Free Statement - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11
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. Case No.: CV-04-0789-PHX-DGC DEFENDANT'S STATEMENT OF UNDISPUTED FACTS IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT

12 13 14 15 16

Plaintiffs,
17 18 19 20 21 22 23 24 25 26

v. Carolina Casualty Insurance Company, Defendant.

Defendant Carolina Casualty Insurance Company ("Carolina Casualty") for its Statement of Undisputed Facts in Support of Its Motion for Summary Judgment, states as follows: 1. In the Amended Lawsuit, TSI Nevada alleges that the Alanco Defendants

made misrepresentations in connection with Alanco's acquisition of TSI Nevada assets. Exhibit 1, ¶27-61; Amended Lawsuit.

Case 2:04-cv-00789-DGC

Document 79

Filed 01/13/2006

Page 1 of 8

1 2 3 4 5 6 7 8 9 10
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

2.

In the Amended Lawsuit, TSI Nevada's Prayer for Relief seeks that the

"transaction between TSI Nevada and Alanco be rescinded." Exhibit 1, ¶17; Amended Lawsuit. 3. Alanco itself has characterized the Amended Lawsuit by TSI Nevada as:

"[TSI Nevada] is the Plaintiff in a state court action which seeks to rescind a transaction whereby Alanco obtained [TSI Nevada's] primary assets...In order to be entitled to rescission, [TSI Nevada] must `undue the transaction,' with each party returning to the other what it parted with in the original transaction." Exhibit 2, p.2, ¶¶7 and 8; Joinder Of Alanco In Motion To Convert Of Solinvest, Or, In The Alternative, Motion To Dismiss; see also, Exhibit 6, ¶5; Affidavit of James K. Thurston. 4. Carolina's Policy only provides coverage for Claims made against the

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Insured whereby the Insured can suffer a "Loss." Exhibit 3, Section I.A. and B.; Carolina Policy. 5. The Amended Lawsuit alleges it: "has been left with a block of Alanco

stock with materially and substantially less value and voting power than that which was promised to the TSI Nevada shareholders." Exhibit 1, ¶62; Amended Lawsuit. 6. By letter dated November 23, 2005 from T. Michael Daggett to Daniel

Tranen, counsel for Alanco submitted invoices for legal fees, costs and expenses totaling $977,897.57 (the "Legal Invoices"). Exhibit 4; see also, Exhibit 6, ¶3;

Affidavit of James K. Thurston. Included in these Legal Invoices were legal fees, costs and expenses incurred by Stinson Morrison Hecker LLP allegedly totaling $619,064.59, by Greenberg Traurig allegedly totaling $120,287.43, and by Steven P. Oman, P.C. allegedly totaling $107,325.55. Id. 7. By letter dated December 6, 2005 from T. Michael Daggett to James K.

Thurston, the letter advised that the Greenberg Traurig fees, costs and expenses were about "$20,000." Exhibit 5; see also, Exhibit 6, ¶4; Affidavit of James K. Thurston.
Case 2:04-cv-00789-DGC Document 79 Filed 01/13/2006 Page 2 of 8

-2-

1 2 3 4 5 6 7 8 9 10
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

In fact, the only Greenberg Traurig fees, costs and expenses that were paid by Alanco was on Bill No. 1019484 Alanco paid $9,047.04, Bill No. 1051776 Alanco paid $7,194.36 and $2,234, Bill No. 1061065 Alanco paid $838.45 and $851.15, Bill No. 1145976 Alanco paid $982.43, Bill No. 1155611 Alanco paid $180.68, Bill No. 1168414 Alanco paid $986.70, Bill No. 1177753 Alanco paid $384.50, all totaling $22,699.31. Exhibit 4. Time incurred prior to July 31, 2003 included those invoices Alanco paid on Bill No. 1019484 ($9,047.04) Bill No. 1051776 ($7,194.36 and $2,234), and Bill No. 1061065 ($838.45 and $851.15), all totaling $20,165. 8. The Legal Invoices have included $4,555 in duplicative entries and over-

stated attorney rates. Exhibit 6, ¶¶7 and 8; Affidavit of James K. Thurston; Exhibit A. In addition, the Stinson Invoices contain five redacted entries for which Carolina has not been credited for the redacted amounts. 9. By Orders dated May 18, 2005 (Exhibit 7) and September 16, 2004

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

(Exhibit 8), this Court found that the I v. I exclusion applied to bar coverage for: (i) the October 2002 Letter; or (ii) the Original Lawsuit. However, this Court further found the I v. I exclusion did not apply to the Amended Lawsuit. (Exhibit 8.) 10. The Amended Lawsuit was filed on July 31, 2003. Exhibit 1, p.1;

Amended Lawsuit. 11. Plaintiffs have submitted legal expenses totaling $42,706.66 incurred

prior to July 31, 2003. Specifically, Oman has incurred $22,541.66 in legal expenses prior to July 31, 2003 (Exhibit 6, ¶¶7 and 9; Affidavit of James K. Thurston; Exhibit B), and Greenberg has incurred $20,165 in legal expenses prior to July 31, 2003 (see, ¶7 herein; Exhibit 4, Attachment C). 12. A copy of the Voluntary Petition filed on December 3, 2003 of

Technology Systems International, Inc. in the proceeding In Re Technology Systems International, Inc., case no. 2-03-21187, filed before the United States Bankruptcy Court, District of Arizona (the "TSI Bankruptcy"). Exhibit 9; see also, Exhibit 6, ¶5; Affidavit of James K. Thurston.
Case 2:04-cv-00789-DGC Document 79 Filed 01/13/2006 Page 3 of 8

-3-

1 2 3 4 5 6 7 8 9 10
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

13.

A copy of Technology Systems International, Inc. v. Alanco

Technologies, Inc., et al., case no. 05-0248, filed before the United States District Court, District of Nevada (the "Nevada Litigation"). Exhibit 10; see also, Exhibit 6, ¶5; Affidavit of James K. Thurston. 14. A copy of Alanco Technologies, Inc. v. Richard Jones, case no. 2005-

3313, filed before the Superior Court of Arizona, Maricopa County (the "Slander Lawsuit"). Exhibit 11; see also, Exhibit 6, ¶5; Affidavit of James K. Thurston. 15. The Legal Invoices include legal fees, costs and expenses that include at

least $238,239.88 that are related to: (i) the Slander Lawsuit; (ii) TSI Bankruptcy; and (iii) Nevada Lawsuit. Exhibit 6, ¶¶7 and 10; Affidavit of James K. Thurston; Exhibit C. The Stinson Invoices includes uncovered fees and costs of $166,964.12,

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

representing $10,051.68 (Slander Lawsuit), $19,884.40 (Nevada lawsuit) and $137,028.04 (TSI Bankruptcy) see also, Exhibit 6, ¶¶7 and 10; Affidavit of James K. Thurston. The Oman Invoices includes uncovered fees and costs of $71,275.76, representing $196 (Slander Lawsuit), $12,974.40 (Nevada lawsuit) and $58,105.36 (TSI Bankruptcy). Exhibit 6, ¶¶7 and 11; Affidavit of James K. Thurston; Exhibit D. 16. Plaintiff's Coverage Lawsuit does not seek coverage for the Slander

Lawsuit, the TSI Bankruptcy or the Nevada Lawsuit. Exhibit 12; Plaintiffs' Coverage Lawsuit. The Coverage Lawsuit does not contain a single allegation or reference to these three matters. Id. 17. Plaintiffs have never provided Carolina with notice of the Slander

Lawsuit, the TSI Bankruptcy nor the Nevada Lawsuit. Exhibit 13, ¶4; Affidavit of Jane DiGioia. 18. The Policy provides that "[a]s a condition precedent to their rights under

this Policy, the Insureds shall give the Insurer written notice of any Claim made against an Insured as soon as practicable, but in no event later than 90 days after such Claim is first made." Exhibit 3, Section VII.A.; Carolina's Policy. The Policy

provides: "The Insureds shall not...incur Costs of Defense without the prior written
Case 2:04-cv-00789-DGC Document 79 Filed 01/13/2006 Page 4 of 8

-4-

1 2 3 4 5 6 7 8 9 10
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

consent of the Insurer. Only those...Costs of Defense which have been consented to by the Insurer shall be recoverable as Loss under the terms of this Policy." Exhibit 3, Section VI.B.; Carolina's Policy. 19. Alanco and its Directors and Officers have never sought Carolina's

consent to incur Costs of Defense related to the Slander Lawsuit, the TSI Bankruptcy or the Nevada Lawsuit. Exhibit 13, ¶5; Affidavit of Jane DiGioia. 20. Carolina has never provided its written consent for the incurrence of the

legal expenses related to the Slander Lawsuit, the TSI Bankruptcy or the Nevada Lawsuit. Exhibit 13, ¶5; Affidavit of Jane DiGioia. 21. The Policy's Insuring Clause only provides coverage for "Loss" as a

result of a "Claim first made against the Directors or Officers" or a "Securities Claim first against the Company." Exhibit 3, Section I.A. and B.; Carolina's Policy. "Loss" includes "Costs of Defense" which is defined as "reasonable and necessary fees, costs and expenses...resulting solely from the...defense and appeal of a Claim against the Insureds." Exhibit 3, Section III.I. and III.D.; Carolina's Policy. 22. Alanco is the plaintiff in the Slander Lawsuit. Exhibit 11; see also,

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Exhibit 6, ¶5; Affidavit of James K. Thurston. 23. Alanco has described itself in legal pleadings as a "creditor" in that

bankruptcy proceeding. Exhibit 2, p.1; Joinder Of Alanco In Motion To Convert Of Solinvest, Or, In The Alternative, Motion To Dismiss; see also, Exhibit 6, ¶5; Affidavit of James K. Thurston. 24. Plaintiffs also seek coverage for $107,325.55 in invoices generated by

Steve Oman (the "Oman Invoices"). Exhibit 4; see also, Exhibit 6, ¶3; Affidavit of James K. Thurston. 25. $22,541.66 of the Oman Invoices relate to legal services related to the

October 2002 Letter and the Original Lawsuit. Exhibit 6, ¶¶7 and 9; Affidavit of James K. Thurston; Exhibit C. $71,275.76 of the Oman Invoices are related to the TSI Bankruptcy ($58,105.36), the Nevada Lawsuit ($12,974.40) and the Slander Lawsuit
Case 2:04-cv-00789-DGC Document 79 Filed 01/13/2006 Page 5 of 8

-5-

1 2 3 4 5 6 7 8 9 10
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

($196). Exhibit 6, ¶¶7 and 11; Affidavit of James K. Thurston; Exhibit D. 26. Plaintiffs retained two law firms to defend them in the Amended

Lawsuit, Greenberg Traurig and Stinson Morrison Hecker. Exhibit 4; see also, Exhibit 6, ¶3; Affidavit of James K. Thurston. 27. Oman is an Director of Alanco. Exhibit 14, p.48; Form 10-KSB of

Alanco Technologies, Inc. filed September 28, 2005;1 see also, Exhibit 6, ¶6; Affidavit of James K. Thurston. 28. The Policy defines "Costs of Defense" to include only "reasonable and

necessary" defense fees and expenses. Exhibit 3, Section III.D.; Carolina Policy. 29. The Policy contains a $150,000 retention. Exhibit 3, Declarations, Item

4; Carolina Policy. The Policy provides that "one Retention shall apply to each and every Claim." Exhibit 3, Section V.D.; Carolina Policy. 30. Plaintiffs Coverage Lawsuit seeks a determination that Carolina has a

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

duty to advance Costs of Defense as well as a duty to indemnify Plaintiffs for all loss associated with the Amended Lawsuit. Exhibit 12, Count I, Prayer For Relief A ("Declaring the Policy requires Carolina Casualty to defend and indemnify Plaintiffs for any losses..."); Plaintiffs' Coverage Lawsuit. 31. The Policy contains a Fraud Exclusion and a Personal Profit Exclusion

that each provide that the "this exclusion shall not apply unless a judgment or other final adjudication adverse to any of the Insureds in such Claim shall establish that such Insureds" either "committed such criminal or deliberate fraudulent act" or "gained such profit or advantage to which an Insured was not legally entitled." Exhibit 3, Sections IV.B. and A. (as amended by Endorsements 214022 and 214033); Carolina Policy. 32. The Policy's definition of "Loss" expressly excludes coverage for

"punitive...damages." Exhibit 3, Section III.I.; Carolina Policy.
1

This Court can take judicial notice of the content of filings with the SEC. See, In re Petsmart, Inc. Securities Litigation, 61 F.Supp.2d 982, 987 n.1 (D. Ariz. 1999)
Case 2:04-cv-00789-DGC Document 79

-6-

Filed 01/13/2006

Page 6 of 8

1 2 3 4 5 6 7 8 9 10
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

33.

The Amended Lawsuit contains express causes of action for "Fraud In

The Inducement" (Count I), "Fraud" (Count II), and "Securities Fraud" (Counts III and IV). Exhibit 1, pp.12, 13, 14; Amended Lawsuit. The Amended Lawsuit alleges: "Kaufmann and Oester have been personally enriched by their schemes." Id. at ¶63. The Amended Lawsuit also seeks punitive damages. Id. at p.17. DATED this 13th day of January, 2006. SANDERS & PARKS, P.C.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

By: s/J. Steven Sparks____________ 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 LaSalle Street Chicago, IL 60602 Attorneys for Defendant
Carolina Casualty Insurance Company

Case 2:04-cv-00789-DGC

Document 79

-7-

Filed 01/13/2006

Page 7 of 8

1 2 3 4 5 6 7 8 9 10
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 January 13, 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 January 13, 2006 to The Honorable David G. Campbell s/ J. Steven Sparks

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Case 2:04-cv-00789-DGC

Document 79

-8-

Filed 01/13/2006

Page 8 of 8