Affidavit of Peter Belli

Case 1:07-cv-11597-GAO Document 18 Filed 09/06/07 Page 1 of 33
UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS
WESTERN DIVISION
ALLIED HOME MORTGAGE CAPITAL

CORPORATION,
Plaintiff
Civil Action No. 07-11597-NG
v.
PETER BELLI
Defendant
AFFIDAVIT OF PETER BELLI
I, Peter Belli, declare under the pains and penalties of perjury that the following is true
and correct.
1. I am an adult resident of Milford, Massachusetts and am the named Defendant in this
action which has been brought by my former employer, Allied Home Mortgage Capital
Corporation (“Allied”). I make this affidavit in connection with my opposition to Allied’s
motion for a preliminary injunction and in support of my proposed stipulated injunction,
submitted together herewith.
2. From October 1, 1998 until I was terminated on August 23, 2007, I was employed in
the position of Branch Manager with Allied. Although I started with a single branch, during my
nine (9) year tenure with Allied, I grew the business and at the time of termination I was running
five (5) branches (i.e, Milford and Foxboro, Massachusetts; Cranston, Rhode Island; Weirton,
West Virginia; and Kansas City, Missouri).
Allied’s “Net Branch” System
3. When I was approached by Allied in 1998, Allied had approximately 250 branch
offices throughout the United States which it operated under its so-called “Net Branch” system.
As initially described to me by Allied, the “Net Branch” concept was similar to a franchise
relationship. Essentially, Allied would be paid a predetermined, fixed fee on loans processed
through the branch with the balance being distributed to me. From this balance I would be
responsible for all of my branch expenses, including equipment, supplies and office rent. In this
fashion, I would essentially be running my own business with complete control over the
budgeting and operations of my branch office.
4. This concept was initially outlined to me in a letter dated September 18, 1998 from
Allied’s CEO, Jim Hodge, stating as follows:
“Once set up with our system, you will have complete control of
your expenses, supplies and other costs. As a Branch Manager
[for Allied] you will have control of the pricing of the products you
sell, and after paying the predetermined hard costs involved in
completing the loan, you will be paid the remaining income. Our
Branch Managers are always aware of, and in control of, the
amount they earn on each loan.” (emphasis added)
A true and accurate copy of this letter is attached hereto as EXHIBIT A.
5. After I became employed by Allied in October, 1998, it was made clear to me that all
branch related costs were my responsibility and were to be paid from my net income. In fact, I
received written instructions from Allied as to the accounting arrangements for branch expenses.
These instructions stated that, “[a]ll services must be arranged for in your name …[y]ou are
personally liable for all expenses.” A true and accurate copy of Allied’s instructions for
accounting expenses is attached hereto as EXHIBIT B. Under this “Net Branch” arrangement, I
was directed to forward all loan processing revenues from each branch to Allied’s home offices
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in Houston, Texas. Allied then deducted its fixed fee of 0.30% on each loan. The balance was
to be returned to me, less any branch expenses which I decided to incur. 1
6. It was my understanding that this complex accounting arrangement for expenses was
imposed by Allied in an attempt to technically conform with certain requirements imposed by
HUD/FHA lending regulations.
7. Allied’s operation of the “Net Branch” system in this fashion allowed me to have
complete control over the growth of the offices and over my own compensation. If I decided to
incur additional expenses these were personal liabilities which were paid for by me through my
surplus income in the hands of Allied. Although the expenses were paid by Allied, these were
expenditures which I had incurred, for which I was liable and which were paid from my net
income revenues.
8. During my tenure with Allied I expanded the mortgage loan business by opening
several other offices. The leases for these offices were entered into in my own name. The rents
were then paid directly by Allied from my fee income forwarded to Allied.
9. This “Net Branch” arrangement also allowed Allied to expand its business to over
700 offices during the years that I was employed there.
My Decision to Acquire Computer Servers for my Branch Offices
10. Beginning in approximately 2001 and continuing through 2005, I made the decision
to acquire computer server equipment in connection with the operations of my offices in Milford
and Foxboro, Massachusetts and in Rhode Island, Missouri and West Virginia. Ultimately, I
1
By way of illustration, if my branch processed a $100,000 loan, the branch revenue earned on the loan was roughly
3%, or $3,000. This sum was then forwarded to Allied and Allied was then entitled to deduct from that amount
0.30% (i.e., $300) as its fixed fee. The balance was to be remitted to me, less the designated branch expenses for
which I was responsible.
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acquired twenty-two (22) computer servers (the “Servers”) which are presently the subject of this
litigation.
11. All of the Servers were acquired by me through Allied’s “Net Branch” accounting
process. In other words, the purchase price for the Servers was paid from my fee income in the
hands of Allied. The total cost of the Servers was in excess of $80,000.00. If I had decided not
to purchase the Servers, then these funds would have been paid to me.
12. Over the years I also paid for maintenance, upgrades and service expenses for the
Servers which I had decided were necessary for the operation of my branches. Once again, all of
these expenditures were paid from my net income revenue under the Allied “Net Branch”
system.
13. In this litigation, Allied has submitted to this Court copies of invoices to Allied from
the vendors for the Servers, along with copies of Allied’s checks for payment. (See, Declaration
of David Langston dated August 31, 2007, EXH.B thereto). However, Allied has failed to
disclose to this Court that the funds for payment of the Servers were actually taken from my net
income revenue, pursuant to Allied’s “Net Branch” accounting arrangement described above.
14. With respect to the form of the vendor invoices, these were issued in Allied’s name
because the Server vendors were participants in a teaming arrangement under Allied’s
“Employee Purchase Program”. Under this program, Allied employees could make personal
purchases, through Allied, at discount pricing. Attached hereto as EXHIBIT C is a description
from Allied’s website of its “Employee Purchase Program” described as “[y]our personal
corporate purchasing portal!” Under this program Allied employees were permitted to make
“personal computing purchase” from CDW Computer Centers (“CDW”) through Allied. (See,
EXH.C hereto, p.2). CDW was the vendor for approximately seven (7) Servers which I have
4
most recently purchased. The vendors for the remaining Servers previously purchased by me,
had also been participants in Allied’s Employee Purchase Program. All of my Servers were
purchased through this Program. In short, this Program explains why the vendor invoices for the
Servers were issued in Allied’s name, rather than to me.
15. All of the Servers purchased by me were delivered to my main branch office at 189
Main Street in Milford, Massachusetts. The Milford office, like other branches which I operate,
is leased by me personally. Attached hereto as EXHIBIT D is a true and accurate copy of the
original lease dated June 1, 1999 for the Milford office. However, in early July, 2007, I was
contacted by Jim Hodge and David Langston at Allied requesting that I consider moving the
Servers to a “climate controlled” data center vault located in a Marlborough, Massachusetts. I
was told that this would be a better environment for computer equipment. Because my office
space in Milford was cramped, I did not have any objection to my Servers being moved to
Marlborough. In hindsight, I now believe that Allied had already decided to terminate my
employment and was suggesting relocation of this equipment as a pretext so as to obtain
possession of my Servers.
16. I do not believe that Allied has the right to ownership of the Servers, which were
purchased by me from my income revenues. In fact, my employment agreement with Allied did
not provide that equipment which I purchased from my income revenues would become an asset
of Allied’s, or that such equipment was to be returned to Allied upon termination.
17. Furthermore, I have consistently treated equipment purchased under Allied’s “Net
Branch” system as my own. For example, in April, 2007 one of the offices that I started (i.e.,
Scottsdale, Arizona) was closed. Like my other branch offices, the lease on that office was in
my name. After the operation was closed, I retained, with Allied’s knowledge, all equipment
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which had been purchased from my revenues. This included computer equipment and the phone
system. Upon information and belief, other Allied branch managers have similarly retained their
equipment following closure of their offices.
18. Over the years I have developed a data center business using my Servers as a host
for computer data, programs, websites, and the like for other persons and business. At present
there are at least twenty-three (23) such third parties that maintain and use electronic information
on my Servers. This information is private and proprietary to those parties.
SIGNED UNDER THE PAINS AND PENALTIES OF PERJURY THIS 6th DAY OF
SEPTEMBER, 2007.
/s/ Peter Belli

Peter Belli
CERIFICATE OF SERVICE
I hereby certify that this document filed through the ECF system will be sent
electronically to the registered participants as identified on the Notice of Electronic Filing (NEF)
and paper copies will be sent to those indicated as non-registered participants on September 6,
2007.
/s/ Philip F. Coppinger

Philip F. Coppinger
6

Affidavit of Peter Belli

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Case 1:07-cv-11597-GAO Document 18 Filed 09/06/07 Page 1 of 33

UNITED STATES DISTRICT COURT

ALLIED HOME MORTGAGE CAPITAL

AFFIDAVIT OF PETER BELLI

1. I am an adult resident of Milford, Massachusetts and am the named Defendant in this

Corporation (“Allied”). I make this affidavit in connection with my opposition to Allied’s

motion for a preliminary injunction and in support of my proposed stipulated injunction,

submitted together herewith.

West Virginia; and Kansas City, Missouri).

Allied’s “Net Branch” System

budgeting and operations of my branch office.

Allied’s CEO, Jim Hodge, stating as follows:

A true and accurate copy of this letter is attached hereto as EXHIBIT A.

to be returned to me, less any branch expenses which I decided to incur. 1

imposed by Allied in an attempt to technically conform with certain requirements imposed by

HUD/FHA lending regulations.

700 offices during the years that I was employed there.

My Decision to Acquire Computer Servers for my Branch Offices

purchases, through Allied, at discount pricing. Attached hereto as EXHIBIT C is a description

Servers were issued in Allied’s name, rather than to me.

Servers to a “climate controlled” data center vault located in a Marlborough, Massachusetts. I

employment and was suggesting relocation of this equipment as a pretext so as to obtain

of Allied’s, or that such equipment was to be returned to Allied upon termination.

equipment following closure of their offices.

on my Servers. This information is private and proprietary to those parties.

/s/ Peter Belli

/s/ Philip F. Coppinger

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