Free Statement - District Court of Arizona - Arizona

1 T. Michael Daggett (#002784) Christian C.M. Beams (#019672) 2 STINSON MORRISON HECKER LLP 1850 North Central Avenue, Suite 2100 3 Phoenix, Arizona 85004-4584 4 (602) 279-1600 Fax: (602) 240-6925 5 E-mail: [email protected] 6 Attorneys for Plaintiff Alanco Technologies, Inc. 7 8 9 10 11 12 13 14 15 16 v. 17 CAROLINA CASUALTY INSURANCE COMPANY, a Florida 18 corporation 19 20 21 22 23 24 25 26
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UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA 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, Plaintiff(s), ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. CV-04-0789-PHX-DGC STATEMENT OF FACTS IN SUPPORT OF PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT ON REMAINING ISSUES (Assigned to the Honorable David G. Campbell)

Defendant(s).

Plaintiffs Alanco Technologies, Inc., Technology Systems International, Inc., f/k/a TSI Acquisition Corporation, Robert B. Kauffman and Elizabeth Kauffman, his wife, and Greg M. Oester and Linda Oester, his wife, respectfully submit their Statement of Facts in Support of their Motion for Summary Judgment on Remaining Issues.

Case 2:04-cv-00789-DGC

Document 81

Filed 01/13/2006

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1.

The Complaint in the underlying case stated nine causes of action,

2 including common law fraud, securities fraud, negligent misrepresentation, and breach 3 4 5 6 7 $18 million. Second Amended Complaint in Technology Systems International, Inc. v. Alanco Technologies, Inc., et al., Maricopa County Superior Court cause no. CV2003of 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

8 001937, attached hereto as Exhibit A. 9 2. By the spring of 2004, the majority of TSIN shareholders concluded that

10 the TSIN litigation amounted to little more than a dissipation of company assets. 11 12 13 14 15 3. Since the TSIN Board refused to dismiss the litigation, the majority of Majority Written Consent of Shareholders of Technology Systems International, Inc., a Nevada corporation ("Written Consent"), attached hereto as Exhibit B.

TSIN shareholders (led by Alanco, a significant shareholder) called a special meeting

16 and elected a new Board of Directors. See Written Consent (Exhibit B). 17 4. At this meeting, at which 87.5% of the outstanding shares were present, a

18 new Board of Directors was elected, and charged specifically with evaluating the 19 20 21 22 23 February 28, 2005, attached hereto as Exhibit C. 5. An emergency action was filed by TSIN's former Board of Directors desirability of continuing the underling litigation, among other tasks. Technology

Systems International, Inc. (Nevada) Minutes of Annual Shareholders Meeting,

24 against the newly-elected Board over control of the company in Nevada. Complaint 25 26
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1 filed in Technology Systems International, Inc. (Nevada) v. Alanco Technologies, Inc., 2 et al., Clark County District Court (Nevada), attached hereto as Exhibit D. 3 4 5 6 7 T. Michael Daggett, ¶ 21, attached hereto as Exhibit E. 7. During this time, TSIN had on file Chapter 11 proceedings in U.S. 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

8 Bankruptcy Court. Petition in In re Technology Systems International, Inc., cause no. 9 03-BK-21187-EWH, attached hereto as Exhibit F. 10 11 12 13 14 15 Hollowell staying action in the underlying litigation, suspended that litigation until the control issue was decided. March 14, 2005 Minute Entry in Technology Systems 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

16 International, Inc. v. Alanco Technologies, Inc., et al. (wrongfully captioned Jones v. 17 Alanco Technologies, Inc., et al.), attached hereto as Exhibit G. 18 19 20 21 22 23 24 25 26
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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). 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).

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11.

Indeed, the numerous hours of lawyer time expended in this matter would

2 not have occurred, again, but for the claims made by TSIN in the underlying litigation. 3 4 5 6 7 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 November 8, 2002 letter from Adele See Daggett Affidavit, ¶ 21 (Exhibit E). 12. In November 2002, Plaintiffs put Carolina on notice that if the TSIN

8 Casualty Insurance Company ("Carolina").

9 MacIntosh to Carolina's agent, attached hereto as Exhibit H. 10 11 12 13 14 15 litigation, and did so on March 19, 2004. See Stipulated Statement of Facts filed in this case, ¶ 24. This document is not attached hereto, as it has previously been filed in this 13. When Carolina ultimately denied coverage, citing the Insured vs. Insured

exclusion (the "IVI exclusion"), Plaintiffs were forced to file this lawsuit which sought the Court's Order requiring Carolina to reimburse the costs of defense of the underlying

16 matter (See Docket, Document No. 53). 17 14. On April 20, 2004, after this case was removed to this Court, Carolina

18 filed a Motion to Dismiss and Plaintiffs filed a Motion for Summary Judgment. See 19 20 21 22 23 because the record was unclear as to what constituted a "claim" under the policy, and denied Plaintiffs' Motion on the ground that it could not, at that time, be shown that as a Docket, Document Nos. 11 and 16. 15. The Court, in a September 20, 2004 Order, denied the Motion to Dismiss

24 matter of law, the IVI exclusion did not apply. See Docket, Document No. 37. 25 26
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16.

Plaintiffs then amended their Complaint on November 30, 2004. See

2 Docket, Document No. 42. 3 4 5 6 7 8 were pursued at any point throughout the history of this case. See Docket, Document No. 44. 18. On March 11, 2005, Plaintiffs filed a second Motion for Summary 17. In answering this amended Complaint, Carolina alleged not only the

applicability of the IVI exclusion, but some nineteen other defenses, none of which

9 Judgment on the issue of the applicability of the IVI exclusion, among other issues. 10 See Docket, Document No. 51. 11 12 13 14 15 Document No. 58. 20. Prior to the Court's ruling, Carolina provided no facts or law to support 19. On May 19, 2005, the Court granted this Motion in part, finding that the See Docket,

IVI exclusion did not allow Carolina to deny coverage in this case.

16 any of the "other defenses." As a consequence, after this ruling, Plaintiffs propounded 17 very specific interrogatories which asked for all factual and legal support Carolina had 18 for each and every defense it had raised in its Answer, including the nineteen that it had 19 20 21 22 23 so under Rule 33, Carolina's responses to this discovery provided no factual or legal bases for any of these defenses, and raised no additional defenses. Defendant's 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

24 Answers and Objections to Plaintiffs' First Set of Interrogatories, dated August 4, 2005, 25 attached hereto as Exhibit I. 26
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21.

Carolina is required, under the specific language of its own policy, to "pay

2 the loss of each and every director or officer of the company arising from any claim 3 4 5 6 7 8 Officers' and Corporate Liability Insurance Policy ("Insurance Policy"), at Section I, attached hereto as Exhibit J. 22. The policy defines "Costs of Defense as "reasonable and necessary fees, made during the policy period," as well as to "advance costs of defense of such claim prior to its final disposition." Carolina Casualty Insurance Company Directors' and

9 costs and expenses . . . resulting solely from the investigation, adjustment, defense and 10 appeal of a Claim against the Insureds . . . ." 11 12 13 14 15 Greenberg Traurig was counsel of record in the underlying action, both before and after the Second Amended Complaint was filed. See Greenberg Traurig breakdown of fees (Exhibit J). 23. Plaintiffs incurred a total of $120,287.43 in fees and costs during the time See Insurance Policy, at Section III(D)

16 and costs incurred, attached hereto as Exhibit K. 17 24. The undersigned law firm was substituted for GT as litigation counsel in

18 connection with defending the claims in the underlying case. As noted above, the 19 20 21 22 23 bankruptcy matter (in which concessions were negotiated that significantly impacted the underlying litigation), and in the efforts to take over the TSIN Board of Directors 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

24 (resulting in an effective stay of the underlying litigation). See Daggett Affidavit, at ¶ 1 25 (Exhibit E). 26
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25.

These Stinson Morrison Hecker LLP expenses would not have been

2 incurred but for the claims made in the underlying case, and were reasonable and 3 4 5 6 7 Hecker statement of fees and costs, attached to the Daggett Affidavit (Exhibit E). 27. Steven P. Oman, P.C. represented the Plaintiffs' interests in all stages of necessary to the defense of those claims. See Daggett Affidavit, at ¶ 21 (Exhibit E). 26. At present, these fees and costs total $619,064.59. See Stinson Morrison

8 the underlying action, including the parallel bankruptcy matter and the TSIN takeover. 9 Affidavit of Steven P. Oman, ¶¶ 9 and 10, attached hereto as Exhibit L. 10 11 12 13 14 15 Affidavit, ¶ 9. 29. At present, the fees and costs of Steven P. Oman P.C. total $107,325.55. 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

16 See Steven P. Oman P.C. statement of fees and costs, attached to the Oman Affidavit 17 (Exhibit L). 18 19 20 21 22 23 24 25 26
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RESPECTFULLY SUBMITTED this 13th day of January, 2006. STINSON MORRISON HECKER LLP

By: /s/ Christian C.M. Beams T. Michael Daggett Christian C. M. Beams 1850 N. Central Avenue, Suite 2100 Phoenix, Arizona 85004-4584 Attorneys for Plaintiff Alanco Technologies, Inc. 7
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1 ORIGINAL electronically filed this 13th 2 day of January, 2006: 3 Clerk of the Court 4 Sandra Day O'Connor U.S. Courthouse 401 West Washington Street 5 Phoenix, Arizona 85003 6 Copy of the foregoing mailed/handdelivered this 13th day of January, 2006, 7 to: 8 Honorable David Campbell 9 Sandra Day O'Connor U.S. Courthouse 401 W. Washington Street 10 Phoenix, AZ 85003 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
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/s/ Brooke C. Campbell

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