Ptt ooY.

wz-

Chris L. Schmutzt*4759
SCHMUTZ& MOHLMAN,LLC
533 West 2600 South #2OO
Bountiful,UT 84010
(801)2e8-480O

Attorneysfor Plaintiff

IN THE FIFTHJUDICIALDISTRICTCOURT

,#:)'Y WASHINGTONCOUNry

STATE OF UTAH

)
)
)
CHRISPHILLIPSand ADVANCED )
AQUA SYSTEMS,lNC.,a Utah ) AFFIDAVITOF
corporation, ) CHRISPHILLIPS
)
Plaintiffs, )
)
VS. )
)
BRENTC. COPELANDand LTNDAM. )
COPELANDdba ADVANCEDWATER )
TREATMENTSYSTEMS,and PHIL )
WALTERS, )
) CivilNo. 100500488
Defendants. ) JudgeShumate
)
)
)
)
)
,

STATE OF UTAH )
: ss.
couNTY oF WASHTNGTON )

Chris Phillips,beingfirst duly sworn,deposesand states:

1. I am a residentof WashingtonCounty,State of Utah,over the age of 21

years, and competentto testify as set forth herein.

2. I moved to St. Georgein Novemberof 1992 to sell water softenersand

also to sell reverse osmosis water purificationsystems (hereinafterreferredto as

"RO's").

3. In 1994,I startedmy own business,sellingand servicingwater softeners

and RO's. The name of businessbecameAdvancedAqua Systems(the

"Business").

4. Earlyon, I beganto focus on the serviceand maintenanceof all brands

of water softenersand RO's, and on deliveringsalt, since no one else in St.

Georgewas doingthat effectivelyat the time. I could see the value of long term

customerrelationships,
whereasotherswere focusedon sellingthe equipmentand

gettingthe largerimmediatesales commission.

2
 5. Sometimein 1994,I boughtan ACT computersoftwareprogramfor the

Business.This programallowedme to buildup a databaseof customers,track

their servicehistories,and send out remindersto them when maintenanceor

replacementfilterswere due.

6. I worked hard to expandthe customerbase. I contactedall the plumbers

in town and sold them water softenersand RO's at lower prices in orderto get

referralsfor the long-termserviceand maintenancework. The plumberswere not

interestedin servicingor maintainingsystems;they preferredto sell and install

equipment. I put my stickerson all the equipmentso I would get the servicecalls.

I also arrangedwith the plumbersthat when they installedthe water softenersor

RO's they would call me and I would come out and give a brief orientationto the

customerregardingthe need for regularmaintenanceand replacementof worn out

filtersand other parts,as well as for deliveryof salt.

7 . In 1997,I hired an advertisingagencyand over the next 1/, yearsspent

$50,000on advertising:TV, radio,newspaper,yellowpages,and directmail. The

advertisingwas successfulin increasingour name recognition,but over time I

concludedthat the best way to buildthe Businesswas personalcontactwith

plumbers,contractors,realtorsand homeowners.ljoined the SouthernUtah

HomebuildersAssociationand got to knowthe generalcontractorsin town and

receivedmany referralsand leadsfrom them.

3
 8. Throughoutthe periodof time when I ownedthe Business,I worked hard

to providequalityserviceand keep carefulrecordsso that I could deliverwhat the

peopleneeded,when they neededit.

9. As the Businessexpanded,I hiredothersto help me. I generallyhad at

leastone full time sales and servicetechnicianworkingfor me after 1997,as well

as an officemanager.

10. In 2OO2,I hired Brent Copelandas a salesmanand installer. Over the

next 5 years, Brentgraduallyacquireda 5Oo/o

ownershipinterestin the Business.

11, In 2006, as Brentwas approachinga 5Ao/o

ownershipinterestin the

Business,he offeredto buy my half of the Businessfor $4,500per month over 10

years. Initially,I turned him down. He made the same offerseveraltimesover the

next year. I acceptedhis offer in May of 2OO7.The total purchasepricefor my

50% interestwas $544,750.00,payablein monthlypaymentsof $4,500or more

over 9 years and 77, months,without interest.

12. Copelandmade the monthlypaymentsfrom May 20O7through

December2008.

13. Almostthe entirevalue of the Businessthat I sold to Brent Copelandin

2OO7residedin the customerinformation,database,good will and businessmodel

I had developedstartingin 1994. The value of the tangibleassets- a salt delivery

truck and some equipment,tools and inventory- probablydid not exceed$25,000.

4
 14. When I sold the Businessto BrentCopelandin 20O7,there were over

4,000 customersin the database.

15. In February,2OO9,Brent and LindaCopelandfiled a joint petitionfor

reliefunder Chapter7 of the BankruptcyCode,commencingBankruptcyNo.

09-21115 in the UnitedStatesBankruptcyCourtfor the Districtof Utah (the

"Bankruptcy').

16. After filingthe Bankruptcy,Copelandscontinuedto use the customer

informationand databaseand to operatethe Business,just as before. They

wantedto keep the Businessfor themselvesand at the same time dischargethe

remaining8 years and 47. monthsof paymentsthey still owed to me. I was not

willingto allowthat to happen.

17. I made an offerto the Bankruptcytrusteeto buy the Businessfrom the

Bankruptcyestate. The trustee acceptedmy offer, subject to approval by the

BankruptcyCourt. Copelandsobjectedto my offer. After lengthynegotiations,

we

signeda settlementagreement(the "SettlementAgreement").A copy of the

SettlementAgreementis attachedto this affidavitas Exhibit1. Underthe

SettlementAgreement,Copelandsagreedto withdrawtheir objectionto my offerto

buy the Businessfrom the Bankruptcyestate. They also agreedto surrenderall of

the customerinformation,database,salt deliveryroute books,and paper records

of the Businessto me. They agreednot to retainor transferany of the tangibleor

intangibleassetsof the Business.

1

18. I agreedas part of the settlementthat Copelandscould competewith

me, but only by startingfrom scratchto developtheir own customerlist and

database.They were supposedto walk away from the existingcustomersand start

over. I did agreeto let them have a small numberof specificallyidentifiedexisting

customers,but the rest of the customerswere supposedto be mine.

19. The sale of the Businessto me was approvedby the BankruptcyCourt.

A copy of the BankruptcyCourt'sorder is attachedheretoas Exhibit2. lt requires

Copelandsto walk away from the existingBusiness.

20. The transferof all the tangibleand intangibleassetsof the Business

from Brentand Linda Copelandto me took place on or about November13, 2009.

After that date,they were not supposedto retainor use, directlyor indirectly,any

of the customerinformation,databaseor paper recordsof the Business. lf they

wanted to compete,they were supposedto do so by startingfrom scratch.

21. Fromthe time of the transferof the Businessto me in November,2009,

and continuingto the present,Copelandshave repeatedlyand continuously

breachedthe SettlementAgreement. Ratherthan turningover all the customer

informationto me, they retainedand keptfor themselvesservicerecordsand

databaseinformation,which they have used to contactall my customers.They

have targetedmy customerswith phonecalls,personalvisitsand mailers.They

have misrepresented
themselvesas the originalownersof the Businessand as the

6
purchasersof the Business. They have removedor tried to removemy stickers

from equipmentin customers'homes,replacingthem with their own stickers. They

have transferredthe salt routeto Walters,whichwas specificallyforbiddenby the

SettlementAgreement.

22. Waltershas misappropriated

the salt routecustomerinformationand is

using it to try to take that part of the Businessaway from me. He has

misrepresented
to customersthat he boughtthe salt route businessfrom me. He

has also tried to removemy stickersfrom equipmentin customers'homes and has

tried to replacemy stickerswith his own and with Copelands'stickers.

23. One of the keys to the successof the Businesslies in keepingtrack of

customerservice records. \Mren it is time for parts to be replacedor other service

to be performed,the customercan be contactedand the service offered to them.

As the customersgain confidencein the knowledgeand integrityof the service

provider,they come to rely on periodicservicecallsand willinglypay for them.

Usingthe ACT program,we can schedulecustomersfor servicecallsthroughout

the year. Since buyingthe Businessfrom the BankruptcyEstatein November,

2009,virtuallyevery customerwe have calledfor regularserviceeitherhas already

been contactedby Copelandsor Walters,or is being contactedwhen we call or

shortlyafterwe have called. This has been happeningon a daily basis. lt would

be impossibleif Copelandsand Waltersdid not havethe ACT programand service

records.

7
 24. By their actions,Copelandsand Waltershave confusedand alienated

many of the customers. By doing so, they are destroyingthe value of the customer

base that was transferredto me throughour SettlementAgreementand the sale of

the Businessto me by the BankruptcyCourt. An exampleof the effectof their

wrongfulinterferencein the Businessis shown in a recentemail chainwith a

customer.A copy of this email chain is attachedheretoas Exhibit3. The

customer'sname has been redactedto protectthe customer.

I
DATEDthis V day of April,2O1O.

SUBSCRIBED
AND SWORNTo beforeme this tlt*t day of Aprit,
2010.
rolAffnFuc
osrYmrmn
r.a.s. t.sEoRCLE
s?.GEOnoE,ttftTs
rfrcolflEXP
gTATEOF I'TAH