SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF LOS ANGELES, WEST DISTRICT SANTA MONICA COURTHOUSE

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1 JEFFREY WITTENBERG (State Bar No. 0) jeffrey@wittenberglawyers.com WITTENBERG LAW APC 01 Wilshire Boulevard, 1th Floor Santa Monica, California 001 Telephone: () - Facsimile: () - JAMES GOLDMAN (State Bar No. 1) jgoldman@millerbarondess.com MINH-VAN T. DO (State Bar No. ) mdo@millerbarondess.com MILLER BARONDESS, LLP Avenue of the Stars, Suite 00 Los Angeles, California 00 Telephone: () -00 Facsimile: () -00 Attorneys for Nominal Plaintiff MICHAEL REACH, DERIVATIVELY ON BEHALF OF OCEAN TOWERS HOUSING CORPORATION SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF LOS ANGELES, WEST DISTRICT SANTA MONICA COURTHOUSE MICHAEL REACH, DERIVATIVELY ON BEHALF OF OCEAN TOWERS HOUSING CORPORATION, v. Plaintiff, JOSEPH SPAHI; JOSEPH ORLANDO; JOSEPH INCAUDO; OMAR SPAHI; DOROTHEA SCHIRO; JANET FULADIAN; SEIF ASCAR, individually and as Trustee of the Ascar Family Trust, dated July, 1; APEX INVESTMENTS GROUP LTD., d/b/a/ APEX INVESTMENTS INC; CAVOUR PARTNERS LIMITED LLC; ENENSTEIN RIBAKOFF LAVINA & PHAM, A PROFESSIONAL CORPORATION; PATRICK AMBROSE; SHELDON STEIN; LAZOU KAY YOSHIKAWA; PETER ALEVIZON; and DOES 1 to 0, inclusive, Defendants. OCEAN TOWERS HOUSING CORPORATION, a California Corporation, Nominal Defendant. CASE NO. SC1 (Lead Case) (Related to SS0) Assigned for All Purposes to: Hon. Lisa Hart Cole, Dept. O NOMINAL PLAINTIFF S STATEMENT OF POSITION ON RECEIVER S EX PARTE APPLICATION FOR ORDER AUTHORIZING RECEIVER TO ISSUE AN EMERGENCY ASSESSMENT Date: November, Time: 1: p.m. Dept.: O Action Filed: June, 1 FAC Filed: January, SAC Filed: June, TAC Filed: November, Trial Date: None Set 00.

2 NOMINAL PLAINTIFF S STATEMENT OF POSITION ON RECEIVER S EX PARTE APPLICATION FOR ORDER AUTHORIZING RECEIVER TO ISSUE AN EMERGENCY ASSESSMENT Nominal Plaintiff s counsel has been given notice that the Receiver intends to apply ex parte for an order permitting him to issue a special assessment. The purpose of the assessment would be to obtain funding that the Receiver needs for fees incurred and estimated to be incurred by the Receiver and the Receiver s counsel for the period from September 1, to January 1,. While Nominal Plaintiff does not yet know what the exact amount of the proposed assessment will be, it appears that the amount will be substantial in excess of $1,000,000. For many homeowners, the imposition of an assessment of that magnitude on top of what they have already been required to pay will present a significant problem. We know that the Court will, when evaluating the Receiver s request and Nominal Plaintiff s position, consider the interests of the homeowners, make every effort to minimize their burden, and consider all alternatives (one of which is presented below), as it has throughout this case. Nominal Plaintiff s position with respect to the Receiver s request is as follows: 1. Spahi and Orlando should be required to advance any funds that are need to pay for the receivership expenses. Nominal Plaintiff understands that the Receiver and his counsel are entitled to compensation for their time in this matter. They are also entitled to reimbursement of the expenses they incur. However, rather than requiring the innocent homeowners to pay for these fees and expenses, the Court should exercise its discretion to require Defendants John Spahi and Joseph Orlando to pay for these fees and expenses or, at least, advance the funds that are needed to pay for them. Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership () Cal.App.th is on point. As the Court stated in that case, the court may determine there are equitable circumstances warranting the defendant paying the costs and expenses of receivership rather than the receivership estate. (Id. at, citing Clark, On the Law and Practice of Receivers (rd ed. ).1(e), p..) It also bears noting that the Court stated that the 00.

3 allocation order may be issued as early as the time when the receiver is appointed; the court need not wait until the receiver is discharged or the case is finally adjudicated. (Id. at 0.) The order requested by Nominal Plaintiff is fully warranted here given the following facts: Spahi (and the other members of the former Board of Directors) appointed a Special Litigation Committee ( SLC ) to investigate Nominal Plaintiff s claims against them. After the SLC was reconstituted (at Nominal Plaintiff s request and the Court s insistence) in such a way as to ensure its independence, the SLC conducted a lengthy investigation and concluded that: (1) there was substantial evidence supporting Nominal Plaintiff s claim that Spahi and his cohorts had engaged in mortgage fraud and embezzlement schemes and caused [OTHC] to incur expenses for Mr. Spahi s personal benefit (SLC Report, p. 1); () Spahi and Orlando had breached their fiduciary duties to the Ocean Towers Housing Corp. ( OTHC ); () the breaches put OTHC in dire financial condition; () Spahi and the other board members needed to be replaced; and () Nominal Plaintiff s claims against Spahi and Orlando should be pursued. When it became clear that the SLC would find Nominal Plaintiff s claims against Spahi to be well taken, Spahi attempted to bury the SLC s report, as the Court had always feared he would. Specifically, he retained counsel, at the HOA s expense not his, to concoct a way to invalidate the amendment to the OTHC s Bylaws that authorized the SLC to include non-othc shareholders. Also, he threatened to sue the retired judges who served on the SLC and the SLC s counsel. After Spahi complained about the fees and other potentially adverse consequences of a receivership (OTHC s lender would declare a default and require OTHC to pay default interest), the Court gave Spahi a way out. Specifically, the Court told Spahi that it would not appoint a receiver if Spahi would resign. Spahi, however, refused to accept the Court s offer. Instead, he made a counteroffer: He would resign only if the Court agreed to a variety of conditions, including: (1) Spahi be allowed to run at the next election; () Spahi be permitted to vote his shares; () the next election would take place within 1 days or so; and () the motion for the appointment of a receiver 00.

4 would be denied with prejudice. The Court understandably refused to further negotiate with Spahi and appointed a receiver. In short, the receivership is necessary only because Spahi and his cohorts engaged in persistent and pervasive misconduct perpetrated (as documented by Nominal Plaintiff and confirmed by the SLC) and caused the financial predicament that requires the Receiver to obtain additional funds. Under these circumstances, it would be manifestly unfair to require the other OTHC homeowners to supply the funds needed for the receivership. Instead, Court should order Spahi and Orlando to pay for them. Alternatively, it should order Spahi and Orlando to advance the funds needed by the Receiver subject to a possible reallocation of this liability from Spahi to OTHC at the conclusion of the litigation. After all, if Spahi and Orlando had not appropriated OTHC s assets to line their own pockets, there wouldn t be a need for a special assessment.. The funds received from a special assessment should be used only fees incurred by the Receiver and his counsel. Nominal Plaintiff assumes that the funding will be used only for the payment of the fees incurred by the Receiver and his counsel. In particular, none of the attorneys other than those at Freeman, Freeman & Smiley should be paid at this time. The Receiver has not made any payment to the only lawyers (other than the Receiver s counsel) who have acted to protect OTHC and the homeowners -- Nominal Plaintiff s counsel. In light of OTHC s dire financial condition, Nominal Plaintiff s counsel has yet to make a request for payment. If Nominal Plaintiff s counsel can wait, surely the law firms who previously represented the OTHC and the defendants can wait. DATED: November, Respectfully submitted, WITTENBERG LAW APC MILLER BARONDESS, LLP By: James Goldman Attorneys for Nominal Plaintiff 00.

5 1 1 1 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES At the time of service, I was over years of age and not a party to this action. I am employed in the County of Los Angeles, State of California. My business address is Avenue of the Stars, Suite 00, Los Angeles, CA 00. On November,, I served true copies of the following document(s) described as: NOMINAL PLAINTIFF S STATEMENT OF POSITION ON RECEIVER S EX PARTE APPLICATION FOR ORDER AUTHORIZING RECEIVER TO ISSUE AN EMERGENCY ASSESSMENT BY OR ELECTRONIC TRANSMISSION: Based on a court order or an agreement of the parties to accept service by or electronic transmission, I caused the document(s) to be sent from address tbayliss@millerbarondess.com to the persons at the addresses listed in the Service List. I did not receive, within a reasonable time after the transmission, any electronic message or other indication that the transmission was unsuccessful. on the interested parties in this action as follows: SEE ATTACHED SERVICE LIST I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on November,, at Los Angeles, California. 1 James Goldman 00.

6 Seth Aronson, Esq, Michelle C. Leu, Esq. O MELVENY & MYERS LLP 00 South Hope Street Los Angeles, CA 001 Tel: () Fax: () saronson@omm.com mleu@omm.com Craig Varnen, Esq. David Siegel, Esq. Michael D. Harbour IRELL & MANELLA LLP 00 Avenue of the Stars Suite 00 Los Angeles, CA 00- Tel: () -0 Fax: () - cvarnen@irell.com dsiegel@irell.com mharbour@irell.com Edward A. Klein Paul D. Murphy David E. Rosen MURPHY ROSEN LLP 0 Wilshire Boulevard, Suite 0 Santa Monica, California 001- Telephone: () -00 Facsimile: () -1 eklein@murphyrosen.com pmurphy@murphyrosen.com drosen@murphyrosen.com C. Brent Parker, Esq. LAW OFFICE OF C. BRENT PARKER C B PARKER LAW, PC Manhattan Towers Rosecrans Avenue, Suite 00 Manhattan Beach, CA 0 Telephone: () - Fax: () - parker@cbparkerlaw.com SERVICE LIST Reach v. Spahi Case No. SC1 (Related to Case No. SS0) Attorneys to the SPECIAL LITIGATION COMMITTEE OF THE BOARD OF OCEAN TOWERS HOUSING CORPORATION Attorney for Defendant JOHN SPAHI Attorney for Defendants JOHN SPAHI and JOSEPH ORLANDO Attorneys for KAZOU KAY YOSHIKAWA, and JOSEPH INCAUDO, PATRICK AMBROSE 00.

7 Edward Nassirzadeh, Esq. NASS LAW FIRM Wilshire Boulevard, Suite 00 Beverly Hills, CA 0 Tel: () - Fax: () - ed@nasslawfirm.com Jonathan E. Altman, Esq. MUNGER TOLLES 0 South Grand Avenue, 0th Floor Los Angeles, CA 001 Tel: () -0 Fax: () -0 jonathan.altman@mto.com Omar Spahi 0 W. Fielding Circle, Apt. Los Angeles, CA 00 Tel: () -0 ospahi@gmail.com Julie Kimball, Esq. Amitabh Banerji ELKINS KALT WEINTRAUB REUBEN GARTSIDE, LLP Century Park East, Suite 00 Los Angeles, CA 00 Tel: () - Fax: () - jkimball@elkinskalt.com abanerji@elkinskalt.com Attorney for Defendants APEX INVESTMENTS GROUP LTD., and DOROTHY SCHIRO Attorney for Defendants PETER ALEVIZOS and SHELDON STEIN In Pro Per Attorney for Nominal Defendant (Real Plaintiff) OCEAN TOWERS HOUSING CORPORATION; and Defendant OCEAN TOWERS HOUSING CORPORATION (in Related LASC Case No. SS0) 00.