he had removed Mr. Pental’s job

responsibilities. Mr. Pental also asked why Mr. Palakodati excluded him from the tile strategy

meeting and managers’ meeting in Austin, Texas.

131. Mr. Palakodati responded that Mr. Pental was “transitioning out of the operation”


37

and would serve an “advisory role” to SIC, rather than as its COO. Mr. Palakodati further stated

that he sought to keep Mr. Pental “out of operations” because Mr. Pental was going to “move

on.”

132. Mr. Pental corrected Mr. Palakodati and stated that he had no intention of leaving

SIC.

133. In a follow-up email in which Mr. Pental summarized his conversation with Mr.

Palakodati, Mr. Pental stated, “I hope these recent changes are not because of retaliation as I

reached out to Ty[rone Johnson] last year for a few issues.” Email from Peter Pental to Sunil

Palakodati, re: “our conversation” (Jan. 17, 2019). In fact, SIC’s demotion of Mr. Pental was

retaliation for his reporting of SIC’s fraud.

134. During a subsequent telephone call on January 23, 2019, Mr. Johnson told Mr.

Pental that he (Mr. Johnson) assumed Mr. Pental did not want to work with Mr. Palakodati.

135. In response, Mr. Pental asked whether he made a “mistake in reporting to

Ty[rone] [Johnson] about Sunil [Palakodati].”

136. Mr. Johnson accused Mr. Pental of “creating drama.”

137. Mr. Pental replied that Mr. Palakodati’s exclusion of him from KPI meetings,

strategy meetings, and managers’ meetings was humiliating, and that he knew SIC’s retaliation

was “a plan to slowly get [him] out of the Company.”

138. On January 29, 2019, Mr. Johnson formally removed Mr. Pental from the position

of COO and told him that moving forward, he would serve as a “consultant” to Mr. Johnson. Mr.

Johnson further stated:

[You] will have no day to day operational responsibilities or decision-making requirements, except as explicitly requested by myself or Sunil Palakodati. . . In your new role, you will not be required to come to any of the branch facilities, except when explicitly requested. In your new capacity, you will


38

be working remotely.

Email from Tyrone Johnson to Peter Pental, re: “Recap” (Jan. 29, 2019).4

139. At the time Mr. Johnson constructively discharged Mr. Pental, in retaliation for

his protected activity, Mr. Pental had intended to continue his employment as the COO of SIC

long into the future, including far beyond the three-year term originally established in his

Employment Agreement with AGM.

140. On February 8, 2019, Mr. Pental provided notice of a material breach of his

Employment Agreement, and provided AGM until March 15, 2019 to cure the breach, pursuant

to Section 5(d) of his Employment Agreement. Mr. Pental explained that if AGM did not cure

its material breach, he would terminate his Employment Agreement with good reason, under

Section 5(d).

141. AGM refused to remedy its material breach, and Mr. Pental’s “good reason”

termination of the Employment Agreement became effective on March 15, 2019.

142. As a result of his removal, two-thirds of the restricted stock units SIC awarded

Mr. Pental pursuant to the February 5, 2018 Restricted Stock Agreement did not vest because he

did not remain employed as of February 5, 2020, and February 5, 2021.

143. On January 13, 2020, Mr. Pental’s counsel sent counsel for Counter-defendants

SIC and AGM an advance (draft) copy of his complaint and a cover letter, which stated that if

the parties could not resolve their claims, Mr. Pental would file a lawsuit against SIC and AGM

in the U.S. District Court for the Northern District of Texas.

144. On February 6, 2020, Counter-defendants SIC and AGM filed a Motion for

Leave to File their Complaint Against Mr. Pental under seal, which the Court granted on

4 SIC also terminated Mr. Spiller’s employment in January 2019.


39

February 18, 2020.

145. Counter-defendants made no attempt to serve Mr. Pental until February 28, 2020,

more than three weeks after they filed the Complaint, and only after Mr. Pental’s counsel

expressly told Counter-defendants that Mr. Pental had not been served.

COUNT I—RETALIATION IN VIOLATION OF SECTION 806 OF THE SARBANES-OXLEY ACT, 18 U.S.C. § 1514A, AGAINST COUNTER-DEFENDANTS SELECT

INTERIOR CONCEPTS, INC. and ARCHITECTURAL GRANTE & MARBLE, LLC

146. Mr. Pental hereby incorporates by reference each allegation set forth in

paragraphs 1 to 145 above, as though reinstated herein.

147. Section 806 of SOX prohibits publicly traded companies, and their subsidiaries

whose financial information is included in public companies’ consolidated financial statements,

from retaliating against an employee on the basis of his protected activity, including reports to a

supervisor that his employer violated SEC rules or regulations, or engaged in fraud upon

shareholders.

148. Mr. Pental worked as the President of AGM, a subsidiary of SIC whose financial

information SIC includes in its consolidated financial statements, from February 28, 2017 until

November 2017.

149. Mr. Pental worked as the COO of SIC, a publicly traded company, from

November 2017 until his constructive discharge on January 29, 2019.

150. Alternatively, Mr. Pental worked for both SIC, as its COO, and AGM, as an

Executive, at the time of his constructive discharge on January 29, 2019.

151. SIC and AGM engaged in fraud against prospective shareholders when they

recognized revenue from a sham sale fraudulently to inflate their revenue in the consolidated

financial statements SIC filed with the SEC, before SIC’s public offering.


40

152. Specifically, AGM and SIC committed fraud when they improperly recognized

revenue from the sham Metro Quartz “sale” to Bedrock, even though Bedrock did not pay for the

Metro Quartz.

153. To the extent that Bedrock may have actually paid for a portion of the Metro

Quartz, AGM and SIC fraudulently recognized revenue from the sale, because at the time the

sale became final, ASG had acquired Bedrock, and the sale constituted an intercompany transfer

between Bedrock (or ASG, which acquired it) and AGM, and the proceeds of intercompany

transfers are not recognizable as revenue in consolidated financial statements.

154. Although SIC falsely stated in its SEC filings that it excluded “[a]ll significant

intercompany accounts and transactions” from its consolidated financial reports, SIC did not

exclude the $2.0 million intercompany transfer from Bedrock from its revenue.

155. A company may not recognize revenue until it is realizable and earned.

156. When a seller delivers a product to a buyer, but uncertainty exists about whether

the buyer ultimately will accept the product, the seller must not recognize revenue from the sale

until acceptance occurs. Securities & Exchange Comm’n, Codification of Staff Accounting

Bulletins, Topic 13: Revenue Recognition ¶ A(3)(b) (last modified Sept. 5, 2017).

157. A seller does not “substantially complete” its performance, and thus, may not

recognize revenue, when the seller must “perform additional services subsequent to the delivery

of an initial product,” unless “only inconsequential or perfunctory actions may remain

incomplete such that failure to complete the actions would not result in the customer receiving a

refund or rejecting the delivered products or services performed to date.” Id. ¶ A(3)(b),

Interpretative Response to Question No. 2; id. ¶ A(3)(c), Interpretative Response to Question No.

1 (internal footnote omitted).


41

158. Any proceeds from the purported $2.0 million sale to Bedrock became fixed, non-

refundable, and recognizable only after ASG acquired Bedrock on January 31, 2018, because

Bedrock was entitled to return the products for a full refund, until ASG completed the

acquisition.

159. AGM and SIC violated SEC rules and regulations when they recognized revenue

from the purported sale to Bedrock in November and December 2017, and early 2018, before the

sale became final on January 31, 2018.

160. Moreover, the SEC requires registrants to file “meaningful” financial statements,

which clearly exhibit the financial position and results of operations of the registrant.” 17 C.F.R.

§ 210.3A-02.

161. When a parent company issues consolidated financial reports on behalf of itself

and its subsidiaries, the parent company must “disclose the consolidation policy that is being

followed,” in order to represent the financial health of the entities in a meaningful and fair way.

Financial Accounting Standard Bd., “Consolidation of All Majority-Owned Subsidiaries,”

Statement of Financial Accounting Standards No. 94 ¶ 5 (Oct. 1987).

162. All intercompany transactions, including sales and purchases between a

company’s subsidiaries, must be eliminated in consolidated financial statements. Id. ¶ 6.

163. In SIC’s June 2018, July 2018, and August 2018 registration statements, and its

August 16, 2018 prospectus, SIC falsely represented that it excluded from its 2017 and 2018

consolidated financial reports “[a]ll significant intercompany accounts and transactions.” In fact,

SIC refused to exclude the $2.0 million of revenue illegally recognized from the Metro Quartz

“sale” to Bedrock.

164. The SEC regulations also require publicly traded companies to develop a system


42

of “internal control over financial reporting” to “provide reasonable assurance” that the company

records its financial transactions and maintains its records accurately. See 17 C.F.R. § 240.13a-

15(a), (f)(2); see also 15 U.S.C. § 78(m)(b)(2)(B)(ii).

165. SIC’s internal controls were inadequate to prevent or detect the fraudulent

accounting practices which Mr. Pental reported, or to ensure that SIC’s financial reports were

accurate.

166. Mr. Pental reasonably believed, and was correct, that AGM and SIC violated SEC

rules and regulations and committed fraud upon prospective shareholders when they recognized

$2.0 million in sales proceeds from the sham Metro Quartz sale in SIC’s consolidated financial

statements, in order to bolster SIC’s financial standing before its public offering.

167. Further, Mr. Pental reasonably believed, and was correct, that SIC violated SEC

rules and regulations when it failed to implement adequate internal controls to prevent and detect

misrepresentations in SIC’s records and consolidated financial reports.

168. On July 23, 2018, Mr. Pental protested ASG and SIC’s fraudulent inclusion of the

$2.0 million from the purported sale of Metro Quartz to Bedrock in SIC’s SEC filings, when Mr.

Pental told Mr. Johnson that he was concerned about the legitimacy of the Bedrock transaction

because: (1) AGM and SIC made the “sale” to make their 2017 and 2018 financial performance

“look better,” prior to SIC’s public offering and the determination of executives’ year-end

incentive compensation; (2) the transaction was neither negotiated nor conducted at arms-length;

(3) Bedrock never paid AGM for the sale; and (4) even to the extent Bedrock paid AGM for the

sale, the sale remained contingent until ASG acquired Bedrock in January 2018, and therefore

should have been excluded from SIC’s revenue.

169. Mr. Pental pressed Mr. Johnson to correct the accounting treatment of the


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Bedrock transaction by excluding the $2.0 million sale proceeds from SIC’s SEC filings and

representations to shareholders.

170. In reprisal for Mr. Pental’s protected conduct, SIC and AGM engaged in a pattern

of antagonism against him, which included immediately excluding him from weekly KPI

meetings, monthly SIC financial meetings, operational meetings, strategy meetings, and manager

meetings, subjecting him to his first-ever performance evaluation and review, and attempting to

reduce his salary by $150,000 per year.

171. SIC and AGM further diminished Mr. Pental’s job responsibilities by removing

his operational duties and assigning him only menial, temporary tasks, or tasks which already

had been assigned to other employees; hiring new employees to take over his primary job

responsibilities, including purchasing and procurement for Pental Quartz; and directing

employees not to ask questions of Mr. Pental or seek help from him.

172. On January 29, 2019, Mr. Johnson constructively discharged Mr. Pental by

removing him from his position as COO, terminating all of his day-to-day operational

responsibilities and decision-making roles, and directing him not to report to work.

173. Counter-defendants further retaliated against Mr. Pental, after he asserted his

good-faith legal claims against SIC and AGM, and sued him by filing a frivolous lawsuit against

him, based on erroneous facts, and the fact that they have suffered no damage.

174. As a result of SIC’s and AGM’s retaliation, Mr. Pental has suffered, and will

continue to suffer, past and future economic losses, lost benefits, damage to his professional

reputation, emotional distress, and pain and suffering.

COUNT II—BREACH OF CONTRACT AGAINST COUNTER-DEFENDANT ARCHITECTURAL GRANITE & MARBLE, LLC

175. Mr. Pental hereby incorporates by reference each allegation set forth in


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paragraphs 1 to 174 above, as though reinstated herein.

176. Alternatively, if Mr. Pental remained an employee of AGM at the time of his

termination on January 29, 2019, AGM materially breached Section 5(f)(ii) of its Employment

Agreement with Mr. Pental when it failed to provide him one year’s severance and all accrued

benefits.

177. AGM terminated Mr. Pental’s employment without cause on January 29, 2019, in

retaliation for his protected activity.

178. Alternatively, following AGM’s retaliatory discharge of Mr. Pental on January

29, 2019, Mr. Pental terminated his Employment Agreement with AGM for “good reason,”

based on AGM’s removal of all of Mr. Pental’s responsibilities and its effective removal of him

as an executive of AGM, in violation of Section 2(A) of the Employment Agreement.

179. Mr. Pental notified AGM of the basis of his “good reason” termination on

February 8, 2019, less than thirty (30) days after the basis arose on January 29, 2019.

180. AGM refused to cure its violation within thirty (30) days of Mr. Pental’s notice.

181. Mr. Pental’s “good reason” termination became effective on March 15, 2019,

more than thirty (30) days after he provided notice, but within ninety (90) days of the date on

which the “good reason” basis arose on January 29, 2019.

182. Because AGM terminated the Employment Agreement without cause, or Mr.

Pental terminated it for “good reason,” under Section 5(f)(ii), Mr. Pental was entitled to receive a

severance payment of his base salary “for a period of twelve (12) months from the date of . . .

termination” and all his accrued benefits.

183. AGM has refused to provide Mr. Pental with severance and accrued benefits, in

violation of the Employment Agreement.


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184. Mr. Pental performed all other condition precedents under the Employment

Agreement.

185. As a result of AGM’s material breach of the Employment Agreement, Mr. Pental

has incurred significant economic damages in the form of lost severance for one year, and

attorney’s fees and costs.

DEMAND FOR JURY TRIAL

186. Mr. Pental demands a trial by jury on all claims so triable.

Prayer for Relief

WHEREFORE, Mr. Pental respectfully requests that this Court grant him the following

relief:

1. Award Mr. Pental back pay with interest;

2. Award Mr. Pental front pay, or alternatively, reinstate him to his former position

as COO of SIC, with the same seniority status;

3. Award Mr. Pental other compensatory damages against Counter-defendants,

including compensation for his reputational, emotional, and other non-economic injuries;

4. Award Mr. Pental the attorney’s fees and the costs he has incurred in bringing this

action;

5. Issue a declaratory judgment that Counter-defendants SIC and AGM retaliated

against Mr. Pental on the basis of his protected activity and in violation of Section 806 of the

Sarbanes Oxley Act; and

6. Grant such other relief as this Court deems just and necessary.


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Date: March 20, 2020 Respectfully submitted,

/s/ Joseph Y. Ahmad Joseph Y. Ahmad Attorney-in-Charge [email protected] State Bar No. 00941100 Patrick Yarborough State Bar No. 24084129 [email protected] 1221 McKinney St., Suite 2500 Houston, TX 77010 T: (713) 600-4979 F: (713) 600-0062

Counsel for Defendant and Counter-Plaintiff Parminder Pental


mailto:[email protected]


CERTIFICATE OF SERVICE

I hereby certify that on this 20th day of March 2020, I served the foregoing document by

electronic mail to counsel for Plaintiffs:

Jonathan E. Clark Sheppard, Mullin, Richter & Hampton, LLP 2200 Ross Avenue, 24th Floor Dallas, TX 75201 [email protected]

Denise E. Giraudo Sheppard, Mullin, Richter & Hampton, LLP 2099 Pennsylvania Avenue, NW Suite 100 Washington, D.C. 20006-6801 [email protected]

Counsel for Plaintiffs Select Interior Concepts, Inc. and Architectural Granite & Marble, LLC

/s/ Joseph Y. Ahmad Joseph Y. Ahmad Attorney-in-Charge [email protected] State Bar No. 00941100 Patrick Yarborough State Bar No. 24084129 [email protected] 1221 McKinney St., Suite 2500 Houston, TX 77010 T: (713) 600-4979 F: (713) 600-0062























Documents

FILED UNDER SEALDallas Division SELECT INTERIOR CONCEPTS, INC. and ARCHITECTURAL GRANITE & Answer to Complaint and MARBLE, LLC Counterclaims Plaintiffs, v. Civil Action No. 3:20-CV-295-L