Free Reply to Response to Motion - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 04-M-725 (RPM) THE QUIZNO'S MASTER LLC, a Colorado limited liability company, and THE QUIZNO'S HOLDING COMPANY, a Nevada corporation, as assignee of and successor in interest to The Quizno's Corporation, a Colorado corporation, Plaintiffs, v. WESTCHESTER FIRE INSURANCE COMPANY, a New York corporation , and ROYAL INDEMNITY COMPANY, a Delaware corporation, Defendants.

DEFENDANT WESTCHESTER FIRE INSURANCE COMPANY'S REPLY BRIEF IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT

In an attempt to create coverage when none exists, Quizno's Response Brief in Opposition to Defendant Westchester Fire Insurance Company's Motion for Summary Judgment ("Response"), improperly characterizes and hopelessly distorts the nature of the underlying litigation and the claims made therein by Quizno's shareholders. The core of all of the underlying litigation was the shareholders' claim that they were not being paid fair value for shares they voluntarily or forcibly surrendered to Quizno's. Indeed, Quizno's has admitted this. The Sebesta and Nickerson settlements reflect this and the Findings of Fact and Conclusions of Law in Quizno's v. Fagan (the "Appraisal Action") are premised entirely upon this core issue, namely, the shareholders' claims for fair value for their shares. Quizno's attempt to recharacterize the claims into something they were not must fail. 1 4833-9856-2560.5

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A shareholders' claim for fair value of the shares he surrenders is restitutionary in nature. By law, restitution is uninsurable. In addition, any claimed "loss" deriving or flowing from any uncovered restitutionary claim is equally uninsurable. Nevertheless, Quizno's argues that the claims made in the underlying actions constitute "Loss" as defined in the policy because any "contrary argument would ignore the plain language of the contract." (Response p. 20). Quizno's does precisely this in quoting only part of the definition of "loss."1/ Quizno's selective quote, without even employing an ellipses to warn the reader of the missing wording, omits the following key exception in its entirety: Loss does not include (1) any amount for which the Insureds are absolved from payment, (2) taxes, fines or penalties imposed by law, or (3) matters uninsurable under the law pursuant to which this Policy is construed. This definition does not exclude punitive, exemplary or multiple damages to the extent such damages are insurable under the internal laws of any jurisdiction which has a substantial relationship to the Insureds, the Insurer, this Policy or such Claim. Westchester Policy, Decl. of Meyers in Support of Quizno's Motion for Partial Summary Judgment ("Meyers"), Exh. B (Emphasis added).2/ Westchester's Motion for Summary Judgment seeks to enforce the terms of the insurance contract, namely, that coverage is precluded

At page 19 of the Response, Quizno's quotes the "Loss" definition as follows: "`Loss' is defined to include `the amount which the Insureds become legally obligated to pay on account of each Claim . . . including, but not limited to, damages, judgments . . . settlements and Defense Costs." As with its Motion for Summary Judgment, Westchester will file exhibits identified in Quizno's Motion for Summary Judgment upon the court's request and references these documents instead of attaching them in an attempt to avoid unnecessarily filing duplicative documents with the court. 2 4833-9856-2560.5
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for "matters uninsurable under the law pursuant to which [the policy] is construed." Quizno's would have this court believe that the case law on the insurability of restitutionary claims based upon inadequate stock price is split and at best muddled. Hardly so. The weight of recent authority is firmly on the side of non-insurability in cases such as these. Additionally, the Westchester Policy provides no coverage for Quizno's claims to the extent that the January and February 1999 notices do not arise out of the same claim, as Defendant Royal Indemnity Company ("Royal") contends. On February 11, 1999, Quizno's tendered a notice to its previous insurer, Royal. In turn, Royal accepted this notice, which contained threats of litigation surrounding the same circumstances and occurrences that gave rise to the underlying claims here, the Schadens' attempt to acquire full ownership of Quizno's. Accordingly, the underlying claims are deemed first made under Royal's policy and are excluded from coverage by the terms of Quizno's policy. I. THE THRUST OF THE UNDERLYING CLAIMS WAS RECOVERY OF FAIR VALUE FOR SHARES A. The Nickerson Shareholders Alleged Inadequate Consideration for Their Shares and Sought Fair Value

In characterizing the Nickerson complaint, Quizno's states, "the thrust of [the] allegations was not simply that the price was inadequate," but also included claims that the three special committee members who approved the transaction for the board failed to disclose material facts. Response, p. 9. Quizno's states that because of this alleged breach of fiduciary duty, Nickerson "essentially claimed he would not have sold his shares back to Quizno's for $8." Ibid., citing Nickerson Complaint, ¶ 41. Stated differently, Quizno's contends that in addition to defending
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claims that the Nickerson plaintiffs did not receive fair value for their shares, it also had to defend claims that the Nickerson plaintiffs did not receive fair value for their shares due to the special committee members' conduct. This distinction­a theory why the shareholders did not receive fair value­lacks a legally cognizable difference in characterizing the litigation. Moreover, the theory of recovery asserted in the Nickerson action is irrelevant in determining whether the nature of the action is restitutionary in character. Parties cannot by artful pleading manufacture coverage where none exists. How the claim or judgment order or settlement is worded is irrelevant. An insured occurs no loss within the meaning of the insurance contract by being compelled to return property that it had stolen, even if a more polite word than "stolen" is used to characterize the claim for the property's return. Level 3 Communications, Inc. v. Federal Ins. Co., 272 F.3d 908, 911 (7th Cir. 2001). Thus, this court need not consider what theories for recovery the shareholders set forth, but instead need examine only the character of the relief requested and recovered. Here, the Nickerson shareholders were seeking restitution on all of the theories they asserted. The basis of their claims was that they had received less than fair value for their shares. Accordingly, they sought recovery of the difference between the amount that they had been paid and the fair value of the Quizno's stock. This relief is plainly restitutionary and was the basis for all of their theories, including their claims for misrepresentation and breach of fiduciary duty. Demonstrating precisely this, the Nickerson settlement was based on a per share value ($10.00) multiplied by the total number of shares at issue (754,055). Further, the Notice of Settlement stated that the "settlement consideration is in addition to the $8.00 already paid by
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Quizno's in the Tender Offer." Notice of Settlement, Meyers, Exh. CC. Indeed, the nature of the settlement and all the surrounding facts clearly indicate that the settlement was restitutionary in nature. In Pan Pacific Retail Properties, Inc. v. Gulf Insurance Company, 2004 WL 2958479 (S.D.Cal. 2004), a case strikingly similar to the present matter, the court concluded the settlement proceeds were restitutionary in nature and were therefore not covered losses under the policy. There, the underlying claims were nearly identical to those the Nickerson plaintiffs made, including allegations that the corporation and its officers failed to disclose (1) that superior offers had been made, (2) that the merger consideration was unfairly low, (3) that the board had not negotiated the highest possible, and (4) the factual and analytical bases for the consideration. Id. at *8. Although the settlement was silent as to the reason for the amounts defendants agreed to pay, the Pan Pacific court determined that the proceeds were restitutionary in nature because (1) the settlement fund was distributed on a per share basis, and (2) the the core of the complaint was that Pan Pacific had not paid a sufficient amount for the shares. Id. at *9. B. The Sebesta Shareholders Alleged Inadequate Consideration for Their Shares and Sought Fair Value

Quizno's sets forth an argument regarding the Sebesta litigation similar to that for Nickerson. However, Quizno's argues that in addition to seeking damages that would be measured in an identical manner (the difference between the price paid for shares and their fair value), the Sebesta plaintiffs also sought injunctive relief to prevent Quizno's merger with Firenze. However, this argument is a "red herring" inserted only to confuse the issues. Injunctive relief necessarily seeks no money damages and, as such, is uninsurable. See, e.g., 5 4833-9856-2560.5

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Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348, 1353 (4th Cir. 1987); Continental Ins. Companies v. Northeastern Pharmaceutical & Chemical Co., Inc., 842 F.2d 977, 985 (8th Cir. 1988); Reller, Inc. v. Hartford Ins. Co. of the Southeast, 765 So.2d 87, 88 (Fla. 2000); Morgan, Lewis & Brockius LLP v. Hanover Ins. Co., 929 F.Supp. 764, 773 (D.N.J. 1996); AIU Ins. Co. v. Super. Ct., 51 Cal.3d 807, 841 (1990). Significantly, Quizno's admits that "the main thrust" of the Sebesta action was increased consideration for shares. It quotes the Sebesta plaintiffs as arguing, "Our view is we want to get the best we could at the time the company was being merged. We had a third party market check by one of the players here, who offered [$]9.50." Response, p. 11. Indeed, counsel for the Sebesta plaintiffs confirmed this at the settlement hearings, "The offer that the Schaden family made was $8.50. Our view was that shareholders were entitled at least to the market check of Mr. Fagan's offer at 9.50." Response, Settlement Transcript, Exh. 2, p. 20:12-15. Moreover, settlement counsel expressly stated that the settlement constituted increased consideration based on a percentage of the difference between the consideration received and fair value for the shares. Id. at pp. 26:21 - 27:9. Of course, Quizno's has admitted this before. In its filings in the Sebesta case, Quizno's asserted that the core of the Sebesta claim was undervaluation of the tender offer: Sebesta claims to be a shareholder who thinks $8.50 is not enough. His complaint is essentially about money: he thinks the fair value of his Quizno's stock is greater than the $8.50 per share price that the Special Committee of Quizno's Board, and the Special Committee's professional advisors, determined was fair. Opposition to TRO, Exh. A-17, pp. 1-2. Quizno's made further admissions that the Sebesta
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litigation was simply about whether Quizno's paid former shareholders enough for their stock: Quizno's former shareholders seek more money for their shares. Only the legal theories employed to attempt to extract additional payment differs. Reply Brief, Exh. A-6, p. 3, fn 1. The Sebesta action mirrored the allegations of the Nickerson action, except that it focused on the inadequacy of the $8.50 squeeze-out merger consideration rather than the $8.00 tender offer price per share. Like Nickerson, the Sebesta settlement was restitutionary in nature. It provided for the distribution of incremental payments on a per share basis that correlated with the judicial appraisal of Quizno's shares in the Appraisal Action. C. The Sole Purpose of the Appraisal Action Was to Ensure That the Dissenting Shareholders Received Fair Value for Their Stock

Quizno's argues that the respondents' answers and counterclaims in the Appraisal Action demonstrate that the crux of the Appraisal Action did not concern a determination of whether the dissenting shareholders received fair value for their shares. In fact, the opposite is true. For example, the Sturkie/Crooms parties made their position perfectly clear: The Sturkie/Crooms Parties admit that they are dissenting Quizno's shareholders who demanded that they be paid their estimate of the fair value of their Quizno's stock and whose demand remains unresolved; that Quizno's paid the Sturkie/Crooms Parties $8.50 per share; and that the fair value of each share of stock is greater than $8.50 per share. Response, Exh. 3, Answer of Sturkie, et al., ¶ 4; see also Id. at ¶¶ 19-25. Indeed, the shareholders set forth as their first affirmative defense, "The fair value of the Sturkie/Crooms Parties' shares is substantially in excess of $8.50 per share." Id. at p. 5. Even the counterclaims
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are based entirely upon receiving fair value for shares. Response, Exh. 3, Counterclaim of Sturkie, et al., ¶¶ 7-14. As such, the dissenters requested the "Court determine and order that [they] be paid the fair value of all such shares." Id. at ¶ 13. The dissenters also made clear that their request for attorney fees was derivative of their claim for fair value. "The fair value of the Sturkie/Crooms Parties' stock is substantially in excess of $8.50 per share. In claiming that the fair value of Quizno's stock is $8.50 per share . . . Quizno's has . . . acted arbitrarily, vexatiously, or not in good faith." Id. at pp. 17-18. Similarly, the Fagan Group also explicitly acknowledged that the crux of its involvement in the Appraisal Action was to obtain fair value by submitting its "Trial Brief setting forth the Fagan Group's position respecting `fair value' of Quizno's as of December 21, 2001 when Quizno's involuntarily liquidated the Fagan Group's stockholdings in that company." Response, Exh. 5, p. 1. Similarly, the trial brief's conclusion focused exclusively on the argument that Quizno's fair value was between $36.76 and $45.00 per share.3/ Moreover, the sole reason for an appraisal action is a judicial determination as to what a fair price would be for shareholders exercising dissenter's rights. Findings of Fact, Conclusions of Law, Exh. A-18, pp. 2-5. Specifically, Judge McGahey noted, "I am required to determine `fair value,' defined in C.R.S. 1973 § 7-13-101(4) as . . . the value of the shares immediately before the effective date of the corporation action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action except to the extent that

Quizno's inexplicably fails to attach the entirety of The Fagan's Group Trial Brief, omitting pages 2 through 16. 8 4833-9856-2560.5

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exclusion would be inequitable." Id. at p. 3. Finally, Quizno's makes the absurd argument that because the Colorado Dissenter's Rights Statute allows dissenters to recover the "fair value" for shares rather than "fair market value," the difference between these two measures somehow constitutes a loss for Quizno's.4/ Response, pp. 22, 35. However, Quizno's fails to offer any authority suggesting that this distinction creates any "loss" for the corporation. Instead, the authority upon which Quizno's relies, Pueblo Bancorporation v. Lindoe, Inc., supra, 63 P.3d 353, concludes that the purpose of the Colorado dissenters' rights statute is simply to ensure that minority shareholders receive just compensation in exchange for their shares. The dissenters' rights statute serves as the primary assurance that minority shareholders will be properly compensated for the involuntary loss of their investment. The remedy protects the minority shareholders . . . by providing adequate compensation to minority shareholders. [Citations omitted] . . . The purpose of the dissenters' right statute would best be fulfilled through an interpretation of "fair value" which ensures minority shareholders are compensated for what they have lost, that is, their proportionate ownership in a going concern. Id. at 364. Payment to the dissenting shareholders did not impact Quizno's balance sheet; the net amount paid to dissenting shareholders was judicially determined to equal the net amount of equity gained. As such, Quizno's suffered no "loss." Quizno's essentially admits that the appraisal award itself is uninsurable. Instead, it contends that some of the award, the approximately $1.5 million the dissenters recovered in

Indeed, some states use the terms "fair market value," "fair cash value," and "market value" as the equivalent of "fair value" in their dissenters' statutes. See Pueblo Bancorporation v. Lindoe, Inc., 63 P.3d 353, 364, fn 11 (Colo. 2003). 9 4833-9856-2560.5

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attorney fees, is recoverable, thereby impliedly conceding that the rest likely is not. Response, p. 34. However, the dissenters' attorney fees are not recoverable for at least three reasons: (1) payment of the attorney fees is not "loss" under the policy since it is a "penalty"; (2) the attorney fees cannot be covered because they are the fruit of an uninsurable claim; and (3) an insured's obligation to pay the opposing parties' attorney fees in an underlying dispute does not constitute damages. First, the policy's definition of a covered "Loss," cited above, expressly excludes "penalties imposed law." The award of the dissenters' attorney fees, by law, is a penalty. The Tenth Circuit has defined a penalty as, "a form of punishment imposed by the government for unlawful or prosribed conduct, which goes beyond remedying the damage caused to the harmed parties by the defendant's action. . . . We interpret a penalty . . . as a sanction or punishment imposed for violating a public law which goes beyond compensation for the injury caused by the defendant." United States v. Telluride Co., 146 F.3d 1241, 1246 (10th Cir. 1998). Here, the appraisal court invoked C.R.S. § 8-43-211 (d) to impose a penalty requiring Quizno's to pay the dissenters' attorneys fees because Quizno's failed to act in good faith. Colorado courts have determined that such statutorily based orders to pay opposing parties' attorney fees are indeed penalties. For example, in BCW Enterprises, LTD. v. Industrial Claim Appeals Office, 964 P.2d 533, 538-539 (Colo. 1998), the Court of Appeals concluded that a statutory award of attorney fees to the opposing party under C.R.S. § 8-43-211(2)(d) constituted a "penalty," even though the statute itself did not so describe the award and left the award of such fees to judicial discretion. Here, as in BCW Enterprises, the court concluded that a statutory
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award of attorneys fees was appropriate to penalize Quizno's for its failure to act in good faith. Findings of Fact, Conclusions of Law, Exh. A-18, p. 7. Accordingly, Quizno's is not entitled to recover the amount paid for the dissenters' attorneys fees because that amount constitutes a penalty and is excluded from coverage under the policy definition of "Loss." Second, where there is no coverage for a claim made by a third party against the insured, an insurer is not obliged to pay attorneys fees derivative of the claim. If the judgment does not constitute a "Loss" under a policy, then neither does the parasitic award of attorneys fees. This rule is exemplified in Big 5 Corp. v. Gulf Underwriters Insurance Company, 2003 WL 22127029 (C.D.Cal. 2003), where the insured sought from its insurer recovery of attorneys fees and related costs paid as part of an action involving an uncovered claim for payment of overtime wages. The Big 5 court determined that no coverage existed for the award of attorneys fees because the claim was derivative of the underlying claim. It stated: Here, as the Gulf policy does not cover the payments of unpaid overtime wages, the Court is inclined to deny indemnification for attorneys' fees on a claim for overtime wages. The Court is inclined to find that an award of attorneys' fees cannot exist independent of a damages award. Accordingly, if Defendant Gulf has no responsibility to indemnify Plaintiff Big 5 for its payment of unpaid overtime wages to the Mosely plaintiffs, neither should it be required to indemnify Plaintiff Big 5 for the costs of litigating the Mosely lawsuit. Id. at *3. This decision is consistent with others holding that no coverage exists for claims that originate from otherwise uncovered circumstances or occurrences. See, e.g., Allstate Ins. Co. v. Vose, 869 A.2d 97, 103 (Vt. 2004) (The court held that negligence claim against one insured arose from and was dependent on an intentional acts claim. "Because there is no coverage for [the] intentional acts, there is no coverage for the derivative negligence claim"); Waller v. Truck 11 4833-9856-2560.5

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Ins. Exchange, Inc., 11 Cal.4th 1, 44 (1995) (a liability policy's coverage for "property damage" or "bodily injury" does not obligate the insurer to defend claims of "emotional and physical distress" flowing from economic losses suffered in a failed business relationship where the gravamen of the underlying claims was uncovered economic loss). Third, courts have determined that an insured's obligation to pay the opposing parties' attorney fees in an underlying dispute does not constitute damages. The reasoning for this is simple. Attorneys' fees will compensate plaintiffs in the underlying action for the costs of litigation, not for a covered injury. Accordingly, such claims do not constitute claims for damages. For example, in School District of Shorewood v. Wausau Insurance Companies, 488 N.W.2d 82, 376-378 (Wis. 1992), the court examined the American Rule and concluded attorney fees awards are not damages. Unlike ordinary retroactive relief, such as compensatory damages, "an award of costs does not compensate the plaintiff for the injury that first brought him into court. Instead, the award reimburses him for a portion of the expenses he incurred in seeking prospective relief." Id. at 377. As such, "an award of costs will almost invariably be incidental to an award of prospective relief." Ibid. Other jurisdictions echo this conclusion. In Cutler-Orosi Unified School District v. Tulare County School, etc. Authority, 31 Cal.App.4th 617, 632 (2002), the court held the plaintiff's attorney fees, for which the insured was held liable under statute, did not qualify as damages under their insurance coverage. The court explained, "an award of attorney fees . . . `does not compensate the plaintiff for the injury that first brought him into court[;] [i]nstead, the
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award reimburses him for a portion of the expenses he incurred in seeking . . . relief'" and fees "are inconsistent with the concept of `damages' as the term is used in its ordinary and popular sense, that is, compensation paid to a party for the loss or detriment suffered because of the wrongful act of another." Ibid. In analyzing a situation similar to the present, Judge Kane of this court determined, "attorney fees awarded to the . . . plaintiffs and costs assessed against [the insured] are not damages contemplated by the policy definition. . . . Rather, attorney fees . . . are `costs' of the litigation." Board of County Comm'rs of the County of Larimer v. Guar. Ins. Co., 90 F.R.D. 405, 407 (D.Colo. 1981). Accordingly, Judge Kane concluded that the policy did not provide coverage for attorney fees of plaintiffs in the underlying litigation. Id. at 407-408. For each of these reasons, the court should determine that Quizno's payment of the appraisal award and the dissenters' attorneys fees is not covered under the policy. D. Whether Each Named Defendant "Profited" Is Irrelevant to a Determination That the Claims Were Restitutionary in Nature

Quizno's argues that since not all of the Insureds profited from the events giving rise to the underlying actions, the court cannot determine that the actions sounded in restitution.5/ Response, pp. 29, 33-34. However, Quizno's fails to cite any authority supporting this position. Indeed, none exists. To the contrary, several courts have determined that restitution based on a single defendant's unearned profit is sufficient to determine that the action, as a whole, is restitutionary

Again, the non-Schaden directors, Brad Griffin, Mark Bromberg, J. Eric Lawrence, and John Todd were all dismissed from the Sebesta action before settlement. Exh. A-19; A-20. 13 4833-9856-2560.5

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in nature so as to preclude coverage. In Reliance Group Holdings, Inc. v. National Union Fire Insurance Company, 594 N.Y.S.2d 20 (1993)6/, shareholders sued Reliance and its directors for a breach of fiduciary duty alleging that Reliance and seven of its subsidiaries abandoned a derivative action against Disney directors in exchange for a greenmail payment. Id. at 22. Although the corporation undisputedly profited from the greenmail proceeds, there was no claim that Steinberg­a director and the CEO of Reliance­realized any personal profit or benefit. Nevertheless, Reliance and Steinberg agreed to pay approximately $21.1 million to settle the dispute and, in turn, Reliance indemnified Steinberg. Id. at 22-23. Still, the Reliance court determined the claims were restitutionary in nature, stating, "Reliance did not pay or incur any `damages' on behalf of Steinberg, and there was accordingly no basis for his purported indemnification. Reliance sustained no `loss' as defined in the policy, but rather realized a profit of approximately $74 million in connection with its Disney takeover attempt." Id. at 25. The Pan Pacific Retail Properties, Inc. v. Gulf Insurance Company court reached a similar conclusion. There, the settlement was entered into by both the corporation and its directors for claims that the corporation had provided insufficient merger consideration.

Quizno's attempts to distinguish Reliance from the present matter by arguing that the underlying court found the insured had received ill-gotten gains. This is incorrect. Whereas the court imposed a constructive trust, no such determination was made. Further, Quizno's fails to offer any authority suggesting why this distinction is relevant. Additionally, Quizno's misquotes Reliance, which concluded the settlement­and not the constructive trust­"was essentially equivalent to a determination, reached through the agreement of the parties, that Reliance had been unjustly enriched in the amount of $21.1 million through its actions in connection with the Disney takeover attempt." Precisely the same argument applies to the settlements into which Quizno's entered as they "were equivalent to a determination" that Quizno's had been unjustly enriched by at least the amount of the settlements. 14 4833-9856-2560.5

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Nevertheless, although there was no claim that the directors had profited, the court determined that the settlement, in its entirety, represented restitutionary damages. Id. at ** 3, 9. Similarly, in Level 3, supra, the court concluded that the claimed "loss" was uninsurable as a matter of law even though there was no showing that the individual defendants in the underlying action had been personally enriched. Thus, whether each individual director realized some profit from the underlying transaction is irrelevant. If the core basis of the litigation is resitutionary in nature, there is no coverage for the claim because the liability of the insureds, whether or not they profited, is to make restitution. II. QUIZNO'S SETTLEMENTS, VERDICTS, AND COSTS ARE NOT COVERED "LOSS" UNDER THE WESTCHESTER POLICY'S DEFINITION Enforcement of the insurance contract's terms precludes coverage for Quizno's claims because they are "matters uninsurable under the law pursuant to which [the policy] is construed." As discussed above, each of the actions for which Quizno's seeks coverage is restitutionary in nature. By law, such claims are uninsurable. A. The Sebesta, Nickerson, and Appraisal Actions Are Uninsurable Because They Constitute Claims for Restitution

As more fully briefed in Westchester's moving papers, restitutionary damages, as a matter of law, are uninsurable. In Pan Pacific Retail Properties, Inc. v. Gulf Insurance Company, supra, the court reconfirmed that restitutionary claims under a D & O policy are uninsurable as a matter of law. Overwhelmingly, other courts have reached the same conclusion. See, e.g., Level 3 Communications, Inc. v. Federal Ins. Co., supra, 272 F.3d at 910 (the court found that "a `loss'
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within the meaning of an insurance contract does not include the restoration of an ill-gotten gain"); Republic Western Ins. Co. v. Spierer, Woodward, Willens, Denis & Furstman, 68 F.3d 347, 352 (9th Cir. 1995) (the court determined that restitutiuonary payments are not insurable as a matter of law); Reliance Group Holdings, Inc. v. National Union Fire Ins. Co., supra, 594 N.Y.S.2d at 24 (the court held that "one may not insure against the risk of being ordered to return money or property that has been wrongfully acquired"); Local 705 International Brotherhood of Teamsters Health & Welfare Fund v. Five Star Managers, L.L.C., 735 N.E.2d 679, 683 (Ill. 2000) (the court held that when an insured is "required to return those monies which it had no right to possess in the first place[, s]uch a payment can hardly be termed a loss. Nor can such payment create a deprivation [to the insured] any more so than any borrower can be said to suffer a deprivation from being required to repay an indebtedness"); Unified Western Grocers, Inc. v. Twin City Fire Ins. Co., 371 F. Supp.2d 1234, 1245 (D.Hawai'i 2005) (the court concluded, "The relief sought by the Trustee is restitutionary in character and therefore not insurable as a matter of law.") Colorado trial courts have similarly concluded that "money acquired wrongfully and later returned does not constitute `damages' as used in an insurance policy." See, e.g., Tynan's Nissan, Inc. v. Amer. Hardware Mutual Ins. Co., 917 P.2d 321, 325 (Colo. 1995) (declining to reconsider trial court's conclusion). Authoritative treatises and writings by pre-eminent scholars in the field of Directors and Officers Liability Insurance Coverage also recognize the cases relied upon by Westchester, such as Level 3 Communications, Inc. v. Federal Insurance Company, supra and Conseco, Inc. v.
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National Union Fire Insurance Company of Pittsburgh, PA, 2002 WL 31961447 (Ind.Cir. 2002) represent controlling authority that coverage is not available for restitutionary claims. See Dan A. Bailey, Insurance Coverage 2004: Claim Trends & Litigation 226-228 (Practising Law Institute, Litigation and Administrative Practice Course Handbook Series, Litigation, PLI Order Number H0-0006, February 17-18, 2004); Dan A. Bailey, D&O Liability & Insurance 2004: Directors & Officers Under Fire 760-764 (Practising Law Institute, Commercial Law and Practice Course Handbook Series, Litigation, PLI Order Number 3198, June, 2004). Quizno's principal attack on Level 3 Communications, Inc. v. Federal Insurance Company misconstrues the holding in that case.7/ Specifically, Quizno's argues that Level 3 is bad law because it would have the effect of "extinguish[ing] all D&O coverage for securities fraud claims, and make such policies illusory." Response, p. 41. Quizno's is wrong. The typical securities fraud claim relates to the purchase or sale of stock that is already in the market; the allegation being that the corporation either suppressed or exaggerated information about the stock to the detriment of the plaintiff. In all of these cases, since the corporation is not a party to the stock transaction, coverage may be available because any damages awarded against the corporation may not be restitutionary. Level 3 applies only to transactions, such as the present matter, where a corporation is required to restore to a plaintiff the ill-gotten gains the corporation received when it failed to pay fair value for the stock.

Quizno's also attacks Level 3 based on the jurisdictions from which it originated. "The Seventh Circuit's Level 3 holding, however, was not based in any way upon any Nebraska statute rule, regulation or case. Rather the decision was based on generally accepted insurance principles found under the law of all jurisdictions." Conseco at *7, fn 5. 17 4833-9856-2560.5

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Nevertheless, Quizno's contends that coverage is available when the insured has received an ill-gotten gain and cites four cases in support of its argument.8/ The first of these cases is International Ins. Co. v. Johns, 874 F.2d 1447, which Quizno's asserts stands for the proposition that settlements which are arguably restitutionary in character are a covered loss under a Directors and Officers Liability Policy. (Response, p.24-25.) In fact, the case holds no such thing. In a long and detailed analysis, the court expressly determined that the damages sought were not based on an ill-gotten gain and could be a covered loss under the policy. By the early 1980's, Southwest Florida Banks, Inc. had become an attractive takeover target. Realizing this, the board of directors instituted for its executives a Performance Incentive Plan ("PIP"), which, among other things, provided for golden parachutes in the event control of the corporation changed. The PIP's goal was to recruit and retain high quality executives during an uncertain time. Indeed, within four months of the PIP's approval, the corporation merged with Landmark Banking Corporation. In addition to the benefits under the PIP, the merger also provided Southwest's outgoing CEO and director a five-year consulting agreement with the remaining corporation. A stockholder derivative suit alleged that since as many as six members of the board

Quizno's also tilts at windmills by arguing that various exclusions in the policy do not apply. Response, pp. 20-23. First, these are irrelevant in that, except as to Exclusion A.1, the exclusions are not the subject of Westchester's motion. Further, an exclusion cannot act as an additional grant or extension of coverage. Exclusions simply do not come into play unless some other policy provision confers coverage in the first instance. See, e.g., VBF, Inc. v. Chubb Group of Ins. Co., 263 F.3d 1226, 1232 (10th Cir. 2001) (the court determined removal of an exclusion from a policy was irrelevant because the policy did not otherwise apply to the underlying lawsuit). 18 4833-9856-2560.5

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could have personally profited from the PIP and the consulting agreement, the directors breached their duty by approving the plan and the merger without stockholder approval. The parties' settlement lowered both the amount of the golden parachutes and the length of the CEO's consulting agreement. In determining coverage for these claims, the International Ins. Co. court expressly determined that Southwest, in fact, had received fair consideration for the PIP and the consulting agreement, and that the goals of both had been achieved. However, claims against the corporation were viable because the directors had not undertaken the proper corporate formalities by obtaining a disinterested approval. Accordingly, coverage for such claims was available under the D & O policy. International Ins. Co., supra, 874 F.2d at 1462-1470. By definition, the courts' finding means that the underlying claims were not restitutionary in nature. The next two cases cited by Quizno's, Limelight Productions, Inc. v. Limelite Studios, Inc. 60 F.3d 767 (11th Cir. 1995) and Amer. Employers' Ins. Co. v. DeLorme Publishing Co., Inc., 39 F.Supp.2d 64 (D.Me. 1999) are not only distinguishable, but have been distinguished by other courts on the grounds that neither of those cases involved circumstances in which the insured was liable to make restitution to the plaintiff in the underlying action. In Limelight Productions, trademark holders alleged that unrelated defendant entities Limelite Studios, Limelite Equipment Rental, and Limelite Entertainment each infringed on its federal service mark by operating under similar business names. Limelight, supra, 60 F.3d at 768. In American Employers' Insurance, Rand McNally contended its direct competitor, DeLorme Publishing, had marketed Tripmate, an electronic cartographic product, to take
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advantage of the goodwill Rand McNally had established with its trademarked Tripmaker. The court concluded such claims constituted an "advertising injury," thereby triggering coverage under the policy. American Employers' Insurance, supra, 39 F.Supp.2d at 67-69, 73-78. In both cases, the court acknowledged that Lanham Act damages (15 U.S.C. § 1117), such as those sought and obtained, are unique to the statute, largely because plaintiffs' resulting lost profits often will be difficult to establish. Accordingly, as an alternative, a presumption is made that the plaintiff would have accrued any profits the defendant gained because of the violation. Limelight, supra, 60 F.3d at 769. "A request for an accounting of lost profits under the Lanham Act is a request for damages." American Employers' Insurance, supra, 39 F.Supp.2d at 79. The statute "permits [such damages] to be presumed because of the proof unavailability in these actions." Ibid. The Conseco v. National Union Fire Insurance Company of Pittsburgh, supra, court explained the distinction between Limelight Publications and American Employers' Insurance and matters such as those involving Quizno's as follows: Plaintiffs cite two cases. Limelight Productions, Inc. v. Limelite Studios, Inc. 60 F.3d 767 (11th Cir. 1995) and Amer. Employers' Ins. Co. v. DeLorme Publishing Co., Inc., 39 F.Supp.2d 64 (D.Me. 1999), which purport to hold that insurers are responsible to compensate insureds for losses caused by the forfeit of ill-gotten profits. Those cases, however, involve a critically significant distinction, they did not involve circumstances in which the insured was liable to return funds wrongfully taken from the plaintiff in the underlying action­which is the situation here, and is the very essence of a restitution claim. In both cases the issue was whether profits the insured realized by infringing upon another company's trademark constituted "damages." The insured in Limelight and DeLorme, however, had not been compelled to return funds they allegedly acquired from the plaintiff in the underlying action as is involved in 20

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this case. This is a subtle, but critical distinction. The Section 11 plaintiffs . . . allege a different situation: that Conseco issued those securities to the public for an inflated price, due to misrepresentations in the registration statement; and had those misrepresentations not been in the registration statement, the public would not have paid the price they did, and correspondingly Conseco would not have reaped as much as it did from the offering. Id. at *6, fn 4 [citations omitted; emphasis provided]. The Conseco court concluded that the Section 11 portion of the settlement was similarly restitutionary in character because "[t]he Section 11 plaintiffs essentially sought back the amounts Conseco wrongfully obtained: calculated under Section 11 by measuring the decline in value of the securities from the date they were purchased . . . to the date they were sold . . ." Id at *8. Here, as in Conseco, Quizno's became liable to pay the consideration it should have paid the dissenters and Sebesta and Nickerson plaintiffs, but did not. Accordingly, Quizno's, like Conseco, was required to make restitution to shareholders and therefore, suffered no "Loss" under the Westchester policy. Quizno's correctly points out that Conseco found loss could exist for claims brought under Section 10. Conseco at ** 14-15. These claims, however, involved liability for losses in stock transactions to which the corporation was not a party. [Instead], the common stock had been issued to the public prior to the period of wrong doing alleged by the plaintiffs­and therefore Conseco did not reap an extra, undeserved premium as a result of misrepresentation when the common stock was issued. . . . [T]he common stock at issue in the Section 10 claims was already on the market, and Conseco could not reap an undeserved premium on those securities. The Section 10 portion of the Securities Litigation settlement . . . therefore is "Loss" under a D & O policy, and this is not per se uninsurable. 21

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Id. at *14. As such, this example precisely represents the type of transaction referenced in Level 3 that would be covered and would not render the coverage illusory as Quizno's suggests. Id. at *15 (expressly analogizing this situation to that referenced in Level 3.) Quizno's also relies on In re Estate of Corriea, 719 A.2d 1234, 1240-41 (D.C.Cir. 1998) to support the same proposition that disgorgement of ill-gotten gains is insurable. Beginning in 1980, Corriea entered into an attorney-client relationship with Avianca wherein he represented the company in aircraft leasing, corporate financing, and government relation matters. Correia later acquired and maintained interests potentially or actually in conflict with Avianca while Correia still represented the business. As such, he was sued for breach of fiduciary duty. Because Avianca's damages could not be determined, the underlying cases were resolved by fee forfeitures coupled with disgorgement of profits that Correia had earned. In other words, but for the impossibility of calculation, Avianca would have received compensatory damages equal to the amount it lost in its deals with third parties; the court did not award damages to make the consideration each party received in a single transaction fair. As such, Corriea concerns coverage for an underlying case where the plaintiff alleged it was damaged in third party transactions because of its dealings with the insured. Analysis would essentially trace the comparison of Section 10 and Section 11 claims and the presumptions made in Lanham Act claims. That is, the underlying claims in the Corriea matter did not try to correct a transaction between the insured and the plaintiffs; it sought to compensate for the amount plaintiffs suffered in their dealings with third parties due to the insured's wrongdoing. This scenario is not comparable to the situation here, where the shareholders sought nothing more than 22 4833-9856-2560.5

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a fair transaction with Quizno's, the insured. In short, Quizno's has failed to demonstrate how it suffered any "loss" as a result of the underlying transactions and subsequent litigation. To the contrary, it is clear that providing coverage would afford Quizno's a windfall because it would require Quizno's insurer to pay the fair value for the shares that Quizno's received from its shareholders, thereby enriching Quizno's. Quizno's argument simply contradicts fundamental tenets of insurance law. "An insured is not allowed to profit from its wrongdoing through insurance. . . . [A]n errors and omissions, claims-made policy (like a D & O insurance policy) cannot be treated as a `performance bond' to pay an insured's corporate contractual obligations." Conseco at *7. B. Defense Costs Are Not Recoverable Absent Coverage for the Claim

Quizno's repeatedly argues that defense costs incurred during the underlying litigation constitute a covered "Loss" under the policy. See, e.g., Response, p. 31. Quizno's claim lacks merit. Defense costs are not recoverable absent coverage for the claim. The policy itself makes this clear. As set forth above, the policy definition of "Loss" includes "damages, judgments, . . . and Defense Costs." Moreover, Section 7 of the policy provides in pertinent part: [T]he insurer shall advance on behalf of the insureds covered Defense Costs which the Insureds have incurred in connection with Claims made against them, prior to disposition of such Claims, provided that to the extent it is finally established that any such Defense Costs are not covered under this Policy, the Insureds, severally according to their interests, agree to repay the Insurer such Defense Costs. Thus, as the policy indicates, when no coverage for a claim exists, there is no coverage for defense costs associated with that claim. Indeed, to the extent that uncovered defense costs have been advanced, the insureds are contractually obligated to repay such defense costs. 23 4833-9856-2560.5

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Directors and Officers Liability Policies are not "duty to defend" policies and do not create an obligation on the insurer to provide a defense for the insured. As the court stated in Zoborac v. American Casualty Company of Reading, PA, 663 F.Supp 330, 331 (C.D.Ill. 1987), A directors and officers liability insurance policy requires that the insurer indemnify its insured for losses incurred, with the definition of "loss" including defense costs. This is different from a general liability policy in which the insurer must indemnify the insured against liability and provide a defense for the insured...the obligations of the insurance company exist only insofar as coverage is ultimately determined to exist under the policy, based upon the findings of the Court in the underlying action... ...(t)he Court finds that the Defendant's description of the nature of the policy is essentially correct. The directors and officers liability insurance policy in the present case requires only that the insurer indemnify its insured for losses incurred, with a definition of loss including defense costs. This makes it different from a general liability policy in which the insurer must be defend an insured in addition to indemnify him against liability. Indeed, in Vigilant Insurance Company v. Credit Suisse First Boston Corporation, 10 A.D.3d 528, 782 N.Y.S. 2d. 19 (2004), the trial court concluded that an insured could not recover from its insurer the amount of a settlement with the SEC which represented disgorgement of funds improperly acquired. The court concluded restitution of ill-gotten funds did not constitute a "loss" under the policy. Nevertheless, the trial court awarded the insured the defense costs it had incurred in defending the claims made by the SEC. The court of appeal reversed the trial court's decision as follows: The policy defines defense costs as a component of "Loss," which "shall not include matters which are uninsurable under the law pursuant to which this coverage section of this policy shall be construed . . ." As indicated, restitution of ill-gotten funds is not insurable under the law. Moreover, this is no-duty-to-defend policy. 24

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While, under certain circumstances, the insurers must advance defense costs incurred by the insured in connection with a claim, the insured is obligated to repay such advance payments upon a finding that it is not entitled "to payment of such Loss." Thus, defense cost are only recoverable for covered claims (Citations). Id. at 529. In fact, it is because defense costs are recoverable only with respect to claims for which there is coverage that courts require defense costs to be apportioned between covered and uncovered claims. The rule was stated in Okada v. MGIC Indemnity Corporation, 823 F.2d 276, 282 (9th Cir. 1987) as follows: "if an action against the directors incorporates both covered and uncovered claims, the parties must apportion the costs so that [the insurer] need only pay for amounts generated in defense of covered claims." Quizno's argues that the authorities Westchester cites suggest that defense costs are covered even when the settlement or verdict is an uninsurable ill-gotten gain. Response p. 31. For example, Quizno's cites Reliance Group Holdings, Inc., supra, Conseco, Inc., supra, and Pan Pacific Retail Properties, Inc., supra, in support of this proposition. In fact, however, the policies in those cases were different and did not contain a provision, like that in Section 7 of the Westchester policy which limits the insureds' obligation to advance only "covered Defense Costs" and requires the insureds to repay uncovered defense costs. Courts have specifically held that a policy provision like that found in Section 7 of Westchester's policy requiring the insureds to repay defense costs for uncovered claims constitutes an enforceable contractual right under the policy. In American Casualty Company v. Baker, 22 F.3d 880 (9th Cir. 1994), the court analyzed a policy, which, like Westchester's policy, required the directors and officers to repay to the
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insurer all monies advanced for defense costs in the event it was established that the insurer had no liability under the policies. The court stated: [The insurer] therefore appears to have a contractual right to recover any fees it advanced to the Directors/Officers. See Okada, 823 F.2d at 282 (insurer can "reserve its rights under the agreement for the return of advances should the claims ultimately prove to be uncovered"); . . . Id. at 896. Since all of the underlying actions related only to uncovered restitution and not any covered loss, defense costs incurred in those actions are not recoverable under the policy. III. COVERAGE FOR QUIZNO'S CLAIMS IS PRECLUDED SINCE THEY ARISE OUT OF CIRCUMSTANCES WHICH WERE THE SUBJECT OF THE EARLIER WRITTEN NOTICE A. Exclusion A.1 Precludes Quizno's Claims Because They Were Previously the Subject of Written Notice to Royal

Exclusion A.1 provides "the Insurer shall not be liable for Loss on account of any Claim made against any Insured based upon arising out of, or attributable to any fact, circumstance or situation which has been the subject of any written notice given under any policy of which this Policy is a renewal or a replacement." Quizno's Response first makes a passing effort at arguing that the Schaden's continuous attempt to obtain full ownership in Quizno's somehow changes into a unique event not arising out of the former negotiations when the attempts ultimately prove successful. Quizno's distinguishes the circumstances on mechanics alone, claiming the circumstances in the February 11, 1999 letter involved the Schaden's purchase proposal, whereas the Nickerson and Sebesta actions arose out of the tender offer and merger that left the Schadens as Quizno's sole owners. 26 4833-9856-2560.5

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Response, p. 47. Quizno's characterization elevates form over function. The notice to Royal alleged that the Schadens' attempt to procure sole ownership of Quizno's by repurchasing shares through an outside business and that the price offered, in the $8.00 range, would not constitute fair value for the shares. This is exactly the core of the Sebesta and Nickerson complaints. Quizno's also argues this exclusion is inapplicable largely because of Endorsement No. 6. In pertinent part, it provides, "Exclusion A.1 shall not apply with respect to the January 5, 1999 notice letter ("Notice Letter") by the Company to Royal Insurance Company under Royal's Management Assurance Policy No. HP 606493 relating to potential claims in connection with, among other things, a proposed tender off by The Schaden Acquisition Company of the Company's outstanding shares of common stock." Quizno's argument lacks merit for two reasons. First, Royal has argued that the January 5, 1999 letter did not constitute a written notice given under a policy. Royal, in a letter dated February 3, 1999, refused to consider the January 5, 1999 letter a "notice of a circumstance which may subsequently give rise to a claim under the notice provisions of the policy." Royal letter, Exh. A-3. Acknowledging this, on February 11, 1999, Quizno's properly provided Royal with "a notice of claim," but this time referred to a written threat of litigation by a shareholder named Paul Eisner who asserted that the "proposed price is substantially less than the shares are worth." Meyers, Exh. F, G. After having refused to consider the January 5, 1999 letter a "notice of circumstance," Royal nonetheless agreed to consider the February 11, 1999 letter as "notice of a circumstance which may subsequently give rise to a claim." Royal further agreed that if a
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claim subsequently "arises out of" such circumstance, "it will be deemed first made during the [Royal] policy period." Royal letter, Meyers, Exh. H. Accordingly, whether the underlying claims here relates to the January 5 letter Quizno's sent Royal is irrelevant since both Royal and Quizno's acknowledged by their actions that the letter did not constitute a notice of circumstance. Second, the February 11, 1999 letter attaching Paul Eisner's January 4, 1999 letter constituted a notice to Royal. That is, even if the court were to conclude that the January 5 letter to Royal constituted a written notice, then the February 11, 1999 letter clearly represented a second written notice to Royal that was not covered by Endorsement No. 6. Unlike Exclusion A.1, which includes broad language excluding coverage for any claim arising out of, or attributable to any fact, circumstance or situation that was noticed under a prior policy, Endorsement No. 6 is very narrowly drafted and excepts Exclusion A.1's application only to a particular letter. That is, it does not, for example, provide an exception based on later claims that arise out of the circumstances described in the January 5 letter. Accordingly, Exclusion A.1 necessarily still applies to all other written notices, including the one Quizno's provided on February 11, 1999 when it forwarded Paul Esiner's January 4 letter to Royal. B. In the Alternative, Quizno's Claims Against Westchester Constitute Only a Single Claim under the Policy

Quizno's acknowledges that pursuant to the policy, all claims arising out of "Interrelated Wrongful Acts" are deemed one claim under the policy and are deemed to be first made on the date of the earliest of such claims and that the policy specifically defines the term "Interrelated Wrongful Acts" as: Wrongful Acts that have as a common nexus any fact, circumstance, 28

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situation, event, transaction, cause or series of related facts, circumstances, situations, events, transactions or causes. Response p. 43. Indeed, Quizno's does not even dispute that the Sebesta action, the Nickerson action, and the Appraisal Action all arise out of the common scheme to privatize Quizno's. Instead, Quizno's argues the claims are unrelated because the Nickerson claim arises out of the 2000 tender offer whereas the Sebesta action arose out of the 2001 merger. However, since both actions arose out of the same underlying circumstance, namely, the scheme to privatize Quizno's, they constitute "interrelated wrongful acts." In Seneca Insurance Company v. Kemper Insurance Company, 2004 WL 1145830 (S.D.N.Y. 2004), the court examined a similar definition of "Interrelated Wrongful Acts" holding that: claims share a sufficient factual nexus when they are "based on the same agreement" or when they involve the "same underlying circumstance." In Zunenshine v. Executive Risk Indemnity, Inc., 1998 WL 483475 (S.D.N.Y. 1998) at *4-5, the court examined the meaning of the term "sufficient factual nexus" and concluded that it was not necessary for the insurer to demonstrate the claims involved precisely the same parties, legal theories, wrongful acts, or requests for relief. The court made clear that, requiring the claims to be identical would render the effect of the "interrelated wrongful acts" definition to be virtually meaningless. "[A] claim would be excluded only if it were based on an identical lawsuit or where the subject of an identical prior notice given to another insurer." Id. at *5. In these circumstances there is clearly a sufficient factual nexus between all of the 29 4833-9856-2560.5

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underlying litigation because all of the underlying litigation arises out of the scheme to privatize Quizno's and because the relief shareholders sought in each action was the recovery of fair value for their shares. IV. NO BAD FAITH CAN EXIST SINCE WESTCHESTER CORRECTLY DENIED QUIZNO'S CLAIMS No breach of the duty of good faith and fair dealing can exist in the absence of a breach of contract since bad faith requires nonpayment of insurance benefits without justification and in disregard for the insured's rights when such payment is due. Dale v. Guar. Nat'l Ins. Co., 948 P.2d 545, 551 (Colo. 1997). Since Quizno's was not entitled to coverage under the Westchester insurance policies, Westchester can not be liable to Quizno's for bad faith. Further, even if this court determines that coverage under the Westchester Policy existed for Quizno's claims, Westchester still should not be liable for bad faith because it acted reasonably. See, e.g., Pham v. State Farm Mut. Auto. Ins. Co., 70 P.3d 567, 572 (Colo. 2003) ("The determination of whether an insurer has in bad faith or willfully and wantonly breached its duties to an insured is one of reasonableness under the circumstances.") Although Quizno's identifies legal issues regarding coverage and generally concludes without support that material questions of fact remain, Quizno's has failed either to identify any such factual issues or to offer any evidence suggesting that the genuine dispute doctrine should not apply here. This is clearly Quizno's burden. Brandon v. Sterling Colo. Beef Co., 827 P.2d 559, 560 (Colo. 1991). It is reasonable for an insurer to challenge claims that are fairly debatable. Brennan v. Farmers Alliance Mut. Ins. Co., 961 P.2d 550 (Colo. 1998). Clearly, even if the court were to conclude that coverage could exist for the underlying claims against Quizno's, it should determine that 30 4833-9856-2560.5

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Civil Action No. 04-M-725 (RPM ) THE Q UIZNO'S M ASTER LLC, a Colorado limited liability company as assignee of QUIZNO'S CO RPO RATION v. ROYAL INDEMNITY COMPANY, a Delaware Corporation, WESTCHESTER FIRE INSURANCE COMPANY

CERTIFICATE OF SERVICE I hereby certify that on August 25, 2005 I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following email address: Joseph F. Bermudez [email protected] Cindy Coles Oliver [email protected] [email protected] Michael D. Nosler [email protected] [email protected] Leonard H. MacPhee [email protected]

Laurence Murray McHeffey [email protected] [email protected] Hilary Dawn Wells [email protected] [email protected]

and I hereby certify that I have mailed the foregoing to the following non EM/ECF participate via U.S. mail postage prepaid: Calvin S. Whang Musick, Peeler, & Garrett, LLP One Wilshire Blvd., Ste. 2000 Los Angeles, CA 90017 /s/ Sherri L. Taylor Lewis Brisbois Bisgaard & Smith 550 W "C" Street, Ste. 800 San Diego, CA 92101 Telephone: (619) 233-1006 Facsimile: (619) 233-8627 E-mail: [email protected]

4826-7360-2048.1