Free Reply to Response to Motion - 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; ) Greg Brown; ) Jane Doe Brown; ) ) Defendants. ) ____________________________)

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

Case No. CIV 2003-0100 PHX ROS PLAINTIFFS' REPLY TO RESPONSE OF DEFENDANTS CARL BROWN AND MOLLY BROWN TO PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

Pursuant to Rule 56(a) of the Federal Rules of Civil Procedure and Rule 56.1(d) of the Rules of Practice of the United States District Court for the District of Arizona, Plaintiffs, Cathleen Channel, Theresa Wharry, Stacie Hanson, and Monique Nichols, by and through counsel undersigned, hereby file their Reply to Response of Defendants Carl Brown and Molly Brown to Plaintiffs' Motion for Summary Judgment. Plaintiffs continue to assert Defendants' cross-motion, which Defendant filed several weeks after the expiration of the dispositive motions deadline, is untimely. See Plaintiffs' Motion to Extend Time within which to File Reply to Defendants' Response to Plaintiffs' Motion for Summary Judgment and Motion to Strike Defendants' Cross Motion for Summary Judgment. In the event, however, the Court wishes to consider Defendants' Cross Motion, Plaintiffs request the
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Court refer to this Reply and Plaintiffs' Motion for Summary Judgment, as Plaintiffs, at this time, do not intend to file a separate Response. A. Defendant Carl Brown's Credibility Defendant Carl Brown's credibility in this matter is severely lacking. Mr. Brown, during his recent deposition, provided numerous implausible statements and outright contradictions from previous sworn statements. For example, Mr. Brown, who states he had previously given depositions, could not remember approximately when he gave his most recent deposition. [SOF ¶ 1.] He further stated he could not remember the subject matter of the suit for which he gave that deposition. [SOF ¶ 2.] He also stated he does not know whether he files tax returns. [SOF ¶ 3.] He stated he doesn't know whether either he or his wife receive bank account statements. [SOF ¶ 4.] Defendant Carl Brown stated he had never, in his life, reviewed a bank statement. [SOF ¶ 5.] He also stated he did not know whether he or his wife had any personal bank accounts. [SOF ¶ 6.] Earlier in the deposition, Defendant Carl Brown stated he was aware his wife did have a personal bank account. [SOF ¶ 7.] He stated he did not know where his wife might bank. [SOF ¶ 8.] He later admitted he had with UBS such accounts and he received from UBS account statements. [SOF ¶ 9.] He further stated he did not remember receiving any money from the sale to Plains Capital McAfee (McAfee) of HMI assets. [SOF ¶ 10]. This, despite the fact there is incontrovertible evidence he received from McAfee at least $700,000. [SOF ¶ 11.] He also stated he never deposited into a personal bank account HMI corporate funds. [SOF ¶ 12.] Again, there is incontrovertible evidence he received into his personal account at least $700,000 in connection with the McAfee sale. [SOF ¶ 13.] Mr. Brown later stated he could not recall whether he received into his personal account these funds. [SOF ¶ 14.] Mr. Brown testified he knew nothing of the HMI sale to First Palm of certain assets. [SOF ¶ 15.] He later stated he had never heard of First Palm. [SOF ¶ 16.] Mr. Brown, however, in previous sworn testimony, informed Plaintiffs' counsel he was aware of the sale to First Palm. [SOF ¶ 17.] Similarly, Mr. Brown stated he had never heard of an entity
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called Atlantic Mortgage. [SOF ¶ 18.] Mr. Brown, however, in previous sworn testimony, disclosed to Plaintiffs' counsel he was aware HMI sold to Atlantic Mortgage certain assets. [SOF ¶ 19.] Mr. Brown also provided implausible testimony about another company he owned, Realty Home Mortgage. When Plaintiffs' counsel questioned him regarding the company's date of incorporation, Mr. Brown indicated the incorporation took place less than five years from the date of the October 4, 2006 deposition. [SOF ¶ 20.] Just seconds later, he stated he did not recall whether that was the case. [SOF ¶ 21.] Mr. Brown maintained throughout his deposition he had absolutely no involvement with HMI. [SOF ¶ 22.] Mr. Brown, however, is a shareholder of the company. [SOF ¶ 23.] He is also the secretary, a director, and the treasurer of HMI. [SOF ¶ 24.] He expressed a belief a person could be an officer of a corporation and, yet, not be "involved" in the company. [SOF ¶ 25.] Further, he acknowledged investing in the company approximately $8,000,000. [SOF ¶ 26.] He later admitted using for HMI business HMI's corporate aircraft. [SOF ¶ 27.] He also later asserted he played an active role in paying the company's bills. [SOF ¶ 28.] Mr. Brown, despite all of this, continued to deny he had with the company any involvement. [SOF ¶ 29.] Mr. Brown denied receiving from HMI any payments. [SOF ¶ 30.] Mr. Brown, however, indisputably received in connection with the sale to McAfee $700,00. [SOF ¶ 31.] Mr. Brown went on to deny receiving from HMI any salary. [SOF ¶ 32.] Mr. Brown, however, in previous sworn testimony, admitted to receiving from HMI a monthly salary of $15,000. [SOF ¶ 33.] Mr. Brown stated he had no idea what kind of business HMI conducted. [SOF ¶ 34.] He provided this testimony despite the fact he received a salary, was/is a shareholder, was/is an officer, and invested in the company approximately $8,000,000. [SOF ¶ 35.] He also stated he had no idea how HMI started. [SOF ¶ 36.] In previous sworn testimony, he stated the company eventually merged with another entity, the Mortgage Bank, and formed the entity that conducted business until its insolvency. [SOF ¶ 37.]
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Mr. Brown stated he could not remember whether any employee (other than the Plaintiffs in the present action) of a company he owned and/or operated ever sued him in his individual capacity. [SOF ¶ 38.] He, upon prompting, stated another such employee, Paul Kueffer, sued him in his personal capacity. [SOF ¶ 39.] He also stated he could not recall whether Mr. Kueffer had obtained against him a judgment. [SOF ¶ 40.] The fact Mr. Kueffer obtained against Mr. Brown, individually, a judgment of approximately $800,000 (a verdict he satisfied) makes Mr. Brown's testimony on these matters extremely suspect. [SOF ¶ 41.] Mr. Brown refused to acknowledge Exhibits 8, 9, and 10, documents Plaintiffs received from Defendants' counsel, were bank statements. [SOF ¶ 42.] He, in the context of responding to Plaintiffs' counsel's question as to why the funds for the HMI sale did not go into one of the company's many active bank accounts, stated he did not know whether the date September 17, 2002, fell between the dates August 30, 2002, and September 30, 2002.1 [SOF ¶ 43.] Mr. Brown had several opportunities to revise his response to this question but continued to state he did not know whether September 17, 2002, fell within the above date range. [SOF ¶ 44.] This is clearly an evasive and disingenuous response. Mr. Brown after first stating he used to call on investors, buyers, and realtors the company aircraft, stated he never used the aircraft for HMI business. [SOF ¶ 45.] He, after Plaintiffs' counsel suggested using the company airplane to call on investors, buyers, and realtors was "involvement" with the company, stated he used the aircraft only for personal trips, e.g., to watch his thoroughbred horses race. [SOF ¶ 46.] B. Defendants' Arguments Defendants, in their response, place heavy emphasis on the case Teams v. Tempe
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September 17, 2002, was the date Mr. Brown received into his personal bank account the funds from the McAfee sale. The HMI bank statements about which Plaintiffs' counsel questioned Mr. Brown each covered the period of August 30, 2002, to September 30, 2002. Plaintiffs' counsel's implication was that the HMI bank statements demonstrated HMI, at the time of the deposit into Mr. Brown's personal account, had active bank accounts into which Mr. Brown could have deposited the money.
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Technical Institute, Inc. 993 F. Supp. 714 (D. Ariz. 1997). While Teams does a very good job of setting forth and interpreting Arizona law with regard to issues of piercing the corporate veil, the facts of that case are very different from the case at bar. In Teams, the only evidence of commingling of corporate and personal funds were sporadic withdrawals of corporate funds by the officers in lieu of their salary. Id. at 724. Here, in contrast, the shareholders/officers Plaintiffs seek to hold liable received into their personal bank account at least $700,000 of the proceeds of HMI's sale of assets. If, as Defendants claim, they paid out of their personal bank account corporate debts, this is a further demonstration Defendants made absolutely no distinction between the corporation's funds and their own, personal holdings. Defendants, in arguing their case, also cite Pinal County v. Hammons. 30 Ariz. 36, 243 P. 919 (1926). Defendants cite this case as one supporting their argument Plaintiffs are not entitled to pierce HMI's corporate veil and hold Defendants Carl Brown and Molly Brown personally liable for their (Plaintiffs') unpaid wages. The Hammons case, however, raises no issues related to piercing the corporate veil and/or alter ego claims. In Hammons, the issue was whether the Pinal County Assessor's office was entitled to a preference of funds it deposited into a banking institution the Arizona Superintendent of Banks eventually appropriated. Id. It is, then, very difficult to determine how the holding of Hammons might assist the Court in the present matter. Defendants, in responding to Plaintiffs' Motion for Summary Judgment, have cited no legal authority that would defeat Plaintiffs' attempts to hold personally liable Defendants Carl Brown and Molly Brown. Indeed, Defendants, in their argument section, cited only two cases (Teams and Hammons) that were not in Plaintiffs' Motion for Summary Judgment that they contend support their position. One, Teams, derives from a factual background that makes it easily distinguishable from the present case. The other, Hammons, in no way relates to the issue of piercing the corporate veil/alter ego. Again, the evidence clearly shows Defendant Carl Brown received into his personal bank account at least $700,000 of HMI money. This $700,000 represented the proceeds of
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HMI's sale to McAfee of certain assets. Defendants contend they satisfied out of their personal bank account HMI obligations. Taken together, this demonstrates a massive intermingling of funds. CONCLUSION Defendants' Response and purported Cross Motion raises no issues of fact regarding whether Defendants Carl Brown and Molly Brown are personally liable for HMI's debts. Plaintiffs, as such, request the Court grant Plaintiffs' Motion for Summary Judgment, hold Defendants personally liable for the judgment Plaintiffs obtained against HMI, and, if the Court decides to consider Defendants' belated Cross Motion, deny Defendants' Cross Motion for Summary Judgment. RESPECTFULLY SUBMITTED this 12th day of January, 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 12th day of January, 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: John E. Karow, Esq. 11350 North 104th Place Scottsdale, Arizona 85259 Attorney for Defendants Dennis Hall, Esq. 14614 North Kierland Boulevard, Suite 300 Scottsdale, Arizona 85254 Attorneys for Defendant Greg Brown ____s/ Gail Ivey___________________

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