[00:00:05] Speaker 02:
And we'll proceed to hear argument in the next case on the calendar for argument, which is 24-4243, Ignite International Limited versus Zachariah James Gleason and Mirza Beg.

[00:00:23] Speaker 02:
And we will hear first from Mr. Dunn, but Mr. Dunn, if you can wait until

[00:00:34] Speaker 02:
We have the group assembled here in the courtroom.

[00:01:40] Speaker 02:
All right, Mr. Dunn, you may proceed.

[00:01:42] Speaker 02:
Thank you.

[00:01:42] Speaker 05:
Thank you, Your Honor.

[00:01:43] Speaker 05:
May it please the Court, Council, Brad Dunn, on behalf of Appellant Ignite International Limited.

[00:01:48] Speaker 05:
I would like to start by addressing one of the main issues in this matter, which is that the District Court held up to self-serving statutorily deficient, inadmissible, unsworn declarations used by the appellees outweighed the admissible bank records obtained by Ignite.

[00:02:04] Speaker 05:
But the appellant was forced to use the bank records because appellees have no accounting records.

[00:02:09] Speaker 04:
The only accounting records which are disclosed in this matter... Counsel, in order to pierce the corporate veil, you need to have evidence that you presented to Judge Liberty about fraud, about some fraud that occurred here.

[00:02:25] Speaker 04:
What evidence did you present to the judge so that the judge could consider whether or not that occurred?

[00:02:32] Speaker 05:
Well, first I would like to state that fraud is not a requirement for it.

[00:02:34] Speaker 05:
I mean, the courts say that you're going to have

[00:02:36] Speaker 05:
fraud, you've got an injustice, you have an inequity.

[00:02:39] Speaker 05:
But in this situation, we had substantial evidence of diversion of funds, which created a genuine factual dispute that a jury, not a judge, sort of resolved.

[00:02:46] Speaker 05:
We have an expert who provided his opinion that HireConnection misplaced or stole approximately $500,000 in Ignite products during the year 2021.

[00:02:54] Speaker 05:
We have bank account records showing that Apilies transferred approximately the exact same number of $500,000 in company funds to their personal cryptocurrency accounts during the same timeframe.

[00:03:05] Speaker 05:
Is that a coincidence?

[00:03:06] Speaker 01:
I think you argue on page 17 of the blue brief that, and I agree with you, that you don't need to just show fraud and injustice or inequity would suffice to be able to pierce the corporate veil.

[00:03:17] Speaker 01:
And I think you argue that the injustice, or at least one argument, is that an injustice would be allowing the defendants to leave the stipulated judgment unsatisfied.

[00:03:27] Speaker 01:
And I'm curious to know whether we can consider that particular

[00:03:34] Speaker 01:
argument or evidence because

[00:03:45] Speaker 01:
The conduct that occurred after the judgment that related to the failure to appear for the debtors exam, the inability to collect because the defendants are engaging in whatever kind of improper conduct that you're alleging.

[00:04:03] Speaker 01:
Is all of that in the record and can we consider it?

[00:04:08] Speaker 05:
Yes, I believe it is in the record.

[00:04:10] Speaker 05:
It's all part of the same case and matter.

[00:04:12] Speaker 05:
I mean, the whole issue is that they... But it happened after the fact.

[00:04:16] Speaker 05:
After the fact of the order by the court.

[00:04:19] Speaker 05:
Correct.

[00:04:19] Speaker 05:
That they entered a stipulated judgment as to the breach of contract for the LLC, not as for anything related to them individually.

[00:04:28] Speaker 01:
Right.

[00:04:28] Speaker 01:
So I think my question is, you know, we are deciding an appeal of the judgment of the district court, and there was

[00:04:38] Speaker 01:
I take your point that there's been conduct that's occurred after that in terms of the stipulated judgment and your inability to collect and there may be shenanigans on the part of the defendants.

[00:04:48] Speaker 01:
But how are we to consider that evidence or whatever it is if it's not part of the record below?

[00:04:55] Speaker 05:
Sure.

[00:04:55] Speaker 05:
And I would say that it is part of the record below because the court at the same hearing actually ruled in our favor on liability.

[00:05:01] Speaker 05:
So liability against the LLC was set before that the alter ego liability was thrown out.

[00:05:07] Speaker 05:
So by the time this ruling came through, we already had a ruling setting liability against the LLC.

[00:05:15] Speaker 05:
And so the two matters are still intertwined.

[00:05:17] Speaker 05:
It's in the record and it's had the same hearing in the same order.

[00:05:20] Speaker 02:
Did you depose the two members of the LLC here and ask them about these particular suspicious looking transactions?

[00:05:31] Speaker 05:
We did not in this matter.

[00:05:33] Speaker 05:
far back in 1917.

[00:05:36] Speaker 02:
In the summary judgment record, is there any specific evidence about those particular transactions, the check to James Dean and Betty White, the very large withdrawals over time into crypto accounts, any specific evidence, or are you just saying just the mere fact of the transactions creates a pattern that raises an inference, or do you have anything

[00:06:04] Speaker 02:
specific about the nature of any of those transactions in the record?

[00:06:08] Speaker 05:
Sure.

[00:06:08] Speaker 05:
As I was saying, there is no accounting records in this matter.

[00:06:11] Speaker 05:
They did all this sort of by papers, by notes.

[00:06:14] Speaker 05:
They claim that their landlord threw away their computers.

[00:06:16] Speaker 05:
They sold some of the computers.

[00:06:17] Speaker 05:
They have no records.

[00:06:19] Speaker 05:
Their accounting firm deleted all of their records because they stopped paying their monthly membership.

[00:06:24] Speaker 05:
So the only things we have are the bank account records.

[00:06:27] Speaker 05:
And I thought you had W-2 records.

[00:06:30] Speaker 05:
Did you not have W-2 records?

[00:06:32] Speaker 05:
I had W-2 records, yes, for just those two individuals.

[00:06:35] Speaker 05:
So they sent their W-2s.

[00:06:37] Speaker 02:
Is there any evidence in the record about how the purported salaries reflected in the W-2s were calculated?

[00:06:45] Speaker 05:
No.

[00:06:45] Speaker 05:
I mean, they filed their motion for summary judgment, and they had inadmissible evidence.

[00:06:48] Speaker 05:
They provided no evidence about any of these things.

[00:06:50] Speaker 02:
Why was the evidence inadmissible?

[00:06:53] Speaker 05:
Well, they had deficient self-serving

[00:06:57] Speaker 05:
unsworn declarations that under U.S.C.

[00:07:00] Speaker 02:
1746.

[00:07:01] Speaker 02:
When someone submits a declaration and says, I'm innocent, I didn't do it, that's self-serving, but it's usually admissible when they're in a position to have knowledge about the circumstances about which they're testifying.

[00:07:13] Speaker 05:
But they provide no supporting evidence for any of their statements.

[00:07:15] Speaker 02:
Well, that's different.

[00:07:16] Speaker 02:
I mean, it's not that it's not admissible because it's self-serving.

[00:07:21] Speaker 02:
It's that it's admissible, but a very little probative value and doesn't create a triable issue without

[00:07:27] Speaker 02:
something more.

[00:07:28] Speaker 02:
That's a different argument.

[00:07:30] Speaker 02:
But did you raise in the district court the specific objection that the under penalty of perjury, which referenced the state law formulation rather than the federal formulation, did you say that that was a ground for not considering them or is that something you raised for the first time on appeal?

[00:07:48] Speaker 05:
that they didn't use the statutory language that we raise on appeal, which we believe is a purely legal question, whether or not they can use it.

[00:07:55] Speaker 02:
But this is the kind of thing that if you raise that contemporaneously in the district court, it could have been fixed.

[00:08:02] Speaker 02:
And that's why we have contemporaneous objection rules, because if you say it on the spot, something technical like that can be fixed.

[00:08:11] Speaker 02:
They could resubmit it with the proper juror at.

[00:08:15] Speaker 02:
But now on appeal,

[00:08:16] Speaker 02:
where you didn't raise it below, why isn't that just forfeited?

[00:08:20] Speaker 05:
We don't believe it's a waiver because it's a purely legal issue, whether or not they're allowed to use a statutory decision.

[00:08:25] Speaker 01:
Let's say that we have the discretion on appeal to decide.

[00:08:28] Speaker 01:
But you, I think, concede that you did not raise this at the district court.

[00:08:33] Speaker 01:
So now you're relying on this court to exercise its discretion in addressing this issue, because I think in your view, this is a pure legal issue.

[00:08:41] Speaker 05:
Yes, exactly, Your Honor.

[00:08:42] Speaker 05:
We admit that we did not raise the statutory language issue inside of the district court.

[00:08:47] Speaker 04:
And the district court didn't really had a one page or one and a half page order in terms of the decision, but spoke about it, about the reasoning it decided not to pierce a corporate bail.

[00:09:02] Speaker 04:
Do you agree with that?

[00:09:03] Speaker 05:
Yes, but he cited to no case law for his reasoning.

[00:09:06] Speaker 05:
He writes nothing that he bases his opinion on.

[00:09:08] Speaker 05:
He states that there's no evidence of fraud.

[00:09:09] Speaker 05:
He doesn't go into injustice.

[00:09:11] Speaker 05:
He doesn't go into inequity.

[00:09:12] Speaker 04:
And that was the point of my question.

[00:09:14] Speaker 04:
Does he discuss that anywhere else?

[00:09:17] Speaker 04:
Because I went through the transcript, because again, there is no written order that thoroughly explains his reasoning.

[00:09:25] Speaker 04:
So I had to go back to the transcript and go,

[00:09:29] Speaker 04:
page by page through the entire transcript of the hearing to determine if he made a ruling on this.

[00:09:34] Speaker 04:
He has one paragraph, but he discusses fraud.

[00:09:36] Speaker 04:
He doesn't discuss this argument that you're making now.

[00:09:40] Speaker 05:
Exactly, Your Honor, he does not.

[00:09:42] Speaker 05:
And that's sort of an issue in this matter, is there's not a case law in Arizona on some of these topics.

[00:09:47] Speaker 05:
But he did not go into why he found that reason, other than saying there's no evidence of fraud, and he stated that he believes

[00:09:53] Speaker 05:
based on him weighing the information that the transfers were simply observing formalities and a failure to observe formalities.

[00:09:59] Speaker 01:
Okay, so your best evidence of fraud or some sort of injustice that's occurred is the transaction, so the commingling of corporate funds with personal use, and the best evidence you have of that are the transactions, just the transactions of the Venmo,

[00:10:21] Speaker 01:
um, and the cell payments to mom and James Dean.

[00:10:25] Speaker 01:
Um, but, but there's no deposition testimony and there are no bank records because as you mentioned, those were destroyed.

[00:10:32] Speaker 05:
Well, there are bank records.

[00:10:33] Speaker 05:
There's no actual accounting records.

[00:10:34] Speaker 05:
We don't have any accounting showing why these payments remain, how they're paid.

[00:10:37] Speaker 05:
We don't know how they're where it's under understanding that that general account paid their W two's.

[00:10:41] Speaker 05:
So this is our understanding that's above and beyond the W two's.

[00:10:45] Speaker 05:
So they're paid a W-2 as an employer, then these other transactions above and beyond it, which coincidentally matches with the amount that they've stole from our client.

[00:10:53] Speaker 01:
Okay.

[00:10:53] Speaker 01:
And so are you mainly relying on the bank transactions for your evidence or, and are you abandoning the arguments that you made in your brief with respect to the post-judgment conduct and the inability to collect

[00:11:08] Speaker 01:
based on whatever misconduct that you're alleging and their failure to appear at the debtors exam, et cetera?

[00:11:13] Speaker 05:
Sure.

[00:11:13] Speaker 05:
No, I'm not abandoning any one of those.

[00:11:15] Speaker 05:
I mean, I think that the records, the only records that are impossible to get in this case are the bank records.

[00:11:20] Speaker 05:
I mean, fraud is going to be nearly impossible to have direct testimony.

[00:11:22] Speaker 05:
The only two individuals are the 50-50% owners of the company, which were Gleason and Bay, and they're the ones that actually did the transfers.

[00:11:32] Speaker 05:
And so the only way we can show fraud is with circumstantial evidence.

[00:11:35] Speaker 05:
The only evidence we have in this case is bank account records.

[00:11:37] Speaker 05:
We've added those to the court.

[00:11:39] Speaker 05:
The court weighed that against these self-serving declarations.

[00:11:43] Speaker 05:
And taking the job from the jury, he decided on his own he's going to weigh that and give credibility to their declarations instead of the bank records, which were subpoenaed properly from Wells Fargo and Bank of America and show what we believe and what a jury would find is improper transfers of money to cryptocurrency accounts.

[00:12:06] Speaker 05:
there any other questions on that topic.

[00:12:11] Speaker 05:
I would like to one thing we were talking about is that the judge severely focus on that there's no evidence of fraud and he cited it twice as your honor mentioned inside of his order, but he didn't cite any case saying why he needed fraud.

[00:12:25] Speaker 05:
or how?

[00:12:26] Speaker 05:
Well, no, he didn't cite it to the order because he cited it in the transcript.

[00:12:31] Speaker 05:
In the transcript, right.

[00:12:32] Speaker 05:
Because in the transcript, when my client won for breach of contract, he cited an actual case, and he stated, I'm citing this case in order to rule for breach of contract in your favor.

[00:12:42] Speaker 05:
But then when he went through the alter ego liability, he had no case law.

[00:12:46] Speaker 05:
Because the case law is unclear in this matter.

[00:12:48] Speaker 05:
I mean, if anything, the legal community in Arizona

[00:12:53] Speaker 05:
need some sort of ruling about 29-33-04.

[00:12:55] Speaker 05:
I mean, can LLCs have their veils be pierced?

[00:13:02] Speaker 05:
What's the definition of observed formalities?

[00:13:03] Speaker 05:
And is it showing a fraud actually required?

[00:13:05] Speaker 05:
Because I believe it's not actually required.

[00:13:07] Speaker 05:
There's unpublished cases in Arizona.

[00:13:08] Speaker 05:
There's no published case which sets forth the standard.

[00:13:11] Speaker 05:
I believe that the court should have went through the standard and held appropriately that alter ego liability could have been found against the appeal.

[00:13:19] Speaker 04:
The judge does say that you identified

[00:13:23] Speaker 04:
payments to Gleason's mother as inappropriate, but you do not provide any evidence indicating that she didn't provide any services.

[00:13:32] Speaker 04:
That's true.

[00:13:33] Speaker 05:
That he sent to his mom, yes.

[00:13:36] Speaker 05:
At this point in time, I'm not sure why he was sending money to his mother.

[00:13:40] Speaker 02:
Did you depose the mother or direct any discovery towards her to verify anything about that?

[00:13:46] Speaker 05:
We did not honor her.

[00:13:47] Speaker 05:
That was an issue in the lower court also.

[00:13:49] Speaker 05:
The parties were attempting to settle and perhaps go back into business together.

[00:13:53] Speaker 05:
And so we asked for a first request, extension of time to take all the depositions, and the judge denied it and stated that we could not take the depositions.

[00:14:01] Speaker 05:
That we would see these people at trial, we'll be able to talk to them then, and that's how we can handle it.

[00:14:06] Speaker 02:
You want to save some time?

[00:14:08] Speaker 05:
Yes, I'll save my two and a half minutes.

[00:14:09] Speaker 02:
All right, great.

[00:14:11] Speaker 02:
We'll hear then from Mr. Kozum.

[00:14:21] Speaker 03:
Thank you, Your Honor, and thank you, judges.

[00:14:24] Speaker 03:
I'm William Kozeb.

[00:14:25] Speaker 03:
I'm attorney of record for the defendants in the underlying matter, the Epolize in this matter, Zachariah James Gleason and Mirza Bay.

[00:14:36] Speaker 03:
I may call Mr. Gleason and Mr. Bay or Zach or Sonny.

[00:14:39] Speaker 03:
I may get a little colloquial.

[00:14:43] Speaker 03:
OK.

[00:14:43] Speaker 01:
Kozeb, do you agree that commingling of funds between personal accounts and corporate accounts constitutes

[00:14:50] Speaker 01:
um...

[00:14:52] Speaker 01:
grounds to pierce the corporate veil?

[00:14:54] Speaker 03:
I do not under Arizona statutes I would say the history of the development of the piercing the corporate veil with the recent 2019 amendment to the statute I mean I guess you could show a fact pattern where maybe that's sufficient but I don't think just the mere co-mingling the mere failure to follow proper banking procedures would show co-mingling and frankly I don't believe there's any evidence in this case of co-mingling

[00:15:22] Speaker 03:
So, to be clear, we moved for summary judgment.

[00:15:27] Speaker 03:
There was a response brief and a reply brief and there was an oral argument.

[00:15:31] Speaker 03:
This is a de novo review of that summary judgment with, of course, the court's discretion to do, you know, to apply justice.

[00:15:38] Speaker 04:
Why doesn't it show fraud that payments were made to James Dean and Betty White and his mother

[00:15:46] Speaker 04:
Why doesn't that show fraud?

[00:15:49] Speaker 03:
Thank you, Your Honor.

[00:15:50] Speaker 03:
It's not in the record, so I'm hesitant to say anything that's not in the record because of the nature of the review here.

[00:15:56] Speaker 03:
But his mother worked for the company and was paid a small amount.

[00:16:00] Speaker 03:
And Mr. James Dean worked for the company.

[00:16:03] Speaker 03:
He drives a pickup truck.

[00:16:04] Speaker 03:
and he calls his pickup truck Betty White.

[00:16:07] Speaker 03:
So in the office it was a joke to write him a check to James Dean because he has a name like a famous actor and his pickup truck, which I don't know why anybody names their pickup truck, but his pickup truck was named Betty White.

[00:16:19] Speaker 03:
Had we known this was an issue at any point in the lawsuit, we could have included that in our affidavit.

[00:16:24] Speaker 04:
What about the draws that were taken, large draws that were not reflected on the W-2?

[00:16:30] Speaker 03:
Oh, I actually, Your Honor, I did address that in my brief.

[00:16:32] Speaker 03:
First of all, the record is clear and undisputed that both of my clients are both members and managers of the defendant entities, the Utah LLC and the two Arizona LLCs.

[00:16:45] Speaker 03:
There's no evidence of fraud when a business is paying money to an owner.

[00:16:51] Speaker 03:
My law firm

[00:16:53] Speaker 03:
has lots of checks to Bill Cosib and to every other partner in my law firm.

[00:16:59] Speaker 03:
Sometimes those checks are compensation.

[00:17:02] Speaker 02:
Sometimes those checks are... What evidence is there in the record as to how the level of the payments to be made to them was determined?

[00:17:11] Speaker 02:
uh... there's no right now there there is no evidence in the record as to the salaries my clients received uh... the salaries and this is in the record either but so you didn't put anything in response to the summary judgment motion where they said here's the pattern which shows that uh... you know basically the uh... funds of the l l c are are essentially being drained by the members you can put any any evidence to say that well

[00:17:40] Speaker 02:
their salary was set to be this and these are just ordinary payments.

[00:17:44] Speaker 02:
You just put in a conclusory thing that said we didn't do anything wrong.

[00:17:48] Speaker 03:
So your honor, we were the moving party.

[00:17:50] Speaker 03:
So we had no idea what issues were going to be raised on the response.

[00:17:54] Speaker 03:
And adding affidavits at the reply stage, as this court knows, would be inappropriate in this motion for summary judgment proceeding.

[00:18:01] Speaker 03:
However, in our motion for summary judgment, knowing we were defendants in a claim for piercing the corporate veil,

[00:18:08] Speaker 03:
two years of litigation having been concluded, discovery having been concluded, no depositions having been taken, the timeline for summary judgment to be filed, we move for summary judgment on all 10 causes of action against us.

[00:18:27] Speaker 03:
The appellant did not respond to eight of the 10.

[00:18:31] Speaker 03:
They included a response to the breach of fiduciary duty argument and on oral argument in the brief, the judge,

[00:18:38] Speaker 03:
asked, I don't see anything here on your breach fiduciary duty, and he backed off of that.

[00:18:43] Speaker 03:
At oral argument, the only portion of our motion for summary judgment that remained was our claim on piercing the corporate veil.

[00:18:52] Speaker 03:
Now what evidence did we present that has not been contradicted in the record?

[00:18:57] Speaker 03:
We presented the evidence that all payments we received

[00:19:03] Speaker 03:
were either properly accounted for on W-2s or 1099s in the tax records of the company.

[00:19:10] Speaker 03:
There's nothing controverting that.

[00:19:12] Speaker 03:
Is that a self-serving statement?

[00:19:14] Speaker 03:
It is.

[00:19:14] Speaker 02:
The amounts that they have of the payments don't match what's on the W-2.

[00:19:22] Speaker 03:
And your honor, that's not a tribal issue.

[00:19:23] Speaker 03:
In fact, payments from a company to an owner will never match the W-2.

[00:19:29] Speaker 03:
Those payments could be reimbursements, they could be profit, only salary shows up on a W-2.

[00:19:35] Speaker 02:
But in a context where all we have in the record is there is essentially a large amount of payments being made to the members that essentially drain the corporation of its funds.

[00:19:49] Speaker 02:
And there's nothing about to show the regularity of these payments other than conclusory statements.

[00:19:56] Speaker 02:
Why couldn't a trior fact look at this?

[00:19:58] Speaker 02:
It's not a lot because you don't have any records and none are available.

[00:20:04] Speaker 02:
Why isn't the pattern enough to say that that raises an inference that it would be unjust to allow them, when they were incurring all these obligations for the corporation, to drain all the ability to pay the obligations?

[00:20:18] Speaker 03:
Your Honor, that's an excellent question.

[00:20:19] Speaker 03:
I'm going to just take a quick sip of water before I respond to that.

[00:20:22] Speaker 03:
Here is, I want to step back a stage in my response and then I'll answer your question.

[00:20:30] Speaker 03:
It's a motion for summary judgment.

[00:20:32] Speaker 03:
Much of what you have just said, you have read from the briefs and are conclusory statements unsupported by anything in the record.

[00:20:39] Speaker 03:
There's nothing in the record that says this company was drained of funds.

[00:20:42] Speaker 03:
There's nothing in the record that says my clients were acting inappropriately.

[00:20:46] Speaker 02:
There's nothing in the record that says that.

[00:20:48] Speaker 02:
Is there anything in the summary judgment record about how much

[00:20:51] Speaker 02:
remained in the corporation in terms of assets?

[00:20:58] Speaker 02:
At what point in time, Your Honor?

[00:20:59] Speaker 02:
In the summary judgment record, is there anything that showed after these payments were made how much was left in the corporation?

[00:21:09] Speaker 03:
No, Your Honor, that's not an issue in the concept of piercing the corporate veil.

[00:21:14] Speaker 03:
What we have said in the public record, I'm sorry, Your Honor.

[00:21:17] Speaker 02:
I just, I wanted to know the factual question.

[00:21:19] Speaker 02:
Is there anything in the record to show what was left in the company after these transfers out were made?

[00:21:28] Speaker 03:
No, Your Honor, that was not placed in the record on the motion for summary judgment.

[00:21:31] Speaker 01:
So you would agree that there are bank records in the record that show

[00:21:35] Speaker 01:
these transactions that occurred.

[00:21:37] Speaker 01:
I understand that as you stand here before us today, you're explaining sort of why they may have been appropriate, but you do acknowledge that those records existed, correct?

[00:21:47] Speaker 03:
We do, Your Honor.

[00:21:48] Speaker 03:
Those are the bank records of the company.

[00:21:49] Speaker 01:
Okay.

[00:21:49] Speaker 01:
So I want to sort of test your theory that we, you know, when you came up and you said commingling of funds does not provide grants to pierce the corporate veil.

[00:21:59] Speaker 01:
yet there needs to be a logical limit to that statement, I think.

[00:22:05] Speaker 01:
And in your own brief, you cite to the Uniform Limited Liability Company Act, which in a comment talks about specifically the issue of using corporate funds for personal use and how that can provide grounds to pierce the corporate veil.

[00:22:22] Speaker 01:
And so I want to understand why

[00:22:24] Speaker 01:
in your view, the bank records that show these transactions where Gleason is withdrawing funds from the company for his own personal use through Venmo, for cash app, or other personal reasons.

[00:22:39] Speaker 01:
And the Zelle payments, not only do they not match the W-2 amount, but this shows, I think, just on the face of the bank records,

[00:22:50] Speaker 01:
use of corporate funds for personal use.

[00:23:01] Speaker 01:
the uniform limited liability company act as grounds for piercing the corporate debt.

[00:23:04] Speaker 03:
Thank you, Your Honor.

[00:23:05] Speaker 03:
I appreciate the question.

[00:23:06] Speaker 03:
I think that gets to the heart of the matter and I think it gets to the problem with the evidence that what minimal evidence the appellants have attempted to present.

[00:23:14] Speaker 03:
You cannot look at a bank record alone to determine if funds were used inappropriately, if funds were co-mingled, etc.

[00:23:23] Speaker 03:
How the company spends the money out of the checking account

[00:23:28] Speaker 03:
is irrelevant.

[00:23:30] Speaker 03:
The issue of commingling or inappropriate use of funds, et cetera, will come when those funds are classified and reported to the government from a tax perspective.

[00:23:39] Speaker 01:
So you agree that commingling of funds and use of corporate dollars for personal use does provide grounds for piercing the corporate veil?

[00:23:46] Speaker 01:
Because your answer to the very first question I asked you was that it doesn't.

[00:23:49] Speaker 03:
I think, Your Honor, my answer was, generally speaking, it does not.

[00:23:53] Speaker 03:
I could imagine a fact pattern where you could present such an egregious set of facts and call that co-mingling that perhaps that would grant the basis that would give the basis for Pearson and Corporate Vale.

[00:24:04] Speaker 02:
Let me give you a hypothetical LLC that has a million dollars in assets.

[00:24:09] Speaker 03:
Yes.

[00:24:09] Speaker 02:
It then incurs a million dollars in obligations pursuant to a contract to a third party.

[00:24:16] Speaker 03:
Yes.

[00:24:17] Speaker 02:
And then the members of the corporation

[00:24:20] Speaker 02:
vote themselves a salary of a million dollars, drain the funds out of it, and then the corporation can't pay the contract judgment.

[00:24:31] Speaker 02:
against it.

[00:24:32] Speaker 02:
Is the piercing of the corporate veil allowed in the scenario I just described?

[00:24:36] Speaker 03:
No, that would be a claim for fraudulent conveyance under federal law, where an entity gave away its assets for less than was appropriate.

[00:24:46] Speaker 03:
And in that analysis, Your Honor, we would have to look... Why wouldn't that fit?

[00:24:49] Speaker 02:
Because it's not just fraud, it's that it would be unjust or inequitable.

[00:24:54] Speaker 02:
So why isn't the

[00:24:57] Speaker 02:
the draining of corporate funds, leaving the corporation unable to satisfy the judgment, why isn't that grounds together with other factors for piercing the corporate veil?

[00:25:09] Speaker 02:
Well, let's get back to Arizona law.

[00:25:12] Speaker 03:
I appreciate the question.

[00:25:13] Speaker 03:
First of all, there's no evidence that this company was looted by the principal.

[00:25:19] Speaker 02:
I'm still within the hypothetical because I don't understand the legal rules that

[00:25:23] Speaker 02:
that you're contending for.

[00:25:24] Speaker 03:
Okay.

[00:25:24] Speaker 02:
And our bank records show that the amount in the company on each day... If we're going to be in that hypothetical light on the errors of the law, that wouldn't be grounds for piercing the corporate veil.

[00:25:33] Speaker 03:
No.

[00:25:34] Speaker 02:
Why?

[00:25:35] Speaker 03:
Because that's just a principle being paid legally and consistently through the structure of the company.

[00:25:42] Speaker 02:
There's nothing inequitable and unjust than paying your self-inflated salaries so that, you know, you loot the corporation and leave the

[00:25:50] Speaker 02:
creditors of the corporation.

[00:25:51] Speaker 03:
Your honor, the concept of an inflated salary would come into the analysis of a fraudulent conveyance by that company of its assets to the principals.

[00:26:00] Speaker 02:
Maybe that's another cause of action.

[00:26:02] Speaker 02:
The fact that it might fall within something else doesn't mean it doesn't fall within this.

[00:26:06] Speaker 02:
The question is, what authority do you have under Arizona law that says whether or not that falls within

[00:26:13] Speaker 02:
the grounds of creates inequity or injustice to pierce the corporate veil.

[00:26:17] Speaker 03:
Well, I would cite to the statute we cited, ARS section 29-3304, which in the light of the history of the doctrine of piercing the corporate veil, comes in five years ago and significantly limits the scope for- You argued in your brief that it eliminates the common law doctrine.

[00:26:36] Speaker 03:
Yes, I did.

[00:26:37] Speaker 02:
Which is, I mean, you know that this comes from, as Judge Desai

[00:26:42] Speaker 02:
indicate, it comes from uniform code and the commentary to it makes clear that it doesn't do that.

[00:26:48] Speaker 02:
And Arizona has continued to apply it, so that's kind of a borderline.

[00:26:51] Speaker 03:
Perhaps I should have said in the facts presented in this case, it eliminates the piercing of corporate fail because there are no facts in this case to support the theory.

[00:27:03] Speaker 03:
And so, but back to your argument, if I recall, which is at what point does an officer's compensation

[00:27:12] Speaker 03:
permit the piercing of the corporate veil against the officer?

[00:27:17] Speaker 03:
Is that the hypothetical question?

[00:27:20] Speaker 03:
At what point does an officer's compensation amount to an injustice against the creditors?

[00:27:24] Speaker 02:
At what point does the fact that all of the funds of the corporation go to the members and leave it then depleted create an injustice that would borne piercing the corporate veil?

[00:27:40] Speaker 03:
I don't think it would warrant piercing the corporate veil.

[00:27:42] Speaker 03:
It would permit claims to go after those funds in an alternative theory, but it would not warrant piercing the corporate veil.

[00:27:49] Speaker 03:
The entity stands.

[00:27:51] Speaker 03:
The protection of the members and managers still stands.

[00:27:54] Speaker 03:
There are other doctrines that would allow you, after you get your judgment, after you find out that there's no money in the company, there are other legal doctrines that would come into play at that point.

[00:28:05] Speaker 03:
which would have statutes of limitations commencing at that point, which would give a creditor a right to try to recover some of those monies that were paid out.

[00:28:14] Speaker 03:
But simply saying, as a conclusion of law, as a matter of federal law, that officers can be paid, if an officer is paid too much, that permits the piercing of the corporate veil.

[00:28:24] Speaker 02:
It's not federal law, it's Arizona law.

[00:28:26] Speaker 02:
Arizona law applies here.

[00:28:28] Speaker 03:
If it's saying under Arizona law that overcompensate over amusing because that seems to be the connotation in your question that highly compensated officers are automatically going to have the veil pierced against them if down the road the corporation can't pay its bills or gets a judgment in or against it that's

[00:28:49] Speaker 03:
I mean, that to me is a troubling direction for the law.

[00:28:52] Speaker 01:
Sir, let me ask you a question because I'm curious to know why we're all sitting here today when the parties entered into a judgment where Ignite would be paid.

[00:29:06] Speaker 01:
I assume that this appeal is still happening because they haven't been able to obtain satisfaction of that settlement between the parties.

[00:29:12] Speaker 01:
So what's happening with respect to the post judgment

[00:29:17] Speaker 01:
settlement that was entered into between the parties.

[00:29:20] Speaker 03:
Well, the entities are not in this case, Your Honor, and I no longer speak for the entities.

[00:29:26] Speaker 03:
I have been removed as their counsel.

[00:29:28] Speaker 03:
So I'm not exactly sure to what degree Mr. Dunn is pursuing collection activity on those entities.

[00:29:33] Speaker 03:
I know there was a judgment debtor exam conducted against a former

[00:29:38] Speaker 03:
member manager of company and there was some confusion as to whether or not he had to participate none of that is in the record before this court i don't know what efforts uh... ignite is making to collect on the judgment uh... it's not in the record but this client was ignites primary distributor in the country uh... and as he alluded to during his testimony they were talking about trying to get back in business because

[00:30:02] Speaker 03:
The entity providing those services, the company has really no presence in the US marketplace.

[00:30:09] Speaker 03:
But I can't answer the question as to what has been collected or to what degree collection activities are occurring.

[00:30:18] Speaker 02:
All right.

[00:30:19] Speaker 02:
Thank you, counsel.

[00:30:20] Speaker 03:
Thank you, your honor.

[00:30:21] Speaker 02:
We'll hear rebuttal now.

[00:30:28] Speaker 02:
Thank you, Your Honors.

[00:30:29] Speaker 02:
Can you answer one of the questions I asked opposing counsel, which is what does the summary judgment record in this case show about the amount of assets that remained in the LLC after the stream of payments that you have pointed to were made?

[00:30:49] Speaker 05:
Sure, yes.

[00:30:50] Speaker 05:
I'll let you know that the business completely has no money, has zero dollars.

[00:30:54] Speaker 02:
Where in the summary judgment record

[00:30:57] Speaker 02:
Did you put in evidence that shows that?

[00:30:59] Speaker 05:
Sure.

[00:31:00] Speaker 05:
I believe it's, I was just looking at it.

[00:31:02] Speaker 05:
It's a page inside of page nine of my response.

[00:31:07] Speaker 05:
And the date was only last time we had actual records, but it's February 28th, 2022.

[00:31:13] Speaker 00:
Do you have a record site council?

[00:31:16] Speaker 05:
Excuse me.

[00:31:16] Speaker 00:
Do you have a record site?

[00:31:18] Speaker 05:
Yes.

[00:31:19] Speaker 05:
Er, zero to nine.

[00:31:24] Speaker 05:
And that the most recent bank account statements received by Ignite from Bank of America dated February 28, 2022, HireConnection only had 199,000 in cash left to its name.

[00:31:33] Speaker 05:
It's assumed over the past year and a half, the amount has been wiped out.

[00:31:38] Speaker 05:
And as we've tried to collect, we have found out that they have no money at all.

[00:31:43] Speaker 05:
We subpoenaed their banks and they have no money.

[00:31:45] Speaker 02:
And you say it is assumed over the past year and a half that the amount was lower, but you didn't have evidence of that?

[00:31:51] Speaker 02:
Why not?

[00:31:52] Speaker 05:
They had closed their bank accounts.

[00:31:54] Speaker 05:
And so I guess I could have put in there that we've gotten banking out to the zero.

[00:31:57] Speaker 05:
I'm not sure why I put the language assumed at that point in time.

[00:32:01] Speaker 05:
I'm not sure if we'd received the documents at that point in time.

[00:32:07] Speaker 05:
But as you stated about trying to collect, we have subpoenaed the bank account records again, and they have zero dollars inside both accounts.

[00:32:15] Speaker 02:
And so there is no money to... But that's all outside the sum rejection record.

[00:32:19] Speaker 02:
We can't consider that for purposes of

[00:32:22] Speaker 02:
whether or not summary judgment was properly granted based on the record at the time that decision was made.

[00:32:27] Speaker 05:
Other than an inference to show why they're making these transfers, and that was to elude the company so it didn't have to pay.

[00:32:31] Speaker 02:
No, but in determining whether you presented enough evidence to raise that inference, we can't look at things that happened after the judgment was entered.

[00:32:40] Speaker 02:
I mean, that was just a size inquiry at the beginning of this.

[00:32:45] Speaker 05:
Sure, the fact that they have zero dollars at this point in time?

[00:32:47] Speaker 02:
Correct.

[00:32:49] Speaker 02:
You know, we're reviewing a summary judgment ruling that was made on a closed evidentiary record and we can't look at things outside that record.

[00:32:57] Speaker 05:
Correct.

[00:32:58] Speaker 05:
Okay.

[00:33:00] Speaker 05:
And then unless the court has any questions, I'd like to close by highlighting the practical stakes.

[00:33:05] Speaker 05:
Adopt an affiliate position would allow every LLC member in Arizona to launder company money through a personal crypto accounts and deplete a company so it doesn't have to pay its debtors and then invoke 3304 as a shield.

[00:33:17] Speaker 05:
Conversely, reversal merely returns the case to a jury to decide credibility, exactly what precedent instructs.

[00:33:23] Speaker 05:
The district court should have denied summary judgment, allowed the matter received to a jury, for it is the jury to weigh the evidence and determine which party's evidence to credit, either the banking records or the appellee's self-serving, deficient, inadmissible, unsworn declarations.

[00:33:35] Speaker 02:
All right.

[00:33:35] Speaker 02:
Thank you, counsel.

[00:33:36] Speaker 02:
Thank you.

[00:33:36] Speaker 02:
The case just argued will be submitted.