Free Motion to Strike - District Court of Arizona - Arizona

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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

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 LaSalle 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 UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Alanco Technologies, Inc., et al. Plaintiffs, v. Carolina Casualty Insurance Company, Defendant. Case No.: CV-04-0789-PHX-DGC DEFENDANT'S MOTION TO STRIKE PORTIONS OF PLAINTIFFS' STATEMENT OF FACTS AND ACCOMPANYING EXHIBITS IN SUPPORT OF PLAINTIFFS' RESPONSE TO DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

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Defendant Carolina Casualty Insurance Company ("Carolina") hereby moves this Court to strike portions of Plaintiffs' "Statement of Facts in Support of Plaintiffs' Response to Carolina's Motion for Summary [Judgment]" ("hereinafter, Alanco's Response SOF") as follows: I. INTRODUCTION Alanco's Response SOF cites to "facts," documents and an affidavit that does not constitute admissible evidence. With respect to the documents, Alanco relies on exhibits
Case 2:04-cv-00789-DGC Document 95 Filed 02/21/2006 Page 1 of 12

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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

that: (i) were never identified by Alanco in its Initial Disclosures; (ii) were never produced in discovery in response to Carolina's discovery requests; and (iii) were provided to Carolina for the first time as exhibits to Alanco's Response to Defendant's Motion for Summary Judgment and Memorandum of Law in Support Thereof ("Alanco's Response"). As to the affidavit, certain testimony therein reflects "argument" of counsel, as opposed to "facts" supported by record evidence; and arguments of lawyers have no place in a SOF. For the reasons set forth herein, portions of Alanco's Response SOF, its accompanying exhibits and certain portions of the affidavit should be stricken by this Court, and not considered in support of Alanco's Response to Carolina's Motion for Summary Judgment. With respect to Alanco's Response SOF, Carolina previously filed a Motion to Strike with respect to Alanco's Motion for Summary Judgment and accompanying Statement of Facts ("Alanco's Motion SOF"). Rather than reiterate all the legal citations and arguments contained in Carolina's Motion to Strike Alanco's Motion SOF, Carolina expressly adopts and incorporates the same herein. II. ARGUMENT A. Alanco's Response Improperly Relies on Documents Never Disclosed by Alanco in Discovery

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Like Alanco's Motion SOF, Alanco's Response SOF improperly relies on documents that were: (i) never identified by Alanco in its Initial Disclosures; (ii) never produced in discovery by Alanco to Carolina; and (iii) provided to Carolina for the first time as exhibits to Alanco's Response. As such, these documents (Exhibits B, D and E, attached to Alanco's Response SOF), together with the accompanying paragraphs from the SOF, must be stricken by this Court pursuant to Rule 56 of the Federal Rules of Civil Procedure, Local Rule 56.1, and/or the inherent power to do so -2Case 2:04-cv-00789-DGC Document 95 Filed 02/21/2006 Page 2 of 12

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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

that exists in this Court. In Alanco's Response SOF, it relies on Exhibits B, D and E. None of these documents are included as "Exhibits to summary judgment motions", Alanco's answer to the Rule 26 disclosures and Carolina's discovery (See, Carolina's Motion to Strike Alanco's Motion SOF). In addition, Exhibits B, D and E were never identified, disclosed or produced to Carolina during discovery. See, Affidavit of James K.

Thurston, Ex. 1, ¶5. In fact, the first time Carolina saw Exhibits B, D and E was in Plaintiffs' Response SOF filed on February 2, 2006. See, Affidavit of James K. Thurston, Ex. 1, ¶6. Based on the plain language of Rule 37(c)(1) of the Federal Rules of Civil Procedure as well as the case law cited in Carolina's Motion to Strike Alanco's Motion SOF (Pac Fab, Inc. v. Sunline Int'l USA, 2002 U.S. Dist. LEXIS 26479 (D.Ariz. 2002); Fallar v. Compuware Corp., 202 F.Supp. 1067 (D. Ariz. 2002); Connolly v. Allstate Ins. Co., 1997 U.S. App. LEXIS 9369 (9th Cir. 1997); Dedvukaj v. Equilon Enterprises, Inc., 301 F.Supp.2d 664, 668 (E.D.Mich. 2004); Heary Bros. Lightning Protection Co., Inc. v. Lightning Protection Institute, 287 F.Supp.2d 1038 (D.Ariz. 2003)), Exhibits B, D and E (as well as Plaintiffs' Response SOF that relates to the same) must be stricken. B. The Affidavit Attached to Alanco's Response Must be Stricken

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Paragraphs 2, 3 and 4 of the Supplemental Affidavit of T. Michael Daggett submitted by Alanco must also be stricken as it presents "argument" and not a statement of objective "facts." As set forth in Carolina's previous Motion to Strike, in order to satisfy the requirement of Rule 56(e), an affidavit must be based upon personal knowledge, set forth facts, that would be admissible in evidence, and which show that the affiant is competent

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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

to testify to the matters stated therein; legal argumentation is an expression of legal opinion and is not a recitation of a "fact" to which an affiant is competent to testify. Paragraphs 2, 3 and 4 of the Daggett Supplemental Affidavit must be stricken as each of the three of these three paragraphs contain mere legal conclusions, and absolutely no citation whatsoever to facts in the record. Specifically, Paragraphs 2, 3 and 4 of the Daggett Supplemental Affidavit state: [2] Alanco had no involvement in the TSIN Bankruptcy proceedings initially. However, as the proceedings move forward, it became clear to me that they presented an avenue with which Alanco could garner significant concessions in the underlying litigation. This was the predominant reason for our involvement in these proceedings. [3] The determination of the control issue in the Nevada litigation would have a controlling effect on the resolution of the underlying case. This was the predominant reason for our involvement in that matter. [4] The underlying case involved extensive discovery, including hundreds of pages of deposition testimony, and numerous dispositive motions were timely filed. Incredibly, Paragraphs 2, 3 and 4 contain absolutely no citations to the record ­ rather, they are simply the opinions of Alanco's coverage counsel and constitute bald statements without any factual basis. Paragraph 2 is a legal conclusion: "as the

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proceedings moved forward, it became clear to me that they presented an avenue with which Alanco could garner significant concessions in the underlying litigation. This was the predominant reason for our involvement in these proceedings." This statement contains absolutely no basis in "record facts" to establish these legal conclusions. Simply stated, these are not "facts" just because Alanco's attorney says it is so in an affidavit. Paragraph 3 of the Affidavit is also a legal conclusion that fails to refer to any facts in the record. As noted in Carolina's Motion to Strike Alanco's Motion SOF, none -4Case 2:04-cv-00789-DGC Document 95 Filed 02/21/2006 Page 4 of 12

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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

of the (inadmissible) Exhibits even reference the "control issue" purportedly at issue in the Nevada Lawsuit. conclusion. Paragraph 4 is yet another legal conclusion. Alanco sets forth no "facts" that would lead to the legal conclusion that the Amended Lawsuit "involved extensive discovery." Indeed, a case that involves "hundreds of pages of deposition testimony" ­ as opposed to "thousands" or "tens-of-thousands" of pages ­ hardly supports the legal conclusion itself. Moreover, what "dispositive motions were timely filed"? ­ the record is devoid of any "facts" showing a single dispositive motion was filed. This is clearly a statement of opinion, and Paragraph 4 too must be stricken. C. Certain Paragraphs in Alanco's Response SOF Must be Stricken Again, no facts in the record are referenced in reaching this legal

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Many of Alanco's present Response SOF are based upon Alanco's previous SOF in support of its Motion for Summary Judgment (denominated by Alanco as "PSOF"). Carolina has already moved to strike the PSOF (and the accompanying Exhibits thereto) and incorporates the same arguments to the Response SOF. Specifically, Alanco's Response SOF that relies on its previously filed PSOF includes: Paragraph 5, 8, 10, 11, 12: [5] TSIN filed Chapter 11 proceedings in 2003. See PSOF at ¶7 (and Exhibit F thereto). [8] There was no other reason why Plaintiffs' litigation counsel was involved in these proceedings. See PSOF at ¶11 (and Exhibit E thereto); Daggett Supp. Aff., ¶2 (Exhibit A hereto). [10] In February, 2005, the TSIN shareholders called an annual meeting for the purpose of electing a new Board of Directors. See PSOF at ¶3 (and Exhibit B thereto).

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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

[11] On the day this new Board was elected, it was charged with conducting an analysis as to whether the prosecution of the underlying litigation should continue. See PSOF at ¶14 (and Exhibit C thereto). [12] Once this occurred, the former Board (which had been a strong proponent of the prosecution of the underlying claim), sought a determination in Nevada as to which Board controlled the company and the underlying litigation. See PSOF at ¶5 (and Exhibit D thereto). The statements set forth in these paragraphs are based on exhibits that: (i) were never identified in Alanco's Initial Disclosures; (ii) never disclosed to Carolina pursuant to Carolina's discovery requests; and (iii) never produced in discovery by Alanco to Carolina. The first time Carolina received these documents was with Alanco's Motion SOF. Similarly, in Alanco's Response SOF, it relies on Affidavit testimony presented in Alanco's previous PSOF which Carolina has filed a Motion to Strike. Carolina adopts the same arguments as to the following: Paragraph 9, 14, 15, 16: [9] These costs were reasonable and necessary to the defense of the covered claim. See Affidavit of T. Michael Daggett, ¶21, attached to PSOF as Exhibit E. [14] Like in the TSIN Bankruptcy proceedings, the costs incurred in connection with Plaintiffs' active involvement in the Nevada action were reasonable and necessary costs to that defense. See PSOF at ¶6 (and Daggett Affidavit, ¶21 (Exhibit E thereto)). [15] Steven P. Oman, P.C. ("Oman") served, at all relevant times and through the present, as Alanco's outside general counsel. See PSOF at ¶7 (and Oman Affidavit, ¶3 (Exhibit L thereto)).

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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

[16] The Oman billing records definitively show that he took a vital role in preparing pleadings and discovery, preparing for depositions, reviewing and analyzing relevant documents, and in developing litigation strategy. See Oman billing records, attached to PSOF as Exhibit L. The following paragraphs from Alanco's Response SOF are "new" SOF not contained in Alanco's prior PSOF, and to which Carolina presently seeks to strike: Paragraph 4: Stinson Morrison Hecker Invoice No. 9634529 (the December 16, 2004 invoice) reflects the increase in T. Michael Daggett's rate made in the ordinary course of Stinson Morrison Hecker's business. See Affidavit of T. Michael Daggett, ¶18, attached to PSOF as Exhibit E. As set forth in Carolina's Reply Memorandum (p.6), the rate increase was not made in the "ordinary course of...business", but reflects a mistake. From November 19, 2003 (Daggett's very first entry) until October 31, 2004, Daggett's rate was $285 per hour. From November 1, 2004 through November 30, 2004, his rate was $325. From December 1, 2004 through August 31, 2005 (his last entry), his rate is $285.1 (See, Carolina's SOF, Ex.4.A (Invoice No. 9634529 for November 2004 time)). Accordingly, for 19 months his hourly rate was $285, and one month "sandwiched" in between, his rate was $325 ­ obviously a mistake, and not a rate increase made in the "ordinary course of business." Paragraph 6: Alanco had no involvement in these proceedings initially. However, as the proceedings moved forward, it became clear to Plaintiffs' litigation counsel that they presented an
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Mr. Daggett's hourly rate is not listed on the billing invoices. However, by simply dividing his time spent by the total expense yields his billing rate.

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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

avenue with which Alanco could garner significant concessions in the underlying litigation. This was the predominant reason for Plaintiffs' involvement in these proceedings. Supplemental Affidavit of T. Michael Daggett ("Daggett Supp. Aff."), ¶2, attached hereto as Exhibit A. As set forth above, Paragraph 2 is a legal conclusion: "as the proceedings moved forward, it became clear to me that they presented an avenue with which Alanco could garner significant concessions in the underlying litigation. This was the predominant reason for our involvement in these proceedings." This statement contains absolutely no basis in "record facts" to establish these legal conclusions. Simply stated, these are not "facts" just because Alanco's attorney says it is so in an affidavit. Paragraph 7: TSIN ultimately agreed to voluntarily waive rescission as a possible remedy in the underlying case. December 1, 2004 Order of Bankruptcy Judge Eileen W. Hollowell, attached hereto as Exhibit B. The statements set forth in this paragraph are based on an exhibit that: (i) was never identified in Alanco's Initial Disclosures; (ii) never disclosed to Carolina pursuant to Carolina's discovery requests; and (iii) never produced in discovery by Alanco to Carolina. The first time Carolina was provided this document was in Alanco's Response SOF. Further, Exhibit B does not indicate that the rescission remedy in the Amended Lawsuit was indeed waived. While the order does reference the "Alanco Litigation," at that time, two Alanco Litigations were pending: (i) the Amended Lawsuit; and (ii) the Nevada Lawsuit, against Alanco and its directors and officers. Alanco has presented no evidence that the "Alanco Litigation" was a

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reference to the Amended Lawsuit. Moreover, the rescission claims are also against Alanco's directors and officers and there is no indication in the Order that that claim is waived. -8Case 2:04-cv-00789-DGC Document 95 Filed 02/21/2006 Page 8 of 12

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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 13: As with the work performed in the TSIN Bankruptcy matter, the determination of this issue would have a controlling effect on the resolution of the underlying case, and this was the predominant reason for Plaintiffs' involvement in this matter. Daggett Supp. Aff., ¶3 (Exhibit A). Paragraph 13 is a legal conclusion that fails to refer to any facts in the record. As noted in Carolina's Motion to Strike Alanco's Motion SOF, none of the (inadmissible) Exhibits even reference the "control issue" purportedly at issue in the Nevada Lawsuit. Again, no facts in the record are referenced in reaching this legal conclusion. Paragraph 17 and 18: The declaration page that the Court has already found to be applicable to this analysis sets a retention of $100,000, not $150,000, for claims other than securities claims. Declaration Page, attached hereto as Exhibit C. It is undisputed that the claims in the underlying litigation included both securities and non-securities claims. See Complaint, attached to PSOF as Exhibit A. Paragraphs 17 and 18 are simply legal arguments, both of which are clearly disputed by Carolina (see Carolina Reply in Support of Motion for Summary Judgment). Pure "argument" is not a proper statement of "facts" and must be stricken. Paragraph 19: On January 18, 2006, the newly-assigned Judge in the underlying case denied TSIN's motion to keep the case on the inactive calendar. January 18, 2006 Minute Entry of the Honorable Peter Swann, attached hereto as Exhibit D. The statements set forth in this paragraph are based on an exhibit that: (i) was never identified in Alanco's Initial Disclosures; (ii) was never disclosed to Carolina pursuant to Carolina's discovery requests; and (iii) was never produced in discovery by -9Case 2:04-cv-00789-DGC Document 95 Filed 02/21/2006 Page 9 of 12

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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

Alanco to Carolina. The first time Carolina received this document was with Alanco's Response SOF. Even if the Order was issued after the discovery deadline, Alanco has a duty to supplement its discovery. See Rule 26(e) of the Federal Rules of Civil Procedure, and Rule 37(c) concerning sanctions for failure to supplement. Paragraph 20: The underlying case involved extensive discovery, including hundreds of pages of deposition testimony. Daggett Supp. Aff., ¶4. Paragraph 20 is yet another legal conclusion and based on an Affidavit which Carolina has moved to strike (see above). Specifically, Alanco sets forth no "facts" that would lead to the legal conclusion that the Amended Lawsuit "involved extensive discovery." Indeed, a case that involves "hundreds of pages of deposition testimony" ­ as opposed to "thousands" or "tens-of-thousands" of pages ­ hardly supports the legal conclusion itself. This is clearly a statement of opinion, and Paragraph 20 must be stricken..

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Paragraph 21:
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The discovery and dispositive motions deadlines in the underlying case passed long ago, and numerous dispositive motions timely were filed. November 18, 2004 Minute Entry of the Honorable Robert L. Gottsfield, attached hereto as Exhibit E. The statements set forth in this paragraph are based on an exhibit that: (i) was never identified in Alanco's Initial Disclosures; (ii) was never disclosed to Carolina pursuant to Carolina's discovery requests; and (iii) was never produced in discovery by Alanco to Carolina. The first time Carolina received this document was with Alanco's Response SOF. Moreover what "dispositive motions were timely filed"? ­ the record is devoid of any "facts" showing a single dispositive motion was filed. Exhibit E does not - 10 -

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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

evidence a single "dispositive motion was filed", rather, it merely sets the deadline for dispositive motions to be filed. III. CONCLUSION For each of the foregoing reasons, Defendant Carolina respectfully requests that this Court strike the aforementioned paragraphs in Alanco's Response SOF, that this Court strike Exhibits B, D and E to Alanco's Response SOF, as well as striking paragraphs 2, 3 and 4 of Exhibit A (the legal conclusions contained in the affidavits of Plaintiffs' counsel). DATED this 21st day of February, 2006 SANDERS & PARKS, P.C.

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

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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 February 21, 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 February 21, 2006, to The Honorable David G. Campbell s/ Mark G. Worischeck

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