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


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1 Terry E. Fenzl (#002485) C. Mark Kittredge (#013907) 2 PERKINS COIE BROWN & BAIN P.A. 3 2901 North Central Avenue Post Office Box 400 4 Phoenix, Arizona 85001-0400 (602) 351-8000 5 [email protected] 6 [email protected] 7 Attorneys for Defendants 8 9 10 11 12 Richard G. Krauth, an individual, and R.M. Wade & Co., an Oregon corporation, 13 Plaintiffs, 14 15 vs. No. CV 04-0544 PHX PGR UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA

16 Phelps Dodge Corporation, a New York 17 corporation, et al., 18 Defendants.

REPLY IN SUPPORT OF DEFENDANTS' MOTION FOR SUMMARY JUDGMENT ENFORCING SETTLEMENT AGREEMENT

19 Phelps Dodge Corporation, a New York 20 corporation, et al., 21 22 23 Counterclaim Plaintiffs, vs.

Richard G. Krauth, an individual, and R.M. 24 Wade & Co., an Oregon corporation, 25 26 27 28
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Counterclaim Defendants.

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Introduction Defendants filed a very simple, straight-forward 8-page Motion for Summary Judgment, based on the parties' exchange of email letters in October of 2005 constituting an offer and acceptance resulting in a binding contract settling this dispute. Rather than responding to that simple Motion, however, Plaintiffs filed a 17-page brief presenting multiple arguments and analyses that are simply not relevant to the subject Motion.1 With respect to the Motion actually filed, however, Plaintiffs do not dispute the following key facts: The parties agreed to all terms of the Settlement Agreement not later than October 2005 ("Settlement Agreement"). [Pls.' Resp. to SOF, ¶ 2];2 Defendants transmitted to Plaintiffs the final version of the written Settlement Agreement by email letter on October 9, 2005. [Id. ¶ 4] Plaintiffs agreed to the last remaining detail of the Settlement Agreement (a change to Exhibit C) by email dated October 12, 2005, expressly stating: "[Plaintiffs] agree[] with you, so please make the change and email it to me. I can then have my clients . . . sign the agreement." [Id. ¶ 5]

At that point, the parties had agreed to every covenant, exhibit and detail of the Settlement Agreement. Plaintiffs' arguments against summary judgment are for the most part irrelevant (essentially attempting to address a motion that was not filed) and certainly inadequate. Further, Arizona State Rule of Civil Procedure 80(d) and the Arizona Statute of Frauds Plaintiffs' brief is actually much longer due to the manner in which the font and line spacing have been manipulated. See, for example, page 13, which contains 28 line numbers in the left-hand column, but in reality contains 31 lines of text.
1

Plaintiffs filed a Response to Defendants' Statement of Facts ("Plaintiffs' Response to SOF" or "Pls.' Resp. to SOF") and Statement of Facts in Support of Response in Opposition to Defendants' Motion for Summary Judgment Enforcing Settlement ("Plaintiffs' Opposition SOF" or "Pls." Opp'n SOF") as a single document. For clarity, Defendants reference these sections separately because each section begins with a paragraph No. 1.
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do not apply to the Settlement Agreement before the Court, and if they were applied, the requirements of both would have been met. Argument A. Plaintiffs' Response Does Not Present Actual Evidence Demonstrating the Existence of a Disputed Material Fact.

Plaintiffs' attempt to create an issue of fact by arguing that merely disputing the existence of an agreement is enough to defeat summary judgment. [Resp. 8-9] However, in order to defeat Defendants' motion, Plaintiffs must "designate `specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). Merely contesting the existence of an agreement is not sufficient. Plaintiffs do not dispute Defendants' factual allegations surrounding the existence of the contract and actually state that "the parties did agree to all terms by October 2005." [Pls.' Resp. to SOF ¶ 2]

Indeed, the parties' unexpressed intentions also are not relevant; rather, the Court

must look to objective evidence (i.e., the writings) to determine whether the parties formed a binding agreement. Muchesko v. Muchesko, 191 Ariz. 265, 268, 955 P.2d 21, 24 (Ct. App. 1997) ("[i]n deciding whether . . . mutual assent exists, [the Court] look[s] at objective evidence, not, the hidden intent of the parties'") (citations omitted). In this case, the writings of Plaintiffs' counsel clearly convey Plaintiffs' agreement to all terms of the Settlement Agreement. Plaintiffs admitted that they agreed to all terms of the agreement. [Pls.' Resp. to SOF ¶ 2] Because Plaintiffs do not dispute their assent to the terms of the Settlement Agreement, Defendants are entitled to summary judgment as to the existence and enforcement of the Settlement Agreement. See Velarde v. Pace

Membership Warehouse, Inc., 105 F.3d 1313, 1317-18 (9th Cir. 1997) (upholding summary judgment as to existence of contract under Arizona law where objective evidence shows "no doubt that there was a meeting of the minds as to the terms that were in the contract").

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Plaintiffs' Response based on allegations of their subjective intent not to be bound by the terms of the Settlement Agreement is inadequate in the face of such objective evidence. B. Ambiguous and Equivocal Oral Statements by Plaintiffs' Counsel in April and May of 2005 Cannot Contradict the Later, Unequivocal, Written Communications on Which the Subject Motion is Based.

Plaintiffs argue that they cannot be bound to the Settlement Agreement because of a verbal communication made in April or May, 2005, six months before the unambiguous written communications on which the motion is based. [Resp. 12-14]3 Specifically, plaintiffs assert that their counsel verbally told Defendants' counsel "that if the Patent Office issued a favorable Office Action before the written agreement was signed, then he thought his clients' position would be that all bets would be off." [Resp. 12] That ambiguous and equivocal statement, at best, merely communicates what plaintiffs' counsel "thought" his clients' position might be. Plaintiffs have not presented any evidence, nor have they even alleged, that they followed up with either a verbal or a written communication that actually stated an intent not to be bound until the written agreement was signed. This is especially damning given the unambiguous written communications on which Defendants' motion is based, which simply cannot be contradicted by ambiguous verbal statements made six months earlier. Indeed, Plaintiffs and their counsel intentionally made the April/May statements in an ambiguous and misleading manner for their own advantage and cannot be allowed to profit from such behavior:

Plaintiffs attempt to make much of the fact that counsel have different recollections as to when such statement was made. [Resp. 12-13] This is a red herring, however, as both counsel agree that such statements were made long before the written communications at issue in Defendants' motion.
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[Pls.' Opp'n SOF ¶ 9 (emphasis added)]

". . . Newbegin told Heuser that Wade wished to sell product to Phelps Dodge and asked Heuser to be more positive with Kittredge about the progress of negotiations. As a result of this conversation, Heuser sent an email to Kittredge asking, to be encouraging, if it would be appropriate for Wade to contact Phelps about doing business in the future `now that we have been able to put the case to bed."

Again, under Arizona law this Court should disregard such evidence of subjective intent and enter summary judgment in favor of Defendants based on the objective evidence of the parties' mutual assent to the terms of the Settlement Agreement. Velarde, 105 F.3d at 1317-18. C. Whether the Parties Formed a Contract in Either January or April of 2005 is Simply Not Relevant to the Motion Before the Court.

Plaintiffs argue that the parties did not form a binding settlement contract in either January or April of 2005. [Resp. 9-14] While Defendants disagree with those

contentions, the January and April events are simply not relevant to the Motion before this Court. Defendants' Motion for Summary Judgment is based on an unambiguous, unqualified exchange of written communications in October of 2005. Plaintiffs do not dispute that any of the email letters were sent and do not dispute that the parties agreed to all terms of the Settlement Agreement in October 2005. [Pls.' Resp. to SOF ¶ 2] It is the objective nature of those email letters that form a binding contract, for which summary judgment is appropriate. D. Arizona Rule of Civil Procedure 80(d) is not Applicable. 1. Arizona Rule of Civil Procedure 80(d) is a State Procedural Rule that does not Apply in Federal Court.

Under the Erie doctrine, federal courts examining state law issues must apply state substantive law and federal procedural rules and law. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); 19 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 4520 (2d ed. 1996) ("The Erie case and the Supreme Court decisions following it apply in federal question cases as well."). Arizona State Rule of
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Civil Procedure 80(d) is a rule of procedure, as evidenced by its placement in the Arizona Rules of Civil Procedure. Because the rule is procedural in nature, applying the Erie doctrine, this Court should not look to this Rule in deciding the settlement enforcement question. See Retail Clerks Union Joint Pension Trust v. Freedom Food Ctr., Inc., 938 F.2d 136, 137 (9th Cir. 1991) (applying the Erie doctrine and refusing to apply state rule of civil procedure that required specific elements for stipulated judgments); In re Larry's Apartment, L.L.C., 249 F.3d 832, 837-38 (9th Cir. 2001) (applying Erie doctrine and refusing to apply an Arizona law governing attorney conduct with respect to an attorney's conduct in federal court). The procedural nature of Arizona Rule 80(d) is conclusively demonstrated by the fact that it was created under the Arizona Supreme Court's rule making authority, which is limited to procedural rules. Ariz. Rev. Stat. Ann. § 12-109(A) (The "court, by rules promulgated . . . shall regulate pleading, practice and procedure in judicial proceedings."). Even if it wanted to do so, the Arizona Supreme Court simply could not use its rule making authority to create substantive law. Id. ("The rules shall not abridge, enlarge or modify substantive rights of a litigant."). There is no way to read a rule created under such limited authority as establishing substantive law. Indeed, under analogous rule-making authority, the District of Arizona has established Local Rule 83.7, which is substantially similar to Arizona Rule 80(d) in that it requires stipulations of counsel to be written or made orally before the Court. LRCiv. 83.7. However, LRCiv 83.7 has never been interpreted as creating a statute of frauds that would apply to settlement agreements, as Plaintiffs are trying to achieve through Arizona Rule 80(d). And, of course, it would be inappropriate for a federal court to use its rulemaking authority to create a law governing contract formation or interpretation under Arizona law. If Arizona Rule 80(d) were applied in the manner advanced by Plaintiffs, however, it would govern all stipulations addressed in LRCiv 83.7 and LRCiv 83.7 would be meaningless. Clearly, this Court does not promulgate meaningless rules and,

therefore, Ariz. R. Civ. P. 80(d) cannot apply in this Court. In such cases, the federal rule
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must control. Hanna v. Plumer, 380 U.S. 460, 471 (1965) ("When a situation is covered by one of the Federal Rules . . . the court has been instructed to apply the Federal Rule"). 2. Arizona Rule of Civil Procedure 80(d) does not Apply because the Terms of the Settlement Agreement are Not in Dispute.

Because Plaintiffs and Defendants agree that the terms of the Settlement Agreement are clearly set out in the October 2005 email letters [Pls.' Resp. to SOF ¶ 2], Arizona Rule 80(d) would not apply in any event, even if this case were pending in an Arizona state court. See Hays v. Fischer, 161 Ariz. 159, 777 P.2d 222 (Ct. App. 1989). In Hayes, the court considered a motion to enforce a settlement agreement in a personal injury matter. Id. at 160-62, 777 P.2d at 223-25. Counsel for the Hayes parties entered into an oral settlement agreement later documented by correspondence between the parties. Id. The terms of the oral agreement required Hayes to execute a dismissal and release upon receipt of payment. Id. After receiving a check for payment, Hayes refused to execute the dismissal and release documents. Id. Hayes argued that her attorney was not authorized to settle the case and that Arizona Rule 80(d) precluded the finding of a valid settlement agreement. Id. at 166, 777 P.2d at 229. In Hayes, the court disagreed and held that Arizona Rule 80(d) did not apply because the only question was whether Hayes was "bound by the settlement agreement." Id. (stating that Rule 80(d) applies where the existence of a settlement agreement or its terms are in dispute, but not where the only question before the court is whether a party is bound by a settlement agreement). In this matter, the Plaintiffs concede that all terms of the Settlement Agreement, as agreed to by the parties, were established in October 2005. [Pls.' Resp. SOF ¶ 2] Plaintiffs' only contention is that they are not bound by the Settlement Agreement and therefore, under Hayes, Arizona Rule 80(d) would not apply even in an Arizona state court.

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E.

Arizona's Statute of Frauds Does Not Prevent Enforcement of the Settlement Agreement. 1. The Arizona Statute of Frauds does not Apply to Contracts that can be Performed within One Year.

The Arizona Statute of Frauds requires an agreement to be in writing and signed by the party to be charged, or an authorized representative, if the parties' performances under the agreement are "not to be performed within one year from the making thereof." Ariz. Rev. Stat. § 44-101(5). Arizona courts have repeatedly and consistently held that this provision requires an agreement to be in writing and signed by the parties only in circumstances where it would be impossible for the contract to be performed within one year. Healey v. Coury, 162 Ariz. 349, 353, 783 P.2d 795, 799 (Ct. App. 1989) ("Arizona courts follow the general rule interpreting that provision to mean `impossible to be performed within one year.'"); Western Chance #2, Inc. v. KFC Corp., 957 F.2d 1538, 1541 (9th Cir. 1992) (stating that the "mere possibility that performance can be completed within one year--even if not contemplated by the parties--is usually sufficient to remove the agreement from the statute of frauds"). If there is any possibility ­ remote or even theoretical ­ that an agreement can be performed within one year, the statute of frauds does not apply. Id. 2. The Settlement Agreement between the Parties can be Performed within One Year and Therefore is not Governed by Arizona's Statute of Frauds.

The Settlement Agreement here does not fall within Arizona's statute of frauds because it could have been completed within one year. Plaintiffs argue that the

provisions of the Settlement Agreement granting Defendants a license to, and a covenant not to sue Defendants for infringement of, the patents during their remaining terms cannot be performed within one year. [Resp. 14-15] Not so. First, Plaintiffs' grant of a license occurred when the Plaintiffs and the Defendants agreed to the terms of the Settlement Agreement. The license does not contemplate or require any further performance by either Plaintiffs or Defendants in order for the license

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to be operative. Because no performance was required after the parties agreed to terms of the Settlement Agreement, the Arizona Statute of Frauds does not apply. Second, each of the three patents addressed in the Settlement Agreement can and may be invalidated within one year. Invalidation of the patents within one year would complete the parties' obligations under the terms of the Settlement Agreement. In such situations where the obligations under an agreement may come to an end within one year of making the agreement, it is well recognized that the statute does not apply. Condon v. Ariz. Hous. Corp., 63 Ariz. 125, 131-32, 160 P.2d 342, 345 (1945) ("Possibility of performance within the year is sufficient.") one year because "[i]f Krauth were to die within one year, his wife . . . would have the Krauth's life or death is irrelevant. The Settlement Agreement terms at issue (the license Plaintiffs' assertion that the Settlement Agreement could not be performed within

right to sue Phelps Dodge . . ." is disingenuous and fails to address this point. [Resp. 15]

and covenant not to sue) are based on the life of the patents. Those obligations can be completed within one year because the patents may effectively "die" by being ruled invalid. Arizona case law is uniformly contrary to plaintiffs' position. Hence, they rely on Solaia Tech., LLC v. Arvinmeritor, 2006 WL 695699 (N.D. Ill. March 16, 2006) and Sun Studs, Inc. v. Applied Theory Assoc., Inc. 772 F.2d 1557 (Fed. Cir. 1985), which have superficial appeal because they involve patent settlement agreements. Nevertheless,

neither case involved application of the Arizona statute of frauds. In Solaia, the Northern District of Illinois evaluated Illinois' statue of frauds, holding that it applied to a covenant not to sue. Solaia, 2006 WL 695699 at *11-12. However, unlike the Illinois statute, Arizona's statute of frauds is strictly and consistently limited when it is even remotely possible for performance to be completed within one year. See Gold v. Killeen, 44 Ariz. 29, 37, 33 P.2d 595, 598 (1934) (Arizona statute of frauds did not apply because promisor's death "was an event that could or might happen within a year."); Healy, 162 Ariz. at 353, 783 P.2d at 799 (holding that Arizona statute of frauds did not apply to oral
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contract to pay employee percentage of operating revenue and profits from the sale of a business because business could have been sold within one year even though it was not); Waugh v. Lennard, 211 P.2d 806, 813-14 (1949) (finding that Arizona statute of frauds did not apply to oral promise because the promisor might have died within a year of making the promise). which applies only to "an agreement that by its terms is not to be performed within a year the importance of this distinction noting that "the agreement cannot, by its own terms, be Sun Studs is equally unavailing. That case involved Oregon's statute of frauds,

from the making." Or. Rev. Stat. § 41.580(1). Indeed, Sun Studs expressly recognized

performed within one year." Sun Studs, 772 F.2d at 1563. The Arizona statute of frauds contains no such limitation. Ariz. Rev. Stat. § 44-101(5) ("No action shall be brought . . . [u]pon an agreement which is not to be performed within one year from the making thereof."). Hence, Sun Studs provides no guidance as to how Arizona's statute of frauds should be applied and cannot be used to overrule clear Arizona authority. F. In Any Event, the Settlement Agreement Would Satisfy Arizona Rule of Civil Procedure 80(d) and the Arizona Statute of Frauds

Even if Ariz. R. Civ. P. 80(d) and the Arizona statute of fraud were applied, the October 2005 written correspondence signed by counsel for both parties satisfies the requirements of both provisions. Ariz. R. Civ. P. 80(d) requires only that an agreement between parties or attorneys be in writing. Contrary to Plaintiffs arguments, Ariz. R. Civ. P. does not require that an agreement between parties or counsel be in the form of a formal written document executed by all of the parties to be bound. Hays, 161 Ariz. at 166, 777 P.2d at 229 (holding that a settlement agreement was in writing because "the settlement agreement was memorialized in" correspondence between attorneys).4 Likewise, Arizona's statute
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Other courts interpreting similar state procedural rules have likewise held that no formal executed document is required to satisfy such rules and that the exchange of correspondence between attorneys can constitute a writing in accordance with the rule.
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of frauds requires a writing or memorandum that contains the material terms of the contract, signed by the party against whom enforcement is sought. Ariz. Rev. Stat. § 44101; Western Chance No. 2, Inc. V. KFC Corp., 957 F.2d 1538 (9th Cir. 1992) (interpreting Arizona statute of frauds). clearly constitutes a writing under Ariz. R. Civ. P. 80(d). [Defs.' SOF ¶¶ 4 and 5, Exs. 3 and 4] Specifically, on October 9, 2005, Kittredge, attorney for Defendants, sent an email letter to Heuser, attorney for Plaintiffs, that included the "Final Settlement Agreement," with all of its terms. [Defs.' SOF ¶ 4, Ex. 3] Kittredge indicated that Defendants had accepted the final changes proposed by plaintiffs and was prepared to execute the Agreement. Id. Heuser responded on October 12, 2005, suggesting that Kittredge make a minor change to one exhibit of the Agreement because a measurement was omitted. [SOF ¶ 5, Ex. 4] Heuser stated that, with that change, his clients were "ready to sign." Id. Later on October 12, 2005, in agreeing to one final change suggested by Kittredge, Heuser wrote: "[My client] agrees . . . please make the change and email it to me. I can then have my clients . . . sign the agreement." Id. The next morning, Kittredge emailed the revised exhibit to Heuser. Id. That correspondence memorializes the terms of the settlement agreement "in writing," which is sufficient to satisfy Rule 80(d) and Arizona's statute of frauds. In this matter, the final exchange of email letters between the parties' counsel

Plaintiffs do not assert that the parties, subject matter and material terms of the settlement agreement as contained in email letters exchanged between the parties were not sufficiently documented in writing. Indeed, they admit that "[t]he parties had agreed to all terms of the Settlement Agreement." [Pls.' Resp. to SOF, ¶2] Plaintiffs' sole argument is that old-fashioned pen-and-ink signatures were not affixed to the document. See, e.g., Pourreza v. Teel Appraisals & Advisory, Inc., 616 S.E. 2d 108, 111 (Ga. Ct. App. 2005) (although formal agreement signed by parties is preferred, "letters or documents prepared by attorneys which memorialize the terms of the agreement reached will suffice.").

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However, email messages constitute valid signatures for the purposes of the statute of frauds. See Lamle v. Mattel, Inc., 394 F.3d 1355, 1362 (Fed. Cir. 2005) (holding than an email message meets the signature requirement of the statute of frauds); see also Ariz. Rev. Stat. § 44-7007(A) ("[A] record or signature in electronic form cannot be denied legal effect and enforceability solely because the record or signature is in electronic form."). Plaintiffs have not advanced any contrary authority. By electronically signing this email, Plaintiffs' counsel agreed to all terms of the Settlement Agreement as set out

in the electronic written document exchanged between the parties. [Defs.' SOF ¶¶ 3 and 4. Exs. 2 and 3] were "ready to sign" is not sufficient to meet the Arizona statute of frauds is just another subsequent email letter on October 12, 2005 stating that Plaintiffs "agree" to the final form of the agreement and informing Defendants that he will have Plaintiffs "sign the agreement." The later email letter, signed by Plaintiffs' counsel, constitutes Plaintiffs' agreement, in writing, to the terms of the Settlement Agreement and therefore satisfies the Arizona statute of frauds. Conclusion For the foregoing reasons, defendants respectfully request that the motion be granted. Plaintiffs' argument that their counsel's October 9, 2005 statement that Plaintiffs

irrelevant obfuscation. [Resp. 16] This argument simply fails to address their counsel's

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Dated: April 18, 2006. PERKINS COIE BROWN & BAIN P.A.

By s/ C. Mark Kittredge Terry E. Fenzl C. Mark Kittredge 2901 North Central Avenue Post Office Box 400 Phoenix, Arizona 85001-0400 Attorneys for Defendants and Counterclaim Plaintiffs

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CERTIFICATE OF SERVICE I hereby certify that on April 18, 2006, I electronically transmitted the attached documents to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Daniel R. Malinski [email protected] BURCH & CRACCHIOLO, P.A. 702 East Osborn, Suite 200 Phoenix, Arizona 85014 Attorneys for Plaintiffs and Counterclaim Defendants Peter E. Heuser [email protected] Kolisch Hartwell, P.C. 200 Pacific Building 520 S.W. Yamhill Street Portland, Oregon 97204 Attorneys for Plaintiffs and Counterclaim Defendants I hereby certify that on April 18, 2006, I served the attached document by hand delivery to: The Honorable Paul G. Rosenblatt United States District Court Sandra Day O'Connor U.S. Courthouse, Suite 621 401 West Washington Street, SPC 56 Phoenix, AZ 85003-2156 s/ Janet Roe

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