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

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LANG & BAKER, PLC
8233 VIA PASEO DEL NORTE, SUITE C-100 SCOTTSDALE, ARIZONA 85258 TELEPHONE (480) 947-1911

KENT A. LANG, #010041 WILLIAM G. KLAIN, #015851 Attorneys for Defendants/Counterclaimant

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA QC CONSTRUCTION PRODUCTS, LLC, a Delaware limited liability company, ) NO. CV03-1997 PHX ROS ) ) Plaintiff, ) ) DEFENDANTS' REPLY IN SUPPORT OF v. ) MOTION FOR SUMMARY JUDGMENT ) COHILL'S BUILDING SPECIALTIES, INC., ) and MICHAEL COHILL, ) ) Defendants. ) ________________________________________ ) ) COHILL'S BUILDING SPECIALTIES, INC., an ) Arizona corporation, ) ) Counterclaimant, ) ) v. ) ) QC CONSTRUCTION PRODUCTS, LLC, a ) Delaware limited liability company, ) ) Counterdefendant. ) ________________________________________ )

Defendant/Counterclaimant Cohills Building Specialties, Inc. and Defendant Timothy "Michael" Cohill, by and through their counsel undersigned, hereby submit the following Reply in Support of Motion for Summary Judgment. The discovery process has revealed the existence of no substantiated and admissible evidence to support Plaintiff's claims under existing law, and such claims should be disposed of by this Court. This Reply is supported by the following Memorandum of Points

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and Authorities, and Defendants' Supplemental Statement of Objections to Plaintiff's Statement of Material Facts in Opposition to Cohill's Motion for Summary Judgment. DATED this 21st day of October, 2005. LANG & BAKER, PLC By /s/ William G. Klain Kent A. Lang William G. Klain 8233 Via Paseo del Norte, Suite C-100 Scottsdale, AZ 85258 (480)947-1911 Attorneys for Defendants/Counterclaimant

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MEMORANDUM OF POINTS AND AUTHORITIES I. Introduction.

In a misguided attempt to stave-off summary judgment, Plaintiff/Counterdefendant QC Construction Products, LLC ("QC") utilizes its Opposition to simply "shot gun" unsubstantiated, irrelevant and inadmissible "facts" at this Court, apparently hoping that this "kitchen sink" approach will confuse the Court to such a degree as to lead to a denial of Defendants' Motion for Summary Judgment ("the Motion"). However, a close inspection of the actual facts of this matter and an application of the clear law to such facts mandate the entry of summary judgment on all claims asserted against Defendant/Counterclaimant Cohills Building Specialties, Inc. ("Cohill's") and Defendant Timothy "Michael" Cohill ("Cohill"). Indeed, QC fails to controvert in any manner the facts relied upon by Cohills and Cohill in support of the Motion. While QC's conjecture and refusal to acknowledge the undisputed material facts of this matter may provide it safe harbor for initially filing its ill-conceived claims, QC can no longer hide behind speculation, conjecture and flawed legal reasoning. It is not without justification or warranted ire that Cohills and Cohill employ the rhetoric set forth above in characterizing the conduct of QC. Cohills and Cohill urge this Court to scrutinize QC's Statement of Material Facts in Opposition to Cohill's Motion for Summary Judgment (alternatively 2 Document 117

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referenced as "QC's Statement" and "QCSOF") lodged with this Court. QC's Statement consists of nothing more a re-print of the flawed Statement of Undisputed Facts in Support of Summary Adjudication already submitted by QC in this action on August 19, 2005. As specifically detailed and demonstrated by Cohill and Cohills in their September 22, 2005 Supplemental Statement of Controverted Facts and Separate Statement of Facts is Support of Response in Opposition to Motion for Summary Adjudication ("CCSOF"), QC's Statement is replete with assertions of alleged fact that are, alternatively, supported by no evidence whatsoever or supported by inadmissable evidence and incompetent testimony not proper for consideration by this Court. When stripped of this purportedly supportive "evidence," QC's arguments are revealed to be speculative conjecture and its claims exposed as legally unsustainable. Further, QC has failed to lodge a single evidentiary objection to any facts relied upon by Cohills and Cohill in their Separate Statement of Facts in Support of Motion for Summary Judgment ("CSOF") or controvert the same with competent evidence as might demonstrate the existence of any genuine dispute of material fact. QC's failure must be deemed an admission of the facts relied upon by Cohills including, but not limited to, the following facts which, when colored by controlling law, demonstrate QC's claims to be unviable: A. Pursuant to the terms of the Agreement, QC was required to "provide exclusive support and material sales to Cohills towards developing the market for Bayferrox synthetic iron oxides, BAYFERROX by QC Construction Products and the QC Construction Products concrete coloring systems line of products throughout the territory of the state of Arizona." CSOF at ¶ 27. In violation of the terms of the Agreement and unbeknownst to Cohills, commencing November 4, 1998 and continuing through at least December 31, 2002 ("the Relevant Time Period"), QC sold product directly to Border Products Corp. ("Border"), a competitor of Cohills in Arizona, and various other third parties situated in Arizona. CSOF at ¶¶ 6 and 27. QC sold $117,727.51 worth of its products to Border in Arizona between 1998 and 2002, such sales commencing four days after the Agreement was executed by Ingersoll and Cohills. Likewise, QC sold $90,660.49 worth of its product to various other third parties in Arizona between 1999 and 2002. Id. at ¶ 18. In December of 2002, QC assigned Border Products as an account to its then- Regional Sales Manager, Steven Darke ("Darke"). Indeed, QC set up a meeting between Darke and representatives of Border, which meeting was held on December 12, 2002 in 3 Document 117 Filed 10/21/2005 Page 3 of 15

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Phoenix, Arizona. Id. at ¶ 17. 5. Unbeknownst to Cohills, QC satisfied one order for Bayferrox by QC by shipping QC Colortech product to Cohills in Bayferrox by QC packaging. This product substitution was purposefully concealed from Cohills by QC. On a separate occasion during December of 2002, Cohills attempted to place an order with QC for Bayferrox by QC, but was told that QC could not supply the particular product ordered and should purchase the same directly from Bayer, which Cohills did. QC attempted to satisfy a third order for Bayferrox by QC by delivering QC Colortech product to Cohills. Id. at ¶ 11.

In light of QC's failure to identify any genuine disputes of material fact as might bar summary
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judgment, and the law applicable to these claims as set forth in the Motion and herein, Cohills and
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Cohill request this Court to enter its order granting summary judgment in Cohills and Cohill's favor on
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each of QC's claims.
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II.
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Argument.

A.
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The Inadmissible Nature of the "Facts" Relied Upon by QC to Resist Summary Judgment.

Rule 56(e) of the Federal Rules of Civil Procedure expressly requires that "opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein." Thus, affidavits relying upon inadmissible hearsay or failing to set forth information within the affiant's personal knowledge are not proper material for a court's consideration in evaluating a motion for summary judgment. See Blair Foods, Inc. v. Ranchers Cotton Oil, 610 F.2d 665, 667 (9th Cir. 1980) (hearsay); Urbina v. Gilfilen, 411 F.2d 546, 547-48 (9th Cir. 1969) (lack of personal knowledge); 10B WRIGHT, MILLER AND KANE, FEDERAL PRACTICE AND PROCEDURE: CIVIL (3d) §2738. Despite the clear admonition of Rule 56(e), QC continues to rely upon the following assertions of "fact" which are not supported by competent evidence, not supported by any evidence, or provably false in light of undisputed competent evidence negating any claim as to the existence of "genuine" disputes of material fact: 1. Cohills recognized the assignment and assumption of this agreement by QC by virtue of continuing to do business with one another uninterrupted as was done previous to the assignment of the agreement to the new entity. (For evidentiary infirmity/discussion of lack of supportive evidence/identification of undisputed 4 Document 117 Filed 10/21/2005 Page 4 of 15

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contrary evidence see CCSOF at 4). 2. . . . . At no time did Mr. [Matthew] Stegemiller, or anyone at QC, ever tell anyone at Cohills that QC could not continue to supply or manufacture products containing Bayer synthetic iron oxide pigments. QC always had the ability to use Bayer pigments in its products. (For evidentiary infirmity/discussion of lack of supportive evidence/identification of undisputed contrary evidence see id at 67). After it became apparent that Cohills was no longer going to purchase architectural concrete products as required by the Supply Agreement . . . , QC began attempting to mitigate its damages by finding another distributer in Arizona. (For evidentiary infirmity/discussion of lack of supportive evidence/identification of undisputed contrary evidence see id at 8). During the several months after Cohills stopped purchasing products directly from QC, it began slowly weaning its customers over to products purchased directly from Bayer Corporation. As customers would call in for orders, they would often use the product codes that were used by QC in its products, and Cohills would say that they had such product, then would supply products from Bayer that were designed to match the QC products without ever advising the customer of the change in manufacturer. (For evidentiary infirmity/discussion of lack of supportive evidence/identification of undisputed contrary evidence see id at 8-9). To the extent that QC sold entities other than Cohills from 1998 through January 2003, QC had permission from Cohills to do so. (For evidentiary infirmity/discussion of lack of supportive evidence/identification of undisputed contrary evidence see id at 9-10). [T]here was no time since September 1, 1999 when QC was unable to obtain synthetic iron oxide pigments from Bayer to use in its products and had any customer specifically requested that only Bayer pigments be included in its products, QC could have and would have ensured that such pigments were contained therein. There was a short time that Bayer was threatening not to provide product to QC but Bayer never ultimately stopped supplying QC with pigment. (For evidentiary infirmity/discussion of lack of supportive evidence/identification of undisputed contrary evidence see id at 10-11).

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6.

Again, Cohill and Cohills' September 22, 2005 Supplemental Statement of Controverted Facts
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and Separate Statement of Facts is Support of Response in Opposition to Motion for Summary
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Adjudication identifies numerous additional instances where QC's assertions of fact are revealed to be
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inadmissible, without evidentiary support and/or controverted by undisputed competent evidence.
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However, QC's continued unjustified reliance upon the above-quoted statements of purported "fact"
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are particularly significant insofar as QC maintains that such "facts" preclude entry of judgment in
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Cohill and Cohill's favor. Cohill and Cohills nonetheless urge this Court to scrutinize all assertions of Case 2:03-cv-01997-ROS 5 Document 117 Filed 10/21/2005 Page 5 of 15

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"fact" relied upon by QC in these proceedings in light of Cohill and Cohills' September 22, 2005 Supplemental Statement of Controverted Facts and Separate Statement of Facts is Support of Response in Opposition to Motion for Summary Adjudication. B. QC's Lack of Admissible Evidence to Support Its Assertion of Reliance Mandates Summary Judgment on its Fraud Claim.

In attacking QC's fraud claim, Cohills and Cohill argue that QC cannot demonstrate (1) any
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reliance by it upon any misrepresentations made by Cohills, or (2) that any actionable representations
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were made to it. See Motion at 10-13. Specifically, the evidence submitted by Cohills and Cohill
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conclusively disproves QC's unsubstantiated contention that its reliance caused it to be "lulled" into
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exclusively relying upon Cohills to market its products instead of contacting with third parties to
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market its products. As indicated by Cohills and Cohill in the Motion:
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QC claims that these misrepresentations were made to it during the time period commencing January 2003. However, such claim is necessarily false as, in December of 2002, QC assigned Border Products as an account to its thenRegional Sales Manager, Steven Darke ("Darke"). Indeed, QC set up a meeting between Darke and representatives of Border, which meeting was held on December 12, 2002 in Phoenix, Arizona. More importantly, QC's contention that it purportedly relied upon Cohills' alleged misrepresentation by not establishing new distributors for its products in Arizona is directly and conclusively controverted by the fact that it sold $117,727.51 worth of its products to Border in Arizona between 1998 and 2002, such sales commencing four days after the Agreement was executed by Ingersoll and Cohills. Likewise, QC sold $90,660.49 worth of its product to various other third parties in Arizona between 1999 and 2002. Simply put, despite having an exclusive sales agreement with Cohills, QC actively sold product through third parties, including Cohills' competitor, from the onset of the term of the Agreement and set up Cohills' competitor as an account in December of 2002. In light of such uncontested facts, QC's claimed reliance must be rejected by this Court and summary judgment entered against QC on its fraud claim. Motion at 11-12 (internal citations to Statement of Facts omitted).

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Tellingly, QC offers no evidence to controvert either the fact that, contrary to its assertion
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of reliance, it orchestrated the establishment of an account with Cohills' competitor one month
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prior to when it claims Cohills made misrepresentations to it or that it sold to third parties in
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Arizona from 1998 to 2002. See Response at 27-29. Rather, QC simply inundates this Court
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with unsupported "facts" alternatively irrelevant to the question of whether it relied upon the Case 2:03-cv-01997-ROS 6 Document 117 Filed 10/21/2005 Page 6 of 15

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alleged misrepresentations or utterly lacking in admissible evidentiary support. Likewise, QC fails to even acknowledge Cohills and Cohill's argument that no actionable representations were made to it because the representations alleged to be made were statements of opinion and, more importantly, true. Compare Motion at 12-13 with Response at 27-29. Having failed to set forth any arguments or admissible evidence as would demonstrate the existence of a triable issue of fact in relation to either its claimed reliance upon Cohills' representations or the actionable nature thereof, summary judgment must be entered in Cohills and Cohill's favor as to QC's claim for fraud. C. The Evidence Relied Upon by QC to Establish the "Fact" Central to Its Claims for Intentional Interference and Unfair Competition Is Inadmissible, Requiring Summary Judgment on Such Claims. The act alleged by QC to have been engaged in by Cohills as constituting interference with QC's business expectancy and unfair competition consists of Cohills purported weaning of QC's "customers" off of QC's products by supplying Bayer products to such customers in response to orders placed with Cohills for QC product. See Response at 29 and 32. QC further alleges that Cohills was "aware of QC's expectancy that its product would become the leading architectural products in the State of Arizona." Response at 31. To support these supposed "facts," QC exclusively relies upon the Declaration of Matthew Stegemiller, wherein Mr. Stegemiller asserts that: Cohills was well aware of QC's expectancy that its product would become the leading architectural products in the State of Arizona. During the several months after Cohills stopped purchasing products directly from QC, it began slowly weaning its customers over to products purchased directly from the Bayer Corporation. As customers would call in orders, they would often use product codes that were used by QC in its products, and Cohills would say that they had such product, then would supply products from Bayer that were designed to match the QC products without ever advising the customer of the change in manufacturer. As a result, QC lost virtually all of its market share in Arizona because all of QC's customers had been effectively weaned off of QC's products in 2003 and onto Bayer products so that when QC began selling products through Marvel, the vast majority of those sales were lost. QCSOF at Exhibit A at ¶ 20; Response at 29 and 31.

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Mr. Stegemiller is not competent to testify as to any of the matters set forth in the Case 2:03-cv-01997-ROS 7 Document 117 Filed 10/21/2005 Page 7 of 15

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preceding paragraph because he has no personal knowledge thereof. This allegation is false and QC has failed to support it with any admissible or otherwise competent evidence in violation of Rule 56(c). Mr. Stegemiller has no personal knowledge of what Cohills might have been aware of, as to what Cohills would say to its customers or what such customers would say to Cohills, or what the effect of any such statements might have been upon QC's market share. Indeed, when questioned at deposition as to what knowledge he had concerning this allegation, Mr. Stegemiller testified as follows: A. I was at a company called Miller Holdings that is a very large developer that has several companies within the holding group that is involved in real estate development, wherein Dave Fresco [sic] represented ­ it was a conference call that I was listening in on when Dave Fresca represented to Miller Holdings, that the questions was ­ a specific question was asked of Dave Frasca that they would like to buy QC product, specifically the integral color products, and that we understood that they were no longer representing QC, did they still have QC available, and Dave Frasca said "Yes, we have Bayferrox." Q. Did he say Bayferrox by QC? No.

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Q. Did you have any understanding as to whether Cohills had consigned inventory of Bayferrox by QC at that time? A. I knew that they had some.

Defendants' Supplemental Statement of Objections to Plaintiff's Statement of Material Facts in Opposition to Cohill's Motion for Summary Judgment at 13, ¶ 1. Clearly, the conversation testified to by Mr. Stegemiller as having been engaged in between Mr. Frasca and Miller Holdings in no manner supports any inference that Cohills was engaged in the product substitution described in Mr. Stegemiller's Declaration. Mr. Stegemiller having no personal knowledge as to the alleged facts asserted in his Declaration concerning the product substitution allegedly engaged in by Cohills, Mr. Stegemiller's allegation in inadmissible and must be rejected by this Court in considering Cohills and Cohill's Motion for Summary Judgment. See Rule 56(c) of the Federal Rules of Civil Procedure; Rule 602 of the Federal Rules of Evidence ("A witness may not testify to a matter unless evidence is introduced 8 Document 117

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sufficient to support a finding that the witness has personal knowledge of the matter."). Further, aside from constituting a matter about which Mr. Stegemiller has no personal knowledge, Mr. Stegemiller's unsubstantiated speculation concerning the notion that Cohills sold Bayer product under QC product codes is directly controverted by competent evidence in the form of the testimony of Mike Cohill. CCSOF at 9-10. The statement is likewise false insofar as it claims that QC began selling through third parties in Arizona in 2003. In fact, QC sold product through Border Products and various other entities in Arizona during the entire course of the relationship between Cohills and QC, in direct violation of the Agreement and without Cohills knowledge thereof. CSOF at Exhibit G at 3-4 and Exhibit H at Exhibits 1-4. Unable to establish through any competent evidence that Cohills engaged in the conduct asserted by QC as supporting its claims for intentional interference and unfair competition, summary judgment must be entered in Cohills and Cohill's favor as to such claims. D. Uncontroverted Evidence Establishes the Fact of QC's Prior Breach.

Relying on several particular instances when Cohills permitted QC to sell product to third parties in Arizona contrary to the terms of the parties' agreement, QC claims in sweeping fashion that Cohills waived its right to be QC's exclusive distributor of such products in Arizona. See Response at 20-21. A waiver is "the voluntary and intentional relinquishment of a known right, express or inferred." In re Ray, 163 Ariz. 329, 332, 788 P.2d 62, 65 (1989); Yuma County v. Arizona Edison Co., 65 Ariz. 332, 336, 180 P.2d 868, 870 (1947); Services Holding Co., Inc. v. Transamerica Occidental Life Ins. Co., 180 Ariz. 198, 206, 883 P.2d 435, 443 (App. 1994). In the instant matter, there can be no doubt that Cohills did not waive its right to preclude QC from selling its products to third parties in Arizona in violation of the terms of the Agreement. QC maintains that Cohills' consent to several "limited" instances where QC was permitted to engage in such sales operates as a complete waiver to its exclusive rights under the Agreement. Such is false as a matter of law and fact. Cohills authorized QC to sell directly to third parties in Arizona on only two occasions. In the first instance, San Javier (United Metro) 9 Document 117

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Ready Mix in Tucson was willing to purchase QC products, but refused to do so through an intermediary. CCSOF at ¶ 2. As such, Cohills agreed to allow QC to sell directly to San Javier Ready Mix provided that Cohills received a 14 cent per pound commission on product sold. Id. QC agreed to this commission and San Javier Ready Mix placed one order for product with QC. Id. QC has never paid to Cohills the commission due Cohills under the parties' Agreement. Id. The second instance where Cohills authorized QC to sell directly to a third party in Arizona involved a situation where a Border Products salesman in Tucson succeeded in having the specification for a job at the University of Arizona changed to QC products. Id. Cohills consented to this sale which involved the first phase of the project. Id. In violation of the Agreement and without Cohills' consent, QC sold product directly to Casa Floors for use in the second phase of the project. Id. Aside from these two instances, Cohills never consented to any sales by QC of its products to third parties in Arizona. Id. However, separate and apart from the two instances where Cohills did consent to sales by QC to third parties, QC sold $117,727.51 worth of its products to Border in Arizona between 1998 and 2002, such sales commencing four days after the Agreement was executed by Ingersoll and Cohills. CCSOF at ¶ 3. Likewise, QC sold $90,660.49 worth of its product to various other third parties in Arizona between 1999 and 2002. Id. Having no knowledge of QC's continuing pattern of sales in violation of the express terms of the Agreement, Cohills necessarily could not have consented thereto or waived its contractual rights relative to such sales. As such, this Court must reject QC's claim that Cohills waived QC's breaches. To the extent that QC may attempt to claim that Cohills, having no knowledge of QC's pattern of sales, cannot now assert the same as justifying Cohills' suspension of performance under the parties' Agreement, such assertion is contrary to law. In this regard, the RESTATEMENT (SECOND) CONTRACTS § 237 provides that "it is a condition of each party's remaining duties to render performances to be exchanged under an exchange of promises that 10 Document 117

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there be no uncured material failure by the other party to render any such performance at an earlier time." As expressly noted in comment c to this section, "one party's material failure of performance has the effect of the non-occurrence of a condition of the other party's remaining duties, under the rule stated in this Section, even though that other party did not know of the failure." (Emphasis added); see also Hampton v. Sandy Cowan Agency, Inc., 154 Ariz. 14, 16, 739 P.2d 1331, 1333 (App. 1987) (citing RESTATEMENT (SECOND) CONTRACTS§ 385, comment a for proposition that "one has no duty to perform a contract that he has the power to avoid `even if he is ignorant of his power of avoidance and believes that his refusal or failure is a breach.'"). Accordingly, even though Cohills did not know of QC's continuous pattern of sales in Arizona in breach of the parties' agreement, Cohills' suspension of performance and treatment of the contract as terminated remains justified by QC's prior breach. Finally, refusing to acknowledge that the parties' contract was an agreement pursuant to which repeated sales transactions would take place between QC and Cohills over an extended period of time, QC analyzes the effect of its failure to supply Cohills with the product required under the agreement as isolated sales transactions. See Response at 22-23. While Cohills' failure to notify QC of the non-conforming nature of the goods delivered by QC to Cohills may have precluded Cohills from rejecting acceptance of the delivery or revoking such acceptance under the U.C.C., Cohills was legally justified in suspending its performance under the parties' agreement and treating the same as being terminated. As indicated in the Motion, "[u]pon a breach of a contract, the aggrieved party [may] treat[] the breach as terminating the contract." Earven v. Smith, 127 Ariz. 354, 357, 621 P.2d 41, 43 (App. 1980); Coronado Co., Inc. v. Jacome's Department Store, Inc., 129 Ariz. 137, 629 P.2d 553 (App. 1981) ("Upon the independent breach of one party, the other party may treat the contract at an end . . . ."). Furthermore, upon one party's breach of a contract, "the victim of a material or total breach [of contact] is excused from further performance." Zancanaro v. Cross, 85 Ariz. 394, 400, 339 P.2d 746, 750 (1959); see also Young v. Border Broadcasting Co., Inc., 11 Document 117

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75 Ariz. 298, 302, 255 P.2d 888, 891(1953); Earven v. Smith, 127 Ariz. 354, 621 P.2d 41 (App. 1980) (""Upon a breach of contract, the aggrieved party has three remedies: (1) rescission, (2) refusal to recognize the breach and an action for performance, and (3) treating the breach as terminating the contract and a suit for damages.") (emphasis added); Coronado Co., Inc. v. Jacome's Department Store, Inc., 129 Ariz. 137, 141, 629 P.2d 553, 557 (App. 1981) ("Upon the independent breach of one party, the other party may treat the contract at an end and sue for damages."). QC provides no authority to counter these fundamental rules of contract law. On December 6, 2002, Mr. Stegemiller met with representatives of Cohills and presented them with the a proposed revised agreement. CSOF at ¶ 11. This revised agreement removed all references to "Bayferrox," specifically referenced that QC would sell "QC Colortech" to Cohills, and altered QC's support for the balance of its line from "exclusive" to "primary." Id. Cohills declined to enter into the Proposed Agreement with QC, and continued to place orders with QC for "Bayferrox by QC." Id. Unbeknownst to Cohills, QC satisfied one such order by shipping QC Colortech product to Cohills in Bayferrox by QC packaging. Id. This product substitution was purposefully concealed from Cohills by QC. Id. On a separate occasion, QC attempted to satisfy a Cohills order for Bayferrox by QC by shipping QC Colortech product. Id. Also during December of 2002, Cohills attempted to place an order with QC for Bayferrox by QC, but was told that QC could not supply the particular product ordered and should purchase the same directly from Bayer, which Cohills did. Id. By signaling to Cohills that it was replacing Bayferrox by QC with QC Colortech and engaging is sales to third parties in Arizona in direct contravention of the terms of the Agreement, QC unquestionably breached the terms of the Agreement. Whether Cohills had a right to reject the non-conforming goods supplied to it by QC is entirely irrelevant as to whether QC's repeated and continuous breaches of its obligations under the parties' agreement justified Cohills in suspending performance and treating the agreement as terminated. E. The Economic Loss Rule Bars QC's Tort Claims. 12 Document 117

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Relying on nothing more than an unpublished decision issued by another division of this Court and ignoring clear Arizona law to the contrary and the deposition testimony of its own President, QC maintains that the economic loss rule poses no bar to its tort claims. Such is not the case. Cohills cannot dispute what the holding of Aventis Technologies Corp. v. JP Morgan Chase, 2004 U.S. Dist. Lexis 8302 (Dist. Az. 2004). However, the precedential value of this unpublished decision is questionable and QC's reliance thereon may be improper. Cf. Rule 363(b) of the Rules of the United States Court of Appeals for the Ninth Circuit ("Unpublished decisions and orders of this Court may not be cited to or by the courts of this Circuit except in the following [inapplicable] circumstances . . . ."). Moreover, the law as set forth in Aventis appears to be at odds with the law of the economic loss rule as described and characterized by the Courts of Arizona. Without qualification, as recently as 2003, the Arizona Court of Appeals held that "[t]he economic loss rule bars a party from recovering economic damages in tort unaccompanied by physical harm, either in the form or personal injury or secondary property damage. . . ." Carstens v. City of Phoenix, 206 Ariz. 123, 125-126, 75 P.3d 1081, 1083-1084 (App. 2003). Given the fact that the Aventis decision remains unpublished and the Carstens decision remains controlling law in this jurisdiction, Cohills and Cohill submits that the economic loss rule bars QC's tort claims as described in the Motion. Further warranting application of the economic loss rule to the tort claims at issue, QC has failed to demonstrate that it seeks any damages apart from those sought by it through its breach of contract claim. QC claims that Cohills and Cohill rely exclusively upon QC's Complaint in identifying the damages sought by QC on its tort claims. Response at 26. Such is untrue. QC's own President testified at deposition that the tort damages sought by QC consist of "the gross profits and lost business for all the products concerned in the Contract." CSOF at ¶ 16. Such are the exact same measure of damages identified by QC's President when questioned as to the damages sought by QC through its breach of contract claims. See id. Merely stating 13 Document 117

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that its tort damages are "separate and apart" from its contact damages (see Response at 27) does not make it so. QC provides no analysis as to what damages are sought by it through its tort theories which might be unavailable to it under its contract theory. Given this failure and the law of Arizona, summary judgment should be entered against QC on each of its tort claims under the economic loss rule. F. QC's Non-Existence Deprived it Capacity to Contract with Cohills.

Cohills and Cohill having fully briefed the impact of QC's non-existence upon its ability to contract with Cohills in its Motion for Summary Judgment, and no arguments set forth by QC in its Response undermining the reasoning or authorities relied upon by Cohills and Cohill in their Motion, Cohills and Cohill will not further comment upon the issue. Rather, Cohills and Cohill submit the issue for determination by this Court as presently briefed. G. Cohills Requests Sanctions Against QC Under Rule 56(g).

Pursuant to Rule 56(e) of the Federal Rules of Civil Procedure: Should it appear to the satisfaction of the court at any time that any of the affidavits presented pursuant to this rule are presented in bad faith or solely for the purpose of delay, the court shall forthwith order the party employing them to pay to the other party the amount of the reasonable expenses which the filing of the affidavits caused the other party to incur, including reasonable attorneys' fees, ... As demonstrated at length herein and in Cohills and Cohill's September 22, 2005 Supplemental

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Statement of Controverted Facts and Separate Statement of Facts is Support of Response in
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Opposition to Motion for Summary Adjudication, QC repeatedly asserts matters of "fact"
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alternatively supported by no evidence whatsoever or the sworn statements of Mr. Stegemiller
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concerning matters about which he has no personal knowledge or constituting inadmissible
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hearsay. Cohills and Cohill submit that QC employs Mr. Stegemiller's Declaration solely for the
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purpose of attempting to delay entry of judgment against QC on its claims. This practice on the
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part of QC has caused Cohills and Cohill to incur substantial fees in costs controverting and
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objecting to QC's statements of alleged fact, and addressing the same in the various summary
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judgment pleadings pending before this Court. Cohills and Cohill request this Court to examine Case 2:03-cv-01997-ROS 14 Document 117 Filed 10/21/2005 Page 14 of 15

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the Stegemiller Declaration, determine whether QC's use thereof violated Rule 56(g) and, if so, award Cohills and Cohill their attorneys' fees and costs incurred by reason of QC's conduct. III. Conclusion.

For the foregoing reasons, Cohills and Cohill request this Court to enter summary judgment in their favor and against QC on each claim asserted by QC against them in this action. DATED this 21st day of October, 2005. LANG & BAKER, PLC By /s/William G. Klain__________________ Kent A. Lang William G. Klain 8233 Via Paseo del Norte, Suite C-100 Scottsdale, AZ 85258 (480)947-1911 Attorneys for Defendants/Counterclaimant

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Original of the foregoing filed this 21st day of October, 2005, with: United States District Court For the District of Arizona Copy of the foregoing mailed this 21st day of October, 2005, to: Russell K. Ryan, Esquire Motschiedler Michaelides & Wishon LLP 1690 West Shaw Avenue; Suite 200 Fresno, California 93711 Attorneys for Plaintiff/Counterdefendant By:/s/ Dana M. Massie

Case 2:03-cv-01997-ROS

15 Document 117

Filed 10/21/2005

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