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ACCEPTED

03-17-00386-CV
19799514
THIRD COURT OF APPEALS
AUSTIN, TEXAS
10/2/2017 3:15 PM
JEFFREY D. KYLE
CLERK
NO. 03-17-00386-CV
__________________________________
FILED IN
In the Court of Appeals 3rd COURT OF APPEALS
AUSTIN, TEXAS
Third District of Texas – Austin10/2/2017 3:15:28 PM
___________________________________ JEFFREY D. KYLE
Clerk
PEJMAN DARGAHI, KAMRAN DARGAHI, and
YEKK CONSTRUCTION SERVICES, LLC d/b/a
LAKEWAY CUSTOM HOMES AND RENOVATION
Appellants/Defendants,

v.

DHIRAJ HANDA and RITU HANDA
Appellees/Plaintiffs.
__________________________________________________________________
APPELLEES’ SURREPLY
__________________________________________________________________
David A. King
State Bar No. 24083310
Brian T. Cumings
State Bar No. 24082882
Graves, Dougherty, Hearon & Moody
A Professional Corporation
401 Congress Avenue, Suite 2200
Austin, Texas 78701-3744
Telephone: (512) 480.5722
Facsimile: (512) 536.9942
dking@gdhm.com
bcumings@gdhm.com

ATTORNEYS FOR
APPELLEES/PLAINTIFFS
TABLE OF CONTENTS

TABLE OF AUTHORITIES ................................................................................... iii

A. Introduction......................................................................................................1

B. Individuals: Issues Not Raised in the Trial Court Below................................1

C. Individuals: Arguments Made for the First Time in the Reply Brief..............4

D. Individuals: Appellants Failed to Introduce into the Record any Evidence to
Support Their Equitable Estoppel Theory.......................................................5

E. Appellants Ignore Plaintiffs’ Duly-Presented Evidence on Waiver................6

F. Conclusion .......................................................................................................7

CERTIFICATE OF SERVICE ..................................................................................9

CERTIFICATION .....................................................................................................9

CERTIFICATE OF COMPLIANCE.........................................................................9

APPENDIX

ii
TABLE OF AUTHORITIES

Cases
Courtland Bldg. Co., Inc. v. Jalal Family P’ship, Ltd.,
403 S.W.3d 265 (Tex. App.—Houston [14th Dist.] 2012, no pet.) ................3
Dallas County v. Gonzales,
183 S.W.3d 94 (Tex. App.—Dallas 2006, pet. denied) ..................................5
Emerald Texas, Inc. v. Peel,
920 S.W.2d 398 (Tex. App.—Hous. [1st Dist.] 1996, no writ) ......................6
G.T. Leach Builders, LLC v. Sapphire V.P., LP,
458 S.W.3d 502 (Tex. 2015) .......................................................................1, 6
In Interest of E.R.C.,
496 S.W.3d 270 (Tex. App.—Texarkana 2016, pet. denied)..........................3
In re Hawthorne Townhomes, L.P.,
282 S.W.3d 131 (Tex. App.—Dallas 2009, no pet.) ...................................2, 4
In re Kellogg Brown & Root, Inc.,
166 S.W.3d 732 (Tex. 2005) ...........................................................................1
Murdock v. Trisun Healthcare, LLC,
03-10-00711-CV, 2013 WL 1955767 (Tex. App.—Austin May 9, 2013,
pet. denied) ......................................................................................................1
Santander Consumer USA, Inc. v. Mata,
03-14-00782-CV, 2017 WL 1208767 (Tex. App.—Austin Mar. 29, 2017,
no pet.) .............................................................................................................2
Stephens v. LNV Corp.,
488 S.W.3d 366 (Tex. App.—El Paso 2015, no pet.) .....................................6
Sw. Pharmacy Sols., Inc. v. Texas Health & Human Services Com’n,
03-11-00802-CV, 2013 WL 3336868 (Tex. App.—Austin June 27, 2013,
no pet.) .............................................................................................................6

iii
A. Introduction

Appellants’ Reply Brief impermissibly attempts to introduce new theories

and arguments that either were not properly preserved for appeal or which

Appellants cannot raise in a reply brief. Even had Appellants adequately raised

these theories and arguments at the appropriate time, they are without merit.

B. Individuals: Issues Not Raised in the Trial Court Below

Appellants correctly cite Murdock v. Trisun Healthcare, LLC, 03-10-00711-

CV, 2013 WL 1955767 (Tex. App.—Austin May 9, 2013, pet. denied) for the

proposition that the party seeking to compel arbitration bears the burden for

presenting evidence that it is either a party to the arbitration agreement or had the

right to enforce it notwithstanding. See Reply Brief at 2. Non-signatories cannot,

as a general rule, invoke an arbitration clause. See G.T. Leach Builders, LLC v.

Sapphire V.P., LP, 458 S.W.3d 502, 524 (Tex. 2015). The exception to this rule is

if a non-signatory proves it is bound to the arbitration agreement under one of six

distinct theories: “(1) incorporation by reference; (2) assumption; (3) agency; (4)

alter ego; (5) equitable estoppel, and (6) third-party beneficiary.” In re Kellogg

Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005).

In the trial court below, Appellants did not present any of these six theories

to support their contention that Appellant Pejman Dargahi and Appellant Kamran

Dargahi (collectively, the “Appellant Individuals”) as non-signatories to the

1
arbitration agreement were nevertheless entitled to enforce the arbitration

agreement. Neither their three-paragraph motion to compel arbitration (CR 108),

nor any evidence presented at hearing, nor any arguments articulated at hearing

invoked any of the six theories under which the Appellant Individuals could

theoretically be bound by the arbitration agreement. If not raised, individual

theories are not preserved. See Santander Consumer USA, Inc. v. Mata, 03-14-

00782-CV, 2017 WL 1208767, at *3 (Tex. App.—Austin Mar. 29, 2017, no pet.)

(failure to preserve incorporation-by-reference theory); In re Hawthorne

Townhomes, L.P., 282 S.W.3d 131, 140 (Tex. App.—Dallas 2009, no pet.) (failure

to preserve equitable estoppel theory). Accordingly, Appellants failed to preserve

the theories they now attempt to argue for the first time on appeal.

In their Reply Brief, Appellants claim that they preserved their appeal

through argument at hearing, but, tellingly, they wholly fail to identify a single

place in the record—whether in briefing or in argument—where Appellants

advanced any one of the six theories noted above. Indeed, Appellants rely solely

on their counsel’s vague reference (without citation) to an unnamed U.S. Supreme

Court case allegedly holding that “none of the individuals who have an

independent duty to provide anything of the purchaser, as a result of being non-

signatories, they are also covered by . . . an arbitration clause when it comes to

2
construction.”1 It is unclear what point Appellants’ counsel sought to make by this

opaque argument, but whatever point it was, it falls woefully short of advancing

any of the six theories identified above. Where, as here, a party fails to clearly

articulate an argument in the trial court, that argument is not preserved for appeal.

See, e.g., In Interest of E.R.C., 496 S.W.3d 270, 277 (Tex. App.—Texarkana 2016,

pet. denied) (discussing failure of appellant to clearly articulate her position with

respect to due process concerns).

At hearing, counsel for Appellants also referred to Courtland Bldg. Co., Inc.

v. Jalal Family P’ship, Ltd., 403 S.W.3d 265, 272 (Tex. App.—Houston [14th

Dist.] 2012, no pet.), but as Plaintiffs already pointed out in their brief (at 17 n.35),

Appellants’ counsel cited this case solely to make an argument that claims under

the Texas Construction Trust Fund Act are subject to arbitration.2 Appellants’

counsel did not cite this case to make an argument that the Appellant Individuals

were parties to the arbitration agreement via any of the six available theories.

Despite their strained briefing efforts, Appellants cannot create an argument in the

record that was never made.

1
Reporter’s Record, at 22:1-9.
2
Reporter’s Record, at 27:12-28:15.

3
C. Individuals: Arguments Made for the First Time in the Reply Brief.

Appellants’ opening Brief argued that the Individual Appellants, “as

members and managers,” were agents of Appellant Yekk Constructions Services,

LLC (“Yekk”). The legal and evidentiary flaws in this theory, including the fact

that it was not preserved, have already been addressed in Plaintiffs’ Brief (at 17-

20), and need not be repeated here. In their Reply Brief, however, Appellants

introduce for the first time the following new arguments and theories:

1. that the theory of “equitable estoppel” allows Appellant Individuals to

invoke the arbitration clause (at 8-11);3

2. Appellant Pejman Dargahi is a party to the arbitration clause because he

physically signed the construction contract (at 12);4 and

3. that Plaintiffs’ claim under the Texas Construction Trust Fund Act shows

that the Individual Appellants are agents of Appellant Yekk (at 13).5

3
In addition to being raised for the first time in their Reply brief, this theory was not raised by
Appellants in the trial court, and, just like its “agency” argument, it was not preserved. See In re
Hawthorne Townhomes, L.P., 282 S.W.3d at 140.
4
Of course, as Appellants acknowledge, Pejman Dargahi, in an effort to avoid liability under the
contract, has repeatedly argued that he is not a party to the contract. See Reply Br. at 12 (citing
CR 309, which is a letter from Appellants’ now-withdrawn counsel); see also Appendix 1
(Appellants’ Response to Appellees’ Motion for Summary Judgment), at 17 (“Pejman has signed
in his representative capacity only . . . .”). Accordingly, under Appellants’ own theory, Pejman
Dargahi is not a party to the arbitration clause because he signed the contract on behalf of Yekk,
not in an individual capacity.
5
Yet again, in addition to being raised for the first time in their Reply brief, this is an argument
that was never advanced in the trial court. Because this argument was not raised in the court
below, Appellants also offered no evidence (and did not carry their burden) of proving that they

4
The Texas Rules of Appellate Procedure do not allow Appellants to raise

new issues in their reply brief. See Dallas County v. Gonzales, 183 S.W.3d 94,

104 (Tex. App.—Dallas 2006, pet. denied) (“A reply brief may not be used to raise

new issues.”). As such, each of these (flawed) arguments are not properly before

this Court.

D. Individuals: Appellants Failed to Introduce into the Record any
Evidence to Support Their Equitable Estoppel Theory.
Even if it had been made in the trial court and made in their opening brief

(although they did neither), Appellants’ “equitable estoppel” theory—like their

“agency” theory—fails because Appellants did not carry their burden of offering

any evidence to support their theory. Further, Appellants’ theory has no

application at all to Appellant Kamran Dargahi. Appellees alleged numerous

statutory and common law claims against all Appellants. Appellees did not allege

any claims against Appellant Kamran Dargahi relating to duties imposed by the

construction contract.6 The alleged liabilities of Appellant Kamran Dargahi arise

exclusively out of statutory and common law obligations he owed to Appellees that

were “trustees” for purposes of binding themselves to the arbitration clause through an “agency”
theory.
6
See CR 551-2 (Plaintiff’s Fourth Amended Petition, alleging breach of contract against only
Appellant Yekk and Appellant Pejman Dargahi).

5
would exist even in the absence of the construction contract. See G.T. Leach

Builders, LLC, 458 S.W.3d at 528.

E. Appellants Ignore Plaintiffs’ Duly-Presented Evidence on Waiver

In their Reply Brief (at 15), Appellants state that “Appellees presented no

evidence whether and when [Appellants] knew of the arbitration agreement during

the period of delay.” But Plaintiffs did present evidence; indeed, Plaintiffs pointed

out that the contract and its arbitration clause were attached to pleadings

throughout the litigation, and Appellants’ counsel knew about the contract months

before the lawsuit was even filed.7 Indeed, more recently, Appellants have

expressly argued that “[Appellant Yekk] spent a year and a half negotiating every

last detail of the Contract[.]”8 Further, according to Appellants, Yekk and Pejman

Dargahi signed the contract. This in itself is evidence of knowledge because

“[o]ne who signs a contract is presumed to know its contents.” Emerald Texas,

Inc. v. Peel, 920 S.W.2d 398, 402 (Tex. App.—Hous. [1st Dist.] 1996, no writ).

Accordingly, Appellants are presumed to have known about the arbitration

7
See CR 36, 282, 468, 308-309.
8
See Appendix 1 (Appellants’ Response to Appellees’ Motion for Summary Judgment), at
4.D.4. It is appropriate for the appellate court to take judicial notice of this recent file-stamped
pleading since it is a source “whose accuracy cannot reasonably be questioned.” See, e.g.,
Stephens v. LNV Corp., 488 S.W.3d 366, 372 (Tex. App.—El Paso 2015, no pet.) (taking judicial
notice of federal pleadings outside of clerk’s and quoting Rule 201(b)(2), Tex. R. Evid.); Sw.
Pharmacy Sols., Inc. v. Texas Health & Human Services Com’n, 03-11-00802-CV, 2013 WL
3336868, at *4 n.9 (Tex. App.—Austin June 27, 2013, no pet.) (taking judicial notice of facts in
subsequent filings even though “not contained in the record of the present appeal”).

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agreement as of the date that the contract was signed (April 4, 2014). Even more

tellingly, none of the Appellants at any point in the proceedings below (or even in

this appeal) argued that they were not aware of the existence of the arbitration

agreement during the period of delay.

Appellants similarly ignore Plaintiffs’ evidence of prejudice. First,

Appellants completely fail to acknowledge or address Plaintiffs’ evidence of

affirmative discovery conducted by Appellants and the case law Plaintiffs cited

establishing the resulting prejudice. See Appellees’ Brief, at 35-36. Second,

Appellants contend that evidence of Plaintiffs’ costs incurred in the trial court,

including costs incurred to prepare and file their summary judgment motion, is “no

evidence.” Again, Appellants’ argument ignores the numerous authorities cited by

Plaintiffs establishing that this is exactly the type of evidence proving prejudice.

See Appellees’ Brief, at 32-34.

F. Conclusion

In the trial court below, Appellants filed a threadbare motion to compel

arbitration with virtually no evidence other than the arbitration clause itself.

Recognizing the weakness of the case they made to the trial court, Appellants have

attempted to introduce new arguments and theories that were not raised in the court

below. These arguments, in addition to lacking merit, were not preserved for

appeal. Plaintiffs respectfully request that this Court hold that the trial court did

7
not abuse its discretion in denying the motion to compel arbitration, and affirm the

trial court’s order.

Respectfully submitted,

GRAVES, DOUGHERTY, HEARON &
MOODY
A Professional Corporation
401 Congress Avenue, Suite 2200
Austin, TX 78701-3790
(512) 480-5722 Telephone
(512) 536-9942 Telecopier

By: /s/ David A. King
David A. King
State Bar ID No. 24083310
dking@gdhm.com
Brian T. Cumings
State Bar ID No. 24082882
bcumings@gdhm.com

ATTORNEYS FOR APPELLEES
DHIRAJ HANDA AND RITU HANDA

8
CERTIFICATE OF SERVICE

The undersigned certifies that a true and correct copy of the foregoing has
been served by electronically via the e-filing system on counsel of record as listed
below on this the 2nd day of October, 2017:

Carl J. Wilkerson
Bush Rudnicki Shelton, P.C.
200 N. Mesquite St., Suite 200
Arlington, Texas 76011
Telephone: (817) 274-5992
Facsimile: (817) 261-1671

ATTORNEYS FOR APPELLANTS

/s/ David A. King
David A. King

CERTIFICATION

I certify that I have reviewed the foregoing brief and concluded that every
factual statement in the brief is supported by competent evidence included in the
appendix or record.

/s/ David A. King
David A. King

CERTIFICATE OF COMPLIANCE

I certify that the foregoing brief was prepared using Microsoft Word, and
that, according to its word-count function, the sections of the foregoing brief
covered by TRAP 9.4(i)(1) contain 1,739 words.

/s/ David A. King
David A. King
9
APPENDIX
CAUSE NO. D-1-GN-16-001279

DHIRAJ HANDA and RITU HANDA, § IN THE DISTRICT COURT
§
Plaintiffs §
§
v. § 261st JUDICIAL DISTRICT
§
PEJMAN DARGAHI, KAMRAN §
DARGAHI, YEKK CONSTRUCTION §
SERVICES, LLC d/b/a LAKEWAY §
CUSTOM HOMES AND §
RENOVATION, PETE MARTINEZ, §
JR. d/b/a PC CONCRETE WORKS, §
and RTOWN PLUMBING, §
§
Defendants § TRAVIS COUNTY, TEXAS

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL
MOTION FOR PARTIAL SUMMARY JUDGMENT,
INCLUDING REQUEST FOR PLEA IN ABATEMENT

TO THE HONORABLE JUDGE OF SAID COURT:

NOW COME Defendants Pejman Dargahi, Kamran Dargahi, and Yekk Construction

Services, LLC d/b/a Lakeway Custom Homes and Renovation (collectively, the “Yekk

Defendants”), and subject to and without waiver of their contractual right to arbitration, their

objections to this court’s denial of their contractual right to arbitration of Plaintiffs’ claims, and

their objections to this court’s entry of an order on any of Plaintiffs’ claims that “interferes with

or impairs the jurisdiction of the appellate court or effectiveness of any relief sought or that may

be granted on appeal” while accelerated appeal in the Court of Appeals, Third District of Texas

is pending,1 file their Response to Plaintiffs’ Traditional Motion for Partial Summary Judgment

1
See DEFENDANTS’ NOTICE OF ACCELERATED APPEAL, filed 6/7/2017, and pending appeal No. 03-17-
00386-CV, Pejman Dargahi, et al. v. Dhiraj Handa, et al., in the Court of Appeals, Third District of Texas.

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL MOTION FOR PARTIAL
SUMMARY JUDGMENT, INCLUDING REQUEST FOR PLEA IN ABATEMENT PAGE 1 OF 20

APPENDIX 1
on Claims for Violation of Trust Fund Act, Common Law Fraud, Statutory Fraud and Breach of

Contract (“Plaintiffs’ Partial MSJ”), and would respectfully show as follows:

I. OBJECTIONS AND REQUEST FOR PLEA IN ABATEMENT

1.1 The Yekk Defendants object to the court’s consideration of the claims presented by

Plaintiffs’ Partial MSJ based on the parties’ agreement to submit their dispute to binding

arbitration.

1.2 The Yekk Defendants object to the court’s failure to rule on the Yekk Defendants’ Plea in

Abatement requested along with their Motion to Compel Arbitration and previously heard by the

Hon. Amy Clark Meachum on May 24, 2017.

1.3 The Yekk Defendants object to the court’s entry of summary judgment on any claims

presented by Plaintiffs’ Partial MSJ while the court’s refusal to enforce the Yekk Defendants’

arbitration agreement is under review by the Court of Appeals for the Third District of Texas.

Although the pending accelerated appeal does not divest this court of its jurisdiction, this court

“must not make an order that … interferes with or impairs the jurisdiction of the appellate court

or effectiveness of any relief sought or that may be granted on appeal.” TEX. R. APP. P. 29.5. To

avoid creating a conflict between this court and the Court of Appeals, the Yekk Defendants re-

urge their Plea in Abatement and request this court to abate its consideration of Plaintiffs’ Partial

MSJ and further proceedings against the Yekk Defendants for the duration of the Yekk

Defendants’ accelerated appeal.

II. INTRODUCTION AND SUMMARY

2.1 Yekk Construction Services, LLC d/b/a Lakeway Custom Homes and Renovation

(“Lakeway”) was hired by Ritu and Dhiraj Handa (collectively herein “Plaintiffs”) to build a

home for Plaintiffs at 228 Sanostee Cove, Travis County, Texas (the “Residence”). Plaintiffs

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL MOTION FOR PARTIAL
SUMMARY JUDGMENT, INCLUDING REQUEST FOR PLEA IN ABATEMENT PAGE 2 OF 20

APPENDIX 1
signed a Residential Construction Contract (the “Contract”) with Lakeway for the construction of

the Residence.2 According to Plaintiffs, the Yekk Defendants are “general contractors hired to

build Plaintiffs’ home under a fixed-price contract.” Plaintiff’s Partial MSJ at 1. Specifically,

the Yekk Defendants consist of: the company, Lakeway; company member/manager Pejman

Dargahi (“Pejman”), who signed the Contract for the company; and Kamran Dargahi

(“Kamran”) project manager for construction of the Residence.3 Plaintiffs’ Partial MSJ

specifically seeks summary judgment for: breach of the Texas Construction Trust Funds Act by

all the Yekk Defendants; common law fraudulent inducement of contract by all the Yekk

Defendants; statutory fraud in a transaction involving real estate by all the Yekk Defendants; and

breach of the Contract by Lakeway and Pejman.

2.2 The Contract calls for payment to Lakeway in the amount of one million four hundred

sixty thousand dollars ($1,460,000.00). A dispute arose between Plaintiffs and the Yekk

Defendants based upon Plaintiffs’ claims that: construction of the Residence had been over-

funded in that 95% of the Contract price had been paid but only 90% of the construction was

complete; the Yekk Defendants abandoned construction of the Residence; the Yekk Defendants

misused Plaintiffs’ Contract payments to pay for other expenses that were unrelated to

construction of the Residence; and the Yekk Defendants failed to pay subcontractors.

Essentially, Plaintiffs’ theory of this case all along has been that because this is a fixed-price

contract, the Yekk Defendants were not entitled to any profit, and really, were not entitled to any

payment, for their time spent negotiating the Contract and working on the Residence until the

Residence was 100% complete. Indeed, Plaintiffs’ Partial MSJ argues that the Yekk Defendants

2
See PLAINTIFFS’ FIFTH AMENDED PETITION, file marked 6/2/2017.
3
See: DEFENDANTS PEJMAN DARGAHI, KAMRAN DARGAHI, AND YEKK CONSTRUCTION SERVICES,
LLC D/B/A LAKEWAY CUSTOM HOMES AND RENOVATIONS’ PLEA IN ABATEMENT AND MOTION
TO COMPEL ARBITRATION, file marked 12/8/216; and DEFENDANTS’ SUPPLEMENTAL AFFIDAVIT IN
SUPPORT OF PLEA IN ABATEMENT AND MOTION TO COMPEL ARBITRATION, file marked 5/23/2017.

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL MOTION FOR PARTIAL
SUMMARY JUDGMENT, INCLUDING REQUEST FOR PLEA IN ABATEMENT PAGE 3 OF 20

APPENDIX 1
“take the baffling position that they were entitled…to take their hypothetical profits out of

Plaintiffs’ construction account…before the Project was actually completed.” Plaintiffs’ Partial

MSJ at 6. Plaintiffs posit that it is “nonsensical” for the Yekk Defendants to believe that they

would be entitled to use any of the construction funds as contractor fees until the Residence was

fully complete. They argue that if prices increased, that was to be borne by the Yekk

Defendants; if change orders were made, those additional costs were to be borne by the Yekk

Defendants; if there was defective work, those repair costs were to be borne by the Yekk

Defendants, all at no additional cost to Plaintiffs.

2.3 Plaintiffs argue that the Yekk Defendants are entitled to no payment for the one and one-

half years spent negotiating the design and price of the Residence and the two years spent

building the Residence. Thus, it is Plaintiffs’ position that the Yekk Defendants would be paid

for their three and one-half years of work if and only if at the completion of the Project, there

was some unspecified amount remaining. The Yekk Defendants submit that it is this position

that is “baffling” and “nonsensical”. As the summary judgment evidence presented herein will

show, this is an entirely unsustainable argument that does not comport with the facts, the written

terms of the Contract, nor with normal construction practices. The summary judgment evidence

proves that the Yekk Defendants were entitled to withdraw contractors’ fees from the

construction payments as work was completed on the Residence; that except for these anticipated

payments to the Yekk Defendants for their contractors’ fees, all of Plaintiffs’ funds were spent

on the construction and repair of the Residence; and that the Yekk Defendants halted work on the

Residence and stopped paying subcontractors only when it became apparent that Plaintiffs would

no longer meet their financial obligations under the Contract. The evidence presented herein

raises a genuine issue of material fact as to at least one element of each of Plaintiffs’ causes of

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL MOTION FOR PARTIAL
SUMMARY JUDGMENT, INCLUDING REQUEST FOR PLEA IN ABATEMENT PAGE 4 OF 20

APPENDIX 1
action. As a result, partial summary judgment is not properly entered against the Yekk

Defendants on Plaintiffs’ claims for violation of the Texas Construction Trust Fund Act,

common law fraud, statutory fraud, or breach of contract.

III. GENUINE ISSUES RAISED AS TO PLAINTIFFS’ MATERIAL FACTS

3.1 Neither Pejman nor Kamran was a builder for Plaintiffs in his individual capacity. See

Exhibits “A” and “B” attached hereto, the Affidavits of Pejman Dargahi and Kamran Dargahi.

Prior to execution of the Contract, Yekk Construction Services, LLC negotiated with Plaintiffs

for approximately a year and a half on all aspects of the design, construction and pricing of the

Residence. This negotiation took place from approximately October, 2012 until April, 2014, and

was conducted primarily by Kamran. Id. Neither Pejman, Kamran, nor Yekk Construction

Services, LLC received any payment from Plaintiffs during this time period. All negotiations

with Plaintiffs contemplated a payment to Yekk Construction Services, LLC for reasonable

overhead and profit, and this sum was included in the calculation of the total Contract price. The

amount that was agreed upon as Yekk Construction Services, LLC’s contractor fee was left

somewhat undefined, but the Parties agreed that Yekk Construction Services, LLC would receive

between $84,000.00 and six percent (6%) of the total Contract price, which was $87,600.00. Id.

3.2 Plaintiffs chose Regions’ Bank as their construction lender. When the loan was initially

funded, Yekk Construction Services, LLC received $43,800.00 in “Contract Initiations” fees.

See Exhibit “F” to Plaintiffs’ Partial MSJ. This represented three percent (3%) of the contract

price and was intended to cover start-up costs on the Residence, such as mobilization, insurance,

fencing, and temporary construction facilities, etc., as well as a small amount of reasonable

overhead and profit. Yekk Construction Services, LLC was to receive the remainder of its

contractor fees over the course of receiving Progress Payments as defined in the Contract. See

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL MOTION FOR PARTIAL
SUMMARY JUDGMENT, INCLUDING REQUEST FOR PLEA IN ABATEMENT PAGE 5 OF 20

APPENDIX 1
Exhibit B attached hereto, Affidavit of Kamran Dargahi. Yekk Construction Services, LLC

agreed to this payment arrangement as a favor to Plaintiffs because the Yekk Defendants had

developed a relationship with Plaintiffs over the course of negotiating the Contract. All

contractor fees withdrawn by Yekk Construction Services, LLC, and by Pejman and Kamran by

extension, as discussed below, were to cover reasonable overhead and profit based on the

percentage completion of the Residence. See Exhibits A and B attached hereto and incorporated

herein by reference.

3.3 When Plaintiffs’ loan was funded, Yekk Construction Services, LLC established a

construction account at Prosperity Bank to hold Plaintiffs’ construction funds. See Exhibit Q to

Plaintiffs’ Partial MSJ. Regions’ Bank controlled the disbursement of additional Progress

Payments. Specifically, Progress Payments were based upon the allocated cost of completed

phases of construction and were governed by a draw schedule that was approved by both

Plaintiffs and Yekk Construction Services, LLC. Progress Payments were only made by

Regions’ Bank after that phase of construction was complete and passed inspection by Regions’

Bank.

3.4 During the course of construction on the Residence, $68,227.75 was withdrawn from

construction funds as contractor fees in payment for Yekk Construction Services, LLC’s work on

the Residence. See Exhibit “O” to Plaintiffs’ Partial MSJ. This amount represents roughly 75%

of the total amount of contractor fees to which Yekk Construction Services, LLC was entitled.

See Exhibits A and B attached hereto. This is lower than the total percentage completion on the

Residence, which is listed as 90% completion on the November, 2015 Regions’ Bank statement

attached as Exhibit “F” to Plaintiffs’ Partial MSJ, and which was determined to be approximately

94% complete by Yekk Construction Services, LLC’s calculation, meaning that, at this stage in

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL MOTION FOR PARTIAL
SUMMARY JUDGMENT, INCLUDING REQUEST FOR PLEA IN ABATEMENT PAGE 6 OF 20

APPENDIX 1
construction, Yekk Construction Services, LLC could have legitimately withdrawn

approximately $78,840.00 in contractor fees. See Exhibit 2 to Exhibit A, attached hereto and

incorporated herein by reference.

3.5 Other than this $68,227.75 in contractor fees, any and all trust funds disbursed by

Regions’ Bank and any and all trust funds paid directly by Plaintiffs, either initially or pursuant

to change orders, were spent on the construction or repair of the Residence. See Exhibits A and

B attached hereto. At no time did the Yekk Defendants use any of Plaintiffs’ trust funds for

purposes other than construction or repair of the Residence. Id. In fact, Yekk Construction

Services, LLC has actually sustained a loss on this project. $1,370,147.50 was disbursed by

Regions’ Bank and $132,492.00 was paid by Plaintiffs in change orders, totaling $1,502,639.50.

See Exhibit 2 to Exhibit A. However, total costs on the Residence, including change orders are

$1,645,793.00, resulting in a deficit of $143,153.50, and the total amount actually paid by Yekk

Construction Services, LLC on the Project is $1,512,565.00, meaning that Yekk Construction

Services, LLC paid out $9,925.50 more on the Residence than it received. See Exhibits A and B

and attached exhibits. It is because of the approximately $145,000.00 deficit that the Yekk

Defendants approached Plaintiffs in November, 2015, about the financial difficulties they were

facing in going forward with the Project.

3.6 As a result, far from misappropriating money to which it was not entitled, Yekk

Construction Services, LLC is actually owed money on the Contract. In addition to the over-

payment described above, Yekk Construction Services, LLC re-invested $10,753.35 of its’

$68,227.75 in contractor fees back into the Residence in an effort to keep the project afloat. See

Exhibit 2 to Exhibit A. Thus, total withdrawals in contractor fees amount to only $57,474.40,

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL MOTION FOR PARTIAL
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representing approximately 65% of the contractor fees to which Yekk Construction Services,

LLC was entitled. Id.

3.7 The Yekk Defendants represented to Plaintiffs throughout this process that their intent

was to fully complete the Project. Yekk Construction Services, LLC did not intend to abandon

the Project, but simply could no longer pay its subcontractors due to the financial deficit caused

by the change order costs. See Exhibit “I” to Plaintiffs’ Partial MSJ.

IV. ARGUMENT AND AUTHORITIES

A. Defendants’ Summary Judgment Evidence

Exhibit A - Affidavit of Pejman Dargahi
Exhibit 1 – Secretary of State Records for Yekk Construction Services, LLC
Exhibit 2 – Summary of Fundings and Expenditures

Exhibit B - Affidavit of Kamran Dargahi

Defendants request the Court’s judicial notice of prior filings and summary judgment

evidence attached to Plaintiffs’ Partial MSJ referenced herein.

B. Summary Judgment Standard

4.B.1 Plaintiffs’ Partial MSJ asserts traditional grounds, per Rule 166a(c) of the Texas Rules of

Civil Procedure. Summary judgment is proper only if the movant proves that there is no genuine

issue as to any material fact and the moving party is entitled to judgment as a matter of law.

TEX. R. CIV. P. 166a; Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.

1985); Park Place Hospital v. Estate of Milo, 909 S.W.2d 508, 510 (Tex. 1995); Western Invs.

Inc. v. Urena, 162 S.W.3d 547, 550 (Tex. 2005). Thus, a motion for summary judgment should

be denied if the non-movant’s evidence raises a fact issue on a vital fact which must be

submitted to the jury. TEX. R. CIV. P. 166a(c); Huckabee v. Time Warner Entertainment Co., 19

S.W.3d 413, 422 (Tex. 2000).

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4.B.2 In deciding whether there is a disputed issue of material fact that precludes summary

judgment, the court takes as true all evidence favorable to the non-movant, and must indulge

every reasonable inference and resolve all doubts in favor of the nonmovant. Limestone Prods.

Distribution, Inc., v. McNamara, 71 S.W.3d 308, 311 (Tex. 2002); Rhone-Poulence, Inc. v. Steel,

997 S.W.2d 217, 223 (Tex. 1999); Nixon, 690 S.W.2d at 548-49. Therefore, a party moving for

summary judgment is entitled to summary judgment only if such party proves all of the essential

elements of its claim as a matter of law. MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex. 1986).

C. Violation of Texas Construction Trust Fund Act

4.C.1 Chapter 162 of the Texas Property Code is titled “Construction Payments, Loan Receipts,

and Misapplication of Trust Funds” (referred to herein as the “Act”). Under Sections 162.001(a)

and (b) of the Act, construction payments and loan receipts made to or received by a contractor

under a construction contract for the improvement of real property are “trust funds”. The

contractor is the “trustee” of the trust funds, §162.002, and both the property owner and

subcontractors are considered to be “beneficiaries” of the trust funds. Id. at §162.003. In order

to be found liable for a violation of the Act, a trustee must “intentionally or knowingly or with

intent to defraud, directly or indirectly” retain, use, disburse, or otherwise divert trust funds

without first fully paying all current or past due obligations incurred by the trustee to the

beneficiaries…” Id. at §162.031(a).

4.C.2 However, excluded from the definition of “trust funds” by Section 162.001(c) are “fee[s]

payable to a contractor…” under the following circumstances:

(1) the contractor and property owner have entered into a written
construction contract for the improvement of specific real property in
this state before the commencement of construction of the improvement
and the contract provides for the payment by the owner of the costs of
construction and a reasonable fee specified in the contract payable to the
contractor; and

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APPENDIX 1
(2) the fee is earned as provided by the contract and paid to the contractor
or disbursed from a construction account described by Section 162.006,
if applicable.

Id. at §162.001(c)(1) and (2).

This is exactly the situation which exists in this case. As discussed above, the Yekk Defendants

opened a construction account to hold the proceeds of the Plaintiffs’ construction loan as

required by Section 162.006. See Exhibit Q to Plaintiffs’ Partial MSJ. The Contract called for a

fixed-price payment of $1,460,000, subject to change order requests. When the initial

disbursement was made on the construction loan, $43,800 was disbursed to the Yekk Defendants

as “Contract Initiations” fees. See Exhibit “F” to Plaintiffs’ Partial MSJ. As construction

progressed, additional Progress Payments were made on the loan by Regions’ Bank and

deposited into the construction account. The Yekk Defendants only withdrew those funds from

these additional payments which were due to them as contractors’ fees in accordance with the

percentage completion of the Residence. See Exhibits A and B attached hereto, the Affidavits of

Pejman Dargahi and Kamran Dargahi.

4.C.3 Plaintiffs argue that the Yekk Defendants were not and would not have been entitled to

withdraw any of the loan proceeds until the Residence was 100% complete with 0% defects.

This in effect is an argument that the Yekk Defendants would have had to work for three and a

half years with no payment. Such an argument defies common sense and is not supported by the

language of Chapter 162. Further, it does not comport with the fact that $43,800.00 was

distributed to Yekk Construction Services, LLC before any work whatsoever was done on the

Residence. Clearly, Plaintiffs knew that Yekk Construction Services, LLC, and by extension

Pejman and Kamran, would receive some portion of the loan proceeds as fees as work

progressed on the Residence. Under these circumstances, the fees payable to Yekk Construction

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Services, LLC are not defined as “trust funds” by the Act, and thus there can be no violation of

the Act or misappropriation of trust funds in this case.

4.C.4 Further, the Yekk Defendants categorically deny that they acted intentionally, knowingly,

or with an intent to defraud Plaintiffs in their use of any of Plaintiffs’ trust funds. On the

contrary, the Yekk Defendants used all of the trust funds to fund construction or repair of the

Residence. See Exhibits A and B attached hereto. Again, the funds that were used for purposes

other than construction and repair were contractors’ fees to which the Yekk Defendants were

entitled pursuant to the draw schedule and percentage of completion of the Residence. The Yekk

Defendants could legitimately use their contractors’ fees for any purpose whatsoever, including

the payment of personal expenses, purchasing additional real estate, and paying for attorneys’

fees necessitated by this lawsuit as referenced in Plaintiffs’ Partial MSJ.

4.C.5 Thus, there is a genuine issue of material fact as to whether the Yekk Defendants

intentionally, knowingly or with intent to defraud used Plaintiffs’ trust funds in violation of the

Act, or whether the funds used by the Yekk Defendants on things other than construction or

repair of the Residence were not “trust funds” at all, but rather contractors’ fees duly payable to

the Yekk Defendants. Partial summary judgment is therefore not appropriate on Plaintiffs’

claims for breach of the Texas Construction Trust Fund Act against the Yekk Defendants.

D. Common Law Fraud/Fraud by Nondisclosure

4.D.1 Plaintiffs’ claims against the Yekk Defendants for fraud and fraud by non-disclosure are

based on Plaintiffs’ allegation that in order to induce Plaintiffs to enter into the Contract, the

Yekk Defendants represented to Plaintiffs that “all” of the progress payments on their

construction loan would be used to pay for the construction of the Residence, when all along the

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Yekk Defendants actually intended to misappropriate Plaintiffs’ trust funds and use those funds

for their own purposes. As explained above, nothing could be further from the truth.

4.D.2 In order to establish a claim for common law fraud, Plaintiffs must establish that the

Yekk Defendants made a material misrepresentation, which was false and which was either

known to be false when made or was asserted without knowledge of its truth, which they

intended Plaintiffs to act upon, which Plaintiffs did rely upon, and which caused Plaintiffs’

injury. Formosa Plastics Corp. USA v. Presidio Engineers & Contractors, Inc., 960 S.W.2d 41,

47 (Tex. 1998).

4.D.3 In order to establish a claim for fraud by nondisclosure, Plaintiffs must prove that: (1)

the defendant concealed from or failed to disclose certain facts to the plaintiff; (2) the defendant

had a duty to disclose the facts to the plaintiff; (3) the facts were material; (4) the defendant

knew the plaintiff was ignorant of the facts and the plaintiff did not have an equal opportunity to

discover the facts; (5) the defendant was deliberately silent when he had a duty to speak; (6) by

failing to disclose the facts the defendant induced the plaintiff to take some action or refrain from

acting; (7) the plaintiff relied on the defendant’s nondisclosure; and (8) the plaintiff was injured

as a result of acting without the undisclosed facts.” Bazan v. Munoz, 444 S.W.3d 110, 119

(Tex.App.-San Antonio 2014, no pet.).

4.D.4 The premise that the Yekk Defendants induced Plaintiffs to enter into the Contract by

concealing their desire to secretly misappropriate Plaintiffs’ progress payments and by failing to

mention that they expected to be paid for their work belies the facts actually present in this case.

The Yekk Defendants spent a year and a half negotiating every last detail of the Contract with

Dhiraj Handa. See Exhibits A and B attached hereto. Much of this negotiation occurred in Mr.

Handa’s office, with Mr. Handa revising over and over again the details of construction and

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pricing. See Exhibit B, Affidavit of Kamran Dargahi. The Yekk Defendants participated in this

process without receiving any payment and ultimately decided to enter into the Contract with

Plaintiffs.

4.D.5 Plaintiffs nevertheless argue that they were unaware that the Yekk Defendants would

receive a portion of the loan proceeds as their fee. They argue that the Yekk Defendants were

not entitled to any “profit” because the Contract calls for a fixed-price payment. What the

Plaintiffs do not offer, however, is any explanation of how the Yekk Defendants were to be paid

if not through a fee based on percentage completion of the construction. In this case the sum that

Yekk Construction Services, LLC was to receive as a contractor’s fee was left somewhat

undefined, but the Parties agreed that it would be between $84,000.00 and six percent (6%) of

the total Contract price, which was $87,600.00. It is hard to fathom that Plaintiffs would argue

that the Yekk Defendants were not entitled to any payment on the Contract, but that is what they

appear to be arguing. It goes without saying that it would be extremely unlikely for anyone to

work for three and a half years without payment. Likewise, it would have been extremely

unlikely that the Yekk Defendants would enter into a Contract that did not provide for their

payment.

4.D.6 The Yekk Defendants have presented summary judgment evidence that there was no

misappropriation of Plaintiffs’ trust funds, that they negotiated a fee for their services with

Plaintiffs, that they negotiated with Plaintiffs every aspect of construction and payment therefor,

and that that they did not conceal or fail to disclose any material facts to Plaintiffs. As a result,

the Yekk Defendants have raised a genuine issue of material fact as to Plaintiffs’ claims for fraud

and fraud by non-disclosure and partial summary judgment is therefore not appropriate on these

claims.

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APPENDIX 1
E. Statutory Fraud

4.E.1 The elements of fraud in a real estate transaction are set out in Chapter 27 of the Texas

Business and Commerce Code. In order to prove their cause of action for statutory fraud,

Plaintiffs must prove that the Yekk Defendants made a false representation of a past or existing

material fact to Plaintiffs for the purpose of inducing Plaintiffs to enter into the Contract and that

Plaintiffs relied on the false representation in entering into the Contract.

4.E.2 Once again, this cause of action is based on Plaintiffs’ assertion that the Yekk Defendants

induced Plaintiffs to enter into the Contract by misrepresenting that “all of Plaintiffs’ payments

would be used to fund the Project”. Plaintiffs’ Partial MSJ at 11. It is important to note that

nowhere in Plaintiffs’ Partial MSJ nor the evidence attached thereto is there any assertion that

the Yekk Defendants represented to Plaintiffs that they would not receive any payment on the

Contract. Thus, we are left with some ambiguity. Plaintiffs assert that the Yekk Defendants

misrepresented that “all of Plaintiffs’ payments would be used to fund the Project”, but they do

not assert that the Yekk Defendants represented they would receive no payment, nor do Plaintiffs

assert that there were no negotiations with the Yekk Defendants over what their payment would

be, and they do not offer any alternative payment plan.

4.E.3 There are, therefore, many unanswered questions: Did Plaintiffs believe that the Yekk

Defendants would not be paid for their work? If not, what did they believe their payment would

be? If it is unspecified under the terms of the Contract, the Court must take the Yekk

Defendants’ evidence as true and indulge every reasonable inference in their favor. The Yekk

Defendants have presented valid summary judgment evidence that the parties intended the Yekk

Defendants to be paid on the Contract and included this amount in the total Contract price; and

that the Yekk Defendants did not withdraw more in contractors’ fees than they were entitled to,

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APPENDIX 1
and in fact withdrew less than what they were owed. The Yekk Defendants have therefore raised

a genuine issue of material fact as to Plaintiffs’ claim that they misrepresented that all of

Plaintiffs’ payments would be used to fund construction of the Residence. Summary judgment is

therefore not appropriate on Plaintiffs’ claim of statutory fraud.

F. Breach of Contract Claim Against Yekk and Pejman Dargahi

4.F.1 The elements of a breach of contract claim are the existence of a valid contract,

performance by the plaintiff, breach by the defendant, and resulting damages suffered by the

plaintiff. Scott v. Sebree, 986 S.W.2d 364, 372 (Tex.App.-Austin 1999, pet. denied). As set out

in Plaintiffs’ Partial MSJ, Yekk Construction Services, LLC d/b/a Lakeway Custom Homes and

Renovation and Plaintiffs are parties to the Contract.

4.F.2 Plaintiffs argue that Yekk Construction Services, LLC and Pejman Dargahi (“Pejman”)

breached the Contract by refusing to complete construction of the Residence and by failing to

pay some of the subcontractors on the project. Plaintiffs argue that this has caused some

subcontractors to file liens on their property, further breaching the Contract.

4.F.3 Contrary to Plaintiffs’ assertions, Plaintiffs have not performed under the Contract and

their non-performance rendered performance by Yekk Construction Services, LLC and Pejman

impossible. Section XII of the Contract governs change orders. It reads in relevant part as

follows:

No alterations, additions or deletions will be made in the Work, unless
agreed to in writing by Owner and Lakeway Custom Homes and
Renovation. To approve a proposed change, both Owner and Lakeway
Custom Homes and Renovation shall sign a written approval referred to as a
Change Order…The cost of all extra work done and extra material
furnished pursuant to a Change Order is as calculated by Lakeway Custom
Homes and Renovation plus 8 percent for administrative expenses…The
cost for any work performed under a Change Order shall be paid
immediately or as agreed upon in the Change Order…All requests for
works performed at the property shall be directed to Lakeway Custom

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL MOTION FOR PARTIAL
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APPENDIX 1
Homes and Renovation only. Any and all works performed at the property
by Subcontractors without the approval of Lakeway Custom Homes and
Renovation are subject to additional charges and are considered change
orders. Additional fees and/or penalties may apply.

See Exhibit C to Plaintiffs’ Partial MSJ at 3.

4.F.4 The Contract provides that any proposed changes to the work done on the Residence

were to be requested in writing and submitted through Yekk Construction Services, LLC and not

submitted directly to subcontractors. Notwithstanding this provision, Plaintiffs repeatedly made

verbal changes to the work being done while present at the construction site and directed

subcontractors to proceed accordingly. This was done without discussing or getting prior

approval from Yekk Construction Services, LLC and/or Pejman. See Exhibit B attached hereto.

This resulted in drastically increasing the price of the Residence without corresponding advance

payment to Yekk Construction Services, LLC, and ultimately resulted in the $143,153.50 deficit

discussed above. The total amount of requested change orders on the Residence was

$185,793.00, but Plaintiffs only made change order payments in the amount of $132,492.00. See

Exhibit 2 to Exhibit A. This deficit in turn resulted in the Yekk Defendants being financially

unable to complete construction of the Residence.

4.F.5 This material breach of the Contract’s terms by Plaintiffs discharges performance by

Yekk Construction Services, LLC and Pejman. Long Trusts v. Griffin, 222 S.W.3d 412, 415

(Tex. 2006); Lazy M Ranch, Ltd. v. TXI Opers., L.P., 978 S.W.2d 678, 680-81 (Tex.App.-Austin

1998, pet. denied). A party that does not perform its obligations cannot enforce the remaining

terms of the contract against the other party. Interceramic, Inc. v. South Orient R.R. Co., 999

S.W.2d 920, 924 (Tex.App.-Texarkana 1999, pet. denied).

4.F.6 Plaintiffs also argue that Pejman Dargahi is individually liable for any breaches of Yekk

Construction Services, LLC’s obligations since he is a signatory of the Contract, and the

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL MOTION FOR PARTIAL
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APPENDIX 1
Contract does not “show[] unambiguously that the signature was made on behalf” of Yekk

Construction Services, LLC. See Plaintiff’s Partial MSJ at 11, citing TEX. BUS. & COM. CODE

ANN. §3.402. Chapter 3 of the Business and Commerce Code is titled “Negotiable Instruments”

and by its’ terms applies only to “negotiable instruments”. Id. at §3.102(a). Negotiable

instruments are defined in Section 3.104(a) as follows:

…an unconditional promise or order to pay a fixed amount of money,…, if
it: (1) is payable to bearer or to order at the time it is issued or first comes
into possession of a holder; (2) is payable on demand or at a definite time;
and (3) does not state any other undertaking or instruction by the person
promising or ordering payment to do any act in addition to the payment of
money,…”.

The Contract at issue is this case is clearly not a negotiable instrument such that Pejman Dargahi

could be found personally liable under Section 3.402 of the Business and Commerce Code. To

begin, payment under the Contract is predicated on the Yekk Defendants constructing the

Residence, and thus was not payable at the time it was issued and does contain an “undertaking”

which must be satisfied before payment will be made. See Exhibit C to Plaintiffs’ Partial MSJ at

Paragraph IV. Further, the Contract is not “payable on demand or at a definite time”, as

payment is only to be made pursuant to requests for “Progress Payments” based upon the

percentage completion of construction of the Residence. Id. at Paragraph V. Thus, Pejman

Dargahi could not be found personally liable on the Contract pursuant to Tex. Bus. & Com. Code

Ann. §3.402.

4.F.7 The Contract clearly states that it is entered into between Lakeway Custom Homes and

Renovation and Plaintiffs, and the signature block contains Pejman Dargahi’s name above

“Lakeway Custom Homes and Renovation”. Pejman has signed in his representative capacity

only, and there is no language in the Contract indicating otherwise. See Exhibit A attached

hereto. See also, A to Z Rental Ctr. V. Burris, 714 S.W.2d 433, 435 (Tex.App.-Austin 1986, writ

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL MOTION FOR PARTIAL
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APPENDIX 1
ref’d n.r.e.) (holding that a person making a contract with another as an agent for a disclosed

principal does not become a party to the contract, unless the parties have otherwise agreed). In

this case, there is no contractual language indicating that Pejman expressly agreed to be

individually bound on the subject Contract. See Mission Grove, L.P. v. Hall, 503 S.W.3d 546.

Further, there is no assertion by Dhiraj Handa that he believed he was entering into a contract

with Pejman Dargahi individually. Finding that Pejman is not personally liable on the basis of

his signature would also be in keeping with the general principle of contract law that

corporations must necessarily act through individuals, and that the individual signing a contract

in a representative capacity always “represents that the corporation intends to perform the

contract.” JJJJ Walker, LLC v. Yollick, 447 S.W.3d 453, 460 (Tex.App.-Houston [14th Dist.]

2014, pet. denied).

4.F.8 Yekk Construction Services, LLC and Pejman Dargahi have presented summary

judgment evidence that raises a genuine issue of material fact as to whether they breached the

Contract and as to whether Plaintiffs’ breach discharged them from further performance under

the Contract. Summary judgment on Plaintiffs’ claim for breach of contract against Yekk

Construction Services, LLC and Pejman Dargahi should therefore not be granted.

G. PRAYER FOR RELIEF

The Yekk Defendants respectfully pray that the Court grant their Plea in Abatement

requested along with their Motion to Compel Arbitration and previously heard by the Hon. Amy

Clark Meachum on May 24, 2017. The Yekk Defendants further request this Court to abate its

consideration of Plaintiffs’ Partial MSJ and further proceedings against the Yekk Defendants for

the duration of the Yekk Defendants’ accelerated appeal.

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL MOTION FOR PARTIAL
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APPENDIX 1
Subject to the above and without waiving the same, and in light of the evidence and

authorities presented herein, the Yekk Defendants further respectfully pray that the Court deny

Plaintiffs’ Partial MSJ as to Plaintiffs’ claims for violation of the Texas Construction Trust Fund

Act, common law fraud and statutory fraud, and for breach of contract. The Yekk Defendants

have raised a genuine issue of material fact as to each of these causes of action. The Yekk

Defendants pray for such other and further relief, at law or in equity, to which they may show

themselves to be entitled.

Respectfully submitted,

BUSH, RUDNICKI, SHELTON, P.C.

____/s/ Stephanie Lugo____________
James Rudnicki
State Bar No. 24006148
JRudnicki@BRSTexas.com
Russell Clinage
State Bar No. 00790473
RClinage@BRSTexas.com
Stephanie H. Lugo
State Bar No. 00793927
SLugo@BRSTexas.com
2508 Ashley Worth Blvd., Suite 200
Austin, Texas 78738
Telephone: (512) 263-8408
Facsimile: (512) 263-2562

ATTORNEYS FOR DEFENDANTS
PEJMAN DARGAHI, KAMRAN
DARGAHI, and YEKK
CONSTRUCTION SERVICES, LLC
d/b/a LAKEWAY CUSTOM HOMES
AND RENOVATION

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APPENDIX 1
CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing document was delivered to
all counsel of record in accordance with Rule 21a of the Texas Rules of Civil Procedure, via first
class mail, fax or by electronic delivery for those counsel available through the e-filing system,
on this the 20th day of June, 2017.

David A. King
dking@gdhm.com
G. Douglas Kilday
dkilday@gdhm.com
GRAVES, DOUGHERTY, HEARON & MOODY, P.C.
401 Congress Avenue, Suite 2200
Austin, Texas 78701
ATTORNEYS FOR PLAINTIFFS

___/s/ Stephanie Lugo_________________
Stephanie H. Lugo

DEFENDANTS’ RESPONSE TO PLAINTIFFS’ TRADITIONAL MOTION FOR PARTIAL
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APPENDIX 1
CAUSE NO. D-1-GN-16-0012679

DHIRAJ HANDA and RITU HANDA, § IN THE DISTRICT COURT OF
§
Plaintiffs §
§
v. §
§ TRAVIS COUNTY, TEXAS
PEJMAN DARGAHI, KAMRAN §
DARGAHI, YEKK CONSTRUCTION §
SERVICES, LLC, d/b/a LAKEWAY §
CUSTOM HOMES AND RENOVATION, §
PETE MARTINEZ JR. d/b/a PC §
CONCRETE WORKS, and RTOWN §
PLUMBING, §
§
Defendants § 261ST JUDICIAL DISTRICT

AFFIDAVIT OF PEJMAN DARGAHI

THE STATE OF TEXAS §
§
COUNTY OF TRAVIS §

BEFORE ME, the undersigned notary public, on this day personally appeared Pejman
Dargahi, who, first being duly sworn according to law, on his oath deposed and said:

1. My name is Pejman Dargahi. I am over 21 years of age and I am of sound mind
and capable of making this affidavit. The facts stated in this affidavit are within
my personal knowledge and are true and correct.

2. A Certificate of Formation for Yekk Construction Services, LLC was filed with
the Texas Secretary of State on approximately July 16, 2001. On or about July
20, 2007, Yekk Construction Services, LLC filed an Assumed Name Certificate
with the Texas Secretary of State, indicating Lakeway Custom Homes &
Renovation as its assumed name. Yekk Construction Services, LLC, d/b/a
Lakeway Custom Homes & Renovation is still a valid existing business in the
state of Texas.

3. Attached to this affidavit as Exhibit 1 are five (5) pages of records comprising the
Texas Secretary of State filings indicated above. These are original records or
exact duplicates of the original records.

Exhibit A

APPENDIX 1
4. It is the regular practice of Yekk Construction Services, LLC to make this type of
record at or near the time of each act, event, condition, opinion, or diagnosis that
was recorded.

5. The records were made by, or from information transmitted by, persons with
knowledge of the matters set forth in the record.

6. The records were kept in the course of regularly conducted business activity.

7. On or about April 4, 2014, Yekk Construction Services, LLC, d/b/a Lakeway
Custom Homes and Renovation (“Yekk Construction Services, LLC”) entered
into a Residential Construction Contract (the “Contract”) with Plaintiffs Ritu and
Dhiraj Handa pursuant to which Yekk Construction Services, LLC agreed to
construct a residence for Plaintiffs at 228 Sanostee Cove, Austin, Travis County,
Texas 78733 (the “Residence”).

8. I signed the Contract on behalf of Yekk Construction Services, LLC. At the time
that the Contract was executed, I was a member and manager of Yekk
Construction Services, LLC, and I executed the Contract in my capacity as a
member of Yekk Construction Services, LLC. I was not a builder for Plaintiffs
in my individual capacity.

9. Prior to execution of the Contract, Yekk Construction Services, LLC negotiated
with Plaintiffs for approximately a year and a half on all aspects of the design,
construction and pricing of the Residence. This negotiation took place from
approximately October, 2012 until April, 2014, and was conducted primarily by
my brother, Kamran Dargahi. Neither myself, Kamran Dargahi, nor Yekk
Construction Services, LLC received any payment from Plaintiffs during this time
period. All negotiations with Plaintiffs contemplated a payment to Yekk
Construction Services, LLC for reasonable overhead and profit, and this sum was
included in the calculation of the total Contract price.

10. Plaintiffs chose Regions’ Bank as their construction lender. When the loan was
initially funded, Yekk Construction Services, LLC received $43,800.00 in
“Contract Initiations” fees. See Exhibit “F” to Plaintiffs’ Partial MSJ. This
represented three percent (3%) of the Contract price and was intended to cover
start-up costs on the Residence, such as mobilization, insurance, fencing, and
temporary construction facilities, etc., as well as a small amount of reasonable
overhead and profit.

11. After the initial disbursement, we set up a construction account at Prosperity Bank
for the Plaintiffs’ project. This was done in order to ensure that all funding
received would be used exclusively on Plaintiff’s residence. Regions’ Bank
controlled the disbursement of additional Progress Payments. Specifically,
Progress Payments were based upon the allocated cost of completed phases of

Exhibit A

APPENDIX 1
construction and were governed by a draw schedule that was approved by both
Plaintiffs and Yekk Construction Services, LLC. Progress Payments were only
made by Regions’ Bank after that phase of construction was complete and passed
inspection by Regions’ Bank. All contractor fees withdrawn from Progress
Payments were to cover reasonable overhead and profit and were based on the
percentage completion of the Residence.

12. During the course of construction on the Residence, $68,227.75 was withdrawn
from construction funds as contractor fees in payment for Yekk Construction
Services, LLC’s work on the Residence. This amount represents roughly 75% of
the total amount of contractor fees to which Yekk Construction Services, LLC
was entitled. This is lower than the total percentage completion on the Residence,
which is listed as 90% completion on the November, 2015 Regions’ Bank
statement attached as Exhibit F to Plaintiffs’ Partial MSJ, and which was
determined to be approximately 94% complete by our own calculations. See
Exhibit 2 attached hereto and incorporated herein by reference, a Summary of
Fundings & Expenditures that I prepared from various spreadsheets that I
maintained throughout the course of this project. Based on the percentage of
completion, Yekk Construction Services, LLC could have legitimately withdrawn
approximately $78,000.00 in contractor fees at this stage of construction. The
contractor fees withdrawn were to cover reasonable overhead and profit based on
the percentage completion of the Residence.

13. Other than this $68,227.75 in contractor fees paid to Yekk Construction Services,
LLC, all trust funds disbursed by Regions’ Bank and all trust funds paid directly
by Plaintiffs, either initially or pursuant to change orders, were spent on the
construction or repair of the Residence. At no time did I or Yekk Construction
Services, LLC use any of Plaintiffs’ trust funds for purposes other than
construction or repair of the Residence.

14. The Contract required that all change orders be requested in writing by Plaintiffs
and approved by Yekk Construction Services, LLC. It also required that change
orders be paid for up-front unless otherwise agreed, and it prohibited change
orders being given directly to subcontractors by Plaintiffs. In spite of these
contractual provisions, Plaintiffs made numerous verbal changes to the work
being done while present at the construction site and directed subcontractors to
proceed accordingly. These change orders were not paid for up-front. In total,
Plaintiffs made $185,793.00 in requested change orders and paid only
$132,492.00. See Exhibit 2 attached hereto. Yekk Construction Services, LLC
was also given verbal instructions to proceed with change orders on numerous
occasions, with the assurance that the costs would be covered by Plaintiffs.

15. Yekk Construction Services, Inc. has actually sustained a loss on this project.
$1,370,147.50 was disbursed by Regions’ Bank and $132,492.00 was paid by
Plaintiffs in change orders, totaling $1,502,639.50. See Exhibit 2 attached hereto.

Exhibit A

APPENDIX 1
However, total costs on the Residence, including change orders are
$1,645,793.00, resulting in a deficit of $143,153.50. See Exhibit 2 attached
hereto. It is because of this deficit that we approached Plaintiffs in November,
2015, about the financial difficulties we were facing in going forward with the
project.

16. The total amount actually paid by Yekk Construction Services, LLC on the
project is $1,512,565.00, meaning that Yekk Construction Services, LLC paid out
$10,753.00 more on the Residence than it received. See Exhibit 2 attached hereto.
As a result, this is the balance due to Yekk Construction Services, LLC on the
Contract. Yekk Construction Services, LLC re-invested $10,753.35 of its'
$68,227.75 in contractor fees back into the Residence in an effort to keep the
project afloat. Thus, total withdrawals in contractor fees amount to $57,474.40,
representing only approximately 65% of the contractor fees to which Yekk
Construction Services, LLC was entitled.

17. I have represented to Plaintiffs throughout this process that the intent of Yekk
Construction Services, LLC was to fully complete the Project. Yekk Construction
Services, LLC did not intend to abandon the Project, but simply could no longer
pay its' subcontractors due to the financial deficit caused by the change order
costs.

18. As part of its' determination of whether to make the loan to Plaintiffs, Regions'
Bank required me to submit a financial statement. The initial statement is dated
February 20, 2014, and shows my net worth as $1,590.800. See Exhibit "A" to
Plaintiffs' Partial MSJ. This initial statement was produced to Plaintiffs by my
previous counsel. The second financial statement, dated August, 2016, shows my
net worth as $149,000. See Exhibit "B" to Plaintiffs' Partial MSJ. The primary
reason for this difference in the net worth represented is that the initial statement
included my personal assets, while the second statement included only the assets
of Yekk Construction Services, LLC. I do not know why my previous counsel
had me prepare the financial state er, but both statements wgre
true at the time they were issued.

an Dargahi

SUBSCRIBED AND SWORN TO BEFORE ME on this the day of June 2017 by
Pejman Dargahi, member and manager of Yekk Construction Services, LLC, d/b/a Lakeway
Custom Homes and Renovation, to certify which witness my hand and official seal.

NICOLE BURROW
My Notary ID # 128728242 Notiy RepuSje, State of Texas
t.-4 • •
......... Expires August 30, 2019

Exhibit A

APPENDIX 1
APPENDIX 1
rm.;—LIA

The State jf 'Texas
$taring of State

YEKR Cr'NSTRUCTION LLC

F-ILINt; NOM1E,R 07093179

Tit`' UNDERSTGNEO, AS SECRETARY qF STATE CF THE STATE OF TEXAS,

rEPTIFL-iS TritT TH ATTACHEfl skTICLT-S CF OPGAIZATION FOR THE

AB:2VE COMPANY HAVE 3E 7N kECIVED IN THIS CFCICE AND HAVE BEEN

E-AJN'L; CONFPRM Tj LAN.

ACCORDINGLY, THE ONDER3IGNEb, AS SEC ETARY OF STATE, AND BY VIRTUE

CF THr AUTHORTTY VESTCJ IN THE SECRETARY 2Y LAw, HEREBY ISSUES THIS

CF RTIFICATE Jr CRGANIZATION.

TSSoANCL IF THIS CERTIFICATE OF ORGANIZATION DOLS NOT AUTHORIZE

Ttli; or A Cu PANY NAME THIS STATE INt VIOLATION OF THE RIGHTS OF

AAOTHTR ENTITY UNDER TH7 FETJERAL TRADEMAkK ACT OF 1946, THE TEXAS TRADEMARK

LAW, TIN ASSUMEE 1OSINSS J PROFYSSI9NAL NAME 4CT OR THE C. OMMON LAW.

DATTD JULY 16, 2001

'',:FFFCTIV'.-- JULY 161 2001

Henry Cuellar, Secretary of State
Exhibit A-1
APPENDIX 1
APPENDIX 1
This space reserved for office use.
Form 503
(Revised 01/06)
FILED
Return in duplicate to: In the Office of the
Secretary of State of Texas
Secretary of State
P.O. Box 13697 JUL 20 2007
Austin, TX 78711-3697 Assumed Name Certificate
512 463-5555 Corporations Section
FAX: 512 463-5709
Filing Fee: $25

The assumed name under which the business or professional service is, or is to be, conducted or
rendered is: Lake.Jay CUS/Vtti Uotn s Reim vq1-10

The name of the entity filing the assumed name is:

)'eKK Cons-6c+1cprt rviva s L L
State the name of the entity as currently shown in the records of the secretary of state or on its certificate of formation, if
not filed with the secretary of state.
The filing entity is a: (Select the appropriate entity type below.)
0 For-profit Corporation 0 Professional Corporation

0 Nonprofit Corporation p Professional Limited Liability Company
❑ Cooperative Association ❑ Professional Association
IA Limited Liability Company 0 Limited Partnership

El Other
Specify type of entity if there is no check box applicable.
The file number, if any, issued to the filing entity by the secretary of state is: 7093/7722.
The state, country, or other jurisdiction of formation is: TeX( $
The registered or similar office of the entity in the jurisdiction of formation is:

IE The entity is required to maintain a registered office and agent in Texas. The address of its
registered office in Texas and the name of the registered agent at such address is:
c-i704Z, er Ir. La ke k ay 15( - 7g 73 8
e-,-)171 1/1 ct r 1
4 0
The address of the principal office ?-if the entity (if not the same as the registered office) is:

The entity is not required to maintain a registered office and agent in Texas. Its office address in
RECEIVED
4
Jit Yo 2007
Exhibit A-1
A-1 —
APPENDIX 1
Exhibit
APPENDIX 1
in Texas is:

E3 The entity is not incorporated, organized or associated under the laws of Texas. The address of
the principal place of business in this state is:

The office address of the entity is:

Period of Oration
The period during which the assumed name will be used is 10 years from the date of filing with
the secretary of state.
OR
E The period during which the assumed name will be used is years from the date of filing
with the secretary of state (not to exceed 10 years).
OR
E The assumed name will be used until (not to exceed 10 years).
mnildcl/yyyy

County or Counties in r ch Assumed Name Used
The county or counties where business or professional services are being or are to be conducted or
rendered under the assumed name are:
All counties
7 A!! counties with the exception of the following counties:

E Only the following counties:

The undersigned signs this document subject to the penalties imposed by law for the submission of a
materially false or fraudulent instrument. If the undersigned is acting in the capacity of an attorney in
fact for the entity, the undersigned certifies that the entity has duly authorized the undersigned in
writing to execute this document.

Date: 7A5/07

?e.3 m i4 Y5 c1/411 / VYt ecv1cW Y_
t
Signature and title of authorized person(s) (see instructions)

Forril 503 5

Exhibit A-1
Exhibit A-1
APPENDIX 1
APPENDIX 1
Corporations Section Phil Wilson
P.O.Box 13697 Secretary of State
Austin, Texas 78711-3697

Office of the Secretary- of State

July 23, 2007

Yekk Construction, LLC.
125 Schooner Dr.
Lakeway, TX 78738 USA

RE: YEKK CONSTRUCTION SERVICES. LLC
File Number: 709317922

Assumed Name:
Lakeway Custom Homes & Renovation

File Date: 07/20/2007

It has been our pleasure to file the assumed name certificate for the above referenced entity. Enclosed
is the certificate evidencing filing. Payment of the filing fee is acknowledged by this letter.

In addition to filing with the Secretary of State, Chapter 36 of the Texas Business and Commerce Code
requires filing of the assumed name certificate with the county clerk in the county in which the
principal office of the entity is located. If the entity is required by law to maintain a registered office
in Texas. the assumed name certificate is also required to be filed in the county in which the registered
office is located.

If we can be of further service at any time, please let us know.

Sincerely,

Corporations Section
Business & Public Filings Division

Enclosure

Come visit us on the interim at http://www.sos.state.tx.us/
Phone: (512) 463-5555 Fax: (512) 463-5709 Dial: 7-1-1 for Relay Services
Prepared by: Laura Canales TID: 10336 Document: 179246510002

Exhibit A-1
APPENDIX 1
Exhibit A-1
APPENDIX 1

Office of the Secretary of State

CERTIFICATE OF FILING
OF

YEKK. CONSTRUCTION SERVICES, LLC
File Number: 709317922
Assumed Name:
Lakeway Custom Homes & Renovation

The undersigned, as Secretary of State of Texas. hereby certifies that the assumed name ertificate For the
above named entity has been received in this office and filed as provided by law on the d c shown below.

ACCORDINGLY the undersigned, as Secretary of State. and by virtue of the autho ty vested in the
secretary by law hereby issues this Certificate of Filing.

Dated: 07/20/2007

Effective: 07/20/2007

Phil Wilson
Secretary of State

Come visit us on the inturnet at hup://www..sys..slate./x. us/
Phone: (512) 463-5555 Fax: (512) 463-5709 Dial: 7-1-1 for Relay Services
Prepared by: Laura Canales TID: 10342 Docum nt: 179246510002

Exhibit A-1
Exhibit A-1
APPENDIX 1
PPENDIX 1
YEKK Construction services, LLC. Dba/

Lakeway Custom Homes
125 Schooner, Dr. Lakeway, TX. 78738 (512)415-3640

25 December 2016

Ms. Stephanie H. Lugo
Bush, Rudnicki, Shelton

Re: 228 Sanostee

SUMMARY OF FUNDINGS & EXRENDITURES

Please find simplified summary of funding & expenditures associated with this
project for the account ending 9255.

You have at this time copies of all supporting documentations.

Base contract: $1,460,000
Completed & inspected by the bank at about 94%
Received $ 1,370,147 Amount left from contract: $89,853

Change Orders: $185,793
Received $ 132,492 Balance Due : $53,301

Amount spent for subcontractors Bad workmanship: $ 50,160

Total Contract & CO's: $ 1,645,793
1. Amount spent on project: $ 1,501,812
2. Additional amount paid from regular acct for this project: $ 10,753
3. Amount paid by error from this account: < $5,396>
4. Amount received for Profit & overhead (i.e. salaries, purchasing,
advertisements, legal fees, taxes) <$68,228>
5. Amount spent for subcontractors Bad workmanship: <$ 50,160>

Totals direct expenditure on labor, material & services = $ 1,388,782

Exhibit A-2
A-2
APPENDIX 1
Exhibit
APPENDIX 1
Bal. From Contract & CO's : $143,154

Amount due to LCH:

From Owner on CO's.: $53,301
From revised contract: $89,853

Total: $ 143,154

Weather Delays:
On Contract: 45 Days
On CO's: 32 Days
On Fire sprink. System: 55 Days

Total Amount Due from weather delay at $145/Day $ 19,140

Paje Dargahi
Lakeway Custom Homes & Renovation

Exhibit A-2
A-2
APPENDIX 1
Exhibit
APPENDIX 1
CAUSE NO. D-1-GN-16-0012679

DHIRAJ HANDA and RITU HANDA, § IN THE DISTRICT COURT OF
§
Plaintiffs §
§
v. §
§ TRAVIS COUNTY, TEXAS
PEJMAN DARGAHI, KAMRAN §
DARGAHI, YEKK CONSTRUCTION §
SERVICES, LLC, d/b/a LAKEWAY §
CUSTOM HOMES AND RENOVATION, §
PETE MARTINEZ JR. d/b/a PC §
CONCRETE WORKS, and RTOWN §
PLUMBING, §
§
Defendants § 261ST JUDICIAL DISTRICT

AFFIDAVIT OF KAMRAN DARGAHI

THE STATE OF TEXAS §
§
COUNTY OF TRAVIS §

BEFORE ME, the undersigned notary public, on this day personally appeared Kamran
Dargahi, who, first being duly sworn according to law, on his oath deposed and said:

1. My name is Kamran Dargahi. I am over 21 years of age and I am of sound mind
and capable of making this affidavit. The facts stated in this affidavit are within
my personal knowledge and are true and correct.

2. On or about April 4, 2014, Yekk Construction Services, LLC, d/b/a Lakeway
Custom Homes and Renovation (“Yekk Construction Services, LLC”) entered
into a Residential Construction Contract (the “Contract”) with Plaintiffs Ritu and
Dhiraj Handa pursuant to which Yekk Construction Services, LLC agreed to
construct a residence for Plaintiffs at 228 Sanostee Cove, Austin, Travis County,
Texas 78733 (the “Residence”).

3. At the time that the Contract was executed, I worked for Yekk Construction
Services as its’ Project Manager. I was not a builder for Plaintiffs in my
individual capacity.

4. Prior to execution of the Contract, Yekk Construction Services, LLC negotiated
with Plaintiffs for approximately a year and a half on all aspects of the design,

Exhibit B

APPENDIX 1
construction and pricing of the Residence. I conducted the bulk of this
negotiation on behalf of Yekk Construction Services, LLC. This negotiation took
place from approximately October, 2012 until April, 2014, and much of it took
place in Dhiraj Handa’s office, with Mr. Handa revising the pricing many times.
Neither myself, my brother, Pejman Dargahi, nor Yekk Construction Services,
LLC received any payment from Plaintiffs during this time period. All
negotiations with Plaintiffs contemplated a payment to Yekk Construction
Services, LLC for reasonable overhead and profit, and this sum was included in
the calculation of the total Contract price. The amount that was ultimately agreed
upon as Yekk Construction Services, LLC’s contractor fee was left somewhat
undefined, but was agreed to be between $84,000.00 and six percent (6%) of the
total Contract price, which was $87,600.00.

5. Plaintiffs chose Regions’ Bank as their construction lender. When the loan was
initially funded, Yekk Construction Services, LLC received $43,800.00 in
“Contract Initiations” fees. See Exhibit “F” to Plaintiffs’ Partial MSJ. This
represented three percent (3%) of the total Contract price, and was intended to
cover start-up costs on the Residence, such as mobilization, insurance, fencing,
and temporary construction facilities, etc., as well as a small amount of reasonable
overhead and profit. It was agreed that Yekk Construction Services, LLC would
receive the remainder of its’ contractor fees over the course of receiving Progress
Payments as defined in the Contract. We agreed to this arrangement on payment
as a favor to Plaintiffs because we had developed a relationship with them over
the course of negotiating the Contract.

6. After the initial disbursement, we set up a construction account at Prosperity Bank
for the Plaintiffs’ project. This was done in order to ensure that all funding
received would be used exclusively on Plaintiffs’ residence. Regions’ Bank
controlled the disbursement of additional Progress Payments. Specifically,
Progress Payments were based upon the allocated cost of completed phases of
construction and were governed by a draw schedule that was approved by both
Plaintiffs and Yekk Construction Services, LLC. Progress Payments were only
made by Regions’ Bank after that phase of construction was complete and passed
inspection by Regions’ Bank. All contractor fees withdrawn from Progress
Payments were to cover reasonable overhead and profit and were based on the
percentage completion of the Residence.

7. During the course of construction on the Residence, $68,227.75 was withdrawn
from construction funds as contractor fees in payment for Yekk Construction
Services, Inc.’s work on the Residence. This amount represents roughly 75% of
the total amount of contractor fees to which Yekk Construction Services, Inc. was
entitled. This is lower than the total percentage completion on the Residence,
which is listed as 90% completion on the November, 2015 Regions’ Bank
statement attached as Exhibit F to Plaintiffs’ Partial MSJ, and which was
determined to be approximately 94% complete by our own calculations. See

Exhibit B

APPENDIX 1
Exhibit 2 to the Affidavit of Pejman Dargahi. Based on the percentage of
completion, Yekk Construction Services, LLC could have legitimately withdrawn
approximately $78,000.00 in contractor fees at this stage of construction. The
contractor fees withdrawn were to cover reasonable overhead and profit based on
the percentage completion of the Residence.

8. Other than this $68,227.75 in contractor fees paid to Yekk Construction Services,
Inc., all trust funds disbursed by Regions’ Bank and all trust funds paid directly
by Plaintiffs, either initially or pursuant to change orders, were spent on the
construction or repair of the Residence. At no time did I or Yekk Construction
Services, Inc. use any of Plaintiffs’ trust funds for purposes other than
construction or repair of the Residence.

9. The Contract required that all change orders be requested in writing by Plaintiffs
and approved by Yekk Construction Services, LLC. It also required that change
orders be paid for up-front unless otherwise agreed, and it prohibited change
orders being given directly to subcontractors by Plaintiffs. In spite of these
contractual provisions, Plaintiffs made numerous verbal changes to the work
being done while present at the construction site and directed subcontractors to
proceed accordingly. These change orders were not paid for up-front. In total,
Plaintiffs made $185,793.00 in requested change orders and paid only
$132,492.00. See Exhibit 2 to Exhibit A. Yekk Construction Services, LLC was
also given verbal instructions to proceed with change orders on numerous
occasions, with the assurance that the costs would be covered by Plaintiffs.

10. Yekk Construction Services, LLC has actually sustained a loss on this project.
$1,370,147.50 was disbursed by Regions’ Bank and $132,492.00 was paid by
Plaintiffs in change orders, totaling $1,502,639.50. See Exhibit 2 attached to
Exhibit A. However, total costs on the Residence, including change orders are
$1,645,793.00, resulting in a deficit of $143,153.50. See Exhibit 2 to Exhibit A.
It is because of this deficit that we approached Plaintiffs in November, 2015,
about the financial difficulties we were facing in going forward with the project.

11. The total amount actually paid by Yekk Construction Services, LLC on the
project is $1,512,565.00, meaning that Yekk Construction Services, LLC paid out
$10,753.00 more on the Residence than it received. See Exhibit 2 to Exhibit A.
As a result, this is the balance due to Yekk Construction Services, LLC on the
Contract. Yekk Construction Services, LLC re-invested $10,753.35 of its’
$68,227.75 in contractor fees back into the Residence in an effort to keep the
project afloat. Thus, total withdrawals in contractor fees amount to $57,474.40,
representing only approximately 65% of the contractor fees to which Yekk
Construction Services, LLC was entitled.

12. I have represented to Plaintiffs throughout this process that the intent of Yekk
Construction Services, LLC was to fully complete the Project. Yekk Construction

Exhibit B

APPENDIX 1
Services, LLC did not intend to abandon the Project, but simply could no longer
pay its' subcontractors due to the financial deficit caused by the change order
costs.

Kamran Dargahi

SUBSCRIBED AND SWORN TO BEFORE ME on this the day of June 2017 by
Kamran Dargahi, to certify which witness my hand and official seal.

Ait/
NICOLE BURROW Not. Repu . , State of Texas
My Notary ID # 128728242
Expires August 30, 2019

Exhibit B

1
APPENDIX 1
APPENDIX