Free Proposed Findings of Fact - District Court of Arizona - Arizona

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Law Office of James Burr Shields 382 East Palm Lane Phoenix, Arizona 85004-1531 (602) 307-0780 (Office) (602) 307-0784 (Facsimile)
James Burr Shields II, State Bar #011711 John A. Conley, State Bar #016429 Blake Simms, State Bar #021595 Attorneys for Plaintiff

IN THE UNITED STATES DISTRICT COURT IN AND FOR THE STATE OF ARIZONA

Cathleen Channel, Theresa Wharry, Stacie Hanson, Monique Nichols,

) ) ) ) ) Plaintiffs, ) ) vs. ) ) Home Mortgage, Inc., an ) Arizona corporation conducting ) business in Arizona, ) Carl Brown; ) Molly Brown; ) Greg Brown; ) Jane Doe Brown; ) ) Defendants. ) ____________________________)

Case No. CIV 2003-0100 PHX ROS PLAINTIFFS' PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW

This matter having come on regularly for trial to the Court on September 18, 2007, none of the parties having requested a jury, and the Court having considered the testimony received and the exhibits admitted into evidence, and being fully advised in the premises, hereby makes the following findings of fact and conclusions of law, such having been requested prior to trial by the Court's Order of June 20, 2007: I. FINDINGS OF FACT 1. Plaintiffs, Cathleen Channel, Theresa Wharry, Stacie Hanson, and Monique

Nichols, are all former employees of Home Mortgage, Inc. 2. HMI is a foreign corporation registered to conduct business in Arizona. HMI

was in the business of issuing home loans.
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3. 4. 5. 6. 7.

Carl Brown and Molly Brown own 99% of the outstanding shares of HMI. They are also defendants in this litigation. Defendant Carl Brown, in 1996, founded the company. Defendant Carl Brown's initial position with the company was President. HMI, in or about November of 1999, merged with a company called The

Mortgage Bank, Inc. 8. Greg Brown, Defendant Carl Brown's son, was, at the time of the merger, a

shareholder in The Mortgage Bank. 9. 10. Greg Brown, after the merger, became an officer of HMI. Defendant Carl Brown, during the summer or fall of 2002, began entertaining

the idea of selling HMI. 11. A company named PlainsCapital McAfee ("McAfee") eventually expressed

an interest in purchasing the company. 12. Greg Brown, at some point, agreed to become the intermediary in the

transaction between HMI and McAfee. 13. This was due to McAfee's eventual refusal to have any further interaction with

Defendant Carl Brown. 14. Greg Brown, on July 29, 2002, as part of the planned transaction with

McAfee, entered into with HMI a stock redemption agreement. 15. The stock redemption agreement included a provision giving Greg Brown the

right to purchase all fixtures, furniture, and equipment of the company. 16. Greg Brown, for the price of $700,000, did purchase the fixtures, furniture,

and equipment. 17. Greg Brown then, as part of a planned transaction with McAfee, agreed to sell

to McAfee the fixtures, furniture, and equipment. 18. Greg Brown also agreed to sell his goodwill and signed with McAfee an

employment agreement. McAfee, in exchange for the above, agreed to pay Greg Brown $950,000.
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19. $850,000. 20.

Greg Brown, on September 17, 2002, received from McAfee the first

Defendant Carl Brown, that same day, received into his personal, Bank One

bank account $700,000, reflecting HMI's share of the proceeds of the sale. 21. 22. 23. 24. HMI, at this time, had several functioning business bank accounts. HMI also owned a corporate airplane. The aircraft was a King Air model. Carl Brown admitted using the corporate aircraft to travel to watch

Thoroughbred horse racing. 25. 26. These were events at which Defendant Carl Brown's horses competed. Defendant Carl Brown admitted these personal trips included travel to "Santa

Anita or Del Mar or Hollywood Park or Arlington, in Chicago, and [he] would fly there in order to watch [his] horses race." 27. documents. 28. Further, Defendant Carl Brown never attended an HMI shareholders' meeting Defendant Carl Brown has also admitted HMI is in possession of no corporate

and states he is not sure HMI ever held any shareholders meetings. 29. 30. 31. HMI in early 2002, began withholding Plaintiffs' wages. HMI eventually ceased operations. Plaintiffs, on January 15, 2003, filed suit against HMI seeking unpaid wages

pursuant to the Arizona Wage Payment Act, Ariz. Rev. Stat. § 23-350, et seq. 32. On April 21, 2003, Plaintiffs filed an application for default with the necessary

supporting documents and also filed a motion for attorney's fees. 33. 34. On April 24, 2003 the clerk entered the default of HMI. n June 6, 2003, Plaintiffs' filed with the Court an Application for Default

Judgment, a Proposed Form of Judgment, and a motion for an award of fees and costs. 35. 36. On June 20, 2003, the Court entered judgment for Plaintiffs against HMI. The judgment totaled $232,241.34, plus $285 in costs and $4,390.82 in
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attorney's fees. 37. On August 26, 2003, Plaintiffs filed a motion for leave to amend their

complaint to include as defendants in this case, Carl and Molly Brown, husband and wife, and Greg and Jane Doe Brown, husband and wife. 38. Plaintiff, on the same date, filed a motion to amend the judgment to reflect a

prejudgment interest rate of 10% per annum. 39. On August 29, 2003, the Court granted both Plaintiffs' motion to add Carl and

Molly Brown and Greg and Jane Doe Brown as individual defendants and their motion to amend the judgment. 40. On September 11, 2003, Plaintiffs' submitted their amended complaint adding

the individual defendants. 41. 42. Defendant Carl Brown was the dominant shareholder of HMI. Defendant Carl Brown is currently President/CEO, Secretary, Treasurer, and

Director of HMI. 43. 44. finances. 45. Defendant Carl Brown caused there to be between HMI and his personal Defendant Carl Brown had over HMI pervasive control. Defendant Carl Brown, in fact, had complete control over HMI and its

finances a confused intermingling of assets. 46. 47. 48. Defendant Carl Brown undercapitalized HMI. There is within HMI a significant absence of corporate records. Defendant Carl Brown, who is the dominant shareholder of HMI, siphoned

off for personal use corporate funds. 49. Defendant Carl Brown used HMI for personal purposes. II. CONCLUSIONS OF LAW On the basis of the foregoing Findings of Fact, the Court makes the following Conclusions of Law: 1. HMI is the alter ego or business conduit of Defendant Carl Brown. See
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Standage v. Standage, 147 Ariz. 473, 476, 711 P.2d 612, 615 (Ariz. Ct. App. 1985). 2. In this case, observing the corporate form would work an injustice. See

Standage v. Standage, 147 Ariz. 473, 476, 711 P.2d 612, 615 (Ariz. Ct. App. 1985). 3. There is between HMI and Defendant Carl Brown "such unity of interest and

ownership that the separate personalities of the corporation and owners cease to exist." See Dietel v. Day, 16 Ariz. App. 206, 208, 492 P.2d 455 (1972). 4. The deposit into his personal account of the $700,000 McAfee paid for the sale

of HMI's assets demonstrates a confused commingling and a siphoning off of corporate assets. See, e.g., Nelson Elec. v. N.L.R.B., 638 F.2d 965, 968 (6th Cir. 1981); Fontana v. TLD Builders, Inc., 840 N.E.2d 767, 781 (Ill. Ct. App. 2005); Apollo Plaza Ltd., v. Antietam Corp., 751 N.E.2d 336, 340 (Ind. Ct. App. 2001); Lambert v. Farmers Bank, Frankfort, Ind., 519 N.E.2d 745, 748 (Ind. Ct. App. 1988); Peschel Family Trust v. Colonna, 75 P.3d 793, 798 (Mont. 2003); Berlin v. Boedecker, 887 F.2d 1180, 1188 (Mont. 1994); Drilcon, Inc. v. Roil Energy Corp., Inc., 749 P.2d 1058, Galin Partnership v. Flynn, 744 N.Y.S.2d 345, 4546 (A.D. 2002). 5. Defendant Carl Brown's act of commingling corporate and personal funds, his

act of siphoning off from the company corporate assets, the absence of corporate records, the undercapitalization, and the lack of corporate formalities entitle Plaintiffs to pierce HMI's corporate veil and to hold personally liable for their unpaid wages Defendants Carl Brown and Molly Brown. 6. Defendant has alleged he, by writing out of his personal account personal

checks, used the $700,000 to pay creditors of HMI. 7. Even if true, this is further evidence of intermingling of corporate and personal

funds and supports Plaintiffs' contention the Court should pierce HMI's corporate veil. 8. The company was undercapitalized. Defendant Carl Brown has testified he,

during the course of its active operations, put into the corporation several millions of dollars. Greg Brown has provided similar testimony. A shareholder's act of loaning a corporation significant sums of money is evidence of undercapitilaztion. Peschel Family Trust v.
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Colonna, 75 P.3d 793, 798 (Mont. 2003). 9. HMI failed to maintain corporate records. A company's failure to maintain

corporate records can lead to a finding of alter ego status. See, e.g., Standage v. Standage, 147 Ariz. 473, 476, 711 P.2d 612, 615 (Ariz. Ct. App. 1985); People v. V & M Industries, Inc., 700 N.E.2d 746, 752 (Ill. Ct. App. 1998); Fairfield Dev., Inc. v. Georgetown Woods, 768 N.E.2d 463, 470-71 (Ind. Ct. App. 2002); Apollo Plaza Ltd., v. Antietam Corp., 751 N.E.2d 336, 340 (Ind. Ct. App. 2001). 10. The Court, therefore, hereby orders Defendants Carl Brown and Molly Brown

are liable for the June 20, 2003, judgment Plaintiffs obtained against HMI, their alter ego. RESPECTFULLY SUBMITTED this 20th day of July, 2007. LAW OFFICE OF JAMES BURR SHIELDS

____s/ W. Blake Simms__________________ James Burr Shields Blake Simms Attorneys for Plaintiffs CERTIFICATE OF SERVICE I hereby certify that on the 20th day of July, 2007, I electronically submitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: James M. McGee, Esq. P.O. Box 460 Cottonwood, Arizona 86326 [email protected] Attorney for Defendants and a copy has been e-mailed to Judge Silver. ____s/ Gail Ivey___________________

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