Free Response to Motion - District Court of Federal Claims - federal

Case 1:05-cv-00956-CCM

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS DAVID S. LITMAN And MALIA A. LITMAN, Plaintiffs-Counterdefendants, v. THE UNITED STATES, Defendant-Counterplaintiff ____________________________________ ROBERT B. DIENER And MICHELLE S. DIENER, Plaintiffs-Counterdefendants, v. THE UNITED STATES, Defendant-Counterplaintiff ____________________________________ HOTELS.COM, INC. and Subsidiaries (f/k/a HOTEL RESERVATIONS NETWORK, INC.) Plaintiffs, v. THE UNITED STATES, Defendant ____________________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

No. 05-956T

No. 05-971T

No. 06-285T (Judge Christine O.C. Miller)

HOTELS.COM AND SUBSIDIARIES' OBJECTIONS TO DAVID S. LITMAN, MALIA A. LITMAN, ROBERT B. DIENER AND MICHELLE S. DIENER'S MOTIONS FOR LEAVE TO FILE DEPOSITION TESTIMONY Plaintiffs Hotels.com and Subsidiaries ("Hotels.com") object as follows to Plaintiffs-Counterdefendants, David S. Litman, Malia A. Litman, Robert B. Diener and Michelle S. Diener's Motions for Leave to File Deposition Testimony of Eric DeGraw, Mel Robinson, Christine Zeikel, James Horan, and Andrew Pells. To the extent Hotels.com designated testimony to which we now object, such designations were protective in nature in the event our objections (which were anticipated at the time of our designations and are set forth herein) were overruled. In 1

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the event the Court overrules any objection, where surrounding or related testimony was designated by Hotels.com, we rely on our original designation. Witness and Testimony Subject Designation DeGraw Asset Purchase 40:20 - 41:5 Agreement and the Amended and Restated Asset Purchase Agreement Objection Foundation Basis for Objection Witness testified that he lacks personal knowledge regarding all aspects of the Asset Purchase Agreement other than the tax due diligence, and all aspects of the Amended and Restated Asset Purchase Agreement. (DeGraw Dep. 18:9 ­ 19:9 (acquisition involvement limited to due diligence); 27:8 ­ 11 (no involvement in amendment)). [hereinafter "Admitted Lack of Personal Knowledge re Agreement and Amended Agreement"] Admitted Lack of Personal Knowledge re Agreement and Amended Agreement

DeGraw 46:10 ­ 17

DeGraw 50:8 ­ 51:9

Asset Purchase Agreement and the Amended and Restated Asset Purchase Agreement Value of additional goodwill reported on HRN 2000 IRS Form 1120

Foundation

Foundation and Opinion Testimony by Lay Witness

DeGraw 55:7 ­ 11

Preparation for IRS audit and communications concerning same

Hearsay, Settlement Preparation, Preparation for IRS Audit

DeGraw lacks personal knowledge as to the number used on the tax return (50:14), did not review subsidiary tax returns (100:18 ­ 101:18); did not recall reviewing the HRN 2000 Form 1120 ( 101:19 ­ 102:4). [hereinafter "Admitted Lack of Personal Knowledge re HRN's 2000 IRS Form 1120"]. Additionally, testimony seeks to elicit opinion testimony from lay witness concerning GAAP and tax accounting requirements, where witness was not qualified to offer such testimony. [hereinafter "GAAP/Tax Opinion Testimony by Lay Witness"] Subject of motion in limine: what occurred administratively is irrelevant to refund litigation because the standard of review is de novo [hereinafter "de novo Review of Refund Litigation"]. Further, any discussions concerning settlement, including positions considered or taken in connection with settlement, are barred under FRE 408 [hereinafter "FRE 408"].

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Witness and Testimony Subject Designation DeGraw Reasonableness of 56:20 ­ Deloitte Valuation 58:11

Objection Opinion Testimony by Lay Witness

Basis for Objection Witness testimony on reasonableness of valuation results, where witness admits to being unqualified to evaluate valuations (58:7 - 11) is inadmissible opinion testimony by lay witness [hereinafter "Lay Witness Opinion Testimony re Reasonableness of Valuation"]. de novo Review of Refund Litigation and FRE 408

DeGraw 63:21 ­ 65:4

Preparation for IRS audit and communications concerning same Preparation for IRS audit and communications concerning same Preparation for IRS audit and communications concerning same Testimony concerning filing original and amended return Communications concerning IRS audit

DeGraw 66:8 ­ 67:21

DeGraw 87:11 ­ 18

DeGraw 90:6 - 15

Hearsay, Settlement Preparation, Preparation for IRS Audit Hearsay, Settlement Preparation, Preparation for IRS Audit Hearsay, Settlement Preparation, Preparation for IRS Audit Hearsay; Foundation

de novo Review of Refund Litigation and FRE 408

de novo Review of Refund Litigation and FRE 408

DeGraw 90:16 - 22

DeGraw 91:5 ­ 11 DeGraw 94:7 ­ 95:22

Testimony concerning "the company" Preparation for IRS audit and communications concerning same IRS audit and communications concerning same

Hearsay, Settlement Discussions, IRS Audit Hearsay; Foundation Hearsay, Settlement Preparation, Preparation for IRS Audit Hearsay, Settlement Preparation, Preparation for IRS Audit 3

Witness testified that he did not review subsidiaries' tax returns, and that he did not recall reviewing the HRN, Inc. 2000 tax return (100:18 ­ 102:4) de novo Review of Refund Litigation and FRE 408

Witness testified regarding "the company's" position, unclear whether referencing parent or subsidiary and hearsay de novo Review of Refund Litigation and FRE 408

DeGraw 98:19 ­ 99:7

de novo Review of Refund Litigation and FRE 408

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Witness and Designation DeGraw 113:21 ­ 114:12

Testimony Subject Preparation for IRS audit and communications concerning same Share value against which to apply discounts

Objection Hearsay, Settlement Preparation, Preparation for IRS Audit Foundation

Basis for Objection de novo Review of Refund Litigation and FRE 408

Ziekel 57:1 ­ 4

Ziekel 73:7 ­ 74:6 Pells 77:7 ­ 78:8

Insider trading law

USA communications

Horan 15:19 ­ 16:10

Communication re purported review of BVS appraisal by KPMG

Horan 16:22 ­ 17:18

Communication re purported review of BVS appraisal by KPMG

Ziekel was the primary author of the Deloitte & Touche report prepared on behalf of Hotels.com. Question assumes that Ziekel's report applied discounts to a certain stock price, but the report did not determine a price against which the discount should be applied, it only determined a discount. Legal Opinion Witness testimony concerning legal standards governing insider trading is impermissible legal testimony. Hearsay Pells' testimony concerning USA's communications in the context of negotiating his non-compete agreement is inadmissible hearsay. Hearsay, Subject of motion in limine: Horan's Foundation testimony concerning purported conversations he had with a member of KPMG's valuation practice following their purported review of a draft Mitchell report is inadmissible hearsay. Further, because Horan testified that he lacked personal knowledge concerning the scope and methods of that purported review, any such testimony by Horan lacks foundation and is therefore inadmissible (59:11 ­ 15; 93:12 20). (Horan was not provided with any written analysis of this purported work.). [hereinafter "KPMG Purported Valuation Review Communications"] Hearsay; KPMG Purported Valuation Review Foundation Communications. Further, any testimony concerning this memorandum is inadmissible hearsay because it was not qualified as a business record. Failure to establish that it was contemporaneous to the event that it records, or that it was made by or from information transmitted by a person with knowledge acting in the regular course of business. [hereinafter "Incomplete Business Record Foundation"] 4

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Witness and Testimony Subject Designation Horan Communication re 81:9 ­ 83:20 purported review of BVS appraisal by KPMG Horan Communication re 82:8 ­ 83:20 purported review of BVS appraisal by KPMG

Objection Hearsay

Basis for Objection KPMG Purported Valuation Review Communications; Incomplete Business Record Foundation. Even if business record requirements are satisfied in connection with the memo, the memo contains inadmissible double hearsay concerning third party conversations, and testimony regarding this portion (as well as the portion of the document) is inadmissible hearsay. KPMG Purported Valuation Review Communications; Incomplete Business Record Foundation. KPMG Purported Valuation Review Communications; Incomplete Business Record Foundation. Out of court statements are inadmissible hearsay, therefore testimony regarding statements by the Audit Committee or the Board are inadmissible. [hereinafter "Hearsay Audit Committee/ Board Conversations"] Robinson also was not employed by HRN until after the IPO, so any testimony by Robinson concerning the IPO is lacking personal knowledge and thus without foundation and also hearsay. [hereinafter "Lacking Personal Knowledge"] Hearsay Audit Committee/ Board Conversations, Lacking Personal Knowledge Hearsay Audit Committee/ Board Conversations, Lacking Personal Knowledge Hearsay Audit Committee/ Board Conversations, Lacking Personal Knowledge Witness testimony on reasonableness of valuation results, where witness admits to being unqualified to evaluate valuations is inadmissible testimony. Hearsay Audit Committee/ Board Conversations, Lacking Personal Knowledge

Hearsay

Horan 86:24 ­ 90:24 Horan 94:8 ­ 95:9

Robinson 27:10 ­ 28:2

Communication re purported review of BVS appraisal by KPMG Communication re purported review of BVS appraisal by KPMG Audit Committee/ Board Conversations

Hearsay

Hearsay

Hearsay, Foundation

Robinson 28:22 ­ 29:4 Robinson 30:13 - 18 Robinson 32:1 ­ 11 Robinson 32:7 ­ 35:6

Audit Committee/ Board Conversations Audit Committee/ Board Conversations Audit Committee/ Board Conversations Reasonableness of Deloitte Valuation

Hearsay, Foundation Hearsay, Foundation Hearsay, Foundation Opinion Testimony by Lay Witness Hearsay, Foundation 5

Robinson 35:7 ­ 25

Audit Committee/ Board Conversations

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Witness and Testimony Subject Designation Robinson Reasonableness of 37:9 ­ 16 Deloitte Valuation

Objection Opinion Testimony by Lay Witness

Basis for Objection Witness testimony on reasonableness of valuation results, where witness admits to having no prior experience in evaluating valuations (33:23 ­ 34:11), does not specifically recall who at HRN approved the use of the Deloitte report (64:18 ­ 65:18), and did not testify that he had read the report or was familiar with its contents (65:10 ­ 24) is inadmissible opinion testimony by lay witness. [hereinafter "Lay Witness Opinion Testimony re Reasonableness of Valuation"]. Also lacking foundation and hearsay. Purported conversations with USA employees are inadmissible hearsay Hearsay Audit Committee/ Board Conversations, foundation, lacks personal knowledge Lay Witness Opinion Testimony re Reasonableness of Valuation Lay Witness Opinion Testimony re Reasonableness of Valuation Lay witness testimony concerning stock performance following specific events is inadmissible testimony. Hearsay Audit Committee/ Board Conversations, foundation, lacks personal knowledge, hearsay, Lay Witness Opinion Testimony re Reasonableness of Valuation Hearsay Audit Committee/ Board Conversations, Lacking Personal Knowledge, Lay Witness Opinion Testimony re Reasonableness of Valuation, hearsay Hearsay Audit Committee/ Board Conversations, foundation, hearsay Hearsay Audit Committee/ Board Conversations, assumes facts not in evidence, foundation

Robinson 45:24 ­ 46:3 Robinson 63:23 ­ 64:23 Robinson 65:1 - 20 Robinson 67:21 ­ 68:17 Robinson 74:5 ­ 75:6 Robinson 76:10 ­ 77:18 Robinson 78:13 ­ 86:9

Purported conversations with USA employees Audit Committee/ Board Conversations Reasonableness of Deloitte Valuation Reasonableness of Deloitte Valuation Stock Performance Forecasting Audit Committee/ Board Conversations

Hearsay

Hearsay, Foundation Lay Witness Opinion Testimony Lay Witness Opinion Testimony Lay Witness Opinion Testimony Hearsay, Foundation

Audit Committee/ Board Conversations

Hearsay, Foundation

Robinson 88:8 ­ 89:4 Robinson 90:4 - 21

Audit Committee/ Board Conversations Audit Committee/ Board Conversations

Hearsay, Foundation Hearsay, Foundation

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Witness and Designation Robinson 99:22 ­ 101:20 Robinson 102:1 ­ 103:2

Testimony Subject Reasonableness and application of Deloitte Valuation Conversations with USA employees

Objection Opinion Testimony by Lay Witness Hearsay, Foundation, Opinion Testimony by Lay Witness

Basis for Objection Lay Witness Opinion Testimony re Reasonableness of Valuation; Lay witness testimony re appropriate methodology in applying valuation Conversations with USA employees are inadmissible hearsay; witness lacks personal knowledge concerning SEC reporting requirements in connection with the IPO because the witness was not an employee of the company until 3 months after the IPO; Lay witness testimony re appropriate methodology in applying valuation

Hotels.com further objects to the exclusion of certain portions of testimony under FRE 106 "Rule of Completeness." To the extent any of Robinson's testimony is admitted by the Court, the following identified designations should also be admitted in order to provide necessary context to Litmans' and Dieners' designations, and to ensure a fair and impartial understanding of Robinson's testimony. Witness and Designation Robinson 20:20 ­ 24:21 Testimony Subject Basis for Inclusion

Litman and Diener's expectations concerning stock performance

Portions of Robinson's designated deposition testimony concerns stock performance expectations. To the extent such testimony is determined to be admissible, Litman and Diener's own expectations should also be admitted in order to place the admitted portion in context, and to insure a fair and impartial understanding.

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Witness Testimony Subject and Designation Robinson Robinson's 35:7 ­ 13 recollection of Audit Committee action

Basis for Inclusion

Robinson Robinson's 47:21 ­ 48:2 recollection of HRN's 2000 tax reporting

Robinson Robinson's 54:14 ­ 55:8 recollection of action taken in connection with e-mail

Robinson 68:18 ­ 69:18

Robinson's testimony regarding HRN's practice in connection with tax return review and approval

Portions of Robinson's designated deposition testimony concern issues addressed and positions taken by the Audit Committee. Although such testimony is inadmissible hearsay, in the event it is determined to be admissible, Robinson's inability to recall such actions and conversations should also be admitted in order to place the admitted portion in context, and to insure a fair and impartial understanding. Portions of Robinson's designated deposition testimony concern HRN's 2000 tax reporting, and HRN's tax reporting generally. Robinson's inability to recall certain actions and conversations should also be admitted in order to place the admitted portion in context, and to insure a fair and impartial understanding. Portions of Robinson's designated deposition testimony concern an e-mail he received from R. Diener. Robinson's inability to recall actions taken in connection with the e-mail should also be admitted in order to place the admitted portion in context, and to insure a fair and impartial understanding. Portions of Robinson's designated deposition testimony concern HRN's practice in connection with federal income tax returns. The additional testimony that should be included provides context for Robinson designations, and will insure a fair and impartial understanding.

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Witness Testimony Subject and Designation Robinson Robinson's 70:18 ­ 21 recollection concerning amended tax returns for HRN in 2000

Basis for Inclusion

Portions of Robinson's designated deposition testimony concern HRN's valuation of the stock at issue in this matter. The additional testimony that should be included, concerning whether Deloitte prepared amended tax returns for 2000 based on the valuation, provides context for Robinson designations, and will insure a fair and impartial understanding. Respectfully submitted,

April 2, 2007 s/ Kim Marie K Boylan Latham & Watkins, LLP 555 11th Street, NW Washington, DC 20004 (202) 637-2235 Attorney of Record for Plaintiffs Hotels.com and Subsidiaries Kari M. Larson Latham & Watkins, LLP 555 11th Street, NW Washington, DC 20004 Of Counsel

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