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

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Defendant Carolina Casualty Insurance Company ("Carolina") hereby moves this Court to strike portions of Plaintiffs' Statement of Facts and accompanying exhibits, as follows: I. INTRODUCTION Plaintiffs base their Motion for Summary Judgment upon a Statement of Facts ("SOF") which cites to "facts," documents and affidavits that are simply not admissible as evidence. With respect to the documents, Alanco relies on exhibits that: (i) were never

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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

identified by Alanco in its Initial Disclosures; (ii) were never produced in discovery in response to Carolina's discovery requests; and (iii) provided to Carolina for the first time as exhibits to Alanco's present Motion. As to the affidavits, certain testimony therein reflects "argument" of counsel, as opposed to "facts" supported by record evidence. The arguments of lawyers do not belong in a party's SOF. For the reasons set forth herein, portions of Plaintiffs' SOF, its accompanying exhibits and certain portions of two affidavits should be stricken by this Court, and not considered in support of Plaintiffs' Motion for Summary Judgment. II. ARGUMENT Alanco's Coverage Lawsuit seeks coverage from Carolina for the legal fees and costs related to an Amended Lawsuit against the Alanco defendants. However, in its Motion for Summary Judgment, Alanco is also seeking legal fees and costs related to three other lawsuits involving Alanco. Alanco never disclosed these other lawsuits in its mandated Rule 26 disclosures, nor in its discovery responses to Carolina. Nevertheless, based on these undisclosed documents and improper affidavits, Alanco presently argues that the legal fees and costs incurred in these three other matters were "necessary" to defend the Amended Lawsuit. In its Coverage Lawsuit, Alanco seeks to recover its legal expenses related to a 2003 derivative lawsuit filed by Richard Jones, and a subsequent amended complaint filed by TSIN (the "Amended Lawsuit"). In its Motion for Summary Judgment, however, Alanco also seeks coverage for legal fees and costs related to: (i) a slander lawsuit filed in 2005 by Alanco against Richard Jones (the "Slander Lawsuit"); (ii) Alanco's participation as a creditor in TSI

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Nevada's bankruptcy proceeding ("TSI Bankruptcy"); and (iii) a lawsuit against Alanco and its directors and officers filed in Nevada ("Nevada Lawsuit"). Alanco attempts to obtain coverage for these other lawsuits by relying 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 -2Case 2:04-cv-00789-DGC Document 93 Filed 02/16/2006 Page 2 of 18

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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

first time as exhibits to Alanco's present Motion. As such, these documents (Exhibits B, C, D, F, G and H, attached to Alanco's 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 that exists in this Court. A. Alanco's "Statement of Facts" 1. Alanco Motion For Summary Judgment Improperly Relies on Documents Never Disclosed by Alanco in its Initial Disclosures, Nor in Response to Carolina's Document Production Requests

In Alanco's Initial Disclosures (dated February 14, 2005), in response to Rule 26(a)(1)(C)'s mandate that Alanco set forth "[a] copy or description of all documents, data, compilation, and tangible things in plaintiffs' possession, custody or control that may be used to support their claims", Alanco only stated: "See Exhibits to summary judgment motions." (Carolina's Response SOF, ¶1.) Moreover, in Question No. 1 of Carolina's Interrogatories to Alanco, Carolina inquired: "identify all documents which related to or evidence the allegations set forth in your Second Amended Complaint." Alanco answered: "Plaintiffs refer Carolina to the Initial Disclosures filed on February 14, 2005." (Carolina's Response SOF, ¶2.) Consequently, the only documents to which Alanco identified pursuant to its

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Rule 26 mandates that "support their claims", or in response to Carolina's discovery
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requests that Alanco produce documents "related to or evidence the allegation set forth in your Second Amended Complaint" ­ were the "Exhibits to summary judgment motions." In its present Motion for Summary Judgment, Alanco relies on Exhibits B, C, D, F, G and H. None of the "Exhibits to summary judgment motions" include Exhibits B, C, D, F, G or H. (Carolina's Response SOF, ¶10.) None of these documents were ever provided to Carolina during discovery, nor are any of these documents "Exhibits to summary judgment motions." (Carolina's Response SOF, ¶11.) Because these -3Case 2:04-cv-00789-DGC Document 93 Filed 02/16/2006 Page 3 of 18

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documents were never identified ­ let alone produced in discovery ­ Alanco cannot now rely on the same in its Motion for Summary Judgment. (Carolina's Response SOF, ¶11.) Rule 37(c)(1) of the Federal Rules of Civil Procedure provides that a party who fails to "disclose information required by Rule 26(a)...is not, unless such failure is harmless, permitted to use as evidence...on a motion...information not so disclosed." As set forth in the Advisory Committee Notes: "Paragraph 1 prevents a party from using as evidence any witness or information that, without substantial justification, has not been disclosed as required by Rules 26(a) and 26(e)(1)." In Pac Fab, Inc. v. Sunline Int'l USA, 2002 U.S. Dist. LEXIS 26479 (D.Ariz. 2002), the Arizona District Court precluded a party from presenting any witness or information as evidence because the party "failed to make any of the required Rule 26 disclosures" and "failed to respond to...discovery requests." Id. at *1-2. The Arizona District Court held:
"Rule 26(a)(1) requires initial disclosures, without awaiting a discovery

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request, of the name and contact information of each individual likely to have discoverable information that the disclosing party may use to support its claims or defenses, unless solely for impeachment, and a copy of all documents that the disclosing party may use to support its claims or defenses... . A party that without substantial justification, fails to disclose information required by Rule 26, is not, unless such failure is harmless, permitted to use as evidence at a trial, at a hearing, or on a motion, any witness or information not so disclosed. Fed. R. Civ. P. 37(c)(1)." Id. at *3. (Emphasis added.) In addition, Alanco failed to provide any of the documents (Exhibits B, C, D, F, G, and H) to Carolina during discovery. (Carolina's Response SOF, ¶11.) In Fallar v. Compuware Corp., 202 F.Supp. 1067, 1079 (D. Ariz. 2002), plaintiff failed to produce a document during discovery that he later attempted to use in opposing defendant's

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motion for summary judgment. On defendant's motion to strike facts set forth in plaintiff's Statement of Facts in response to defendant's motion for summary -4Case 2:04-cv-00789-DGC Document 93 Filed 02/16/2006 Page 4 of 18

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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

judgment, the Arizona District Court held that: "a party may not rely on evidence produced after the close of discovery." Id. at *13. The Arizona District Court then held: "Plaintiff's evidence, clearly and admittedly produced after the close of discovery, should be stricken in accordance with Fed.R.Civ.P. 37(c)" and that plaintiff "should not be allowed to rely on Exhibit 3 of his Statement of Facts to overcome Defendant's Motion for Summary Judgment." Id. at *14. Similarly, in Connolly v. Allstate Ins. Co., 1997 U.S. App. LEXIS 9369 (9th Cir. 1997), the lower court refused to consider certain documents disclosed by an insurer after the discovery deadline and in opposition to the insured's motion for summary judgment. Id. at *2. Finding there was no "substantial justification" for the insurer's failure to comply with the discovery deadlines, the Ninth Circuit affirmed the district court's striking of the document pursuant to FRCP 37(c). Id. at *3. See also

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Dedvukaj v. Equilon Enterprises, Inc., 301 F.Supp.2d 664, 668 (E.D.Mich. 2004) (granting motion to strike evidence offered on summary judgment that was not made available to the opposing party during discovery). Here, Alanco did not identify Exhibits B, C, D, F, G and H in its Rule 26(c) Initial Disclosures. Alanco also did not produce Exhibits B, C, D, F, G and H during discovery. The first time Carolina saw these Exhibits was in Alanco's Motion for Summary Judgment filed on January 13, 2006 ­ which was filed well after the District Court's discovery deadline expired (November 30, 2005). (Carolina's Response SOF, ¶16.) Accordingly, Carolina respectfully requests that this Court strike these

documents. And because these documents should be stricken, the SOF which is based upon such evidence should also be stricken. See Heary Bros. Lightning Protection Co.,

Inc. v. Lightning Protection Institute, 287 F.Supp.2d 1038, 1074 n. 19 (D.Ariz. 2003) ("Plaintiff's Statements of Facts which are based on [evidence that the Court has stricken] will be stricken as well").

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2.

Alanco's Affidavits Must Be Stricken

Certain portions of two Affidavits submitted by Alanco must also be stricken as they present "argument" and not a statement of objective facts. Specifically, in

conjunction with its SOF, Alanco presented two Affidavits of its counsel (Michael Daggett and Steven Oman), the same two attorneys whose legal fees and costs are at issue. Specifically, in this Coverage Lawsuit, Alanco seeks its legal fees and costs related to its defense of the Amended Lawsuit against Alanco and its directors and officers. Alanco's Coverage Lawsuit has never sought its legal fees and costs related to any other lawsuits. However, in its present Motion for Summary Judgment, Alanco also seeks its legal fees and costs related to three others lawsuits ­ the Slander Lawsuit, the TSI Bankruptcy and the Nevada Lawsuit. In support of its Motion for Summary Judgment, Alanco has submitted affidavits of its two law firms as evidence in this case that their litigation efforts concerning the Slander Lawsuit, the TSI Bankruptcy and the Nevada Lawsuit was necessary to their defense of the Amended Lawsuit. This "evidence" is not based on any disclosed "facts" in the affidavit and, as such, represents impermissible argument and legal conclusions, unsupported by facts. 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 show that the affiant is competent to testify to the matters stated therein. Allen v. International Telephone and Telegraph Corp., 164 F.R.D. 489 (D.Ariz. 1995). Legal argumentation is an expression of legal opinion and is not a recitation of a "fact" to which an affiant is competent to testify. See Pfeil v. Rogers, 757 F.2d 850, 862 (7th Cir. 1985). In Inglett & Co. v. Everglades Fertilizer Co., 255 F.2d 342 (5th Cir. 1958), the Fifth Circuit explained the rational for refusing to consider the affidavit of counsel: We consider it a tribute to the high calling of advocacy to say that we think it an unnatural, if not virtually impossible, task for counsel, in his own -6Case 2:04-cv-00789-DGC Document 93 Filed 02/16/2006 Page 6 of 18

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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

case, to drop the garments of advocacy and take on the somber garb of an objective fact-stater. See also United States v. Dibble, 429 F.2d 598, 602 (9th Cir. 1970)(disregarding an affidavit that consisted of "a series of legal conclusions unsupported by facts."). In a transparent effort to convince this Court that the payments purportedly made to them by Alanco for their efforts in a the Slander Lawsuit, the TSI Bankruptcy, and the Nevada Lawsuit, ought to be included in the sums paid under the Carolina policy, Mr. Daggett argues ­ without any basis in fact ­ that these other lawsuits were necessary to the defense of the Amended Lawsuit. In fact, Daggett testified that: "I have served as the principal litigation attorney...in [the Amended Lawsuit], as well as all other matters necessary to the defense of the claims made by TSIN in the underlying litigation, including the TSIN bankruptcy proceedings, litigation in Nevada with regard to the control of TSIN after the shareholders elected a new Board, and related necessary matters." (Paragraph 1.) "Exhibit A [his fee statements] do not include any amount of attorney and paralegal time that we identified as potentially outside the scope of the work involved in defending the Plaintiffs against the claims made by TSIN in the underlying case." (Paragraph 4.) "none of these services [presumably for the bankruptcy proceedings, the Nevada litigation and other matters] would have been necessary but for the claims made by TSIN in the underlying litigation." (Paragraph 21.) Similarly, Mr. Oman has submitted an Affidavit wherein he testified: "Exhibit A [his fee statements] does not include any amount of attorney and/or paralegal time that I identified as potentially outside the scope of the work involved in defending Alanco, as well as its officers and directors Greg Oester and Robert Kauffman, against the claims made in the underlying action." (Paragraph 5.) "All of the services performed by Steven P. Oman, P.C., as reflected in the attached summaries, were necessary and reasonable in light of the nature of the claims made against my clients in the TSIN litigation. None of these services would have been necessary but for the claims made by TSIN in the underlying litigation." (Paragraph 9.) -7Case 2:04-cv-00789-DGC Document 93 Filed 02/16/2006 Page 7 of 18

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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

"The scope of work involved in defending Alanco, as well as its directors and officers and directors Greg Oester and Robert Kauffman, against the claims made in the underlying litigation included not only the underlying action, but tasks performed in the TSIN bankruptcy matter, litigation in Nevada with regard to the control of TSIN after the shareholders elected a new Board, as well as efforts to gather a majority of TSIN shareholders in order to elect a new Board." (Paragraph 10.) These statements are not statements of "fact." They are legal conclusions,

regarding issues which ultimately must be decided by this Court. These Affidavits do not set forth any "facts" evidencing that the fees and costs incurred in the Slander Lawsuit, the TSI Bankruptcy or the Nevada Lawsuit were necessary for the defense of the Amended Lawsuit. Indeed, Daggett fails to explain with facts how the: "TSIN bankruptcy proceedings, litigation in Nevada with regard to the control of TSIN after the shareholders elected a new Board, and related necessary matters" was "necessary to the defense of the claims made by TSIN in the underlying litigation" (Paragraph 1); or why

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"none of these services would have been necessary but for the claims made by TSIN in the underlying litigation." (Paragraph 21.) Oman's Affidavit suffers from the same infirmities as Daggett's Affidavit. Both of these affidavits only offer legal conclusions of Plaintiffs' trial counsel (Daggett) and Alanco's outside counsel, individuals who are not objective, but who are advocates for Alanco. These legal conclusions, offered not on the basis of any facts, are not evidence. As such, these portions of the affidavits should be stricken from the SOF, offered by Plaintiffs in support of their Motion for Summary Judgment. Based on the arguments above, Carolina believes the following Paragraphs from Alanco's Statement of Facts must be stricken for the following reasons: Paragraph 1: The Complaint in the underlying case stated nine causes of action, including common law fraud, securities fraud, negligent misrepresentation, and breach of contract. Of the 118 total paragraphs therein, 56 were specific factual allegations that TSIN believed formed the basis of their fraud claims. It sought damages in excess of $18 million. Second -8Case 2:04-cv-00789-DGC Document 93 Filed 02/16/2006 Page 8 of 18

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Amended Complaint in Technology Systems International, Inc. v. Alanco Technologies, Inc., et al., Maricopa county Superior Court Cause No. CV 2003-001937, attached hereto as Exhibit A. Nowhere in Exhibit A does it state "56 were specific factual allegations that TSIN believed formed the basis of their fraud claims"; and what "TSIN believed" is impermissible hearsay. Nowhere in Exhibit A does it seek "damages in excess of $18 million", as no definitive amount of damages is requested. Accordingly, these facts are not supported by Exhibit A and must be stricken. Paragraph 2: By the spring of 2004, the majority of TSIN shareholders concluded that the TSIN litigation amounted to little more than a dissipation of company assets. Majority Written Consent of Shareholders of Technology Systems International, Inc., a Nevada Corporation ("Written Consent"), attached hereto as Exhibit B. The statements set forth in Paragraph 2 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 SOF.

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In addition, the only foundation offered for Exhibit B is in an affidavit signed by
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Steven Oman. See Exhibit L to Plaintiffs' SOF. Therein, Oman testifies that he created Exhibit B, and that Exhibit B was signed by a majority of the shareholders for TSIN. He offers no foundation for his personal knowledge that Exhibit B was signed by the "majority of shareholders." In fact, Exhibit B has no signatures on it whatsoever. Accordingly, even if Exhibit B is not stricken for the reasons set forth herein, it does not on its face substantiate the facts stated in Paragraph 2, which conclude that "the majority of shareholders" reached the conclusion set forth therein. For this separate reason, Paragraph 2 should be stricken. Cox v. Amerigas Propane, Inc., 2005 U.S. Dist. LEXIS 26344 at *29 (D. Ariz. October 28, 2005)(striking portions of plaintiff's statement of fact which is not supported by the record evidence). -9Case 2:04-cv-00789-DGC Document 93 Filed 02/16/2006 Page 9 of 18

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Paragraph 3: Since the TSIN Board refused to dismiss the litigation, the majority of TSIN shareholders (led by Alanco, a significant shareholder) called a special meeting and elected a new Board of Directors. See Written Consent (Exhibit B). The statements set forth in Paragraph 3 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 SOF. Paragraph 4: At this meeting, at which 87.5% of the outstanding shares were present, a new Board of Directors was elected, and charged specifically with evaluating the desirability of continuing the underlying litigation, among other tasks. Technology Systems International, Inc. (Nevada) Minutes of Annual Shareholders Meeting, February 28, 2005, attached hereto as Exhibit C. The statements set forth in Paragraph 4 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 SOF. Paragraph 5: An emergency action was filed by TSIN's former Board of Directors against the newly-elected Board over control of the company in Nevada. Complaint filed in Technology Systems International, Inc. (Nevada) v. Alanco Technologies, Inc., et al., Clark County District Court (Nevada), attached hereto as Exhibit D. The statements set forth in Paragraph 5 are based on an Exhibit that: (i) was never

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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.

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Paragraph 6: Defending this action was necessary to efficiently defending, and would not have occurred but for, the claims made in the underlying litigation. See Affidavit of T. Michael Daggett, ¶21, attached hereto as Exhibit E. The statement set forth in Paragraph 6 is not a Statement of Fact. It is an

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argument that the defense of the Nevada Lawsuit was necessary to defend the Amended
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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

Lawsuit. No factual support whatsoever is provided for this argument ­ rather, the affidavit of Plaintiff's trial counsel is offered instead. Since the legal conclusions of trial counsel are not facts (see above), Paragraph 6, which is based upon these legal conclusions should be stricken. Paragraph 7: During this time, TSIN had on file Chapter 11 proceedings in U.S. Bankruptcy Court. Petition in In re Technology Systems International, Inc., cause no. 03-BK-21187-EWH, attached hereto as Exhibit F. The statement set forth in Paragraph 7 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. Paragraph 8: Once the Nevada action was filed, Maricopa County Superior Court Judge Robert Gottsfield, probably seeing that a question of control would dictate events going forward in the underlying litigation but also noting the Order of Bankruptcy Judge Hollowell staying the action in the underlying litigation, suspended that litigation until the control issue was decided. March 14, 2005 Minute Entry in Technology Systems International, Inc. v. Alanco Technologies, Inc., et al. (wrongfully captioned Jones v. Alanco Technologies, Inc., et al.), attached hereto as Exhibit G. The statements set forth in Paragraph 8 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 SOF. - 11 -

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Moreover, the statement set forth in Paragraph 8 of Plaintiffs' SOF is not supported by the record evidence, and instead, contains Plaintiffs' speculation regarding the unstated reasoning behind an order of the court in the Underlying Lawsuit ("Once the Nevada action was filed, Maricopa County Superior Judge Robert Gottsfield, probably seeing that a question of control would dictate events going forward in the underlying litigation...".) In particular, Exhibit G to Plaintiffs' SOF does not mention or even reference "a question of control" or a "control issue." Since Exhibit G does not support the statement set forth in Paragraph 8, particularly with regard to Plaintiffs' speculation that the "question of control would dictate events going forward in the underlying litigation," Paragraph 8 should be stricken. Accord Cox, supra. Paragraph 9: Under this stay, the parties were required to go to bankruptcy court to litigate some of the issues, including the control issue. See Minute Entry (Exhibit G). The statement set forth in Paragraph 9 is 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 SOF. Like Paragraph 8, Paragraph 9 contains Statements about a Court Order which do

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not appear on the face of the Order. The Order does not state "the parties were required
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to go to bankruptcy court to litigate the control issues" or that the parties were required to litigate anything in the bankruptcy court. The Order does not use the word "required" or any synonym thereof. The Order does not mention or reference "the control issue." Accordingly, the assertion that the parties were required by the order to litigate "the control issue" in the bankruptcy court is not a fact, but a legal conclusion, unsupported by the plain language in the exhibit upon which it purports to rely. Paragraph 9 should therefore be stricken.

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Paragraph 10: No part of this process involved Alanco pursuing a claim against TSIN, as there were no counterclaims in the underlying litigation. See Daggett Affidavit, ¶22 (Exhibit E). This Paragraph should be stricken because it expressly contradicts legal pleadings filed by Alanco in the TSI bankruptcy proceeding. Specifically, as set forth in Carolina's Motion for Summary Judgment, Alanco has described itself as a "creditor" in legal pleadings filed with the Bankruptcy Court in the TSI bankruptcy proceeding. (Carolina's SOF, ¶23.) Sections 101(10)(A) and (B) of the U.S. Bankruptcy Code define "creditor" to mean an "entity that has a claim against the debtor" or a "claim against the estate." Consequently, directly contrary to Alanco's SOF, Alanco is pursuing a "claim against the debtor [TSIN]." Paragraph 11: Indeed, the numerous hours of lawyer time expanded in this matter would not have occurred, again, but for the claims made by TSIN in the underlying litigation. See Daggett Affidavit, ¶ 21 (Exhibit E). This paragraph is simply a restatement of the earlier improper Paragraph 6. Counsel for Plaintiffs is making the argument, in the form of an affidavit, that lawyer time spent in the TSI Bankruptcy and in the Nevada Lawsuit (among others) would not have occurred but for the claims made in the Amended Lawsuit. This is not a fact. It is a legal argument based upon a legal conclusion set forth in counsel's affidavit. As such, Paragraph 11 of Plaintiffs' SOF should be stricken. Paragraph 12: In November 2002, Plaintiffs put Carolina on notice that if the TSIN shareholders decide to bring suit against them, they would make a claim under the costs of defense provision of the insurance policy it purchased from Defendant Carolina Casualty Insurance Company ("Carolina"). November 8, 2002 letter from Adele MacIntosh to Carolina's agent, attached hereto as Exhibit H.

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Although Exhibit H is part of the previous "Stipulated Statement of Facts" submitted by Alanco's counsel on March 14, 2005, there is absolutely no foundation whatsoever that Exhibit H "put Carolina on notice" of anything. The letter is not addressed to Carolina; it is addressed to "New Century." There is also absolutely no foundation whatsoever that "New Century" was "Carolina's agent." Alanco has

submitted absolutely no evidence that: (i) New Century was Carolina's "agent"; and (ii) that Carolina ever received a copy of this letter. Indeed, expressly contrary to paragraph 12, in the Deposition of Ronald Estabrook, Estabrook testified: "I'm the owner of...New Century Insurance Company ... the sole owner" and "My client is Alanco." (Carolina's Response SOF, ¶17.) Moreover, as expressly set forth in Item 8 of the Policy

declarations, "Notice to the Insurer...shall be addressed to: Monitor Liability Managers, Inc." See, March 11, 2005 Stipulated Statement of Facts, Ex. 1. As Exhibit H has absolutely no foundation that New Century is Carolina's agent or that this letter was ever provided to Carolina, it should be stricken. See, e.g., Cox, supra (striking various Statements of Fact on the basis that they are not supported by the evidence, or on the basis that the evidence itself is improper); see also Heary Bros., supra. Paragraph 15: The Court, in a September 20, 2004 Order, denied the Motion to Dismiss because the record was unclear as to what constituted a "claim" under the policy, and denied Plaintiffs' Motion on the ground it could not, at that time, be shown that as a matter of law, the IVI exclusion did not apply. See Docket, Document No. 37. Carolina denies this is what the Court's September 20, 2004 Order states and further states that the Order "speaks for itself."

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Paragraph 17:
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In answering this amended Complaint, Carolina alleged not only the applicability of the IVI exclusion, but some nineteen other defenses, none of which were pursued at any point throughout the history of this case. See Docket, Document No. 58. - 14 -

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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 denies the statement that: "none of which were pursued at any point throughout the history of this case." See, Carolina's Response to Alanco's Motion for Summary Judgment. Paragraph 19: On May 19, 2005, the Court granted this Motion in part, finding that the IVI exclusion did not allow Carolina to deny coverage in this case. See Docket, Document No. 58. Carolina denies this is what the Court's May 19, 2005 Order states and further states that the Order "speaks for itself." Paragraph 20: Prior to the Court's ruling, Carolina provided no facts or law to support any of the "other defenses." As a consequence, after this ruling, Plaintiffs propounded very specific interrogatories which asked for all asked factual and legal support Carolina had for each and every defense it had raised in its Answer, including the nineteen that it had ignored in this litigation to that point. In fact, the final interrogatory specifically provided Carolina with an avenue to allege yet more defenses. Although required to do so under Rule 33, Carolina's responses to this discovery provided no factual or legal bases of any these defenses, and raised no additional defenses. Defendant's Answers and Objections to Plaintiffs First Set of Interrogatories, dated August 4, 2004, attached hereto Exhibit I. Carolina denies the entirety of Paragraph 20 is set forth in Carolina's Response to Alanco's Motion for Summary Judgment. Moreover, this is not a statement of fact, but

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rather a recitation of Plaintiffs' discovery strategy followed by its incorrect conclusions as to Carolina's defenses. This argument does not belong in Plaintiffs' SOF. It should therefore be stricken. Paragraphs 24 and 25: The undersigned law firm was substituted for GT as litigation counsel in connection with defending the claims in the underlying case. As noted above, the efficient defense of these claims went beyond holding the mere title of "counsel of record" under that caption. It involved representation in the superseding TSIN bankruptcy matter (in which concessions were negotiated that significantly impacted the underlying litigation), and in the - 15 Document 93 Filed 02/16/2006 Page 15 of 18

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

efforts to take over the TSIN Board of Directors (resulting in an effective stay of the underlying litigation). See Daggett Affidavit, at ¶ 1 (Exhibit E). These Stinson Morrison Hecker LLP expenses would not have been incurred but for the claims made in the underlying case, and were reasonable and necessary to the defense of those claims. See Daggett Affidavit, at ¶ 21 (Exhibit E). Plaintiffs again make the same arguments that they made in Paragraphs 6 and Paragraph 11 of the SOF. The contention that the "efficient defense" of the Amended Lawsuit involved representations in other lawsuits is not a fact, it is a legal argument. See Paragraph 24. Likewise, the assertion that the expenses from two other cases were "reasonable and necessary" to the defense of the underlying case is merely the expression of a legal opinion, not a fact. See Paragraph 25. Simply because this legal argument is

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set forth in an affidavit ­ an affidavit of Plaintiffs' trial counsel ­ does not make it a fact
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or evidence. Accord Pfeil and Inglett, cited infra. Paragraph 27: Steven P. Oman, P.C. represented the Plaintiffs' interests in all stages of the underlying action, including the parallel bankruptcy matter and the TSIN takeover. Affidavit of Steven P. Oman ¶¶ 9 and 10, attached here to as Exhibit L. There is absolutely no evidence in the record to support the statement "including the parallel bankruptcy matter and the TSIN takeover." This passage must be stricken from the record. Paragraph 28: In connection therewith, he performed numerous tasks that would not have been necessary but for the claims made by TSIN in the underlying case, and indeed, were reasonably and necessarily incurred in defense of those claims. See Oman Affidavit, ¶ 9. Like the legal conclusions of Mr. Daggett, the legal conclusions of Steven Oman are not facts upon which this Court can rely in determining Plaintiffs' Motion for Summary Judgment. See above. Paragraph 28 simply restates the earlier legal - 16 -

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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

conclusions offered by Mr. Daggett (in paragraphs 6, 11, 24, and 25), but instead relies upon the affidavit of Mr. Oman. Again, whether the "numerous tasks" undertaken by Mr. Oman would not have been "necessary" but for the Amended Lawsuit, is a legal matter for this Court to decide. As such, Paragraph 28 of Plaintiffs' SOF should 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, D, F, G 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 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 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 February 16, 2006, to The Honorable David G. Campbell s/ Mark G. Worischeck

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