Free Other Notice - 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

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

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

Case No. CIV 2003-0100 PHX ROS JOINT PROPOSED PRETRIAL ORDER

The parties, pursuant to the Court's order of June 20, 2007, hereby submit their Joint Proposed Pretrial Order, which the Court will consider at the parties' September 13, 2007, Final Pretrial Conference. A. TRIAL COUNSEL Plaintiffs' trial counsel is James Burr Shields, Law Office of James Burr Shields, 382 E. Palm Lane, Phoenix, Arizona 85004. Mr. Shields' telephone number is (602) 307-0780, and his fax number is (602) 307-0784 Defendants' trial counsel is James M. McGee, P.O. Box 460, Cottonwood, Arizona. Mr. McGee's telephone number is (928) 639-4747, and his fax number is (928) 639-2190. B. STATEMENT OF JURISDICTION This Court, as there is complete diversity between the parties and Plaintiffs seeks a
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sum in excess of $75,000, has original jurisdiction over this matter under 28 U.S.C. § 1332. Venue in the United States District Court District of Arizona in Phoenix is, as Defendants reside in Phoenix and are subject to personal jurisdiction in Phoenix, proper under 28 U.S.C. § 1391(a)(1), (3). C. NATURE OF ACTION Plaintiffs Plaintiffs, in this action, seek to hold Defendants Carl Brown and Molly Brown liable as the alter ego of Home Mortgage, Inc. ("HMI") Plaintiffs initially brought against Home Mortgage, Inc, a claim for unpaid wages under the Arizona Wage Payment Act. Plaintiffs obtained against Home Mortgage, Inc, a money judgment representing their unpaid wages. Plaintiffs now seek to hold liable for that judgment under the alter ego theory Defendants Carl Brown and Molly Brown. Defendants Plaintiffs' recitation of their claim is just that, a claim. No efforts by the Plaintiffs to rectify their wage claims against Home Mortgage, Inc., Carl or Molly Brown were ever made. Efforts to do so with "Greg Brown" remain to be determined. D. NON-JURY Initially, there was herein a demand for a jury trial. The remaining parties have consulted on the issue and desire to waive all demands for a jury trial and now request the Court hold a bench trial. E. CONTENTIONS OF THE PARTIES Plaintiffs' Contentions Plaintiffs, in order to prevail on their alter ego claims and pierce the corporate veil to hold a shareholder liable for a corporate debt, must demonstrate the corporation is the alter ego or business conduit of the shareholder. Standage v. Standage, 147 Ariz. 473, 476, 711 P.2d 612, 615 (Ariz. Ct. App. 1985). The party must also show observing the corporate form would work an injustice. Id. Finally, a party will have to show there is "such unity of interest and ownership that the separate personalities of the corporation and owners cease
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to exist." Dietel v. Day, 16 Ariz. App. 206, 208, 492 P.2d 455 (1972). Factors to consider in determining whether to pierce the corporate veil include: (1) common ownership; (2) pervasive control; (3) confused intermingling of business activity assets, or management; (4) thin capitalization; (5) nonobservance of corporate formalities; (6) absence of corporate records; (7) no payment of dividends; (8) insolvency at the time of the litigated transaction; (9) siphoning away of corporate assets by the dominant shareholders; (10) nonfunctioning of officers and directors; (11) use of the corporation for transactions of the dominant shareholders; (12) use of the corporation in promoting fraud. Evans v. Multicon Const. Corp., 574 N.E.2d 395, 398 (Mass. Ct. App. 1991) citing PepsiCola Metropolitan Bottling Company, Inc., v. Checkers, Inc., 754 F.2d 10, 14-16 (1st Cir. 1085). See also, Jacobson v. Buffalo Rock Shooters Supply, 664 N.E.2d 328, 331 (Ill. Ct. App. 1996) (holding "diversion of assets from the corporation by or to a shareholder" is among the factors to consider when determining whether to pierce the corporate veil). Further, "other failure[s] to keep corporate and personal assets separate" will lead to a finding of alter ego status. Morris v. Powell, 150 S.W.3d 212, 220 (Tex.Ct.App. 2004). Defendants' Contentions Defendants' contentions are simply this: (1) there was admittedly common ownership; (2) there was NO control whatsoever over anything by Carl Brown or Molly Brown; (3) there was NO confused intermingling of business activity assets or management; (4) there was NEVER any thin capitalization; (5) if any lack of observance to corporate formalities it should be attributable to "Greg Brown", not Carl or Molly Brown, as it was "Greg Brown" who was responsible for whatever occurred or didn't occur in the normal course of business; (6) any absence of corporate records should be attributed to "Greg Brown," not Carl or Molly Brown; (7) payment of dividends is not an issue; (8) the entity was not "insolvent" at the time of this litigation, merely defunct; (9) dominant shareholders NEVER siphoned any corporate assets; (10) Defendant Carl Brown functioned as appropriate, leaving "Greg Brown" to operate the business; (11) Defendants Carl and Molly Brown NEVER used the corporation for transactions of the dominant shareholders, BECAUSE THERE WERE NO SUCH TRANSACTIONS; (12) use of the corporation in
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promoting fraud is not an issue. F. STIPULATIONS AND UNDISPUTED FACTS Plaintiffs Plaintiffs, Cathleen Channel, Theresa Wharry, Stacie Hanson, and Monique Nichols, are all former employees of Home Mortgage, Inc. HMI is a foreign corporation registered to conduct business in Arizona. HMI was in the business of issuing home loans. 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. Greg Brown, Defendant Carl Brown's son, was, at the time of the merger, a shareholder in The Mortgage Bank. 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. A company named PlainsCapital McAfee ("McAfee") eventually expressed an interest in purchasing the company. Greg Brown, at some point, agreed to become the intermediary in the transaction between HMI and McAfee. This was due to McAfee's eventual refusal to have any further interaction with Defendant Carl Brown. Greg Brown, on July 29, 2002, as part of the planned transaction with McAfee, entered into with HMI a stock redemption agreement. The stock redemption agreement included a provision giving Greg Brown the right to purchase all fixtures, furniture, and equipment of the company. Greg Brown, for the price of $700,000, did purchase the fixtures, furniture, and equipment. Greg Brown then, as part of a planned transaction with McAfee, agreed to sell to McAfee the fixtures, furniture, and equipment. 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. Greg Brown, on September 17, 2002, received from McAfee the first $850,000.
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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. 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. 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." Defendant Carl Brown has also admitted HMI is in possession of no corporate documents. Defendant Carl Brown explains that the company's lack of corporate

documents was related to a dispute the company had with one of its landlords. Defendant Carl Brown alleges the landlord destroyed all of these documents. Further, Defendant Carl Brown never attended an HMI shareholders' meeting and is not sure HMI ever held any shareholders meetings. Plaintiffs allege 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. On April 21, 2003, Plaintiffs filed an application for default with the necessary supporting documents and also filed a motion for attorney's fees. On April 24, 2003 the clerk entered the default of HMI. On 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. 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 attorney's fees. 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. Plaintiff, on the same date, filed a motion to amend the
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judgment to reflect a prejudgment interest rate of 10% per annum. 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. On September 11, 2003, Plaintiffs' submitted their amended complaint adding the individual defendants. Plaintiffs' inclusion in the complaint of Defendants Carl Brown and Molly Brown was based on Plaintiffs' belief Carl Brown and Molly Brown were the alter ego of HMI and on their belief the Arizona Wage Payment Act allowed for shareholder liability in wage claims. The Court subsequently ruled the Act does not allow for shareholder liability and there exist genuine issues of material fact as to whether Defendants Carl Brown and Molly Brown are the alter ego of HMI. Plaintiff is seeking to hold Defendants Carl Brown and Molly Brown liable for the June 20, 2003, judgment against HMI in the amount of $232,241.34, plus $285 in costs and $4,390.82 in attorney's fees. Defendants Defendants do dispute certain facts that Plaintiffs' claims are "undisputed" and would require strict proof thereof. Specifically, Plaintiffs' claims that "HMI also owned a corporate airplane", has not been substantiated on a factual basis. Even so, Plaintiffs originally alleged that it was a "jet", to suggest that Carl and Molly Brown were "jetsetters", travleing around the country to watch "Thoroughbred horse racing". The actual fact of the matter was that the aircraft in question was not a "jet", but a twin-engine turbo "propeller" aircraft. Owning horses, watching horse races, or otherwise associating with the horse racing industry is completely irrelevant to this litigation. Previous Court filings before 2007, speak for themselves. The Judgement for Default is of record and is otherwise unenforceable. L. Gregory Brown is the ultimate person responsible for the Plaintiffs' damages, if any. G. PLAINTIFFS' CONTENTIONS OF DISPUTED FACT Defendants have sent mixed signals as to whether they will concede HMI wrongfully
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withheld from Plaintiffs wages. Defendant Carl Brown, at one point during his deposition testimony, stated HMI did not pay Plaintiffs because the company had no resources with which to satisfy its wage payment obligations. Defendant Carl Brown, at another point, argued Plaintiffs engaged in conduct that would alleviate HMI's obligation to pay wages. As the Court has awarded Plaintiffs a judgment for their unpaid wages, the sole remaining issue in this matter is whether Defendants Carl Brown and Molly Brown are the alter ego of HMI. As such, Defendants' contentions regarding HMI's liability for the underlying wage claim is irrelevant to the issues in the upcoming trial. The parties are in disagreement as to whether Defendant Carl Brown had ultimate authority in HMI. The parties are in disagreement as to Greg Brown's authority within HMI. The parties are in disagreement as to whether Defendants Carl Brown and Molly Brown used to pay HMI debts the proceeds from the sale of HMI's assets. The parties are in disagreement on the ultimate issue of whether Defendants Carl Brown and Molly Brown, through Mr. Brown's actions, are the alter ego of HMI. H. DEFENDANTS' STATEMENT OF DISPUTED FACT Whether Plaintiffs have a claim for anything. I. ISSUES OF LAW IN CONTROVERSY Plaintiffs The only issue of law in dispute is whether Defendants Carl Brown and Molly Brown are, by Mr. Brown's actions, the alter ego of HMI. Defendants Whether Defendants Carl and Molly Brown, Mr. Brown in particular, acted in anyway to demonstrate that he/they were the alter ego of HMI. J. SEPARATE TRIAL OF ISSUES The parties see no need for separate trials. K. WITNESSES Plaintiffs' witnesses:
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1.

Cathleen Channel. Ms. Channel shall be called at trial. She will testify

regarding HMI's corporate structure, her former employment with HMI, and Defendants involvement with HMI. 2. Theresa Wharry. Ms. Wharry shall be called at trial. She will testify

regarding HMI's corporate structure, her former employment with HMI, and Defendants involvement with HMI. 3. Stacie Hanson. Ms. Hanson shall be called at trial. She will testify regarding

HMI's corporate structure, her former employment with HMI, and Defendants involvement with HMI. 4. Monique Nichols. Ms. Nichols shall be called at trial. She will testify

regarding HMI's corporate structure, her former employment with HMI, and Defendants involvement with HMI. 5. Carl Brown. Mr. Brown shall be called at trial. Plaintiffs will ask him to

testify regarding his involvement with HMI, including issues related to their alter ego theory of recovery. 6. Molly Brown. Ms. Brown may be called at trial. Plaintiffs will ask her to

testify regarding Carl Brown's involvement with HMI. Plaintiffs may also ask her to testify regarding their evidence of alter ego status. 7. Greg Brown. Mr. Brown may be called at trial. Plaintiffs will ask Mr. Brown

to testify regarding Carl Brown's involvement with and level of authority in HMI. Defendants' witnesses: All witnesses listed by Plaintiffs to include Cathleen Channel, Theresa Wharry, Stacie Hanson, Monique Nichols, Carl Brown, Molly Brown, Greg Brown. L. EXPERTS Neither party plans to call an expert witness. M. EXHIBITS Plaintiffs plan to introduce at trial the following exhibits: 1. Corporation Commission documents for Home Mortgage, Inc.
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2. 3. 4. 5. 6. 7. account. 8. 9.

Deposition Transcript of Carl Brown. Debtor's Examination Transcript of Carl Brown. Affidavit of Greg Brown. September 13, 2002, letter from Thomas Busch to Greg Brown. Asset Purchase Agreement between McAfee and Greg Brown. September 19, 2002, Bank Transaction Receipt for Greg Brown's bank

Greg Brown September 17, 2002, Deposit Slip. Bank Statements for Carl Brown's personal Bank One account (account

number ending 2001373). 10. 11. 12. 13. 14. 15. 16. 17. Bank Account Statement for Bank One account number 029781779. Bank Account Statement for Bank One account number 0192611281. Bank Account Statement for Bank One account number 0192611307. Documents from UBS/Paine Webber in connection with recent subpoena. Documents from Bank of America in connection with recent subpoena. Any of Defendants' responses to Plaintiffs' discovery requests. Any disclosure statement. Canceled check from Carl Brown and Molly Brown to Bank of America in the

amount of $100,000. 18. Two canceled checks from Carl Brown and Molly Brown to Paine Webber,

each in the amount of $100,000. 19. 20. Canceled checks from Carl Brown and Molly Brown to Allen Turner. Canceled checks from Carl Brown and Molly Brown to Hector Leal.

Canceled check from Carl Brown and Molly Brown to Wayne Turner. 21. Plaintiffs do not anticipate any objection to their proposed exhibits. Many of

the documents Plaintiffs intend to introduce as exhibits came directly from Defendants. Defendants plan to introduce at trial the following exhibits: 1. All exhibits listed by Plaintiffs.
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2. 3.

Affidavit of L. Gregory Brown, dated 6 March 2006. Affidavit of L. Gregory Brown, dated 29 November 2006.

N. MOTIONS IN LIMINE Plaintiffs Plaintiffs plan to file a motion in limine to an objection to the introduction of any testimony from Defendants related to the alleged destruction of HMI's corporate records. Defendants, other than their own testimony and a vague court pleading, the destruction occurred. Defendants learned about the alleged document destruction through another individual. Defendants testimony regarding the alleged destruction, then, is hearsay under Rule 802 of the Federal Rules of Evidence. Defendants Motion to exclude from evidence any mention of the Defendant's relative wealth, or lack thereof. Motion to exclude any specific commission agreements for which the Plaintiffs claim, as the Plaintiffs have never submitted any such documentation. Motion to exclude any testimony from the husband of one of the Plaintiffs (appearing for the first time at the Settlement Conference in Flagstaff, still unidentified and not named in the Complaint or Plaintiffs' Witness List). Motion to exclude any testimony regarding the existence or use of any corporate aircraft by HMI. Defendants OBJECT to the Plaintiffs' Motion in Limine regarding the destruction of HMI's corporate records by an unknown third party. The records themselves would establish either that (1) the Plaintiffs can prove their claim, or that (2) they cannot. Defendants are not required to prove Plaintiffs' claims and should not be precluded from introducing evidence that would tend to exculpate them from any liability. O. PROBABLE LENGTH OF TRIAL The parties estimate the trial will take three days. ***
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P. TRIAL DATE The Court has set as the first day of trial September 18, 2007, at 8:30 a.m. The parties have no objection to that date. Q. PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW. Plaintiffs will file concurrently herewith their Proposed Findings of Fact and Conclusions of Law. The Defendants have not received the Plaintiffs Proposed Findings of Fact and Conclusions of Law and thus cannot comment. Defendants will leave any Findings of Fact and Conclusions of Law at the Court's discretion. 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

_s/ W. Blake Simms with permission from James Mathew McGee Attorney for Defendants 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 CM/ECF registrants on record. A copy of the attached has been e-mailed to Judge Silver.

____s/ Gail Ivey___________________

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