Free Transcript - District Court of Arizona - Arizona

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA _________________ ) ) ) ) Plaintiff, ) ) vs. ) ) PETER THIMMESCH, et al., ) ) Defendants. ) _____________________________ ) BILTMORE ASSOCIATES, as Trustee for the Visitalk, Creditors' Trust,

No.

CV 02-2405-PHX-HRH Phoenix, Arizona March 13, 2008 8:43 a.m.

BEFORE:

THE HONORABLE H. RUSSEL HOLLAND, JUDGE

REPORTER'S EXCERPTED TRANSCRIPT OF PROCEEDINGS BENCH TRIAL Cross-Examination of Boyd Lemon

Official Court Reporter: Candy L. Potter, RMR, CRR Sandra Day O'Connor U.S. Courthouse, Suite 312 401 West Washington Street, Spc 36 Phoenix, Arizona 85003-2151 (602) 322-7246 Proceedings Reported by Stenographic Court Reporter Transcript Prepared by Computer-Aided Transcription

Case 2:02-cv-02405-HRH

Document 497

Filed 03/31/2008

Page 1 of 55

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 2 of 55 For the Defendants: Mariscal Weeks McIntyre & Friedlander By: Gary L. Birnbaum, Esq. Timothy J. Thomason, Esq. Scot L. Claus, Esq. 2901 North Central Avenue, Suite 200 Phoenix, Arizona 85012 For the Plaintiff: Tiffany & Bosco By: Christopher Reed Kaup, Esq. 2525 East Camelback Road, 3rd Floor Phoenix, Arizona 85016 A P P E A R A N C E S

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1 2 3 4 5 6 7 8 9 INDEX OF EXHIBITS 10 EXHIBIT 11 NO. 12 112 13 14 15 16 17 549 18 563 19 20 21 570 22 23 572 24 25 UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 3 of 55 12-13-99 Updated Confidential Information Statement 9 12-13-99 letter from Visitalk to Allen and Catherine Adler and attachments 8 564 11-29-99 letter to Susan Cole from Alan Kaplan 12-2-99 Release of Claims of Susan Cole 11 11 Document dated 7-28-99 35 545 127 Letter from M. Donahey re: Founder's Warrants 36 DESCRIPTION IDENT RECEIVED WITNESS: BOYD LEMON By Mr. Claus I N D E X DIRECT 4 CROSS REDIRECT RECROSS

S&W Office memo re: Registration of Visitalk.com, Inc. as a broker/dealer 43 7-15-99 letter from Snell & Wilmer to Stephen Best 33

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(The following excerpt is the Cross-Examination of Boyd Lemon)

CROSS-EXAMINATION BY MR. CLAUS: Q. Well, after all of that no one's asked how you are this How are you?
08:43:46

morning. A. Q.

I'm just fine. Good. Good morning, Your Honor. I'm going to try to get through these remaining topics
08:43:53

as quickly as possible, sir. I want to turn to your expert opinions regarding the Series B offering and your claim that Snell & Wilmer fell below the standard of care for failing to advise the Board of Directors of Visitalk.com to disclose certain matters to Series B investors. A. Q. Okay?
08:44:08

All right. First, you agree that Bryan Cave represented Visitalk.com
08:44:25

at the time the Series B offering was initially made; correct? A. Q. Yes. So Bryan Cave had a duty in the first instance, if any duty

existed, to ensure that whatever disclosures were required were made to the Series B investors; correct? A. Yes. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 4 of 55
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Q.

But then that leads to another issue, sir.

Was every

Series B investor an accredited investor? A. Q. That's my understanding. It's your understanding, but you don't actually know, sir,
08:44:55

where the term "accredited investor" is defined; correct? A. If you mean what section of the United States Code, no, I

don't have that memorized. Q. Are you aware, sir, that the Series B offering was offered

pursuant to regulation D of the Securities Exchange Act of 1933? A. Q. Yes, I am. What rule of regulation D was the Series A, B, C, D and E
08:45:20

offering -- I use the word was -- were they made? A. Q. A. I don't recall. Have you ever read Rule 506 under regulation D? Not in connection with this case. I think I've probably
08:45:35

read it in the past. Q. Well, you don't believe, sir, that before coming into court

and giving an expert opinion that Snell & Wilmer fell below the standard of care for failing to advise the Visitalk Board of Directors to make disclosures that are required under the Securities Exchange Act of 1933, to familiarize yourself with what disclosures are required by that Act? A. I'm familiar with what disclosures are required by Rule
08:46:20 08:45:58

10(b)(5), and Section 10b of the '34 Act. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 5 of 55

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Q. A. Q.

But not section -- but not Rule 506 under reg D; correct? That would be correct, yes. The fact of the matter is, sir, you don't know under Rule

506 of regulation D what disclosures are required to be made to accredited investors; correct? A. Q. That's correct. But any disclosure that was required was required in the
08:46:41

first instance to be made by Visitalk at a time when Snell & Wilmer didn't represent Visitalk; correct? A. Q. Yes, that's correct. And you would admit, sir, that the -- that the accredited
08:46:57

investors who comprised the Series B shareholders were told that $7.65 million in Founder's Options had been authorized for issuance; correct? A. Q. Correct. Now, you're not competent, correct, to offer an independent
08:47:18

opinion as to what other disclosures, if any, were required to be made under Rule 506 of reg D; correct? A. Q. Yes. I mean; correct.
08:47:39

But you claimed on correct examination that, quote,

material, end quote, disclosures needed to be made; correct? A. Q. Yes. But you don't know a single case in the Ninth Circuit that

defines what a, quote, material disclosure is; correct? A. I can't cite a case by name. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 6 of 55
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Q.

You did not disclose in your report any source of data,

facts or authority from which you could competently conclude that any disclosure was required to be made to the Series B investors under Rule 506 of reg D, did you? A. Q. I didn't cite any law, if that's what you mean. And you did not disclose in your report any source of data,
08:48:25

facts or authority from which you could competently and independently conclude that any disclosure was required to be made to the Series B investors because it was a, quote, material, end quote, disclosure, as that term is defined by the securities laws; correct? A. Q. I'm sorry, I don't understand the question. Let me break it down. You agree, sir, that the term
08:48:50

"material" as it is used in connection with the offering of securities to accredited investors is a term defined by securities law; correct? A. Q. Yes. And you did not disclose any fact, data or other source in
08:49:08

this Circuit or any other from which you could independently and competently offer an opinion as to what constitutes a quote, material, end quote, fact, as that term is defined by the securities laws; correct? A. I defined it, I didn't cite any authority for my
08:49:25

definition. Q. Now let's go to Series C. Remember, I told you -- and I
08:49:39

UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 7 of 55

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looked back at the transcript -- I used the words, back to that in a second. apologize. I admit it's been more than a second, sir. So I

When we talked about Exhibit 570.

Could you bring Exhibit 570, please, again? I think you have it up in front of you. I told you that we would get back to the Series C Updated Confidential Information Statement. I'll wait for you to -A. Q. All right. I have it.
08:50:28 08:50:00

Thank you, sir. First, yes or no, would you agree that every Series C

investor was given an opportunity to cancel their subscription and receive any amounts paid back with interest? A. Q. Yes. You say that certain disclosures were required to be made
08:50:43

to the Series C investors; correct? A. Q. That's correct. And again, all of the Series C investors were accredited

investors; correct? A. Q. That's my understanding. And at the time they subscribed for their shares, again,
08:50:59

Bryan Cave was still counsel to Visitalk; correct? A. Q. Yes. And so, again, any disclosures that were required to be
08:51:18

made in the first instance -- God bless you -- were required to UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 8 of 55

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be made at a time when Visitalk was not represented by my client Snell & Wilmer; correct? A. Q. In the first instance, yes, that's correct. But Snell assisted in the preparation of an updated
08:51:35

Series C Confidential Information Statement; correct? A. Q. A. Q. A. Q. Yes. When was that dated? December, I think. December what? December 13th, 1999. I see you're looking at Exhibit 570. Exhibit 570 isn't the

08:51:43

updated Series C Confidential Information Statement; correct? A. It's the document that the shareholders would have to sign

in order to cancel their subscription. Q. Is that the only document that Series C investors received
08:52:07

in December 1999 that was prepared with the assistance of Snell & Wilmer? A. Q. I don't believe so. Could you please look at Exhibit 572 in front of you,
08:52:20

please? Do you have it, sir? A. Q. A. Q. Not yet. Let me -I have a lot of exhibits up here. No, you don't have it. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 9 of 55

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A.

I think I have -MR. CLAUS: May I approach, Your Honor? Sorry about that.

I thought I had it. BY MR. CLAUS: Q.

You recognize Exhibit 572, sir, as the updated Series C

08:52:55

Confidential Information Statement dated December 13, 1999; correct? A. Q. Yes, it is. And sir, you claim that Snell & Wilmer should have advised
08:53:11

Visitalk Board of Directors to disclose to Series C shareholders certain alleged claims held by Series A shareholders; is that right? A. Q. And B, yes. Well, let me ask you, sir, as of December 13, 1999, had

every single Series A shareholder signed a Release of Claims? A. Q. I believe so, but I'm not positive as to the date. Not just a Release of Claims, sir, but a release of all

08:53:34

claims, quote, known or unknown, end quote; correct? A. I don't recall what -- what date they signed that document.
08:54:06

Dates, I should say. Q. I wasn't asking about the dates, sir. You agree, would you not, that the Series A release that was signed by all 47 Series A shareholders released, quote, any and all claims, comma, known or unknown, end quote; correct? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 10 of 55

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A.

I don't recall frankly what the language of the release was

exactly. Q. Could you please look, sir, at Exhibit 563? It is in front of you.
08:54:59

I believe it's

in front of you. A. Q.

Did you say 563? 563, yes. THE COURT: MR. CLAUS: THE WITNESS: Has that been admitted? It's not in here. I have 563.

BY MR. CLAUS: Q. A. Q. Great. Could you look at the second page, please?

08:55:19

This copy of 563 only has one page. 564? I'm sorry, could you look at 564, please? THE COURT: MR. CLAUS: 564 has been admitted. Thank you, Your Honor.
08:55:36

BY MR. CLAUS: Q. A. Q. A. Q. You've seen Exhibit 564; correct? Yes. Exhibit 564 is the release signed by all 46 shareholders? Yes. And could you just read out loud the first sentence under
08:55:56

the heading, Release of Claims? A. This Release of Claims, agreement, is intended by the
08:56:15

parties as a release of all claims, known and unknown, past and UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 11 of 55

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present, of the undersigned, the stockholder and together with other Series A stockholders, the stockholders, on behalf of the stockholder and stockholder's predecessors, successors, assigns, heirs, executors, administrators and beneficiaries against Visitalk.com, Inc., an Arizona corporation, Visitalk, for any and all claims arising out of the matters described below. Q. Sir, you know that the testimony in this case has been that
08:56:38

every single Series A shareholder executed Exhibit 564; correct? A. Q. Yes. And the Board of Directors required every Series A
08:57:01

shareholder to return an executed copy of Exhibit 564 prior to December 9, 1999; correct? A. Q. That sounds correct, yes. As of December 13, 1999, not only had every Series A
08:57:19

shareholder released any and all claims known and unknown, past and present, against Visitalk, but as of that date Mark Cardwell had confirmed, both orally and in writing, that he was not a shareholder or director of Visitalk on September 12, 1998; correct? A. Q. That's correct. And the Board of Directors of Visitalk.com had confirmed,
08:57:48

as of December 13, 1999, that a meeting had occurred on September 12, 1998, at which the Founder's Warrants were UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 12 of 55
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authorized; correct? A. Q. Yes. And as of December 13, 1999, no Series A shareholder had

claimed that the release was invalid; correct? A. Q. That's correct. And no court, arbitrator or administrative agency had
08:58:25

determined that Exhibit 564 was invalid; correct? A. Q. Correct. Now, you also stated on direct that Snell & Wilmer had the
08:58:42

duty to advise the Board of Directors to disclose to shareholders that if a, quote, substantial number, end quote, of Series C investors accepted the offer to cancel their subscription, then Visitalk would not be able to fund that subscription. Do you remember that testimony? A. Q. Yes. Weren't shareholders informed by a document, prepared with

08:59:03

the assistance of Snell & Wilmer, that as of the date of October 1999, Visitalk had cash on hand of $9.68 million? A. Q. Yes, I think so. If you turn, sir -If you could bring back up the Updated Confidential Information Statement, 572, please, David. And if you could get that in front of you. If you go to the fifth page of that exhibit -- I'm UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 13 of 55
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sorry, page 5, it has an Arabic numeral. A. Q. Yes, I see it.

Page 5.

Snell & Wilmer -- and you do not dispute, do you, that

Exhibit 572 was sent to every single Series C investor; correct? A. Q. I do not. So, Snell & Wilmer assisted in the preparation of a
09:00:19

document that informed every Series C investor that as of October 1, 1999, Visitalk had cash and equivalence of $9.689,775; correct? A. Q. Yes. And that it had, interestingly, working capital of negative
09:00:45

$11,362,038; correct? A. Q. Yes. Do you know why the number of working capital is negative
09:01:04

$11,362,038? A. Q. No. Isn't it because, sir, that Snell & Wilmer assisted in the

preparation of a document for dissemination to Series C investors that told Series C investors that if the $20 million that had been received by Visitalk was refunded, then it would, in fact, have negative $11,362,038 in working capital? A. Q. I don't know if that's the reason for that. Well, sir, again, the Series C investors were accredited
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investors; correct? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 14 of 55

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A. Q.

Correct. And do you know, sir, that as of October 1, 1999, Visitalk

had received a little over $20 million from Series C shareholders? A. Q. Yes. Now, let's just do a little bit of math here. If you take
09:02:24

the $11,362,038 under working capital, and you add that to the number under cash equivalents, what do you get? A. Q. A negative million seven or something. No, no, no, you take the $11 million, just take 11 million,
09:02:49

not negative 11 million, take $11,362,038 and add it to the, $9,689,775, and you can round up whatever you want, what number do you come up with? A. Q. About 21 million. Now, about 21 million. Could you turn back, sir, to page 1 of the updated confidential Series C offering memorandum? page. The very first
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The very first paragraph -- or second paragraph under, What does the document Exhibit 572 tell
09:03:34

status of offering.

every Series C investor had been received up to that date from their investment? A. About $21 million; right?

No, it says they have the right to increase the size of the

offering up to about $21 million. Q. A. No, sir, you're reading the wrong sentence. Okay. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 15 of 55
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Q.

It says, status of offering, as of the date of this

information statement, the company has received subscriptions for 4,241,240 shares of Series C Preferred Stock, parenthesis, $21,206,200; correct? A. Q. Yes, I see that now. But that might require an accredited investor to actually
09:04:18

go from the fifth page to the first page to figure that out; right? A. And make the analysis that you have just made in your
09:04:40

examination. Q. Is that the only place in Exhibit 572 where the updated

Series C Confidential Information Statement told investors precisely how much money had been invested or deposited by Series C shareholders? A. Q. I don't recall. Did you look for that before coming into court and
09:04:57

testifying that my client had fallen below the standard of care? A. Q. I looked for it before I wrote my report. Well, sir, turn to page 21 of Exhibit 572. Just highlight the whole thing, David. Thank you.
09:05:08

Isn't it a fact, sir, that my client, on a single page, assisted with the preparation of a document that told every Series C investor exactly what the state of capitalization of Visitalk.com was? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 16 of 55
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A. Q.

If they understood it, yes. If the accredited investors understood it, is that your

testimony? A. Q. Yes. Sir, doesn't the Series C Updated Confidential Information
09:06:00

Statement inform every Series C investor that they should hire their own independent counsel, accountant or business advisor as to any matter contained in the Series C memorandum? A. Q. A. Q. I believe it does. In caps and bold letters? I don't know if it's in caps and bold letters. Could you turn, please, David, to the fourth page of the Starting, each such
09:06:29

document, it's small Roman numeral four. statement. Up at the very top, David.

Didn't, in fact, sir, Snell & Wilmer assist in the preparation of a document for dissemination to every Series C investor that stated in caps and bold, each such statement is deemed to be qualified in all respects by the provisions contained herein. Prospective investors are not to construe

09:06:55

the contents of this information statement as legal or tax advice. Each investor should consult such investor's own

09:07:18

counsel, accountant or business advisor as to legal, tax and related matters concerning his, her or its investment. I read that correctly, sir; correct? A. Yes. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 17 of 55
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Q.

And Snell & Wilmer assisted in the preparation of

confidential Series C updated offering memorandum that contained that language; correct? A. Q. They did. Do you know of a single of the 362 Series C investors that
09:07:50

did not consult their own legal, tax or business advisor before confirming their subscription in the Series C offering? A. Q. A. Q. I have no idea whether any of them did or did not. They were told to; correct? They were advised to. You know, even if you don't know the definition, sir, that
09:08:11

an accredited investor is by definition a sophisticated investor; correct? A. Q. Relatively speaking, yes. And so, sir, even if that accredited sophisticated investor
09:08:36

couldn't figure out the capitalization table that was laid forth for them in one page on page 21 of Exhibit 572, you would agree that they at least knew they should consult their own lawyer, accountant or business advisor; correct? A. Q. They were told that they should, yes. Now, Mr. Lemon, you claim -- well, let's do the Okay? Let's go back to page 21, please. Arabic
09:09:01

calculation. numeral 21.

You say that Snell & Wilmer fell below the standard of care because they failed to advise the Visitalk Board of UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 18 of 55
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Directors to tell Series C investors that if all Series C investors refused to confirm their subscription, cancel their subscription and demand their money back, that Visitalk would not be able to perform. correct? A. Q. Yes. Sir, you see the actual deposits as of October 1 for That's what you said in court;
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Series C stock were $20,476,520; correct? A. Q. Yes. And the cash on hand at that date was 9 million -- $9.68
09:10:07

million; correct? A. Q. I don't see that on this page. It says -- we went through the balance statement that was

provided. A. Q. It's on another page, yes. It's on another page. It's on another page where they're
09:10:27

told that the cash on hand as of that same date is $9,689,775 million; correct, sir? A. Q. Yes. Sir, you could deduce, could you not, that -- without using
09:10:45

a calculator, you know that $9.68 million is less than $20,476,520; correct? A. Q. Yes. You could deduce, Mr. Lemon, without even inquiring as to
09:11:04

whether you're an accredited investor, you could deduce that if UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 19 of 55

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Visitalk.com had $9.68 million of cash on hand, and $9.69 million worth of Series C shareholders cancelled their subscription, then the -- then Visitalk would not be able to perform with the cash it had on hand; correct? A. Q. I could figure that out, yes. You claim, sir, as part of your opinions, that Visitalk
09:11:30

was, quote, insolvent, end quote, as of November 1999; correct? A. I'm assuming they were based upon the testimony of Renee

Jenkins. Q. Well, in making that assumption, did you disregard the
09:11:52

testimony of Ray Gaston? A. Q. I didn't disregard it. You know that Ray Gaston was a controller for Visitalk from

March 1999 until after it filed bankruptcy? A. Some kind of financial officer. I don't recall his exact
09:12:11

title. Q. He was the vice president of finance and controller;

correct? A. Q. I think so, yes. You reviewed the trial testimony sent to you by Mr. Kaup
09:12:19

for Ray Gaston; correct? A. Q. I did, yes. So you saw when Mr. Kaup asked Mr. Gaston if anyone at

Visitalk from March 1999 until bankruptcy had a better understanding of the financial condition of Visitalk than him. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 20 of 55
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Do you remember Mr. Kaup asking that question? A. Q. A. Q. Yes. Do you remember what Mr. Gaston's answer was? I don't remember. So you don't remember that Mr. Gaston agreed that he had
09:12:48

the most knowledge of the financial condition of Visitalk from March 1999 until the time it filed bankruptcy; is that right? A. Q. I would think he probably did. Did you disregard, in assuming that Visitalk was insolvent
09:13:10

as of November 1999, Ray Gaston's under oath testimony that Visitalk was not insolvent at any point in time during the year 1999? A. I didn't disregard it, but I think he may have been using a

different definition of insolvency than Renee Jenkins was. Q. We have reached a point of agreement, sir. He used a
09:13:33

definition of insolvency that's actually recognized by courts, accountants and financial professionals; correct? A. There are two definitions that are recognized by those

people. Q. Well, you know that the only way anyone could reach the
09:13:50

conclusion that Visitalk's quote, debts, end quote, exceeded its liabilities at any time in 1999, is if they chose to recharacterize the equity invested by shareholders into, quote, debt, end quote; correct? A. I'm not certain of that. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 21 of 55
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Q. A. you. Q.

Well -I did not make my own determination of insolvency, I told

Well, let's go back to Series C disclosures that actually Okay?
09:14:40

were made. A. Q.

In Exhibit 572? Yep. You admit, sir, that if an accredited investor, quote,

read the financial statements closely enough, that investor could deduce that if a substantial number of Series C shareholders asked for their money back, that there were not sufficient funds to do so, end quote; correct? A. Q. If they read it closely enough and understood it, yes. You do know, sir, that the securities laws don't require
09:15:36 09:15:08

any financial information at all to be disclosed in a regulation D offering to accredited investors; correct? A. Well, I'm not a securities law expert, but it's my

understanding that that's correct. Q. A. Q. We've reached a second point of agreement, Mr. Lemon. Wonderful. You know, sir, that Snell & Wilmer did not prepare the
09:15:54

financial information that was appended to the updated Series C Confidential Information Statement; correct? A. Q. Correct. Because it's not a lawyer's job to prepare financial UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 22 of 55
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information for a corporation; correct? A. Q. Correct. It's not a lawyer's job to audit the financial information

of its client; correct? A. Q. A. Q. Correct. That's a job for who, sir? Certified public accountants. And Visitalk.com, Inc. at all times that it was represented
09:16:21

by Snell & Wilmer had a certified public accounting firm; correct? A. Q. A. Q. A. Q. A. Q. Yes. Ernst & Young? Yes. That audited its financial records; correct? Yes. Because that's the job of an auditor; correct? Correct. An auditor has responsibilities and duties that are
09:16:39 09:16:34

different than the responsibilities and duties of a lawyer. You would agree with that, wouldn't you? A. There's probably some overlap, but they're different
09:16:51

duties, yes. Q. You believe, sir, and you've testified, that Snell & Wilmer

had a duty to advise the Board of Directors of Visitalk.com to disclose to Series C investors that Visitalk's business model UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 23 of 55
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was not proven and that it could fail; is that correct? A. Q. I don't remember testifying that way. Well, you testified under oath that Snell & Wilmer had a

duty to inform Visitalk.com's Board of Directors to disclose to Series A shareholders -- or Series C shareholders that the products and services of Visitalk.com, Inc. were not verified to be, using your terms, commercially viable, end quote; correct? A. Q. A. Q. No, I don't think I testified that way. So that is not your opinion then? Correct. It's a fact, sir, that Snell & Wilmer did inform
09:17:50 09:17:33

every -- or did assist in the preparation of a document that informed every single Series C investor that Visitalk's business model was evolving and unproven; correct? A. Q. In substance, yes. Not just in substance, sir, in actual words that are
09:18:12

exactly those words; correct? A. I said "in substance" because I don't recall the exact
09:18:28

words. Q. Could you please turn to page 11 of 572? The second full

paragraph.

Our business model is evolving and unproven.

That's what this document says; correct? A. Q. That's correct. We are dependent on our ability to attract a significant UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 24 of 55
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number of members.

There can be no assurance that we will be

successful in achieving market acceptance or in achieving significant market share before competitors offer products or services with features similar or superior to our current or proposed offerings. Did I read that correctly? A. Q. Yes. And Snell & Wilmer assisted in the preparation of a
09:19:25

document that informed every single Series C investor that, quote, our business model is evolving and unproven, end quote; correct? A. Q. Correct. Snell & Wilmer also assisted in the preparation of this
09:19:37

document, Exhibit 522 (sic), that informed every single Series C investor that, quote, there can be no assurance that the market for Visitalk's products will continue to grow or that Visitalk's products will achieve market acceptance; correct? A. Q. Yes. Not just that, sir, but the Series C Confidential
09:20:09 09:19:57

Information Statement that Snell & Wilmer assisted in the preparation of for dissemination to all Series C investors disclosed that, quote, there is no assurance that the expenditures of Visitalk will enable our products to achieve market acceptance, end quote; correct? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 25 of 55
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A. Q.

That's correct. And, that any of those failures could, quote, result in a

material and adverse impact on Visitalk's financial condition, end quote. A. Q. Yes. As a matter of fact, sir, Snell & Wilmer assisted in the
09:20:49

preparation of a document that bluntly, candidly and categorically informed Series C investors that if the market for our products fails to grow or grows more slowly than we anticipate, or if our products fail to achieve significant market acceptance, our business, results of operation and financial condition would be materially and adversely affected, end quote; correct? A. Q. A. Q. That's correct. And that's all just on page 11; right? Yes. Visitalk -- strike that. Snell & Wilmer also assisted in the preparation of this document that informed -- you remember Mr. Kaup asked you questions about how much revenue did they have. offered opinions based on their nominal revenue. remember that? A. Q. Yes. Isn't it true, sir, that Snell & Wilmer assisted in the
09:22:06 09:21:31 09:21:19

And you Do you

09:21:54

preparation of a document that informed every single Series C UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 26 of 55

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shareholder that their -- that Visitalk's, quote, revenue to date has been nominal and that they have recorded a net loss since incorporation, end quote? A. Q. Yes. That's on page 6, just if you want to check and make sure
09:22:23

I'm right. It's not just that Snell & Wilmer assisted in the preparation of a document that said that we have had nominal revenues in the past, but Snell & Wilmer assisted in the preparation of a document that told every single Series C investors that they, quote, anticipated continuing losses, end quote; correct? A. Q. That's correct. Not just that they anticipated continuing losses, but Snell
09:23:07 09:22:47

& Wilmer informed every Series C investors that Visitalk expected to, in quotes, continue to incur significant operating losses and negative cash flows from operations over the next several years, end quote; correct? A. Q. That's correct. And that's on page 17 of Exhibit 572 under the bold

09:23:30

heading, we anticipate continuing losses; correct? A. Q. That's correct. You would agree, sir, that Snell & Wilmer did nothing to

hide from either the Board of Directors its duty to disclose to Series C investors that Visitalk anticipated continuing losses; UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 27 of 55
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correct? A. Q. I would agree. And you would agree, sir, that Snell & Wilmer did nothing

to hide from the Board of Directors its duty to disclose to Series C investors that their business model and technology was unproven; correct? A. Q. Correct. Sir, let's talk about that Founder's Warrants meeting. THE COURT: Excuse me. Excuse me, before you go on, I
09:24:35 09:24:15

thought I heard you refer to this as Exhibit 522 a little while ago. MR. CLAUS: THE COURT: MR. CLAUS: THE COURT: MR. CLAUS: BY MR. CLAUS: Q. Now, one of the things you got hung up on during the I'm sorry, sir, it's 572. Thank you. And I believe it's admitted. It is. Okay.

09:24:45

deposition about that September 12, 1998 meeting, if it happened, was whether it was a, quote, duly noticed, end quote, meeting. A. Q. Yes. And since you've been reviewing the transcripts that Do you remember that?
09:25:09

Mr. Kaup has been sending you, I'm sure you saw, he's asked Mike O'Donnell, Marcia O'Donnell, Cynthia Thimmesch, was that UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 28 of 55
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meeting in the O'Donnell garage of September 12, 1998, was a notice sent out about that meeting? those questions? A. Q. Yes. And it's true, sir, is it not, that Arizona law requires a
09:25:37

Do you remember reading

notice to be sent for a Board of Directors meeting? A. Q. That's my understanding. And if a meeting isn't duly noticed, a Board of Directors

meeting isn't duly noticed, then under Arizona law, even if the meeting takes place, it may not be valid; correct? A. Q. It may not be, it depends on whether the notice was waived. What section of the Arizona Code requires Board meetings to
09:26:03

be noticed? A. Q. I don't know. You didn't -- you didn't review that before coming to court
09:26:17

to testify that that gentleman fell below the standard of care? A. Q. No, I didn't. What section of the Arizona -- you mentioned waiver. How

can a -- how can a Board meeting notice be waived under Arizona Arizona law? A. My recollection is that the members of the Board of
09:26:39

Directors can sign a written waiver and consent to the holding of the meeting -Q. A. Oh --- without notice. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 29 of 55
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Q. A. Q.

So it has to be a signed written consent of waiver? That's my understanding. Did you -- did you research Arizona law on that point

before coming into court and testifying that that gentleman fell below the standard of care? A. Q. sir? A. Q. No. So I take it you didn't review, before coming into
09:27:16 09:27:05

No.

I didn't personally research it.

Did you have anyone in your employ research that issue,

court -- and I take it you didn't -- you didn't tell Mr. Kaup anything about what the waiver law was in Arizona; is that right? A. That's correct. MR. CLAUS: BY MR. CLAUS: Q. Did you review A.R.S. Section 10-823 at any time before Could we switch to the ELMO, please?
09:27:38

coming into court and testifying that a September 12 meeting was only valid if it was duly noticed? A. Q. I didn't testify to that in court. Did you review A.R.S. Section 10-823 before coming into
09:28:09

court and testifying that a waiver is only valid if it is written and signed by the Board of Directors? My question is: court to testify, sir? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 30 of 55 Did you read it before you came into
09:28:33

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A. Q. A. Q.

Not recently. You're reading it now, I see. Yes. Tell me where A.R.S. Section 10-823(b) requires a writing
09:28:52

Right?

to waive a Board of Directors meeting notice? A. Q. It doesn't. Tell me where in A.R.S. Section 10-823(b) a writing must be

signed to waive the notice of a Board of Directors meeting for an Arizona corporation under Arizona law. A. Q. It doesn't unless there's -- well, it doesn't. In fact, sir, Arizona Revised Statutes Section 823(b)
09:29:15

states, quote, a director's attendance at or participation in a meeting waives any required notice to him of the meeting unless the director at the beginning of the meeting or promptly on his arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Did I read that correctly? A. Q. Yes. And that's what is required to waive the notice of a Board
09:29:56 09:29:44

of Directors meeting under Arizona law? A. Q. Apparently, yes. Tell me, sir, has Michael O'Donnell ever testified in this

matter that he objected to the holding of the meeting or transacting business at the meeting that took place in his UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 31 of 55
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garage on September 12, 1998? A. Q. No. Tell me, sir, did Peter Thimmesch ever testify in this

matter that he promptly, upon his arrival to the O'Donnells' garage, objected to holding the meeting in the O'Donnells' garage or transacting business at the meeting in the O'Donnells' garage? A. Q. No. Tell me, sir, didn't Peter Thimmesch and Michael O'Donnell,
09:30:49 09:30:35

in fact, testify repeatedly that they, quote, attended and participated in the meeting in the O'Donnells' garage on September 12, 1998? A. Q. Yes. So, sir, now that I have helped edify you as to Arizona law

on this topic, would you admit that if a meeting occurred on September 12, 1998, in the O'Donnells' garage, of the only two members of the Board of Directors of Visitalk.com, Inc., then by participating in and not objecting to the meeting, they waived any notice requirement? A. Q. Based on what you've shown me I would agree. Now let's go to the July 15th and 28 letters. You claim that the information in the July 15, 1999 letter should have been provided to the Board of Directors of Visitalk.com, Inc.; correct? A. Yes. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 32 of 55

09:31:08

09:31:31

09:32:04

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Q.

Tell me, sir, just based on your memory, if you could,

what -And could we switch back to Mr. Baker, please? you. What information in the July 15, 1999 letter was not transmitted to the Board? A. Q. A. Q. I would have to see the letter. Exhibit 545 I think is in front of you, but let me check. 545? Yeah. I actually have it over here, sir. I'll be right
09:32:38 09:32:16

Thank

there. May I approach, Your Honor? THE COURT: BY MR. CLAUS: Q. A. Q. Do you have Exhibit 545 in front of you, sir? I do. Tell me what information in Exhibit 545 was not made known
09:33:00

Yes.

to the Board of Directors? A. Your Honor, I really need a bathroom break. THE COURT: MR. CLAUS: THE WITNESS: We'll take five. Thank you. Thank you very much.
09:33:21

(Recess at 9:33 a.m., until 9:38 a.m.) MR. CLAUS: BY MR. CLAUS: UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 33 of 55 Thank you, Your Honor.
09:37:51

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Q.

Sir, we were on Exhibit 545, and I had asked you what

information in Exhibit 545, the July 25, 2999 letter, was not made known to the Visitalk Board of director. A. The only thing in this particular letter that I'm aware of
09:38:12

would be the integration problem. Q. Sir, isn't it a fact that we went over yesterday that the

Visitalk Board of Directors both asked and was provided a draft Rescission Offer that explicitly and in detail explained the risk being -- the risk that was posed to Visitalk, and also the potential claims held by Series A, B and C shareholders because of the potential integration of those offerings? MR. KAUP: THE COURT: THE WITNESS: Objection, assumes facts not in evidence. You may answer. The C updated information statement was
09:39:03 09:38:40

not done until six months after this letter. BY MR. CLAUS: Q. That doesn't answer my question, sir. Isn't it a fact that the Board requested and was provided by Snell & Wilmer a draft Rescission Offer that contained an explicit discussion of the integration issue? A. Q. Eventually, yes. You also don't dispute, do you, that the July 15, 1999

09:39:20

letter was provided promptly to Mr. Stephen A. Best, general counsel of Visitalk.com, Inc.; correct? A. I don't dispute that. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 34 of 55
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Q.

And you are not competent to testify, based on your own

independent conclusions, that any matter in the July 15, 1999 letter, using your language is, quote, a serious securities matter, end quote; correct? A. Q. Correct. And you testified that only if it is a, quote, serious
09:40:08

securities matter, end quote, did my client have an obligation to go around Mr. Best and distribute information directly to the Board of Directors; correct? A. Q. That would be correct. Sir, you talk about the July 28th letter and how my client
09:40:29

had a duty to provide the information in the July 28, 1999 letter to the Board of Directors of Visitalk.com, Inc., do you remember that? A. Q. Yes. Exhibit 549 you have in front of you. Or I don't know if Could you
09:40:49

you have it front of you, but it's in the stack. grab that? A. Q. I have it.

Now, when you offered your opinion in court that my client

09:41:18

fell below the standard of care because it did not make known to the Board of Directors the information contained in the July 28, 1999 document, were you aware, sir, of Michael O'Donnell's testimony that Snell & Wilmer discussed the contents of this July 28, 1999 letter with the Board in Board meetings? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 35 of 55
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A. Q.

I don't recall that testimony. Well, sir, were you aware when you offered your opinions in

court under oath that that gentleman fell below the standard of care for not disclosing the information contained in his July 28, 1999 letter, that Allan Kaplan testified at page 1212 line 21, through 1213 of line 8 of this trial that the substance of the July 28, 1999 letter was, in fact, discussed with the Board? And just to ease any confusion, sir, that refers to Exhibit 112. you. MR. CLAUS: THE COURT: MR. CLAUS: apologize. BY MR. CLAUS: Q. You see that Exhibit 112 is the same exact document as 549; May I approach, Your Honor? Yes. And I should have done this, Your Honor, I
09:43:08 09:42:09

And I apologize, I meant to grab Exhibit 112 for

09:42:52

right. A. Q. Yes. And you see that Al Kaplan testified that the substance of
09:43:15

Exhibit 112, which is Exhibit 549, which is the July 28, 1999 letter was discussed and known to him in 1999; correct? A. I don't see that he testified to that on the transcript

that's on the screen right now. Q. Now let's take -- it says. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 36 of 55
09:43:34

37

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A.

Question:

Now, let's take a look at Exhibit 112.

It

will be up on the screen. about this.

You were asked a couple of questions You

And this was a letter that Mr. Donahey wrote.

were asked a couple of questions about this, Mr. Kaplan, do you recall? Answer: Yeah, I do.
09:43:48

And I think you said -- and correct me if I have this wrong -- you don't recall if you actually received this letter; correct? Answer: Question: Correct. But you do recall discussing the issues
09:43:59

that are raised in this letter with either Mr. Best or other individuals; correct? Answer: Yes.
09:44:12

Did I read that correctly? If I heard you correctly, you added a word. What word? On line 6 it says, but you do recall discussing issues that I understood you to read, but you do

are raised in the letter.

recall discussing the issues that are raised in the letter. Q. I apologize, sir, if I interposed the word "the." Other

09:44:27

than perhaps interposing the word "the" did I get that right? A. Q. Yes. You would agree, sir, that unless Mr. Kaplan was either
09:44:45

possessive of extrasensory perception, he could not have UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 37 of 55

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discussed the issues in the July 28, 1999 letter before being made known of the issues contained in that letter; correct? A. Q. I don't understand the question. He had to have known the issues in the letter to discuss
09:45:06

the issues in the letter; correct? A. Q. No. At least during the discussion he was made known of the

issues in the letter; correct? A. Issues, not the issues, but issues in the letter, which
09:45:21

does not necessarily mean all of the issues in the letter, would have been made known to him, to the extent they were discussed, of course. Q. Well, he testified that he discussed all of the issues

contained in the July 28, 1999 letter with Steve Best because it was a very serious issue. A. Q. Do you recall that testimony?
09:45:42

I don't recall that testimony. That he discussed it with Steve Best as well. Do you

recall that testimony? A. Q. I recall that he discussed it with Mr. Best, yes. And Mr. Best was the addressee of the July 28, 1999 letter;
09:45:56

correct? A. Q. A. Q. He was. And he was general counsel at the time? Yes. So we've got Michael O'Donnell saying the July 28 letter UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 38 of 55
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was discussed with all of the Board members.

We've got

Allan Kaplan saying, I discussed the issues in the July 28, 1999 letter. Even Jeffrey Hirschberg testified that he had

seen the July 28, 1999 letter, didn't he? A. Q. I don't recall. You didn't review Jeffrey Hirschberg's testimony on this
09:46:26

topic before testifying in court that my client fell below the standard of care for failing to provide the information in the July 28, 1999 letter to the Board of Directors? A. I read it. I don't recall sitting up here right now
09:46:48

whether he testified as you indicated. Q. Well, he didn't become a Board member until October 1999;

correct? A. Q. Correct. Well, let's pull up, can you please, Mr. Hirschberg's
09:47:01

deposition at page 50, line 7. You'll have to accept my -- or you don't have to accept, you can tell me I'm wrong. Do you have any basis upon

which to disagree that Exhibit 4 to Mr. Hirschberg's deposition is the same document as Exhibit 112 and 549 to this trial? A. Q. No. You see, sir, he was asked, question, at line 7:
09:47:46

Mr. Hirschberg, we've given you what's been marked as Exhibit 4. today? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 39 of 55 Do you recall ever having seen this document before
09:48:08

40

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 time. right? correct? A. Q. it? 1999.

Answer:

I think I've seen this document sometime in

And these are questions by Mr. Kaup, by the way;

I can't tell. Question: Do you recall when in 1999 you would have seen

09:48:19

Answer:

It would have been after the time that I

joined the Board, so it would have been after the middle of October at the earliest. Question: When you saw this document, you read it;
09:48:34

Answer:

At the time -- I'm sure I read it at the

Did I ask -- or were those questions asked of Mr. Hirschberg and did he give those answers? A. Q. Yes. And you didn't consider that testimony before saying under

09:48:46

oath that my client fell below the standard of care for not providing the information contained in the July 28, 1999 letter? A. Q. A. Q. I did consider it. You did consider it? Yes. But you ignored it? UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 40 of 55
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A.

It doesn't speak to whether your client provided that

letter to any of the members of the Board of Directors. Q. Sir, Mr. Hirschberg joined the Board in October 1999 and

received the letter, not just the substance in the letter, but the letter in October 1999; correct? A. Q. Yes, he received it from somebody. Let's look back -- I'm sorry, David, for this -- back at And look at paragraph 3, sir.
09:49:34

Exhibit 112.

Paragraph 3 is the paragraph that has been focused on by you; correct? A. Q. Yes. You believe that the factual assumptions and conclusions
09:50:04

contained in paragraph 3 should not only have been disclosed to the Board, but Snell & Wilmer should have advised the Board to disclose those factual assumptions and legal conclusions to its investors, to Visitalk's investors; correct? A. Q. Yes, among other things. Isn't it true, sir, that Snell & Wilmer reached the
09:50:32

conclusion that the factual assumptions it made in paragraph 3 of the July 28, 1999 letter were incorrect? A. Q. That's what they've testified. And isn't it true, sir, that the lawyers at Snell & Wilmer
09:50:55

determined that the legal conclusions predicated on what they determined or believed to be incorrect facts were flawed? A. That's what they've testified. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 41 of 55
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Q.

It's not your expert opinion, sir, that a lawyer should

advise its clients to provide inaccurate facts to that client's investors; correct? A. Q. Of course not. And it's not your expert opinion, sir, that a lawyer should
09:51:31

advise its client to provide inaccurate or incorrect legal conclusions to that client's investors; true? A. Q. True. Since we're on the topic of inaccuracies, let's talk about You kind of took a three-pronged You said that, first Visitalk
09:51:56

Shirley Nagy's memoranda. approach to Mr. Cardwell.

usurped -- or Mr. Cardwell or somebody usurped a corporate opportunity through the Cardwell transaction. Then you said,

well, that might not work, so it was a broker/dealer transaction. A. Q. Do you remember that?
09:52:23

That's what I understand Miss Nagy thought. But you're not competent, isn't it true, sir, to offer an

opinion as to whether or not Visitalk constituted a broker/dealer as that term is defined by both federal and state law; true? A. Not unless I did the research, which I did not. I relied
09:52:43

on Miss Nagy's memorandum. Q. What did you do to determine Miss Nagy's competence to

reach any conclusion she reached? A. I assumed that she was competent based upon her position UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 42 of 55
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with Snell & Wilmer. Q. How long had she been a lawyer at the time that memo was

drafted? A. Q. I don't know. How long had she practiced in that area that was covered by
09:53:14

that memorandum at the time it was written? A. Q. I don't know. How soon after that memorandum was written was it turned

into a finalized work product of the client, sir? A. Q. I don't know that it ever was. Well, and I don't mean to suggest that Miss Nagy didn't
09:53:28

know what she was talking about, because isn't it true, sir, that in her memorandum Miss Nagy never concluded that Visitalk should be characterized as a broker/dealer? A. I don't think she reached that definite conclusion, as I
09:53:49

recall the memo. Q. And isn't it true, sir, that Miss Nagy never reached the

conclusion in her memorandum that Visitalk had to register with either the state or the federal government as a broker/dealer? A. I don't think she reached a definite conclusion. She
09:54:10

raised the issue and considered it a serious problem, as I recall the memorandum. Q. As you recall it. Well, take a look at Exhibit 127, please. And I know -- I know it's unfortunate, sir, but -- to UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 43 of 55
09:54:32

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take this time, but I want you to take as long as you need to to tell me where in Exhibit 127 Shirley Nagy concludes that Visitalk was required by law, rule, regulation or standard course of conduct to register as a broker/dealer. A. way. I never testified that she did reach a conclusion either And I don't see the exhibit here. I have 128, but I
09:55:02

don't see 127. Q. A. Q. I apologize again. Have I answered your question? Isn't it true, sir, that Miss Nagy concluded that neither
09:55:43

federal nor state law -I'll wait until you get there. Last page, sir.

Under conclusion, didn't Miss Nagy conclude that, quote, because the Visitalk matter is very unique, neither state nor federal law specifically addresses this type of transaction? A. That sounds like something I've read, but let me take a
09:56:06

look at it. Yes, that's what she said. Q. It's true, sir, that Miss Nagy reported to Mr. Donahey;
09:56:26

correct? A. Q. Yes, that's my understanding. And it's true, sir, that Mr. Donahey concluded that there

were no likely problems to arise out of the Cardwell transaction with respect to any broker/dealer requirements; UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 44 of 55
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correct? A. I don't recall whether he did or not. I can assume that he

did, since he didn't do anything about it. Q. A. How do you know he didn't do anything about it? Because he participated in the preparation of the
09:57:07

Settlement Agreement, and the settlement concluded without -- without any registration by the company as a broker dealer. Q. Well, sir, you just testified that Miss Nagy's memorandum,
09:57:24

the thing that you were relying on, didn't say that there was a requirement to be registered; correct? A. Q. That's correct. It just says that the corporation should be apprised of

potential risks; correct? A. Q. Yes. How do you know that my client didn't apprise Visitalk.com
09:57:35

of those, quote, potential risks, end quote? A. Q. A. Q. A. Q. A. Q. Because I haven't seen anything to indicate that they did. Did you look for it? Yes. You did? I did. Did you ask to interview Steve Best? No. So if Steve Best testifies that Visitalk was apprised of UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 45 of 55
09:57:59 09:57:49

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the potential risks, would you admit that you're wrong? A. Q. Yes. Two more issues, sir. Your opinions on conflict of

interests. In reaching your opinions that there was a, quote, conflict of interest, end quote, for Visitalk to concurrently represent Peter Thimmesch, Mrs. Thimmesch, Michael O'Donnell and Mrs. O'Donnell on estate planning matters, it's true, is it not, that you did not consider a single Arizona case? A. Case? No. I mean, it is true that I didn't consider
09:58:44 09:58:20

Arizona case law. Q. You didn't rely on any of the following journals; the

Georgetown Journal on Legal Ethics, the Northwestern University of Law Review, or the Institute For Study of Legal Ethics, correct? A. Q. I didn't rely on any of those, no. You didn't consider the American Law Institute's rule on
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concurrent representation; correct? A. Q. That's correct. You didn't consider Section 131 of the Restatement Third of
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Lawyering; correct? A. Q. I believe I did. Page 311, sir, of your deposition. Can you pull it up, David? Line 21.
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Let me just ask you, sir, do you recall me asking you UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 46 of 55

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the question at line 21:

Did you consult Section 131 of the

Restatement Third of Lawyering before authoring section J? Do you remember me asking you that? A. Q. I don't, no. Okay. It's on the screen, line 21, page 311. Question: Did you consult Section 131 of the
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Restatement Third of Lawyering before authoring section J? Answer: that section. Did I ask that question, did you give that answer? A. Q. Yes. And didn't I just ask you the question today that you did
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Not specifically for this case.

I have read

not consider Section 131 of the Restatement Third of Lawyering before rendering your opinions for this case? A. I did consider it for this case. I may not have reread it. So at least up to that
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That's what I said at my deposition. time I hadn't reread it. Q.

You didn't consider the Arizona Supreme Court Data Base of

ethical and disciplinary opinions regarding conflict of interest, did you? A. Q. Correct. Do you know if any section of the ethical rules applicable
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in Arizona to Arizona attorneys deal with concurrent representation of a corporation and its principals? A. I believe it does, yes. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 47 of 55
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Q.

But, your report does not cite Arizona's ethical rules

regarding concurrent representation of a corporation and its principals; correct? A. I think my supplemental report does. One of the reports I But
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believe does, and I think it's the supplemental report. I'd have to look at them again to be sure. Q.

Sir, isn't it true that in your December 5, 2006 report,

and in your deposition you did not even mention Ethical Rule 1.13? A. Q. I think that's correct. You believe that the ethical rules applicable to lawyers in
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Arizona constitute the, quote, standard of care, end quote, applicable to lawyers; true? A. Q. They're evidence of the standard of care. That's not what you said in your deposition, sir. Page
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306, line 23. Question: Do you believe that ER 1.17 establishes the

standard of care for Snell & Wilmer? Answer: yes. Did I ask that question and did you give that answer? A. Except for the fact that you said 1 .17, and it's 1.7, you Standard of care and standard of conduct,
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read it correctly. Q. A. Do you wish to change your testimony, sir? No. UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 48 of 55
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Q.

You know that Steve Best, general in-house counsel of

Visitalk, knew of Snell & Wilmer's representation of Mr. Thimmesch, Mr. O'Donnell, and their wives on estate planning matters; correct? A. Q. Yes, he did. And you know that he consented to such representation;
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correct? A. Q. A. He verbally consented to it. But that's not enough, in your opinion? I may be inaccurate about that. He didn't object. I don't
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recall whether there was an express consent, verbal or otherwise. Q. But I -- all I know is he didn't object.

Is anything more than a verbal consent required for a

conflict of interest in Arizona, sir? A. Q. A. Q. A. Q. I don't know. You didn't bother to check that? No. Did you even read Arizona's Ethical Rules before? I read ER 1.7. Does ER 1.7 require -- say anything about how consent may
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be given? A. Q. I don't recall. I'd have to see it again.

Well, when you looked at ER 1.7, where did you get it?

Where did you get ER 1.7 to look at? A. I think that Mr. Kaup showed it to me in his office, but UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 49 of 55
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I'm not certain of that. Q.

I may have seen it on the internet. It said

In a book that he had that looked like this?

Arizona -A. Q. A. Q. A. Q. I really don't recall. What year -- what year's version of ER 1.7 did he show you? I don't recall. Has ER 1.7 been amended at any time in the last decade? I don't know. You didn't -- you didn't bother to check on that before you
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testified that my client fell below the standard of care? A. No, I didn't, I relied on Mr. Kaup to give me a current

version of it. Q. A. Q. You relied on Mr. Kaup to give you a current version of it? Yes. Well, wait a second. A current version of it. That would
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have been in 2006; right? A. Q. A. Q. Yes. Did Snell & Wilmer represent Visitalk in 2006? No. Did Snell & Wilmer represent Cindy Thimmesch, Peter
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Thimmesch, Michael O'Donnell and Marcia O'Donnell in estate planning matters in 2006? A. Q. No. Did you rely on Mr. Kaup to provide you with a copy of
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ER 1.7 that actually applied to Arizona lawyers at the time UNITED STATES DISTRICT COURT Case 2:02-cv-02405-HRH Document 497 Filed 03/31/2008 Page 50 of 55

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when Visitalk was represented by Snell & Wilmer, and at a time when the Thimmeschs and O'Donnells were represented on estate planning matters by Snell & Wilmer? A. I was just concerned about the standard of care. I wasn't
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concerned whether he could be disciplined for it. wasn't of significance to me. Q.

So it really

But, sir, you just testified that you don't wish to change

your testimony, and you corrected me that ER 1.7 established the standard of care; correct? A. Q. Yes. So you say, here is this thing that establishes the
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standard of care that I am concerned about, but you didn't bother to see whether that thing, ER 1.7, actually existed in the form it exists now at the time that the Thimmeschs and O'Donnells were represented by Snell & Wilmer on estate planning matters. A. Am I correct?
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You are correct. MR. CLAUS: Your Honor, at this time I would move to

strike any opinion of Boyd S. Lemon on anything having to do with a purported conflict of interest arising out of the representation of the Thimmeschs and O'Donnells on estate planning matters at a time that Visitalk was also represented on securities matters by Snell & Wilmer. THE COURT: MR. KAUP: Mr. Kaup. Your Honor, I believe that the witness'
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testimony is not limited as to the authority he relied on for the conflict of interest as being Ethical Rule 1.7, rather I believe he relied on a number of other authorities in addressing it. And as he's testified, the ethical rule
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does -- the current ethical rule certainly -- and the ethical rule back then, certainly would be germane on whether there could be discipline, but it's not dispositive, nor did I hear him testify that it would be dispositive, on whether it was a conflict of interest for purposes of malpractice. MR. CLAUS: Your Honor, he cited one source in his

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report, he cited one source in his deposition, he cited one source, ER 1.7. He admitted on the stand today he didn't That is his source under Rule 26 of the

bother to look at it.

Federal Rules of Civil Procedure that he disclosed to me as the basis for his expert opinion. If he had another source, he was If
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required to disclose it so I could question him about it. he had another source, he was required to testify about it. And he didn't. THE COURT: 2000 version of 1.7? MR. CLAUS: I'm so glad you asked, Your Honor.

Is there a difference between the 1999,
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There

is, and