Cane, Walker & Harkins LLP Bradley D. Walker 17821 East Seventeenth Street bwalker@linksline.com David F. Cane Suite 140 _ deane@linktine.com James C, Harkins, TV ‘Tustin, CA 92780 jharkins@linkline.com ‘Telephone (714) 573-8990 Facsimile (714) 573-8999 November 29, 2004 File 30293.052 VIA OVERNIGHT COURIER Mr. Joseph Morabito 18 Claremont Coto de Caza, CA 92679 Re: CZ Master Association/Morabito Subject: Response to Unfounded Accusations and Request for Inspection of Records Dear Mr, Morabito: As you are aware, Cane, Walker & Harkins LLP serves as legal counsel to the CZ Master Association (“Association”). In that capacity, we have been requested to contact you regarding your recent e-mails that apparently have been widely distributed to multiple persons. In particular, you have made unfounded allegations that the Association has “co-mingled” funds with the separate corporate entity, Coto Communities Activities Network (“Coto CAN”), youhave wrongfully accused the Association, its Board members, and corporate directors of Coto CAN, of criminal conduct in the form of tax fraud, and you have wrongfully claimed that the Association and Coto CAN legally are a single corporate entity (j.e., your reference to “piercing the corporate veil”). The foregoing issues are addressed below. However, as a preliminary note, please remember that the members of the Board of Directors are volunteers and your neighbors. While you may disagree with or have a different point of view concerning certain of the Board’s business decisions, recklessly accusing the Association and the Board members (your neighbors) of criminal conduct is unnecessary and simply uncalled for. As you are aware, the Board generally has addressed your questions in open forum to facilitate full disclosure to the members and provide an opportunity for other members of the community to express input (whether positive or negative) for the Board’s consideration. With the foregoing in mind, please consider the following responses to your concems. Request for Inspection of Records. The Association’s managing agent has coordinated a mutually convenient date and time for youto inspect the Association’s accounting books and records and minutes of open session meetingsMr. Joseph Morabito November 29, 2004 Page 2 of the Board, as permitted under the California Corporations Code and Civil Code. Please be aware that your request to inspect corporate records of Coto CAN must be directed to that corporation. To assist you in your inspection, you may also use experts (e.¢., accounting, tax, and legal), at your own expense. Such experts must be independent practitioners licensed in the State of California and who are bound to professional standards of competency and confidentiality, and you must designate any such experts in writing in advance. You may not utilize associates who are not members of the Association or who otherwise have no interests or rights in business affairs of the Association (except for licensed practitioners as described above.) Also, in light of your several unfounded accusations, the Board feels compelled to incur the expense of having its accountant and legal counsel present during your inspection of the records in order to ensure the inspection of records is handled properly and to respond immediately to your questions in an effort to avoid your further publication of factually inaccurate accusations and unfounded suppositions. Wrongful Accusation of Co-mingling of Funds. ‘The Association does not “co-mingle” any funds with Coto CAN or any other organization. The Association's funds are maintained in separate accounts in the name of the Association only, and no other entity. The Association does not maintain any of Coto CAN’s funds in the Association’s accounts. The fact that the Association pays Coto CAN for certain services (e.g., production and distribution of the Association's newsletter and production of street maps distributed by gate attendants) does not constitute “co-mingling” of funds; rather this is simply payments given for services rendered. t Claim of “Piercing the Corporate Veil Your claim that CZ Master Association and Coto CAN legally may be considered a single corporate entity for liability purposes is without foundation. The Association and Coto CAN are separate corporate entities. Coto CAN is not a subsidiary of the Association, the Association does not receive any revenue from Coto CAN, the Association does not have any ownership interest in Coto CAN, and the Association does not have any control over the internal corporate functioning of Coto CAN. The fact that the Association has control over whether Coto CAN may be permitted to administer certain functions and events within the development does not legally equate to ownership of Coto CAN, or control over the internal corporate functioning of Coto CAN. In this regard, the California Supreme Court has noted that in order “to pierce the corporate veil,” the corporation not only must be influenced and governed by the person or entity sought to held liable (‘e., placed in the position of being deemed the same corporate entity), but there must be such a unity of interest and ownership that the individuality, or separateness, of the corporation and person or entity has ceased. This would be an extremely difficult evidentiary burden to overcome, particularly under the facts and circumstances of the Association and Coto CAN.Mr. Joseph Morabito November 29, 2004 Page 3 Itis noteworthy that the Association does not receive any direct benefit from the events and services Coto CAN administers in the development. Rather, the events and services are for the benefit of the members of the Association. The Board believes facilitating and permitting the events and services Coto CAN provides in the community is consistent with fulfilling the Association’srole and purpose of promoting the general welfare and common benefit of the members. Wrongful Tax Fraud Accusations. Your accusations that the Association and the Board is involved in criminal activity in the form of tax fraud are reckless, untrue, and defamatory. In this regard, publishing accusations of criminal conduct is defamatory per se. Also, as noted above, it is uncalled for to accuse your neighbors of criminal activity simply because you disagree with particular business decisions that have been made. Coto CAN is receiving revenue for services rendered to the Association, As far as the Association is aware, Coto CAN presumably is accounting for any revenues received for tax purposes. However, the Association is not presently involved with, and does not plan to become involved with, Coto CAN’s handling of its financial statements and filing of its tax returns. Therefore, in the future, please refrain from publishing accusations of criminal conduct. Conclusion. ‘The Board trusts the foregoing addresses your concems and will persuade you to consider pursuingamore productive, neighborly approach in expressing your concems about, or disagreement with, the Board’s business decisions. Otherwise, if you continue to publish false and defamatory statements, the Board shall be forced to consider pursuing all available legal remedies. Very truly yours, CANE, WALKER & HARKINS LLP foe Harkins, IV ICH:rjh ce: Board of Directors CZ Master Association