Free Response in Opposition to Motion - District Court of Arizona - Arizona

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Joel L. Herz, Esq. State Bar No. 015105 Law Offices of Joel L. Herz 3573 East Sunrise Drive, Suite 215 Tucson, AZ 85718 Telephone: 520-529-8080 Facsimile: 520-529-8077 [email protected] Attorneys for Defendant GTFM, LLC UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA MEADOWLARK LEMON, et al., Plaintiffs, vs. HARLEM GLOBETROTTERS INTERNATIONAL, INC., et al.; Defendants. Defendant GTFM, LLC ("GTFM" or "FUBU") submits this opposition to Plaintiffs' Joint Motion to Strike GTFM Defendant's Untimely Disclosures to Present Evidence to the Jury and for Sanctions ("Plaintiffs' Motion"). Plaintiffs' Motion is entirely without merit and is just another transparent attempt to delay this action. First, the Court should not allow additional discovery relating to insurance coverage at this time because no discovery at all was taken by Plaintiffs relating to insurance coverage during the discovery period set forth in this Court's scheduling orders. Thus, Plaintiffs' request to do so now, almost 14 months after the close of discovery, is another tactic to delay this case even further. Moreover, the former insurer did not change its insurance posture regarding GTFM until well after the close of discovery, in February 2006. Thus, even if GTFM GTFM, LLC'S OPPOSITION TO PLAINTIFFS' JOINT MOTION TO STRIKE GTFM DEFENDANT'S UNTIMELY DISCLOSURES, TO PRESENT EVIDENCE TO THE JURY AND FOR SANCTIONS Nos. CV-04-0299 PHX DGC and CV-041023 PHX DGC

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had served its Third Amended Disclosures earlier than July 13, 2006, it still would have been well after the close of discovery. Second, the Court should not strike the Third Amended Disclosures because

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doing so will have no effect. It will not change the fact that the insurer is not obligated to pay any fees, settlement or judgment in this action, unless Harlem Globetrotters International, Inc. ("HGI") defaults. As Plaintiffs have long been aware, GTFM is indemnified by HGI in this action and Plaintiffs have all of HGI's financials; thus, any

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further discovery relating to GTFM's former insurance coverage is irrelevant. Third, Plaintiffs should not be permitted to present evidence of GTFM's alleged discovery abuses to the jury because they are irrelevant and would mislead the jury. Finally, GTFM should not be sanctioned in this matter because the Third Amended Disclosures were timely and any delay was an inadvertent mistake, not a tactical decision. Thus, any delay was both substantially justified and harmless. FACTUAL BACKGROUND Until February 8, 2006, GTFM was receiving payment of fees in connection with this matter from its insurance carrier, St. Paul Travelers and Insurance Company (the "Insurer"), under a reservation of rights. The Insurer paid for the attorney's fees in this action under a reservation of rights because, among other reasons, GTFM was fully indemnified by HGI under the terms of the license agreement, dated June 1, 2002 (the

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"License Agreement"). See Sacks September 5, 2006 Declaration (the "Sacks Sept. Decl.") ¶ 4.1 Specifically, Section 5.1 of the License Agreement, states that HGI shall

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"indemnify and hold [GTFM] and its sublicensees harmless from and against all out-ofpocket losses, including the payment of claims, damages (including, without limitation, damages incurred as a result of any restriction on Licensee's rights to complete and/or sell inventory of Licensed Products), liability, costs, liabilities, fines and judgments, and

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expenses, including reasonable attorneys' fees and disbursements...arising out of or relating to (a) any claim by a third party that Licensee's and/or Sublicensees' use of the Licensed Property in accordance with this Agreement violates the rights of a third party, including any claim by a past, present or future Globetrotter Player..." See License Agreement, § 5.1, attached as Exhibit A to the Sacks Sept. Decl.; Sacks Sept. Decl. ¶ 5. HGI filed a lawsuit against GTFM, dated April 12, 2005, in the Southern District of New York entitled Harlem Globetrotters International Inc. v. GTFM, LLC, 05 CV 3727 (NRB)(the "HGI Litigation"), alleging violations of the License Agreement, including non-payment of royalties. On April 29, 2005, GTFM filed an answer and counterclaims against HGI (the "GTFM Counterclaims"), alleging violations of the License Agreement, including the indemnity provision. Sacks Sept. Decl. ¶ 6.

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References to the Sacks Sept. Decl. refer to the declaration of Ira S. Sacks, dated September 5, 2006 and submitted in response to Plaintiffs' Joint Motion to Enforce Settlement Conference Order By Requiring Defendant GTFM's Insurer to Appear at the Settlement Conference, and to Strike GTFM Defendant's Untimely Disclosures (Dkt # 442).

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On February 8, 2006, HGI and GTFM resolved the HGI Litigation and the GTFM Counterclaims (the "HGI/GTFM Settlement"). In connection with the HGI/GTFM

Settlement, HGI reaffirmed its obligations to pay the attorney's fees and costs associated
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with this action, along with any judgment and/or settlement that may result; and GTFM released the Insurer from any claims under the policy with respect to this action, except in the event of a default by HGI. Thus, since February 8, 2006, GTFM has been uninsured in connection with this action, except in the event of a default by HGI. Sacks Sept. Decl.

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¶ 7. The HGI/GTFM Settlement occurred well after the September 30, 2005 close of discovery in this action. GTFM did not amend its disclosures at that time because there was no issue outstanding regarding coverage. That was not a tactical decision and had no effect on any party or any outstanding issue. Sacks Sept. Decl. ¶ 8. Moreover, Plaintiffs never attempted to take any discovery relating to insurance coverage during discovery and there is no reason why they should be allowed to do so now. Sacks Sept. Decl. ¶ 9. GTFM served its Third Amended Disclosures on July 13, 2006. It did so because the pending Settlement Conference reminded GTFM's counsel that they needed to amend the disclosures relating to insurance coverage. Plaintiffs waited until September 1, 2006 ­ over seven weeks later ­ to first object to the Third Amended Disclosures (Sacks Sept. Decl. ¶ 10); thus they could not have been too concerned. Plaintiffs argue that "GTFM had a duty to disclose the settlement with HGI as well

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as the change in their pretrial ability to pay a judgment to Plaintiffs as soon as possible

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after the settlement was reached." See Plaintiffs' Motion, at 4. The alleged relevance of GTFM's ability to pay a judgment to Plaintiffs has not changed. Prior to the HGI/GTFM Settlement, the insurer was covering GTFM under a reservation of rights because HGI was supposed to indemnify GTFM. Sacks Sept. Decl. ¶ 4. Now, HGI is indemnifying GTFM, not the Insurer. Sacks Sept. Decl. ¶ 12.

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If GTFM is liable and HGI fails to perform, the Insurer remains liable. Sacks Sept. Decl. ¶ 7. Plaintiffs have all of HGI's financials; thus, Plaintiffs have not been prejudiced. The Third Amended Disclosures should not be stricken and GTFM should not be sanctioned. First, any delay in filing was inadvertent and of no consequence to any party. Further, striking the Third Amended Disclosures will not make a difference because doing so will not change the fact that the Insurer does not have a primary coverage

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obligation in this action. Sacks Sept. Decl. ¶ 13. I. THE COURT SHOULD NOT ALLOW ADDITIONAL DISCOVERY

The Court should not allow additional discovery of GTFM's former insurer. This case has been going on for almost three years, discovery closed almost 14 months ago, on September 30, 2005, and the parties filed their pretrial documents on November 15, 2006. Moreover, the Court has scheduled the pretrial conference for December 6, 2006.

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Plaintiffs cite to EEOC v. Lennar Homes of Arizona, Inc., 2006 WL 1734594 (D. Ariz. 2006) for the proposition that additional discovery is within this Court's discretion. There, with discovery closed and trial only weeks away, this Court allowed the

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Defendant in that action to depose the claimants on their damages testimony but granted Defendants' motion to strike testimony of a late-disclosed damages expert. Depositions of the claimants were permitted regarding updated damage claim figures they intended to present at trial, a topic on which the Defendant had taken extensive discovery.

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This case is distinguishable in two ways. First, unlike the Plaintiffs' damages testimony in Lennar, the issue of GTFM's insurer is irrelevant and Defendants will present little to no testimony on the subject at trial. Furthermore, Plaintiffs never

attempted to take any discovery relating to insurance coverage during the discovery period as the Defendant in Lennar did. See Sacks Sept. Decl. ¶ 9. Here, Plaintiffs argue that they "continued to rely upon GTFM's representations that a Commercial Insurance Policy and an Umbrella Policy providing for $5,000,000 in insurance was available for Plaintiffs' alleged damages in formulating its litigation strategy ... [Plaintiffs] have no information as to whether [GTFM is] judgment proof." See Plaintiffs' Motion, at 4. Plaintiffs' conduct in this case indicates they did not rely on the coverage. In the period prior to the HGI/GTFM Settlement, the Plaintiffs were well aware that the Insurer was paying GTFM under a reservation of rights because, pursuant to the

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License Agreement between HGI and GTFM, HGI was supposed to indemnify GTFM

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for its costs in this action, as well as any settlement or judgment that GTFM may have to pay. That still remains the case: if HGI does not pay, the Insurer is still on the hook. Plaintiffs have all of HGI's financials and have deposed several of HGI's

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employees, including Mannie Jackson, the CEO. Plaintiffs are also aware that in the event of a default by HGI, the Insurer is responsible for any monies owed by GTFM. See Sacks Sept. Decl. ¶ 7. Thus, there is absolutely no need to reopen discovery for this matter.

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Moreover, Plaintiffs state that they "were prevented from obtaining further discovery on this important matter as well as the related matter of settlement of the lawsuit between HGI and GTFM ...." See Plaintiffs' Motion, at 3. This is false. Plaintiffs never attempted to take any discovery relating to insurance coverage during the discovery period. See Sacks Sept. Decl. ¶ 9. Thus, Plaintiffs' current request is just another tactic to delay the trial of this action and should be denied. II. THE THIRD AMENDED DISCLOSURES SHOULD NOT BE STRICKEN

GTFM's Third Amended Disclosures should not be stricken. As stated above, any delay in filing the Third Amended Disclosures was inadvertent and of no consequence to any party. Plaintiffs cite to Cambridge Elecs. Corp. v. MGA Elecs., Inc., 227 F.R.D. 313, 321 (C.D. Cal. 2004) for the proposition that Rule 26(e) requires a continuing duty to seasonably correct disclosures at appropriate intervals if a party learns a previous disclosure is incorrect, and sanctions for failure to disclose under Rule 26(e) in a timely fashion are automatic and mandatory. Plaintiffs misstate the significance of Cambridge.
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The Court in Cambridge stated that litigants have a continuing duty to "seasonably" supplement all interrogatory responses under Rule 33 if their prior responses are either incomplete or incorrect. The Court stated further that Rule 37

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provides that "[a] party that without substantial justification fails to disclose information required by ... Rule 26(e)(2) ... shall not, unless such failure is harmless, be permitted to use as evidence at trial, at a hearing, or on a motion any witness or information not so disclosed." Id at 321 (citing Fed.R.Civ.Proc. 37(c)(1). "Excluding evidence at trial as a

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sanction for failure to disclose under Rule 26(e)(2) in a timely fashion is automatic and mandatory unless the party can show the violation is either justified or harmless." Cambridge, 227 F.R.D. at 321 (citations omitted)(emphasis added). Here, any delay was justified and harmless. Plaintiffs also cite to Stone v. River, 1992 U.S. App. LEXIS 2616 (9th Cir. 1992), an unpublished decision. This Court must ignore that unpublished decision, and Plaintiffs should be sanctioned for its improper citation.2 Moreover, in Stone, the Court observed that the "Ninth Circuit has `insisted upon a finding of bad faith before sanctions may be imposed under the court's inherent power.'" Id. at *7 (citing Zambrano v. City of Tustin, 885 F.2d 1473, 1478 (9th Cir. 1989)). Indeed, the Court in Stone found that the failure of the district court to make a specific

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The Ninth Circuit Rules state that "[u]npublished dispositions and orders of this Court are not binding precedent, except where relevant under the doctrine of law of the case, res judicata, and collateral estoppel... A copy of any cited unpublished disposition or order must be attached to the document in which it is cited, as an appendix." See 9th Cir. Rule 36-3.

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finding of bad faith and to specify the grounds for imposing sanctions mandates reversal. Stone, 1992 U.S. App. LEXIS 2616, at *7-8. Here, GTFM is not attempting to admit any evidence regarding the Insurer at trial;

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thus, the sanction of exclusion will have no effect. Moreover, GTFM was substantially justified in its filing of the Third Amended Disclosures and any delay, if any, was harmless and justified. First, GTFM was substantially justified in filing the Third Amended Disclosures

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after the close of discovery because the HGI/GTFM Settlement occurred well after the close of discovery in this action. GTFM did not immediately amend its disclosures because there was no issue outstanding regarding coverage. That was not a tactical decision and had no effect on any party or any outstanding issue. Sacks Sept. Decl. ¶ 8. Second, any delay in filing the Third Amended Disclosures was harmless. Plaintiffs never attempted to take any discovery relating to insurance coverage during the discovery period. Moreover, the HGI/GTFM Settlement occurred well after the close of discovery, in February 2006; thus, Plaintiffs would not have been able to take discovery regarding this issue even if GTFM served its Third Amended Disclosures earlier. See Sacks Sept. Decl. ¶¶ 7-9, 13. Furthermore, striking the Third Amended Disclosures will not make a difference because doing so will not change the fact that the former Insurer does not have a primary coverage obligation in this action. See Sacks Sept. Decl. ¶ 13. As per the License

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Agreement between HGI and GTFM, HGI is indemnifying GTFM for its costs in this action, as well as any settlement or judgment that GTFM may have to pay. Plaintiffs
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have all of HGI's financials and have deposed several of HGI's employees, including Mannie Jackson, HGI's CEO. Thus, GTFM's delay in serving its Third Amended

Disclosures, if any, has not caused any harm to Plaintiffs and has not had any affect on
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the outcome of this case. III. PLAINTIFFS SHOULD NOT BE PERMITTED TO PRESENT EVIDENCE OF GTFM'S ALLEGED DISCOVERY ABUSES TO THE JURY

Plaintiffs should not be permitted to present evidence of GTFM's alleged
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discovery abuses to the jury. Plaintiffs state in one sentence with no support that "these facts are relevant to the issue of GTFM's continuous disregard of Plaintiffs' rights and Plaintiffs should be permitted to present them to the jury." See Plaintiffs' Motion, at 6. These allegations are false and irrelevant and should not be presented to the jury. GTFM has always complied with its discovery obligations under the Federal Rules and has not committed any discovery abuses or violations. See Sacks October 17, 2006 Decl. (the "Sacks Oct. Decl.) ¶¶ 3-15.3 Throughout this action, Plaintiffs have alleged various discovery abuses and violations by GTFM, all of which supposedly thwarted their expert in preparation of a damages report and frustrated Plaintiffs' ability to completely calculate all of the "infringing sales" at issue and individual Plaintiffs'

References to the Sacks Oct. Decl. refer to the declaration of Ira S. Sacks, dated October 17, 2006 and submitted in support of GTFM's In Limine Motion to Exclude Any Allegations of Discovery Abuses by GTFM, LLC (Dkt # 464-466), which was filed on October 17, 2006 ("GTFM's Discovery Motion"), and to which Plaintiffs waited until November 21, 2006 to oppose.

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damages. All of those allegations are false. Not only that, the alleged discovery violations have never been adjudicated by this Court. Now, Plaintiffs are attempting to bolster those claims with an irrelevant argument about GTFM's former insurer.

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These alleged discovery abuses or misconduct are not relevant to any remaining issue or claim in the case. Fed. R. Evid. 401 and 402. Plaintiffs are merely attempting to use GTFM's alleged discovery abuses to inflame the jury to buttress their inflated damages claim and blame GTFM for their inability of proving "infringing sales" that do

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not exist. That cannot be permitted. If presented, allegations of discovery abuses would mislead the jury into not only believing that such abuses occurred, but also that they were the cause of Plaintiffs' inability to present higher "infringing sales". Such deception has no place in this trial. IV. GTFM SHOULD NOT BE SANCTIONED

GTFM should not be sanctioned. The Third Amended Disclosures were timely and any delay was an inadvertent mistake, not a tactical decision. Sacks Sept. Decl. ¶ 3. Plaintiffs argue, without any supporting caselaw, that sanctions against GTFM are warranted here. They are wrong. Fed.R.Civ.P. 37(c) provides, in pertinent part: A party without substantial justification fails to disclose information required by Rule 26(a) ... is not, unless such failure is harmless, permitted to use as evidence at a trial ... any witness or information not so disclosed. In addition to or in lieu of this sanction, the court ... may impose other appropriate sanctions. Fed.R.Civ.P. 37(c)(1)(emphasis added).

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However, "limiting the preclusion sanction to `violations without substantial justification, coupled with the exception for violations that are `harmless,' is needed to avoid unduly
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harsh penalties in a variety of situations.'" Southern Union Company v. Southwest Gas Corp., 180 F.Supp.2d 1021, 1060 (D. Ariz. 2002)(citing Fed.R.Civ.P. 37 Advisory Committee Notes, 1993 Amendments); see also Fonseca v. Sysco Food Services of

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Arizona, Inc., 374 F.3d 840, 846 (9th Cir. 2004)(reversing sanction because Plaintiff's late disclosure was both substantially justified and harmless). Here, GTFM should not be sanctioned because its Third Amended Disclosures were timely and as discussed in detail above, any delay was both substantially justified

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and harmless. CONCLUSION Based on the foregoing, GTFM respectfully requests that Plaintiffs' Motion be denied in its entirety. RESPECTFULLY SUBMITTED this 22nd day of November, 2006. By: s/ Ira S. Sacks_______________ Ira S. Sacks, admitted pro hac vice Safia A. Anand, admitted pro hac vice DREIER LLP 499 Park Avenue New York, New York 10022 Telephone: 212-328-6100 Facsimile: 212-328-6101 [email protected] Joel L. Herz, Esq. State Bar No. 015105 Law Offices of Joel L. Herz 3573 East Sunrise Drive, Suite 215 Tucson, AZ 85718 Telephone: 520-529-8080 Facsimile: 520-529-8077 [email protected] Attorneys for Defendant GTFM, LLC

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CERTIFICATE OF SERVICE 1. I hereby certify that on November 22, 2006, a true and correct copy of

GTFM, LLC's Opposition to Plaintiffs' Joint Motion to Strike GTFM Defendant's Untimely Disclosures to Present Evidence to the Jury and for Sanctions was

electronically transmitted 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: Safia A Anand [email protected] Florence M Bruemmer [email protected] Edward R Garvey [email protected], [email protected], [email protected] Robert Williams Goldwater III [email protected] Ray Kendall Harris [email protected], [email protected] Joel Louis Herz [email protected], [email protected] Alec R Hillbo [email protected], [email protected] Brandon Scott Peters [email protected], [email protected], [email protected] Anders V Rosenquist , Jr [email protected] Ira S Sacks [email protected] Clay M Townsend [email protected], [email protected]; [email protected] Christa O Westerberg [email protected] 2. I hereby certify that on November 22, 2006, a true and correct copy of the attached

document was sent via U.S. Mail, postage paid thereon, to the following parties, at the addresses listed: Keith R. Mitnik Morgan & Morgan PA 20 N. Orange Ave. Suite 1600
Orlando, FL 32802

s/ Leslie Grant___________

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