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

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James K. Thurston, ARDC No. 6202021 Patrick K. Cary, ARDC No. 6227274 Daniel E. Tranen, ARDC No. 6244878 WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER LLP 120 North La Salle Street Chicago, IL 60602 Telephone: (312) 704-0550 Facsimile: (312) 704-1522 Admitted Pro Hac Vice Mark G. Worischeck, No. 011147 J. Steven Sparks, No. 015561 SANDERS & PARKS, P.C. 3030 North Third Street, Suite 1300 Phoenix, AZ 85012-3099 Telephone: (602) 532-5795 Facsimile: (602) 230-5054 Attorneys for Defendant Carolina Casualty Insurance Company

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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

UNITED STATES DISTRICT COURT
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DISTRICT OF ARIZONA
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Alanco Technologies, Inc., an Arizona corporation; Technology Systems International, Inc., f/k/a TSI Acquisition Corporation, an Arizona corporation; Robert R. Kauffman and Elizabeth Kauffman, husband and wife; Greg E. Oester and Linda Oester, husband and wife, Plaintiffs, v. Carolina Casualty Insurance Company, a Florida corporation, Defendant. I. INTRODUCTION

Case No.: CV-04-0789-PHX-DGC

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DEFENDANT'S REPLY IN SUPPORT OF ITS MOTION TO STRIKE PORTIONS OF PLAINTIFFS' STATEMENT OF FACTS AND ACCOMPANYING EXHIBITS

Plaintiffs would have this Court disregard the formalities of the Federal Rules of Evidence and the Federal Rules of Civil Procedure because, according to Plaintiffs,

Case 2:04-cv-00789-DGC

Document 99

Filed 03/16/2006

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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

Carolina has shown no "prejudice" stemming from Plaintiffs' failure to follow the rules. These rules exist for a reason and Carolina would submit that the failure of Plaintiffs to abide by them is per se prejudicial. For instance, it is elementary that a party cannot produce documents requested in discovery for the first time as an attachment to a motion for summary judgment. It is also elementary that an attorney cannot supply advocacy in an affidavit, and then dress it up as a "fact that is not in dispute" in support of a motion for summary judgment. Obviously, if Carolina wished to take the same tack as Plaintiffs, it could supply a contrary affidavit from its own counsel. But, of course, that is not how litigation is supposed to be conducted. Instead, litigation is supposed to be conducted honorably and above board. II. ARGUMENT In response to Carolina's Motion to Strike, Plaintiffs raise a host of issues, many of which were discussed in Carolina's Response to Plaintiff's Statement of Facts. Carolina's Motion to Strike is, of course, distinct from its Response to Plaintiffs Statement of Facts. For this reason, Carolina will confine its Reply to those issues raised in its Motion to Strike. A. Exhibits B, C, and H Must Be Stricken

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Plaintiffs attempt to support their citation to Exhibits B and C by arguing that their failure to produce these documents in discovery was not "harmful" to Carolina. As a result, Plaintiffs contend that they should be permitted to rely upon these exhibits, despite their utter failure to comply with discovery. Plaintiffs cite only one of the applicable rules. Relying on F.R.Civ.P. 37(c), Plaintiffs assert that the failure to disclose must be "harmful." However, this portion of Rule 37 only relates to failures to disclose

information required under Rule 26(a)(1) ­ initial disclosures. While it is true that -2Case 2:04-cv-00789-DGC Document 99 Filed 03/16/2006 Page 2 of 9

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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

Plaintiffs failed to identify these documents as required under Rule 26(a)(1), they also failed to provide them in response to written discovery requests propounded by Carolina. The failure of a party to comply with written discovery is governed by Rule 37(d), which does not require that the non-disclosure be harmful.1 Since Plaintiffs failed to provide Exhibits B and C in response to written discovery seeking these documents, this Court is certainly permitted to bar the use of those documents under Rule 37(d), regardless of whether it finds that Carolina was "harmed" by such misconduct. Nevertheless, even applying the Rule 37(c) "harmfulness" requirement, the harm to Carolina was explained in Footnote 1 of Carolina's Motion to Strike. In particular, Plaintiffs are relying upon Exhibits B and C to expand their claimed damages in the underlying litigation to include other litigation matters. Had Carolina known that

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Plaintiffs would be taking this position, Carolina would have conducted further investigation, including depositions of Plaintiffs, to demonstrate that these other litigation matters were not covered.2 Plaintiffs' decision to withhold these exhibits, and then spring them upon Carolina after the close of discovery and in support of a motion for summary judgment is the very epitome of prejudice. Such prejudice is plainly harmful to Carolina. Plaintiffs offer no response to this contention in their Response. Plaintiffs attempt to support their use of Exhibit H by stating that this document was produced "twice" by Plaintiffs in discovery and elsewhere. However, this is not Carolina's objection. Simply because a document has been produced during discovery,

According to Rule 37(a)(3), an evasive or incomplete disclosure, answer or response is to be treated as a failure to disclose, answer or respond. The notion that Carolina does not "dispute" these exhibits is unfathomable. Carolina is seeking to have them stricken. Carolina was denied the opportunity to investigate the truth of the assertions contained in these exhibits, and it clearly disputes the conclusion, which Plaintiffs attempt to derive from these exhibits, that defense fees from separate litigation is covered under the Carolina policy. -3Case 2:04-cv-00789-DGC Document 99 Filed 03/16/2006 Page 3 of 9
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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

does not mean that it can automatically be admitted into evidence. The cases cited by Carolina stand for the proposition that, in order to admit a document into evidence, the document must first be shown to have proper foundation. Plaintiffs have offered no foundation for the exhibit itself, or for the "factual" assertions in the Statement of Facts, which they attribute to this exhibit. Inasmuch as Plaintiffs have failed to establish foundation for Exhibit H, such exhibit must be stricken as a matter of law. B. Portions of Plaintiffs' Attorneys Affidavits Must Be Stricken

No one is disputing the ability of Mr. Daggett and Mr. Oman to testify about the amount of their fees in the underlying action, the Nevada action and the bankruptcy matter. The issue is not whether these attorneys can testify about their own fees, but whether these attorneys can offer opinion testimony as to whether one piece of litigation was "necessary" or somehow linked to another litigation matter. It is only the portion of these affidavits that attempt to draw the legal conclusion that the Nevada litigation and the Bankruptcy litigation were somehow linked to or necessary for the defense of the underlying litigation, and therefore, somehow covered under the Carolina policy, that Carolina seeks to have stricken. No one doubts that Mr. Daggett and Mr. Oman have opinions on these legal issues and that these opinions could have been derived from their experience working on these cases. However, again, these attorneys are advocates in this case, not experts. What they are testifying to is not fact, but legal conclusion ­ disputed legal conclusion at that. Accordingly, it does not matter whether these individuals have "personal

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knowledge" about the "subjects" of their proposed testimony. Finally, Carolina is not impugning or attacking the credibility of these attorneys. This is not a credibility issue. It is an issue about an advocate attempting to provide legal conclusions or opinions as "evidence" in support of a motion for summary judgment. As such, the cases cited by Alanco are inapposite. For example, EEOC v. Peabody Coal -4Case 2:04-cv-00789-DGC Document 99 Filed 03/16/2006 Page 4 of 9

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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

Co., 214 F.R.D. 549 (D. Ariz. 2002), which involved an attorney who provided foundation for a document and who testified to other facts, has no bearing on the circumstances of this case. The testimony at issue does not concern foundation for documents3 or observed procedures. Instead, the questionable testimony concerns the conclusions of these attorneys that fees expended in certain other litigation were "necessary" to defend the claims in the underlying litigation. Carolina absolutely disagrees with this contention, and has refused to stipulate to Plaintiffs' damages in this case because these alleged "damages" include defense fees for this other litigation. Since Plaintiffs offer no response to Carolina's Motion to Strike portions of the attorneys' affidavits which constitute improper legal conclusions, and not statements of "fact," those portions of the affidavits should be stricken by this Court. See Casey v. Lewis, 773 F.Supp. 1365 (D. Ariz. 1991) ("[u]ltimate or conclusory facts and conclusions of law ... cannot be utilized on a motion for summary judgment"). In Casey, the court specifically identified as "conclusory" a paragraph in an affidavit which discussed whether it was "necessary" to do something. Id. at 1372. C. Paragraphs 2, 3, 4, 6, 8, 9, 11, 12, 20, 24, 25 and 28 of Plaintiffs' Statement of Facts Must Be Stricken 1. Paragraphs 2-4

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As noted above, if the exhibits which form the basis for the Statement of Fact are stricken, then the Statement of Fact should be stricken, as well. Plaintiffs do not contest ­ nor could they contest ­ the fact that Exhibits B and C to the Statement of Facts were never provided to Carolina in discovery. The harm from this failure to comply with the discovery rules is explained above and these exhibits should, therefore, be stricken as a matter of law.

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In fact, Mr. Oman has testified to the foundation of certain documents including exhibits B and C in his affidavit. Carolina has not moved to strike such testimony. -5Document 99 Filed 03/16/2006 Page 5 of 9

Case 2:04-cv-00789-DGC

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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

Moreover, even if Exhibit B had been produced, it does not even contain the signatures of the TSIN shareholders. Although Mr. Oman asserts that he has personal knowledge of the facts in his affidavit, he must provide this Court and Carolina with more. He has explained the basis for his testimony regarding the value of his fees, but he has not explained how he knows that the original of Exhibit B was signed. He does not testify to the fact that he saw these alleged signatures and he does not testify to having seen a fully signed document. Exhibit B on its face does not show the assent of the majority of directors, and therefore, on its face, it does not support the facts alleged in Paragraphs 2 and 3 of the SOF. 2. Paragraphs 6, 11, 24, 25, and 28

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Each of these "facts" is really the conclusion of Plaintiffs' counsel that the litigation of other matters was "necessary" for the litigation of the underlying matter. The purpose is to justify hundreds of thousands of dollars in attorneys fees expended in these "other matters" and to include them on the final bill in this case. Whether or not this litigation is "necessary" is a conclusion that must be reached by this Court, based upon factual support supplied by Plaintiffs. And it is Plaintiffs' burden of proof. The opinion testimony of Plaintiffs' lawyers, who are the same lawyers representing them in this case, is simply not appropriate, and must be stricken. Since each of the "facts" set forth in paragraphs 6, 11, 24, 25 and 28 constitutes a legal opinion from Plaintiffs' counsel, those paragraphs do not set forth "facts" which can properly support a motion for summary judgment. Indeed, even Plaintiffs agree that these are not facts, but rather "valid conclusions" (see brief at p. 13). Since these improper legal opinions are at the very least conclusions, they cannot be facts, and must therefore be stricken. 3. Paragraphs 8 and 9

Plaintiffs attempt to support these paragraphs by pointing out that the Order in question does indeed stay the underlying action. Carolina does not dispute this portion of -6Case 2:04-cv-00789-DGC Document 99 Filed 03/16/2006 Page 6 of 9

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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

Paragraph 8 of the SOF. Instead, Carolina limited its Motion to Strike to the portion of Paragraph 8 of the SOF which stated, "the question of control would dictate events going forward in the underlying litigation" as this portion of the SOF was not supported by the referenced exhibit. In their Response, Plaintiffs offer no reason for this Court not to strike the offending portion of Paragraph 8 of the SOF. Plaintiffs also fail to address the deficiency in paragraph 9. Paragraph 9 purports to relate the unspoken reason behind the Order, which is attached as Exhibit G. Plaintiffs' new attempt to claim that this issue was supported by Mr. Daggett's "personal knowledge, observations and professional competence" is unavailing. The affidavit says nothing about the issue and it is not specifically referenced in either the Statement of Facts or Plaintiffs' Response. Again, even if it were, Plaintiffs have referred to such a statement as merely a "valid conclusion." The Statement of Facts is required to consist of undisputed facts, not "valid conclusions" reached by a party's attorney. As noted above, the Plaintiffs have consistently and repeatedly thwarted the underlying purpose of the Statement of Facts by including these "valid conclusions" of Plaintiffs' counsel. 4. Paragraph 12

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Plaintiffs are attempting to use an admittedly unauthenticated document to create a "fact" which has never been admitted by Carolina, and indeed has been expressly denied by Carolina (i.e., that New City was Carolina's agent). The use of this document is improper because Plaintiffs have failed to establish proper foundation. It is absurd to rely upon this unauthenticated document for the purpose of establishing, as an undisputed fact, that Carolina (which is not the author of this document) had an agent known as New City. The document does not constitute evidence in support of the "facts" set forth in Paragraph 12. Since Paragraph 12 of the Statement of Facts is wholly unsupported by the record, it should be stricken. /// -7Case 2:04-cv-00789-DGC Document 99 Filed 03/16/2006 Page 7 of 9

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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

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Paragraph 20

Finally, Plaintiffs offer no substantive response to the identification of this "Statement of Fact" as merely being a conclusion of Plaintiffs' discovery strategy and an argument about whether Carolina has complied with discovery. Again, this is

conclusion, opinion and argument ­ not fact. It does not belong in a Statement of Facts in support of a Motion for Summary Judgment. It should therefore be stricken. III. CONCLUSION For each of the foregoing reasons, Defendant Carolina respectfully requests that this Court strike the aforementioned paragraphs in Plaintiffs' Statement of Facts in Support of their Motion for Summary Judgment, that this Court strike Exhibits B, C, and H to Plaintiffs' Statement of Facts, and that this Court strike all of the aforementioned legal conclusions contained in the affidavits of Plaintiffs' counsel. DATED this 16th day of March, 2006 SANDERS & PARKS, P.C.

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By: s/J. Steven Sparks_______________ Mark G. Worischeck J. Steven Sparks 3030 N. Third Street, Suite 1300 Phoenix, AZ 85012-3099 and

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James K. Thurston Patrick K. Cary Daniel E. Tranen WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER LLP 120 North La Salle Street, Suite 2600 Chicago, IL 60602 Attorneys for Defendant Carolina Casualty Insurance Company -8Case 2:04-cv-00789-DGC Document 99 Filed 03/16/2006 Page 8 of 9

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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

I hereby certify that on March 16, 2006, I electronically transmitted the foregoing document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following EM/ECF Registrants: mdaggett @stinsonmoheck.com cbeams @stinsonmoheck.com Attorneys for Plaintiffs To be hand-delivered as a courtesy hard copy on March 16, 2006, to The Honorable David G. Campbell s/ J. Steven Sparks

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