Free Report re: Rule 26(f) Planning Meeting - 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. ) ) 5. Home Mortgage, Inc., an ) Arizona corporation conducting ) business in Arizona, ) 6. Carl Brown; ) 7. Molly Brown; ) 8. Greg Brown; ) 9. Jane Doe Brown; ) ) Defendants. ) _________________________________) 1. 2. 3. 4. Cathleen Channel, Theresa Wharry, Stacie Hanson, Monique Nichols,

Case No. CIV 2003-0100 PHX ROS PROPOSED CASE MANAGEMENT PLAN

Plaintiffs, Cathleen Channel, Theresa Wharry, Stacie Hanson, and Monique Nichols, and Defendants, Carl Brown, Molly Brown, Greg Brown, and Jane Doe Brown, pursuant to the Court's December 14, 2005, Order, by and through counsel undersigned, hereby submit their Proposed Case Management Plan. 1. NATURE OF THE CASE A. Plaintiffs' Statement

Plaintiffs are former employees of Home Mortgage, Inc. ("HMI"), a judgment debtor in this action. According to a review of various disclosed documents and Corporation Commission records, Carl and Molly Brown own approximately 99% of the outstanding shares of HMI, while Greg Brown owns the remainder. They are all currently defendants
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in this litigation. HMI began withholding Plaintiffs' wages in early 2002, and eventually ceased operations. HMI has never compensated Plaintiffs for the wages it unlawfully withheld from them. Plaintiffs, as a result of HMI's failure to pay wages and after making several efforts to reach an informal resolution to this matter, filed suit against HMI. The Defendants simply ignored this cause of action and allowed Plaintiffs to obtain against the company a default judgment. Plaintiffs contend, however, Defendants are the alter ego of HMI. Under established law, "where the corporation is shown to be the alter ego or business conduit of a person, and where observing the corporate form would work an injustice, a court may properly `pierce the corporate veil.'" Standage v. Standage, 147 Ariz. 473, 476, 711 P.2d 612, 615 (Ariz. Ct. App. 1985). Courts may also pierce the corporate veil and hold shareholders liable for the obligations of the corporation when the company fails to adhere to corporate formalities. See, e.g., Honeywell, Inc. v. Arnold Const. Co., Inc., 134 Ariz. 153, 159 (Ariz. Ct. App. 1982) (analyzing, in the context of a plaintiff who was seeking to pierce the corporate veil, whether the defendant had adhered to corporate formalities). Plaintiffs contend Defendants are, under the theory of alter

ego/piercing the corporate veil, liable to Plaintiffs for the unpaid wages they seek. Plaintiffs contend, should they prevail on their alter ego claims, the remaining Defendants should automatically become part of the judgment they obtained against HMI. That is, the Plaintiffs request the Court, once Plaintiffs demonstrate the Defendants are the alter ego of HMI, amend the existing judgment, adding as judgment debtors the individual defendants. It is proper for a court to amend a judgment in order to add judgment debtors when the new judgment debtor is the alter ego of the original judgment debtor. Dow Jones, Inc. v. Avenel, 198 Cal. Rptr. 457, 460 (Cal. Ct. App. 1984). See also, Oceanics Schools, Inc. v. Barbour, 112 S.W.3d 135 (Tenn. Ct. App. 2003) (holding that a corporation's shareholder, as the corporation's alter ego, was personally liable for a judgment previously obtained against the corporation and that the shareholder could not dispute liability). As the Browns are simply the alter ego of HMI, they should automatically become part of the
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underlying judgment. In the event the Plaintiffs demonstrate Defendants are the alter ego of HMI but the Court does not wish to add to the existing judgment Defendants, Plaintiffs will demonstrate the Defendants violated the Arizona Wage Payment Act. See Ariz. Rev. Stat. § 23-350, et seq. The Act prohibits an employer from unlawfully withholding an employee's wages. The Act allows for a recovery of three times the amount of wages the employer wrongfully withheld. B. Defendants Carl Brown and Molly Brown's Statement of the Case.

Defendants Carl Brown and Molly Brown deny the allegations contained in Plaintiffs' Statement of the Case. Defendants Carl Brown and Molly Brown were not involved in the daily operations of HMI at the time office that employed Plaintiffs was closed. Defendant Greg Brown was running HMI at the time and made all of the decisions relating to the daily operations of HMI at the time the Las Vegas office was closed. C. The Browns Were Not Named Parties to the Original Litigation.

The Browns were not named Defendants at the time judgment was entered against HMI. They had no control over the litigation. They had no opportunity to present a defense in the action between Plaintiffs and HMI. The Browns had no duty to appear and defend personally in an action were they were not parties. See, NEC Electronics, Inc., v. Hurt, 256 Cal. Rptr. 441 (Cal. App. 6 Dist. 1989), citing Motores De Mexicali v. Superior Court, 51 Cal. 2d 172, 331 P.2d 1 (1958). HMI met the standards for corporate governance for a corporation of its size and complexity. Plaintiffs will not be able to meet their burden of proof on their claim that HMI failed to adhere to corporate formalities. HMI filed an Annual Report with the Arizona Corporation Commission for each year from 1997 through 2002. Defendants Carl Brown and Molly Brown did not violate the Arizona wage statutes. *** ***
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2.

LIST OF ELEMENTS A. Plaintiffs' Contentions

Plaintiffs, in order to prevail on its alter ego claims, must demonstrate HMI is the alter ego or business conduit of Defendants and that observing the corporate form would work an injustice. Standage v. Standage, 147 Ariz. 473, 476, 711 P.2d 612, 615 (Ariz. Ct. App. 1985). Plaintiffs will also have to show there is "such unity of interest and ownership that the separate personalities of the corporation and owners cease to exist." Dietel v. Day, 16 Ariz. App. 206, 208, 492 P.2d 455 (1972). Plaintiffs must demonstrate Defendants, should they prevail on their alter ego claims, should become part of the existing judgment. Plaintiffs, in order to do this, will have to show Defendants are proper judgment debtors. To do this they will have to show the Defendants, through HMI, had "ample due process and a full opportunity to litigate the pertinent issues...." Oceanics Schools, Inc. v. Barbour, 112 S.W.3d 135 (Tenn. Ct. App. 2003). See also, Dow Jones, Inc. v. Avenel, 198 Cal. Rptr. 457, 460 (Cal. Ct. App. 1984). Plaintiffs, in the event they are successful in demonstrating Defendants are HMI's alter ego but the Court does not automatically add them to the underlying judgment, will have to demonstrate Defendants, without proper authorization, withheld or diverted a portion of their wages. Ariz. Rev. Stat. § 23-352. Plaintiffs, in order to demonstrate they are due wages, must show Defendants owe them "nondiscretionary compensation due an employee in return for labor or services rendered by an employee for which the employee has a reasonable expectation to be paid." Ariz. Rev. Stat. § 23-350(5). Wages also include, "sick pay, vacation pay, severance pay, commissions, bonuses and other amounts promised when the employer has a policy or a practice of making such payments." Id. Plaintiffs, in the event they resigned, must demonstrate Defendants failed to pay, by the next regular payday during which the separation occurred, all wages due. Ariz. Rev. Stat. § 23-353(B). Wage claimants, in the event of a termination, are entitled to, within three business days of their termination or at the end of the next regular pay period, whichever is sooner, all wages due. Ariz. Rev. Stat. § 23-353(A). A successful wage claimant "may recover in a civil
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action against an employer or former employer an amount which is treble the amount of the unpaid wages." Ariz. Rev. Stat. § 23-355. B. Defendants Carl Brown and Molly Brown's Elements of Proof.

Plaintiffs cannot meet their burden of proof with respect to their claims of alter ego and piercing the corporate veil. In Arizona, the level of corporate formalities alone is not enough to support piercing the corporate veil. See, Keams v. Tempe Technical Institute, Inc., 993 F. Supp. 714, 723 (D. Ariz. 1997). Even if true, the lack of corporate formalities is not sufficient, standing alone, to pierce the corporate veil under Arizona law. Bischafshausen, Vasbinder, and Luckie v. D. W. Jaquays Mining & Equip. Contractors Co., 145 Ariz. 204, 700 P.2d 902, 907 (App. 1985); Chapman v. Field, 124 Ariz.100, 602 P.2d 481, 484 (1979). Plaintiffs base their argument in support of piercing the corporate veil of HMI solely on the alleged absence of corporate records. The documents destroyed by HMI's landlord included corporate governance and financial records stored along with active mortgage account files. HMI filed an Annual Report with the Arizona Corporation Commission for each year from 1997 through 2002. HMI operated properly as a corporation consistent with the standards applicable to closely held corporations. See, Bischofshausen, Vasbinder, and Luckie v. D. W. Jaquays Min. and Equipment Contractors Co., 145 Ariz. 204, 700 P.2d 902 (Ariz. App. Div. 2 1985). 3. FACTUAL AND LEGAL ISSUES IN DISPUTE A. Plaintiffs' Contentions

Plaintiffs contend the following factual and legal issues are in genuinely in dispute: whether Defendants are the alter ego of HMI; whether Defendants used the corporate form to perform upon Plaintiffs an injustice; whether there exists between Defendants and HMI such unity of interest and ownership that the separate personalities of the corporation and owners cease to exist; whether Defendants received sufficient due process and opportunity to dispute Plaintiffs' claims, so as to make them automatically liable under the existing judgment; and, in the event the Court does not hold Defendants liable under the existing
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judgement, whether Defendants, through HMI, had a good faith belief Plaintiffs were entitled to the wages they seek. B. Law. The principal of "alter ego" does not apply to Defendants Carl Brown and Molly Brown and HMI. There was no unity of interest between Defendants Carl Brown and Molly Brown and HMI sufficient to justify either piercing the corporate veil or finding a unity of interest sufficient to support a finding that the separation between the Browns and the corporation ceased to exist. Defendants Carl Brown and Molly Brown were not involved in the management of HMI at a level sufficient to justify making them liable to Plaintiffs. Defendants Carl Brown and Molly Brown were not offered due process sufficient to make them liable under the prior judgment against HMI. Defendants Carl Brown and Molly Brown did not use the corporate form to perform an injustice on Plaintiffs. The Court has already ruled that Defendants are not liable "through HMI" under the separate judgment against HMI. 4. JURISDICTION The Court, pursuant to 28 U.S.C. § 1332, has jurisdiction over this civil action. There is complete diversity between the parties, and the amount in controversy exceeds $75,000. 5. PARTIES NOT SERVED All applicable parties have received service of process. All parties have filed an answer or have otherwise appeared. 6. PARTIES NOT SUBJECT TO THE COURT'S JURISDICTION All parties to this action are subject to the Court's jurisdiction. 7. DISPOSITIVE ISSUES/MOTIONS Plaintiffs anticipate filing some pretrial motions, including, possibly, a dispositive
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Defendants Carl Brown and Molly Browns' Disputed Issues of Fact and

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motion and motions in limine. Plaintiffs are, without the benefit of discovery, unable to precisely determine the types of pretrial motions they might file. Plaintiffs do not anticipate the need for any Daubert/Fed. R. Evid. 702-type hearings. 8. MAGISTRATE OPTION Plaintiffs do not wish to arbitrate or proceed before a master and/or a United States Magistrate Judge. 9. RELATED CASES The parties are unaware of any related cases. 10. INITIAL DISCLOSURES The parties do not believe there should be any changes in the timing, form, or other requirements of Rule 26(a) disclosures. Disclosures on or before April 3, 2006. 11. CHANGES TO DISCOVERY The parties see no need for any modification of the normal discovery rules. 12. SCOPE OF DISCOVERY The parties do not believe discovery should proceed in different stages. The parties also do not believe discovery should focus on specific issues. The parties believe the normal discovery rules should apply. The parties propose a discovery cutoff date of September 1, 2006. 13. FINAL SUPPLEMENTATION OF DISCOVERY The parties propose as the final day to supplement discovery responses September 22, 2006. 14. PROPOSED DEADLINES The parties propose the following deadlines: Amendment of the Pleadings and Joinder of Additional Parties: May 5, 2006 Plaintiffs' disclosure of Plaintiffs' expert witnesses: Defendants' disclosure of Defendants' expert witnesses: Dispositive Motions:
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The parties propose they exchange Initial

June 2, 2006 July 7, 2006 October 6, 2006
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Pretrial Statement: 15. TRIAL

January 5, 2007

The parties estimate the case will be ready for trial on February 6, 2007. The parties estimate the trial will cover five days. The parties are, at this time, unaware as to how they might shorten the length of the trial. 16. JURY TRIAL There has been a demand for a jury trial. 17. PROSPECTS FOR SETTLEMENT Plaintiffs remain open to various methods of alternative dispute resolution, including participation in a settlement conference and a mediation session. Plaintiffs welcome any settlement assistance the Court might provide. 18. CLASS ACTION Plaintiffs are not seeking class certification. 19. COMPLEX TRACK The parties see no need for the Court to place on the Complex Track the instant litigation. 20. E-MAIL ADDRESSES Plaintiffs' lead trial counsel, James Burr Shields, receives E-mail messages at [email protected]. Counsel for Defendants Carl Brown and Molly Brown, John E. Karow, receives Email messages at [email protected]. 21. OTHER MATTERS The parties are unaware of any other matters that might aid the Court in resolving this dispute. *** *** *** ***
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RESPECTFULLY SUBMITTED this 6th day of March, 2006. LAW OFFICE OF JAMES BURR SHIELDS

____s/ W. Blake Simms__________________ Blake Simms Attorneys for Plaintiffs

_s/W. Blake Simms, for John E. Karow John E. Karow Attorney for Defendants Carl and Molly Brown

_____________________________________ Dennis Hall Attorney for Greg Brown

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