Free Reply in Support of Motion - District Court of Arizona - Arizona

Matthew A. C. Zapf (pro hac vice) A. Colin Wexler (pro hac vice) Chad A. Blumenfield (pro hac vice) GOLDBERG KOHN 55 East Monroe Street, Suite 3300 Chicago, IL 60603-5792 Telephone: 312.201.3914 Facsimile: 312.863.7414 [email protected] [email protected] [email protected] David P. Irmscher (15026-02) John K. Henning (25203-49) BAKER & DANIELS LLP 111 East Wayne Street, Suite 800 Fort Wayne, IN 46802 Telephone: 260-424-8000 Facsimile: 260-460-1700 [email protected] [email protected] H. Michael Clyde (009647) PERKINS COIE BROWN & BAIN P.A. 2901 North Central Avenue, Suite 2000 Phoenix, AZ 85012-2788 Telephone: 602.351.8000 Facsimile: 602.648.7000 [email protected] Attorneys for Defendant Omron Corporation

830173v3 5/3/2007 5:22:34 PM

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA ) ) Plaintiff, ) ) vs. ) ) Omron Corporation, ) ) Defendants. ) Hypercom Corporation, CAUSE NO. CV04-0400 PHX PGR

REPLY IN SUPPORT OF OMRON CORPORATION'S MOTION FOR LEAVE TO DESIGNATE POTENTIAL NON-PARTIES AT FAULT

Omron is entitled to designate Verve as a non-party at fault in accordance with A.R.S. § 12-2506. The arguments that Hypercom makes in response to Omron's proposed designation are at various turns inapplicable or simply false, and this Court should reject them. Hypercom does not argue that it was unaware that Verve was a non-party at fault before Omron filed the formal designation. Such a position would be untenable, as Hypercom named Verve in its initial complaint in this matter before agreeing to terminate the proceedings against Verve and recovering damages arising out of the same course of action in a separate matter. It is undisputed that Hypercom knew Verve was potentially at fault for the same damages it now seeks from Omron and that Hypercom had a full opportunity to--and in fact did--litigate that potential liability against Verve in a separate action. Hypercom argues that Omron was not in technical compliance with the 150 day disclosure rule in Arizona Rule of Civil Procedures 26(b)(5). While Omron does not dispute this point, the Arizona Court of Appeals has held in Lyphomed, Inc. v. Superior Court, 172 Ariz. 423 (Ct. App. 1992) that technical compliance should be

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excused where the policy considerations behind the disclosure requirement are not present because the Plaintiff is fully aware of the non-party. Hypercom cannot, and does not, dispute that it believed from the outset that Verve bore responsibility for the damages Hypercom alleges that it has incurred. Moreover, Hypercom does not

identify any way in which it would be prejudiced by the timing of this notice, and there is no prejudice given that Hypercom has taken extensive discovery of Verve and proceeded to judgment against Verve in a separate, parallel action. Hypercom next argues that Omron is not entitled to name Verve as a non-party at fault because Hypercom's theories all require concerted action between Omron and Verve. This is untrue. Hypercom's argument ignores the applicable statutory

definition of "acting in concert." Under that definition, two of Hypercom's three theories of recovery plainly do not require that Omron and Verve acted in concert. I. In Accordance With Lyphomed, The Notice Requirement Should Not Be Applied Where the Plaintiff Names The Putative Non-Party At Fault In Its Initial Complaint. As Omron explained in its opening brief, "[t]he purpose of the notice requirement is to deal with situations where the plaintiff is unaware of a nonparty's fault." Lyphomed, 172 Ariz. at 427-28 (citing legislative history). Of course,

Hypercom concedes that it was aware of Verve from the moment it filed this lawsuit naming Verve as a defendant. Lyphomed makes clear that when a plaintiff itself identifies the entity it believes was partially responsible for causing its damages, the policy rationale behind the notice rule is not implicated and should not be enforced. Id. This flexible approach to the notice requirement is consistent with Judge Campbell's recent observation that "Arizona cases reflect a recognition of the -3Document 213

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Arizona legislature's strong desire to ensure the comparative fault principles are applied in most cases where the actions of more than one party combined to cause harm." Wilson v. Maricopa County, 2007 WL 686726, at *12 (D. Ariz. Mar. 2, 2007). Hypercom's remaining arguments pale in importance to the simple fact that Hypercom knew about Verve's potential liability when it filed this action, and Hypercom litigated against Verve for precisely the same damages. Contrary to Hypercom's description of the case, Lyphomed is squarely on point here. Indeed, Hypercom's description of the court's reasoning in Lyphomed is literally made up ­ an apparently desperate attempt to mislead this Court into believing Lyphomed has no application. Hypercom's faulty analysis. In Lyphomed, the defendant designated a non-party at fault after Rule 26(b)(5)'s 150-day deadline for designation. Id. at 426. Nonetheless, the Lyphomed court exercised its judicial discretion to excuse "a late filing of the notice." Id. at 426 n.1. It reasoned that because the plaintiff had already identified the non-party in its initial complaint, the defendant was excused from complying with the notice requirement of Rule 26(b)(5). Id. at 427-28. This is precisely the scenario now in front of this Court. Hypercom's assertion that the Lyphomed court granted Lyphomed's motion because Lyphomed's motion was somehow timely is squarely contradicted by the court's opinion. Hypercom argues that Lyphomed is distinguishable because the defendant's disclosure was "in accord with the text of the rule." (Response at 5.) It then argues that the court relied on the "newly discovered evidence" exception in -4Document 213 This Court should not be fooled by

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granting Lyphomed's motion, and that because there is no newly discovered evidence in this case, the Court cannot rely on Lyphomed to support its decision. Id.

Hypercom's synopsis of the Lyphomed case is simply false, as neither of these rationales appear anywhere in the Lyphomed opinion. Rather, just as Omron explained in its opening brief, the court held that Lyphomed's designation of a non-party at fault was acceptable because the purpose behind the disclosure rule was not implicated. The court found that there was no concern about notice to the plaintiff where the plaintiff had itself identified the nonparty in its complaint. The court in Lyphomed held that in such a scenario, Arizona's strong interest in apportioning fault takes precedence. This reasoning is equally compelling in this case.1 Hypercom's attempt to distinguish the Wilson decision is equally unavailing. As Omron explained in its Motion, Wilson is applicable here because in that case, Judge Campbell permitted an untimely designation of non-parties at fault where the plaintiff knew from the outset of the case that several parties were responsible for the plaintiff's damages. Wilson v. Maricopa County, 2007 WL 686726, at *12. In its

response, Hypercom argues that even though both Hypercom and Omron were obviously aware that Hypercom believed Verve caused a portion of Hypercom's damages, Omron had 150 days to notify Hypercom of what it already knew.

Hypercom also attempts to distinguish Lyphomed by arguing that Verve is no longer a party to this action. (Response at 3-4.) But Verve's non-party status is precisely what necessitates this motion; if Verve remained in the case, this would all be irrelevant.

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(Response at 4 n.2.) This does not comport with the rationale of the notice requirement. By its Motion, Omron is fulfilling the procedural requirement of

notifying Hypercom before trial that Verve will be designated as a non-party at fault. Under the circumstances of this case, that is sufficient.2 II. The Court Should Reject Hypercom's Arguments About Concerted Action. Hypercom next argues that Omron cannot avail itself of the non-party at fault provision because all of Hypercom's theories of liability require concerted action between Verve and Omron. Again, Hypercom appears to recognize the weakness of its position, as it uses sleight of hand instead of relying on any applicable case support. First, Hypercom ignores A.R.S. § 12-2506's definition of "acting in

concert," and chooses instead to import a definition from the Restatement that does not and cannot supersede the express language of the Statute. Second, as Hypercom itself concedes, Response at 7, the only case on which Hypercom relies, Wiggs v. City of Phoenix, 10 P.3d 625 (Ariz. 2000), is factually inapposite, and an Arizona Appellate Court has expressly held that it does not apply outside the vicarious liability context.

It is important to differentiate the requirement to designate non-parties at fault from the notice requirement. Omron does not challenge the procedural requirement that it file this Motion to comply with A.R.S. § 12-2506; it only challenges the need to be in technical compliance with Rule 26(b)(5)'s notice requirement under these circumstances. Notably, Hypercom does not identify any way in which it has been prejudiced by the timing of this Motion.

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A.

At Least Two of Hypercom's Theories Do Not Require "Acting in Concert," So They Are Not Exceptions To A.R.S. § 12-2506.

A.R.S. § 12-2506(D) includes an exception to the general abolition of joint liability when "[b]oth the party and the other person were acting in concert." But

Hypercom's Response identifies and applies the wrong definition for "acting in concert." The applicable definition is right in the body of the statute, and it requires a finding of a "conscious agreement" between the defendant and non-party. The statute provides: "Acting in concert" means entering into a conscious agreement to pursue a common plan or design to commit an intentional tort and actively taking part in that intentional tort. Acting in concert does not apply to any person whose conduct was negligent in any of its degrees rather than intentional. A person's conduct that provides substantial assistance to one committing an intentional tort does not constitute acting in concert if the person has not consciously agreed with the other to commit the intentional tort. A.R.S. § 12-2506(F)(1) (emphasis added). Hypercom has three theories of liability: Malicious Prosecution, Aiding and Abetting Abuse of Process and Malicious Prosecution, and Civil Conspiracy for Abuse of Process and Malicious Prosecution. Of the three, only the conspiracy theory even arguably falls under the statutory definition of "acting in concert." Hypercom's direct malicious prosecution theory does not require Verve and Omron to have acted in concert at all; the focus under that claim is simply on what Omron did, not what it allegedly helped Verve accomplish. This is a textbook application of A.R.S. § 122506, which provides that "[e]ach defendant is liable only for the amount of damages allocated to that defendant in direct proportion to that defendant's percentage of

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fault." A.R.S. § 12-2506(A). If the jury believes that Omron is liable for Hypercom's damages, it must also consider the proportion of damages for which Verve is liable.3 As for aiding and abetting liability, this Court held at summary judgment that such a theory requires only that "the defendant has at least a general awareness of the primary tortfeasor's general conduct." (Summary Judgment Order, doc. 152 at p. 5).4 The statutory definition of "acting in concert" under A.R.S. § 12-2506 requires a higher standard; under that definition, Omron would not be acting in concert unless it consciously agreed with Verve to commit the underlying intentional tort. Even assuming arguendo that the definition of "acting in concert" encompasses Hypercom's conspiracy claim, there is no reason to prevent Omron from designating Verve as a non-party at fault given that Verve could be designated as a non-party at fault under the other two theories. This is especially so because the conspiracy theory is the only one that requires Hypercom to carry its burden of proof by clear and convincing evidence; of Hypercom's three theories, Hypercom will have the hardest time prevailing on that one. The non-party at fault statutory scheme is perfectly applicable here.

To the extent that Hypercom argues that Omron should be held directly liable for Verve's actions, this is inappropriate. Direct liability for malicious prosecution focuses on the conduct of the alleged tortfeasor and no one else. Omron believes that this standard lowers the standard of proof required to support an aiding and abetting claim. Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 38 P.3d 12, 26 (Ariz. 2002) ("aiding and abetting liability is based on proof of a scienter... the defendants must know that the conduct they are aiding and abetting is a tort.") (emphasis in original).
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B.

The Only Case Verve Cites For The Concerted Action Principle Is Inapplicable.

Hypercom does not cite a single case that has refused to apply A.R.S. § 122506 in the joint liability context. The only case it cites is Wiggs v. City of Phoenix, which Hypercom concedes is factually inapposite. But Wiggs is legally inapplicable as well. As Hypercom's discussion of Wiggs demonstrates, Wiggs involved a

question of vicarious liability, not a question of joint liability. (Response at 7-8.) The Arizona Supreme Court's discussion in Wiggs made clear that its conclusion was predicated on the fact that the non-party at fault logic is inapplicable to the vicarious liability area: In a case of vicarious liability, it does not make legal or tactical sense to name as a non-party at fault, the party whose conduct is imputed to the employer, because the employer will be fully liable for that fault. From Wiggs' perspective, allocation is irrelevant-with or without an allocation, the City is 100% liable. Wiggs, 10 P.3d at 629. This logic does not apply in the joint liability context; if a jury attributes a percentage of the harm to Verve here, there is no reason why Omron would have to pay for Verve's share of the damages. The limitations of Wiggs are well known in Arizona. Last year, an Arizona appellate court held that Wiggs does not apply to the joint liability context for precisely that reason. In State Farm Ins. Co. v. Premier Manufactured Systems, Inc., 213 Ariz. 419, 142 P.3d 1232, 1234-38 (Ct. App. 2006), the court held that A.R.S. § 12-2506 applied to alleged joint tortfeasors in a case involving strict products liability stemming from a defective water filtration system. State Farm argued that in

accordance with Wiggs, the court should not apply the comparative fault principles of

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A.R.S. § 12-2506. Id. at 1237. The court rejected that argument, reasoning, "[t]he supreme court's language must be read in context. The issue before the court was whether fault should be allocated when there is vicarious liability." Id. Hypercom fails to cite any case that rejects the application of A.R.S. § 12-2506 in a case based on logic similar to that used by Hypercom here -- that Omron and Verve would have had to be working in concert for liability to apply. CONCLUSION The purpose of A.R.S. § 12-2506 is to apportion fault in a context where multiple tortfeasors are alleged to have combined to cause harm to a defendant. If a jury concludes that Omron is liable to Hypercom but that Omron's fault can be distinguished from Verve's fault, Omron is entitled to have the final damages award apportioned to reflect that finding. Hypercom's insistence on misstating the

applicable law in this area demonstrates its tacit acknowledgement that Omron should be permitted to designate Verve as a non-party at fault under these circumstances. RESPECTFULLY SUBMITTED on May 3, 2007.

By: /s/ Matthew A.C. Zapf Matthew A.C. Zapf A. Colin Wexler Chad A. Blumenfield Goldberg Kohn 55 East Monroe Street Suite 3300 Chicago, IL 60603-5792

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David P. Irmscher (15026-02) John K. Henning (25203-49) BAKER & DANIELS LLP 111 East Wayne Street Suite 800 Fort Wayne, IN 46802 H. Michael Clyde (009647) PERKINS COIE BROWN & BAIN P.A. 2901 North Central Avenue Suite 2000 Phoenix, AZ 85012-2788 Attorneys for Defendant Omron Corporation

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CERTIFICATE OF SERVICE I hereby certify that on May 3, 2007, 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: Andrew Foster Halaby Ray Kendall Harris John Kenyon Henning, IV David P. Irmscher Sid Leach Monica Anne Limon-Wynn Paul Moore A. Colin Wexler Matthew A.C. Zapf [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

/s/ Matthew A.C. Zapf

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