Case 3:20-cv-00244-K Document 11 Filed 02/21/20 Page 1 of 10 PageID 98

UNITED STATED DISTRICT COURT

NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

JSJ INVESTMENTS, INC., §

§
Plaintiff, §
§
v. § CIVIL ACTION NO. 3:20-CV-00244-K
§
AFTERMASTER, INC., §
§
Defendant. §
§
§

DEFENDANT AFTERMASTER, INC.’S VERIFIED ANSWER TO PLAINTIFF’S

ORIGINAL PETITION AND COUNTERCLAIM

Defendant Aftermaster, Inc. (“Aftermaster” or “Defendant”) files this Verified Answer to

Plaintiff JSJ Investments Inc.’s (“JSJ” or “Plaintiff”) Original Petition (the “Petition”) and would

show the Court as follows:

I.
DISCOVERY CONTROL PLAN

1. No response required in light of removal on January 30, 2020, to this Court.

II.
PARTIES

2. Aftermaster admits the allegations in Paragraph 2 of the Petition.

3. Aftermaster admits the allegations in Paragraph 3 of the Petition.

III.
JURISDICTION AND VENUE

4. Aftermaster denies the allegations in Paragraph 4, except it is admitted that this

lawsuit arises out of promissory notes dated April 4, 2019, and June 24, 2019 (the “Notes”), and

that the terms and conditions of the Notes speak for themselves.

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AFTERMASTER’S VERIFIED ANSWER TO PLAINTIFF’S
ORIGINAL PETITION AND COUNTERCLAIM
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5. Aftermaster denies the allegations in Paragraph 5 of the Petition, except it is

admitted that the terms and conditions of the Notes speak for themselves.

6. Aftermaster admits the allegations in Paragraph 6 of the Petition.

7. Aftermaster lacks knowledge or sufficient information to form a belief as to the

truth of the allegations contained in Paragraph 7 of the Petition and therefore denies them.

IV.
FACTUAL BACKGROUND

8. Aftermaster admits the allegations in the first sentence of Paragraph 8 of the

Petition. As to the allegations in the second sentence of Paragraph 8 of the Petition, Aftermaster is

without knowledge or information sufficient to form a belief as to the truth of the allegations and

therefore denies them.

9. Aftermaster denies the allegations in Paragraph 9 of the Petition, except it is

admitted that the terms and conditions of the Notes speak for themselves.

10. Aftermaster denies the allegations in Paragraph 10 of the Petition, except it is

admitted that the terms and conditions of the Notes speak for themselves.

11. Aftermaster denies the allegations in Paragraph 11 of the Petition, except it is

admitted that the terms and conditions of the Notes speak for themselves.

12. Aftermaster denies the allegations in Paragraph 12 of the Petition, except it is

admitted that the terms and conditions of the Notes speak for themselves.

13. Aftermaster denies the allegations in Paragraph 13 of the Petition, except it is

admitted that the terms and conditions of the Notes speak for themselves.

14. Aftermaster denies the allegations in Paragraph 14 of the Petition, except it is

admitted that the terms and conditions of the Notes speak for themselves and that Plaintiff issued

a purported “conversion notice” on October 22, 2019.

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AFTERMASTER’S VERIFIED ANSWER TO PLAINTIFF’S
ORIGINAL PETITION AND COUNTERCLAIM
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15. Aftermaster denies the allegations in Paragraph 15 of the Petition, except it is

admitted that the terms and conditions of the Notes speak for themselves.

16. Aftermaster denies the allegations in Paragraph 16 of the Petition, except it is

admitted that the terms and conditions of the Notes speak for themselves.

17. Aftermaster denies the allegations in Paragraph 17 of the Petition, except it is

admitted that (a) the terms and conditions of the Notes speak for themselves, (b) Aftermaster

received a demand letter and the contents of that demand speak for themselves, and (c) Aftermaster

has not remitted any payment in response to the demand letter.

V.
CAUSES OF ACTION

Count 1: Breach of Contract.

18. Aftermaster incorporates its responses in Paragraphs 1 through 17 of this Answer

as if they were fully set forth herein.

19. Aftermaster denies the allegations in Paragraph 19 of the Petition.

20. Aftermaster denies the allegations in Paragraph 20 of the Petition.

21. Aftermaster denies the allegations in Paragraph 21 of the Petition.

22. Aftermaster denies the allegations in Paragraph 22 of the Petition.

Count 2: Promissory Estoppel.

23. Aftermaster incorporates its responses in Paragraphs 1 through 22 of this Answer

as if they were fully set forth herein.

24. Aftermaster denies the allegations in Paragraph 24 of the Petition.

25. Aftermaster denies the allegations in Paragraph 25 of the Petition.

Count 3: Attorney’s Fees.

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AFTERMASTER’S VERIFIED ANSWER TO PLAINTIFF’S
ORIGINAL PETITION AND COUNTERCLAIM
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26. Aftermaster incorporates its responses in Paragraphs 1 through 25 of this Answer

as if they were fully set forth herein.

27. Aftermaster denies the allegations in Paragraph 27 of the Petition, except it is

admitted that the terms and conditions of the Notes speak for themselves.

28. The allegations in Paragraph 28 of the Petition are conclusions of law to which no

response is required, but to the extent a response is required, Aftermaster denies the allegations.

VI.
CONDITIONS PRECEDENT

29. Aftermaster denies the allegations contained in Paragraph 29 of the Petition.

VII.
REQUEST FOR RELIEF

Aftermaster denies that JSJ is entitled to any of the relief requested in the Petition.

VIII.
DEFENSES, AFFIRMATIVE DEFENSES, AND OTHER RESPONSIVE MATTERS

Without assuming any burden of proof that it would not otherwise have and without waiver

of its right to amend or supplement this answer as additional information becomes available,

Aftermaster pleads as follows:

JSJ’s claims are barred, in whole or in part, by the terms and conditions of the Notes and

applicable law and public policy. As detailed in the Counterclaim below, which is incorporated as

if fully set forth herein, the Notes are usurious.

JSJ’s claims are barred, in whole or in part, by the doctrine of unclean hands.

JSJ’s claims are barred, in whole or in part, by the doctrine of unconscionability.

JSJ’s claims are barred, in whole or in part, because JSJ failed to exercise reasonable efforts

to avoid, minimize, or mitigate the injuries and damages it purportedly suffered.

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AFTERMASTER’S VERIFIED ANSWER TO PLAINTIFF’S
ORIGINAL PETITION AND COUNTERCLAIM
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The Notes, including but not limited to the Default Amount and Liquidated Damages

provisions, are unenforceable penalties under Texas law.

JSJ’s claims are barred, in whole or in part, because Aftermaster did not have a contractual,

legal, or other duty to prevent the injuries and damages allegedly suffered by JSJ.

IX.
COUNTERCLAIM

Aftermaster brings suit against JSJ and respectfully shows the Court as follows:

FACTUAL ALLEGATIONS

1. On or about April 4, 2019, Aftermaster and JSJ entered into a Convertible

Promissory Note—the “First Note”—whereby JSJ agreed to loan Aftermaster a principal amount

of $77,000 with a stated interest rate of 12%. The maturity date of the First Note is April 4, 2020.

2. On or about June 24, 2019, Aftermaster and JSJ subsequently entered into a second

Convertible Promissory Note—the “Second Note”—whereby JSJ agreed to loan Aftermaster a

principal amount of $77,000 with a stated interest rate of 12%. The maturity date of the Second

Note is June 24, 2020.

3. At JSJ’s election and after certain conditions have been met, the Notes are

convertible into discounted shares of Aftermaster’s common stock, upon JSJ’s issuing of a

“Conversion Notice” to Aftermaster. The shares are converted at a 40% discount to the lowest

trading price during the previous twenty trading days to the date of JSJ’s conversion.

4. The Notes each define seventeen different possible “Events of Default.”

5. Under each Note, upon an “Event of Default,” the interest rate automatically

increases to 18%.

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AFTERMASTER’S VERIFIED ANSWER TO PLAINTIFF’S
ORIGINAL PETITION AND COUNTERCLAIM
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6. The maximum rate of interest under Texas law for the Notes is 18%, and the

maximum amount of interest for each Note is $13,860 (18% per annum on a principal amount of

$77,000 for one year).

7. Under each Note, if an Event of Default occurs, JSJ may “in its sole discretion

determine to request immediate repayment of all or any portion of the Note that remains

outstanding; at such time [Aftermaster] will be required to pay [JSJ] the Default Amount (defined

herein) in cash. For purposes hereof, the ‘Default Amount’ shall mean the product of (A) the then

outstanding principal amount of the Note, plus accrued Interest and Default Interest, divided by

(B) the Conversion Price as determined on the Issuance Date, multiplied by (C) the highest price

at which the Common Stock traded at any time between the Issuance Date and the date of the

Event of Default.”

8. The Notes further provide for purported “liquidated damages” of $1,000 per day in

the event that Aftermaster does not deliver to JSJ common stock pursuant to a Conversion Notice

from JSJ, beginning on the fourth business day after the date of the Conversion Notice.

9. In other words, upon an Event of Default, the interest rate on the Notes increases to

the statutory maximum of 18%. On top of that, additional interest in the form of the Default

Amount—a readily calculable amount based on the principal, any accrued interest, and

Aftermaster’s publicly traded stock price—and the “liquidated damages” is added to that 18%.

The Default Amount and $1,000/day “liquidated damages” are additional compensation to JSJ in

conjunction with the loan of money under the Notes, for which there is no separate or additional

consideration given to Aftermaster.

10. On or about October 22, 2019, JSJ sent Aftermaster a Conversion Notice on the

First Note.

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AFTERMASTER’S VERIFIED ANSWER TO PLAINTIFF’S
ORIGINAL PETITION AND COUNTERCLAIM
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11. Aftermaster did not honor the Conversion Notice.

12. On or about November 8, 2019, JSJ sent Aftermaster a demand letter (the “Demand

Letter”), stating that Aftermaster’s failure to timely comply with the Conversion Notice constituted

an Event of Default on both Notes. The letter declared that the Notes were immediately due and

payable and demanded payment of (i) the Default Amount under the First Note of $549,955.80,

plus $12,000/day in “liquidated damages” under the First Note, and (ii) the Default Amount under

the Second Note of $168,245.05. In total, JSJ charged Aftermaster for $730,200.85.

COUNT I - USURY

13. Aftermaster incorporates each of the foregoing allegations as if set forth herein.

14. Aftermaster is an “obligor” as defined by the Texas Finance Code.

15. JSJ is a “creditor” as defined by the Texas Finance Code.

16. The Default Amount and the “liquidated damages” amount each constitute interest

in excess of the stated interest of 12% per annum (and 18% per annum in an Event of Default).

17. The maximum amount of interest on each Note under Texas law is $13,860 (18%

per annum on a principal of $77,000), for a combined $27,720.

18. JSJ’s demand letter charges Aftermaster with a Default Amount nearly 120 times

in excess of the maximum lawful amount of interest on the First Note, and over 36 times in excess

of the maximum lawful amount of interest on the Second Note (separate and apart from the $1000

per day in “liquidated damages”).

19. The Notes are usurious on their face because they charge interest in excess of the

maximum allowed under Texas law.

20. Additionally, JSJ charged Aftermaster for a usurious amount when it sent the

Demand Letter.

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AFTERMASTER’S VERIFIED ANSWER TO PLAINTIFF’S
ORIGINAL PETITION AND COUNTERCLAIM
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21. Accordingly, pursuant to Texas Finance Code § 305.003(a), JSJ is liable to

Aftermaster for three times the amount computed by subtracting the amount of legal interest

allowed by law from the total amount of interest contracted for and charged.

ATTORNEYS’ FEES

22. Aftermaster incorporates each of the foregoing allegations as if set forth herein.

23. Pursuant to Texas Finance Code § 305.005, JSJ is liable for Aftermaster’s

reasonable attorneys’ fees, as set by the court.

PRAYER FOR RELIEF

Therefore, Aftermaster respectfully requests that this Court, upon final disposition of this

matter, enter judgment against JSJ for the following relief:

a) actual damages as set forth herein;

b) pre- and post-judgment interest at the maximum rate allowed by law;

c) reasonable attorneys’ fees and expenses;

d) all costs of suit;

e) any other relief to which Aftermaster is justly entitled.

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AFTERMASTER’S VERIFIED ANSWER TO PLAINTIFF’S
ORIGINAL PETITION AND COUNTERCLAIM
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Respectfully submitted,

/s/ James Leito

James Leito
State Bar No. 24054950
james.leito@nortonrosefulbright.com
Jordan Campbell
State Bar No. 24087251
jordan.campbell@nortonrosefulbright.c
om

2200 Ross Avenue, Suite 3600

Dallas, TX 75201-2784
Telephone: (214) 855-8000
Facsimile: (214) 855-8200

Counsel for Defendant Aftermaster, Inc.

CERTIFICATE OF SERVICE

I hereby certify that on the 21st day of February, 2020, the foregoing document was

served on counsel of record in compliance with Rule 5 of the Federal Rules of Civil Procedure.

/s/ James Leito

James Leito

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AFTERMASTER’S VERIFIED ANSWER TO PLAINTIFF’S
ORIGINAL PETITION AND COUNTERCLAIM
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State of Arizona

County of Maricopa

VERU"ICATION

Before me, the undersigned notaiy public, on this day personally appeared Lawrence

Ryckman, CEO of Aftermaster, Inc., who, after being sworn, states that he has read Defendant

Aftennaster's Verified Answer to Plaintifl's Original Petition and Counterclaim, and that the facts

and allegations contained therein a re true and correct within his personal knowledge.

By: ~
7LaWTeJ1CeYCkan

SUBSCRIBED AND SWORN TO BEFORE ME by the said affiaot on this 21st day of

February, 2020, to certify which, witness my hand and seal of office.

Notary Public in an TortheStllte of Arizona

BENRICK BEGAY
Notaty PullOc • Slate of Mzon1
MARICOPA COUNlY
~•568178
Expires Jooe 14, 2023

Al'TERMASTER'S VERfflED ANSWER TO PLAINTIFF'S

ORIGINAL PETITION ANO COUNTERCLAIM