Free Reply to Response to Motion - District Court of Arizona - Arizona

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Don P. Williams (AZ State Bar No. 002978) LAW OFFICE OF DON P. WILLIAMS P. O. Box 5308 Goodyear, AZ 85338-0605 Phone: 623.297.4211 Fax: 1.623.321.8026 Email: [email protected] Attorney for Defendant(s) Motlagh/Integrity Assurance Inc.

UNITED STATES DISTRICT COURT
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DISTRICT OF ARIZONA

Century 21 Real Estate Corporation, a Delaware corporation, Plaintiff, vs. Daryush B. Motlagh and Jennifer Motlagh, husband and wife; John Edmonds and Jane Doe Edmonds, husband and wife; Integrity Assurance, Inc., an Arizona corporation, Defendants.

Case No.: CIV 03 2353-PHX-DGC Reply of Daryush B. Motlagh and Jennifer Motlagh, and Integrity Assurance, Inc., an Arizona Corporation to Response of Century 21 Corporation to Motion to Reinstate Counterclaims

The issue of the standing of Jennifer Motlagh and Integrity Assurance, Inc., an Arizona corporation ["Integrity"] to participate as parties to the counterclaims against Century 21 Corporation, as raised by Century 21 Corporation, ignores the obvious fact that Mrs. Motlagh and Integrity are in this case because Century 21 Corporation put them here. Jennifer Motlagh is the wife of Daryush Motlagh. She is currently an active member of the United States Air Force. She has no real estate credentials and does not participate in the real estate business of Daryush Motlagh or the administration of Integrity Assurance Inc. She was named as a defendant in this action by plaintiff, presumably because of her community property interest in the property and assets of her

Reply to Response to Motion to Reinstate - 1

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husband. As an accommodation to the simplification of this case, defendants would agree that upon the dismissal with prejudice of Jennifer Motlagh as a defendant, she would "resign" as a counterclaimant. However, so long as her community property is at risk, she is entitled to participate, along with her husband, in the case. Further, to the extent that the allegations of the counterclaims are proved, the community of Motlagh has been damaged, and she is entitled to relief and damages. Daryush is a real estate broker licensed by the state of Arizona. His business is bringing together buyers and sellers of real property, facilitating their transactions, and otherwise attending to their needs. His income is earned from commissions paid by the parties to these transactions, from fees earned from the management of rental properties for owners; and from miscellaneous other associated work. In order to advantageously manage his income under the federal Income Tax Code, Daryush has incorporated Integrity Assurance, Inc., an Arizona corporation. Daryush is the sole shareholder, officer and director of the corporation. The corporation has no purpose other than to provide Motlagh a means to lawfully minimize his tax bill, and to that end, he has elected the Subchapter S classification allowed by the Internal Revenue Code. For all practical purposes, Motlagh and Integrity are one and the same, and no other person or entity has an ownership interest in Integrity. Integrity has one employee, Daryush Motlagh, who is paid a periodic salary. As its owner, Motlagh is also entitled to receive distributions from the accumulations of the corporation. The combination of salary for his broker services and distributions from corporate excess accumulations are Motlagh's income. The proportions of salary to distributions is dependent upon the needs and best interests of the corporation, i.e., the corporation can save payroll taxes if Motlagh waives his salary and takes a distribution. In 1996 Motlagh and former defendant John Edmonds purchased a franchise from Century 21 Corporation, which included the right to use Century 21 trademarks and dress. Subsequently, Motlagh and Edmonds ended their relationship. Motlagh then

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proceeded as the sole owner of the franchise agreement; he incorporated Integrity and attempted to assign the franchise agreement to Integrity as an asset. However, during the course of these judicial proceedings, and those pertaining to Motlagh's Chapter 7 bankruptcy and Integrity's Chapter 11 bankruptcy, Century 21 Corporation has consistently and vociferously advanced the argument that it never consented to said assignment; even to the extent of proffering, in open court, consent documents alleged to have been altered "by Motlagh". Based upon its own judicial statements that Integrity never has had an interest in the franchise agreement that is the source of the matters being litigated in this case, plaintiff ought to dismiss Integrity as a defendant in this matter. As an accommodation to the simplification of this case, defendants would agree that upon the dismissal with prejudice of Integrity as a defendant, it would "resign" as a counterclaimant. However, so long as corporate assets are at risk, Integrity is entitled to participate, as an injured party, in the case. Finally, plaintiff's request that its motion for summary judgment be granted should be denied for the reason that there are many material facts in dispute, and to date defendants have been precluded from conducting effective discovery with regard to certain affairs of Century 21 Corporation, and its officers, employees and agents that defendants allege, by way of denial or affirmative allegation, or by way of counterclaim, will bar, offset or reduce any recovery of damages by plaintiff. For instance, in February, 2002, Century 21 Corporation blatantly violated the automatic stay of the Bankruptcy Code by sending Motlagh a notice of termination of the franchise agreement, without first having obtained court permission. Thereafter, Century 21 Corporation treated the contract as abandoned and locked Motlagh out of its internet-based accounting and payment system, so that even if Motlagh owed royalties and fees to Century 21, he was unable to make such payments because of the actions of Century 21 Corporation. Also, Motlagh contends that he has "pre-paid" royalty fees in the form of required payments for advertising that not only was never provided to Motlagh, but actually caused a diversion of potential business to a rival franchise.

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In conclusion, defendants are entitled to conduct discovery, including a full audit of the franchise account, and to have a trial to present evidence of the bad acts and omissions that constitute a violation of the contractual and judicially-imposed implied covenant of good faith and fair dealing. DATED this 17th day of November, 2005.

LAW OFFICE OF DON P. WILLIAMS

By: Don P. Williams Don P. Williams Attorney for Defendants Motlagh and Integrity Assurance, Inc. Original of the foregoing filed this 17th day of November, 2005, with United States District Court (Hon. David Campbell) 401 West Washington St. Phoenix AZ 85003 Copy of the foregoing deposited with the U. S. Post Office, First Class Mail, this 18th day of November, 2005, addressed to: Kevin J. Bonner Fennemore Craig, P.C. 3003 N. Central Avenue Suite 2600 Phoenix AZ 85012-2913 Attorney for Plaintiffs

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File: 11-17-2005

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