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

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RICHARD J. MCDANIEL, P.C. ATTORNEY AT LAW 11811 N. TATUM BLVD., SUITE 1051 PHOENIX, ARIZONA 85028 Telephone (602) 953-8721 FAX (602) 953-8731 Richard J. McDaniel #013329 Attorney for Defendants Woodcock IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Case No. CIV 04-78-FJM SHIMKO & PISCITELLI, Plaintiff, v. PAUL and BOBBI WOODCOCK, et. al. Defendants. DEFENDANT WOODCOCKS' REPLY IN SUPPORT OF MOTION AND AMENDED/SUPPLEMENTAL MOTION TO DISMISS CLAIMS AND MOTION FOR SUMMARY JUDGMENT

Paul and Bobbi Woodcock have not previously filed a motion for summary judgment before this Court. There is nothing in the Ninth Circuit's rulings on the Ross and Guenther appeals that precludes this Court's full consideration of the Woodcocks' motion. The Ross appeal dealt with whether Shimko's claim in his affidavit that he had entered into contracts with the limited partners as individuals was enough to raise a question of material fact. The Guenther appeal dealt with the questions of whether the safe harbor protections applied to Guenther as a limited partner, and whether Shimko, as general counsel for the CORE entities, could have reasonably believed that Guenther was
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a general partner.

Shimko's violation of Arizona's ethical

rules, perjury, and fraudulent claims for excess billings were not issues before the Ninth Circuit. A. Shimko Violated ER 1.8 Because he Failed to Advise the Woodcocks of the Terms of His Transactions in Writing; Failed to advise Them to Seek Review By Independent Counsel; and Failed to Obtain their Written Consent. Shimko's Response shows that he has never made an effort to understand Arizona's Ethical Rules and blatantly disregarded them while representing the Woodcocks and other defendants. In his Response, Shimko argues that he did not violate ER 1.8 because he was simply doing "a favor" when he lent one of the limited partnerships $200,000-$250,000 at Defendant Ross' request. However, Shimko's act was not akin to buying a client lunch. There were potential and actual conflicts, such as how monies subsequently received from the CORF entities would be credited. Would they go toward repayment of the loan or payment of attorneys' fees? Did the other limited partners and officers, who were also Shimko's clients, know that the partnership was so short of cash that it was borrowing from their attorney? Did they approve? Shimko made no effort to find out. Shimko did not advise and check with his other clients--Woodcocks, Goldfarbs, Guenthers, Ritchies, and Brills to make certain they were aware, understood the risks, and approved the transaction.

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ER 1.8 is not ambiguous. An attorney entering into a business transaction with a client must meet certain terms. First, the terms and conditions must be fair and reasonable, fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client. Second, the client must be advised in writing about the desirability of seeking independent legal counsel and given the opportunity to do so. Third, the client must given informed written consent to the essential terms of the transaction and the lawyer's role in the transaction. In In re Redondo, 861 P.2d 619 (Ariz. 1993), a lawyer represented a client going through a divorce. She didn't have much money so she asked the attorney to buy her wedding rings. The attorney bought them for $500. The Court upheld the disciplinary committee's finding that Redondo violated ER 1.8 by purchasing his client rings without notice and opportunity for her to seek independent legal counsel, and without her written consent. The fact that the client had asked Redondo to purchase her rings, did not negate the ethical violation. Shimko did not comply with any of the three terms/conditions required before entering into a business transaction with his clients. Shimko did not disclose to the Woodcocks that he was making the loan to the CORF partnership. Shimko did not sent the Woodcocks a fax, email, letter or other writing to indicate he was going to make a loan, let alone terms
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and conditions. Shimko did not advise the Woodcocks in writing about the desirability of seeking review by independent counsel. Shimko did not give the Woodcocks the opportunity to have independent counsel review the transaction. The Woodcocks did not give written consent to the transaction to Shimko. Similarly, Shimko did not comply with ER 1.8 when he agreed to do legal work for and took an ownership interest in Aztec Medical, the tissue supply bank. Shimko did not advise the Woodcocks in writing to have the transaction reviewed by outside counsel. Shimko did not ask for or obtain the Woodcocks written consent to the transaction. In his Response, Shimko argues that he did not have to comply with ER 1.8 regarding Aztec Medical be cause it "had absolutely no connection or relationship to Defendants' CORF business or the litigation that grew out of that business. However, as the In re Redondo case makes clear, an attorney is required to follow the ethical rule even when the transaction is not directly related to the purpose of representation or even when the client suggests the transaction. Moreover, one of the plaintiffs' attorneys in the underlying litigations against the CORE defendants charged Shimko and Piscitelli with using Aztec Medical to improperly funnel CORE money to Mexico. And, Defendants were asked about Aztec Medical at their depositions in the underlying cases.

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B. Shimko Violated ER 1.7 by not Making Clients Aware of Conflicts and Getting Their Consent to Them. Shimko argues that he did not violate ER 1.7 because there

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was never a significant risk that the representation of one or
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more clients might be materially limited by the lawyer's
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responsibilities to another client. Shimko is simply wrong on a
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number of levels. First, there is almost always some risk of
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conflict in representing multiple defendants. It does not take
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a great deal of legal acumen or experience to realize that the
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officers and employees of business might have differing
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interests from those of the investors and limited partners.
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Similarly, individual defendants may have different interests
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from the partnerships and business entities. Individual
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defendants might have differing interests from one another
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depending upon their own personal assets; asset structure and
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asset protection; and level of involvement in tortious conduct.
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Despite these risks, Shimko did not explain to his clients the
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dangers and risks involved in his representing multiple clients.
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Second, Shimko testified at his deposition that he was concerned
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because one of the limited partners, Goldfarb, continued to
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participate in sales seminars even after Shimko had advised the
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limited partners against doing so. Nevertheless, Shimko did not
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advise the Woodcocks that there might be a conflict between
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Shimko's continuing to represent both them and the Goldfarbs.
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Third, Shimko acknowledges that one of the plaintiffs'
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attorneys in the underlying fraud and breach of contract
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litigations talked to him about dropping claims against the corporate officers, Brill and Ritchie, if they would testify against the limited partners. Shimko never advised the Woodcocks that he would not be able to offer or cut any kind of deal or settlement in which the Woodcocks gave testimony against the other defendants because this would conflict with his loyalty to the other defendants. Because Shimko never raised and explained these conflicts to the Woodcocks, they could not give their informed consent to the multiple representation. C. Shimko Testified at Trial that he was Paid only $135,000; Now He Acknowledges it was at least $320,937.50. Shimko claims he did not perjure himself when he testified at the Guenther trial and at his deposition that his firm had been paid only $135,000 in attorneys' fees. ("We have been paid a total amount of $135,572..." Shimko testimony, Guenther trial transcript, p 91; "I think we had $350,000 that remained unpaid, and we were paid 135,000." Shimko deposition, p. 6.) However, now confronted with his firm's own records of payments received, which were not disclosed to defendants until last month, Shimko acknowledges that he has been paid at least $321,326.80 in fees. At page 15 of his response, Shimko states: "deducting the $272,500 in bad checks from the total record of payments leaves a balance of $321,326.80, which is just about what Plaintiff's invoices show Plaintiff was paid." According to Shimko, Plaintiff's billing statements "clearly" show that
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Shimko received $320,937.50. So even though Shimko and Welling knew, or should have known, that both their firm's receivable records and their firm's billing statements show they had been paid at least $320,937.50, Shimko testified before this Court that he had received only $135,000. Shimko cannot contend that he simply misspoke. In moving for a new trial, Guenther contended that Shimko had misrepresented amounts paid his firm. Shimko and his attorney responded, categorically denying that Shimko had misrepresented the amount his firm had been paid. At all times, Shimko and Welling had access to both their firm's accounts received records and their firm's billing statements. Two years later, at his deposition, Shimko again testified under oath that his firm had been paid only about $135,000. Moreover, Shimko and Welling's math is fuzzy. In an interrogatory, Defendants Woodcock asked Shimko to "itemize in detail all payments received from any of the Defendants or CORF related entities including date, amount, and manner of payment (check, wire, etc,)." The records Shimko produced in response to the interrogatory show that defendants paid his firm $603,816.10. The records show $613,816.80 in incoming wire transfers, deposits, and checks and that one item, for $10,000, was returned by the bank. Even if as Shimko claims, but does not itemize or show, the other checks listed bounced;

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subtracting out the $187,500, still leaves more than $416,316 that Shimko was paid. Shimko is also making inconsistent representations about the checks. At page 17 of his Response, he contends, without presenting evidence, that $275,000 worth of checks bounced. However in a March 4, 2003 letter to defendants, almost one month after the last check was written on 2/11/03, and deposited on 2/13/03, Shimko wrote: "as you know you have sent me five checks, for which there were insufficient funds, totaling $112,500." Now, somehow, even though no more checks were written, that number has grown to $275,000. D. Shimko Cannot Defend His Fraudulent Claims for Excess Billings for Welling's Work as a Clerk. Shimko and Welling have knowingly asserted fraudulent

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claims for $78,097.50 based upon overcharges for work that
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Welling did as a law clerk. Shimko acknowledged at his
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deposition that he has known since 2003, that his firm
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"mistakenly" billed Welling, who was not then a lawyer, at $350 per hour instead of $125. Nevertheless, Shimko and Welling have continued to assert entitlement to the $78,097.50 in overbillings to this Court, to other federal district courts, and to the Ninth Circuit. Whether the overbilling was a mistake to begin with is questionable. However, there is no question that once Shimko became aware of the overbilling in 2003, he and his attorney were required to reduce their claim by the $78,097.50.
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Not only did Shimko and Welling not reduce their claim by
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the $78,097.50, they continued to aver in testimony and numerous pleadings they were owed the full balance. This is not simply a repeated violation of Rule 11, but a pattern of fraudulent misrepresentation against defendants and the federal courts. Shimko and Welling's conduct is inexcusable. They do not even attempt to address the matter in the Response. E. Summary Shimko ignored the Arizona ethical rules that were designed to help protect persons seeking legal representation, such as the Woodcocks. Shimko lied about material matters at trial and his deposition. Welling did nothing to correct the false testimony. Shimko and Welling have asserted claims, in at least three federal courts, for excess billings of more than $78,000, to which they knew they are not entitled. Under the circumstances, not only are Shimko and Welling not entitled to additional fees, they should be required to disgorge fees they received. They should be ordered to pay defendants' attorneys' fees. This Court should also initiate appropriate judicial or criminal inquiry into Shimko's perjury; Welling's subornation of perjury; and Shimko and Welling's fraudulent misrepresentations before the federal courts.

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Dated this 25th day of May 2008. RICHARD J. MCDANIEL ATTORNEY AT LAW By /s/ Rich McDaniel Richard J. McDaniel 11811 N. Tatum, #1051 Phoenix, AZ 85028 Attorney for Defendants Woodcock Electronically filed and copied this 25th day of May 2008: David Welling Timothy Shimko & Associates Roger Cohen JABURG & WILK Copy mailed to: David and Rhona Goldfarb 11437 N. 53 rd Place Scottsdale, AZ 85254 Pro Per /s/ Rich McDaniel

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