Free Motion for Summary Judgment - District Court of Arizona - Arizona

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Christopher R. Kaup, Esq. State Bar No. 014820
Third Floor Camelback Esplanade II 2525 East Camelback Road PHOENIX, ARIZONA 85016B4237 TELEPHONE: (602) 255-6000 FACSIMILE: (602) 255-0103

Counsel for Biltmore Associates, Trustee of the Visitalk.com Creditors' Trust UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA CIV 02-2405-PHX-HRH BILTMORE ASSOCIATES, as Trustee for the Visitalk Creditors' Trust, Plaintiff, vs. PETER THIMMESCH and CYNTHIA THIMMESCH, husband and wife; MICHAEL O'DONNELL and MARSHA O'DONNELL, husband and wife; et al., Defendants. PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON ITS CLAIMS AGAINST PETER THIMMESCH

(Assigned to the Honorable H. Russel Holland)

BILTMORE ASSOCIATES, AS TRUSTEE FOR THE VISITALK CREDITORS' TRUST, Plaintiff in the above-captioned case hereby files its Motion for Summary Judgment against Defendant Peter Thimmesch (hereinafter "Thimmesch"), and in support of its Motion relies on the reasons set forth herein, the facts set forth in the Separate Statement of Facts ("SOF"), the Declaration of Vern Schweigert (the "Schweigert Declaration") and arguments in the Memorandum of Points and Authorities filed contemporaneously herewith. Summary

judgment should be granted against Thimmesch on Counts I, II, V, VII, XI, XII, XIV, and XXI of the Second Amended Complaint because no material issues of fact are in dispute as to the allegations against Thimmesch and Plaintiff is entitled to judgment as a matter of law.

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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 in accordance with the rule. As a result, each of the Requests for Admission is now deemed 23 24 25 26
1

RESPECTFULLY SUBMITTED this 7th day of June, 2007. TIFFANY & BOSCO, P.A.

By: ____/s/ CRK #014820______ Christopher R. Kaup, Esq. Jeffrey A. Sandell, Esq. Attorneys for Plaintiff MEMORANDUM OF POINTS AND AUTHORITIES I. PROCEDURAL BACKGROUND. On November, 28, 2000, Visitalk.com, Inc., filed a voluntary petition for relief under Title 11, United States Code, in Bankruptcy Court for the District of Arizona (the "Bankruptcy Court"), commencing Bankruptcy Case No. 00-13035-PHX-RTB. On June 5, 2003,

Visitalk.com, Inc. ("Visitalk"), filed its Amended Complaint 1 in this Court against Thimmesch and others alleging grounds for recovery of compensatory and punitive damages against Thimmesch and others for breaches of fiduciary duty. Biltmore Associates, L.L.C. ("Plaintiff"), was subsequently appointed by the Bankruptcy Court to serve as the Trustee for the Visitalk Creditors' Trust, as part of Visitalk's confirmed Chapter 11 Plan of Reorganization and then substituted as the plaintiff in this action by order of this Court on January 31, 2005. Thereafter, on or about March 18, 2005, and in accordance with Rule 36, Fed.R.Civ.P., Plaintiff served upon Thimmesch entitled "Plaintiff's First Requests For Admission Of Documents (sic) On Defendant Peter Thimmesch." (hereinafter "Requests for Admission"). However, Thimmesch failed to respond at any time with answers to the Requests for Admission

admitted as to Thimmesch in these proceedings. There are no issues of material fact in dispute

Plaintiff filed, with leave of Court, a Second Amended Complaint which added allegations against defendant Snell & Wilmer, LLP, only. The Second Amended Complaint did not change or add any of the allegations against Peter Thimmesch.

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relative to the Counts I, II, V, VII, XI, XII, XIV, and XXI against Thimmesch in Plaintiff's Amended Complaint. II. MATERIAL UNDISPUTED FACTS. Visitalk was incorporated in the State of Arizona on September 3, 1998, but had become insolvent by November of 1998. (Plaintiff's Separate Statement of Facts ["SOF"], at ¶3). The initial shareholders of Visitalk, based on its corporate records, were Thimmesch, Michael O'Donnell and Mark Cardwell. Thimmesch was the Chief Executive Officer and a Director of

8 Visitalk and Mr. O'Donnell was its President and another member of the board of directors. 9 10 11 12 13 The original versions of the corporate records and documents of Visitalk bearing dates in 14 September of 1998 were not prepared until after September of 1998. Thimmesch decided in late 15 16 17 18 19 20 21 22 23 24 25 26 October or early November of 1998 that he needed protection against the dilution that his ownership interest in Visitalk would bear through the conversion of the Series A and Series B Preferred Stock into common stock and future offerings of stock. (SOF, at ¶6). The Board of Directors of Visitalk did not have a meeting in September of 1998 at which the directors authorized the issuance of 7,650,000 warrants to purchase Visitalk's common stock at a price of $0.135 per share to Thimmesch and Mr. O'Donnell (the "Founders Warrants"). The Founders' Warrants were never validly or legally authorized or issued to Thimmesch and Mr. O'Donnell. (SOF, at ¶7). While Thimmesch was an employee of Visitalk, the technology products and services of Visitalk had limited scalability and could not support a sufficient number of concurrent users to make those products and services commercially viable. Visitalk did not have did not have a commercially viable product capable of generating income from operations sufficient to pay its (SOF, at ¶4). In September, 1998, Visitalk raised money through the sale and issuance of "Series A Preferred Stock" to individual investors (the "Series A Offering"). Visitalk sold Series B preferred stock to investors in October and November, 1998 (the "Series B Offering") and Series C preferred stock to investors 1999 (the "Series C Offering"). (SOF, at ¶5).

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obligations and debts as they came due during 1999 and did not have a reasonable prospect of doing so within the next twenty-four months. (SOF, at ¶8). A document entitled "Action by Unanimous Consent" of the Plaintiff's Board of Directors purports that the Visitalk Board of Directors authorized the issuance of the Founders Warrants "as of" September 12, 1998. However, these warrants to Thimmesch and O'Donnell were back dated because the Action by Unanimous Consent was not created until November of 1998. (SOF, at ¶9). Defendant Snell & Wilmer, LLP ("S&W"), was retained to represent Visitalk in late June

8 of 1999. S&W prepared a document in July, 1999, stating that the issuance of the Founders 9 10 11 12 13 14 15 16 17 18 19 20 whether Visitalk's securities offerings were in compliance with "Regulation D" of the securities 21 laws, whether those offerings were "integrated" and exempt from registration under the 22 securities laws, and the fact that a significant number of persons who purchased stock in the 23 24 25 26 Series A Offering were "non-accredited" investors. (SOF ¶12). No disclosure was made by Thimmesch and Visitalk to persons who purchased stock through Visitalk's Series C Offering and subsequent private offerings of securities by Visitalk Warrants to Thimmesch and O'Donnell constituted a breach of fiduciary duty and the agreements with the Series A investors and those investors held claims against the company, Thiimmesch and O'Donnell. S&W also prepared a document in July, 1999, advising of potential violations of federal and state securities laws by Visitalk in its Series A and Series B stock offerings and a subsequent "Series C" offering of preferred stock. (SOF, at ¶10). In connection with the Series A Offering, no disclosure was made by Thimmesch and Visitalk regarding the alleged existence of the Founders' Warrants claimed to have been issued to Mr. O'Donnell and Thimmesch in September, 1998. (SOF ¶11). No disclosure was made by Thimmesch and Visitalk to the investors who purchased preferred stock through the Series B Offering regarding the exercise price of the Founders Warrants, the claims held by investors who had purchased stock in the Series A Offering,

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regarding the claims held by investors who had purchased stock in the Series A Offering, the claims held by investors in the Series B Offering, lawyers at S&W had advised or concluded that Visitalk's securities offerings may not have been in compliance with "Regulation D" of the securities laws, those offerings may have been "integrated" and not exempt from registration under the securities laws, and a significant number of persons who purchased stock in the Series A Offering were "non-accredited" investors. (SOF ¶13). The claimed issuance and then back dating of the Founders Warrants and failure to disclose this information was material to the investors. (SOF, at ¶16).

8 Visitalk was insolvent from November of 1998 through the date of its bankruptcy and 9 was, in fact, a "Ponzi Scheme" according to the report of Renee Jenkins, an accounting expert 10 and certified fraud examiner retained by Plaintiff. (SOF, at ¶¶14 & 29). 11 12 13 Visitalk transferred $5,303,000.00 to MP3.com, Inc., in 2000 and did not receive reasonably 14 equivalent consideration in exchange for those transfers. (SOF, at ¶27). 15 16 17 18 19 20 21 22 23 24 25 26 Visitalk paid over $1,000,000 to acquire a billing system from a company named Portal Software, Inc., even though Visitalk had no customers to bill. Visitalk also paid approximately $750,000 to Oracle for an accounting system, even though it had no revenue and no need for a sophisticated accounting system. In addition, Visitalk paid approximately $2,000,000 for Visitalk entered into a transaction with MP3.com, Inc., in early 2000 in order to create the false impression of substantial income to Visitalk and MP3 and that Visitalk was solvent.

consulting services related to the Portal billing system and Oracle accounting system. (SOF, at ¶¶23 & 25). Visitalk had no need for the Portal billing software and system at the time it agreed to purchase that product and hire Ernst & Young to provide consulting services regarding that product. Visitalk also had no need for the Oracle software and system at the time it agreed to purchase that product and hire Ernst & Young to provide consulting services regarding that product. Visitalk' Board of Directors did not investigate, analyze and competitively bid billing and accounting software and systems and consulting services regarding such software and

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systems and was not adequately informed about the need or lack thereof for the Portal billing software and the Oracle accounting softeware. (SOF, at ¶26). Visitalk terminated Mark Cardwell as an employee for cause at the end of 1999. However, in May, 2000, Visitalk diverted the corporate opportunity to receive $1.2 million in proceeds from the sale of common stock to Mr. Cardwell and, as a result, Visitalk's assets were diminished by approximately $1,000,000.00. (SOF, at ¶28). Visitalk did not have formal written policies and procedures to govern business expense reimbursement and corporate conduct from January of 1999 through June of 2000. In one quarter, Visitalk spent in excess of $1,153,000 on travel and entertainment and received revenue of less than $60,000 as a result of those expenditures. Due to the lack of internal controls, Peter Thimmesch was able to cause Visitalk to incur and reimburse him for at least $235,000 of expenses for which no or inadequate documentation or justification was provided, were

13 excessive or which, in reality, were personal expenses. (SOF, at ¶24). 14 15 16 17 18 19 20 21 22 23 24 25 26 O'Donnell, the president of Visitalk and another board member with Mr. Thimmesch, breached Visitalk spent over $2,000,000.00 in corporate funds for tenant improvements, furniture, fixtures and equipment in a building that Visitalk first occupied in or about April 2000 just months before its bankruptcy. These expenditures were not needed and grossly excessive.

(SOF, at ¶23).
Ray Gaston, Visitalk's former controller, also a lawyer and accountant, testified in a deposition that Thimmesch breached his fiduciary duties to Visitalk. Mr. Gaston also testified that he understood the Series A, B and C investors held claims against Visitalk due to the actions relating to the Founders Warrants and the other securities law problems of the company. According to Mr. Gaston, the fable of The Emperor Has No Clothes is an appropriate analogy to what Visitalk really was during 1999 and 2000. (SOF, at ¶21). This Court has already found and determined by stipulated judgment that Mr.

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his fiduciary duties to the company by negligently failing to investigate the capital structure of Visitalk, including the claimed issuance of securities to insiders, the commercial viability of Visitalk's product and its deepening insolvency and/or failing to adequately supervise disclosures made to creditors and investors regarding Visitalk's capital structure, the information received from and/or conclusions by Visitalk's lawyers regarding: (a) the date of the authorization and issuance of the Founders Warrants, (b) Visitalk's securities offerings were not in compliance with "Regulation D" of the securities laws, (c) those offerings may have been "integrated" and not exempt from registration under the securities laws, (d) persons who

9 purchased stock in the Series A offering were "non-accredited" investors, and (e) Visitalk's lack 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 of a commercially viable product and Visitalk's deepening insolvency. (SOF, at ¶34). This Court has also found and determined by stipulated judgment that the actions by Cynthia Thimmesch, Thimmesch's former wife and a former officer of Visitalk, in connection with the Founders' Warrants comprised a breach of her fiduciary duties and loyalties to Visitalk and contributed to the insolvency of Visitalk by causing liability to investors who purchased Visitalk securities. (SOF, at ¶35). The breach of fiduciary duties by Thimmesch caused claims to arise against and debt to be incurred by Visitalk and artificially prolonged Visitalk's life and deepened its insolvency (SOF, at ¶36). Visitalk suffered actual damages in an amount of not less than $54,870,646.00 as a direct, proximate and foreseeable result of the breaches by Mr. Thimmesch of his duties as Chief Executive Officer and a board member of Visitalk. (SOF, at ¶37). III. LEGAL ARGUMENT. A. Summary Judgment Standard.

Summary judgment should be granted "if there is no genuine issue of material fact and . . . the moving party is entitled to judgment as a matter of law." Rule 56 Fed.R.Civ.P. The United States Supreme Court, in three 1986 decisions emphasized the importance of the summary

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judgment motion. 2 In CelotexCorp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 2548 (1986), the Court stated: One of the principal purposes of the summary judgment rule is to islolate and dispose of factually unsupported claims or defenses, and we think it should be interpreted in a way that allows it to accomplish this purpose. Id. At 323-4 (citation omitted). Whether there is a "genuine issue" depends on whether "a fairminded jury could return a verdict for the plaintiff on the evidence presented." Anderson v. Liberty Lobby, Inc., 477 U.S. 252 (1986). The evidence need not unmistakenly favor the moving party. Id. Here, the undisputed facts confirm that Thimmesch, while acting in a fiduciary capacity, breached both common law and statutory fiduciary duties owed to Visitalk and its creditors. The undisputed facts also demonstrate that Thimmesch received fraudulent transfers from Visitalk avoidable under 11 U.S.C. §548. Therefore, Plaintiff is entitled to summary judgment on all counts in its Amended Complaint against Thimmesch (Counts I, II, V, VII, XI, XII, XIV, and

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XXI) and entry of judgment against him for $54,870,646.00, the amount of damages proximately caused to Visitalk by Thimmesch. B. Determinative Facts Giving Rise To An Award Of Damages Against Thimmesch Are Deemed Admitted.

As noted above, Thimmesch failed to respond, at any time, to Plaintiff's First Set of Requests for Admissions. As a result, all of the matters contained in those Requests are See Rule 36(b), Fed.R.Civ.P.; Cook v. All State Insurancev.

conclusively deemed admitted.

Cook, 337 F.Supp.2d 1206, 1209 (C.D.Ca. 2004). Thimmesch may not now rebut and the Court may not disregard these admissions even if the Court finds other evidence presented by Thimmesch to be more credible. Id., at 1210. Thus, Thimmesch has conclusively admitted that:

2

Matsushita Elec. Ind. Co. v. Zenith Radio, 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 157 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

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1.

Visitalk's original corporate records were not prepared until after September,

1998, even though they bear dates in September of 1998; 2. After the Series A investors bought their stock, Thimmesch decided he needed

protection against the dilution that his ownership interest in Visitalk would bear through the conversion of the Series A and Series B Preferred Stock into common stock and future offerings of stock; 3. 4. The Founders Warrants were never validly or legally authorized or issued to him; Visitalk was insolvent as of July of 1999 and continued to be insolvent through

9 the date it filed for relief under Chapter 11 of the Bankruptcy Code; 10 11 12 13 14 15 16 17 18 19 20 21 22 23 9. 24 receive reasonably equivalent consideration in exchange for those transfers; 25 26
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5.

Visitalk did not have did not have a commercially viable product capable of

generating income from operations sufficient to pay its obligations and debts as they came due; 6. Visitalk did not have did not have a reasonable prospect of developing a

commercially viable product within 24 months which would have been capable of generating income from operations sufficient to pay its obligations and debts as they came due 7. Visitalk had no need for the Portal billing software and system and the Oracle

software and system at the time it agreed to purchase those products and hire Ernst & Young to provide consulting services regarding that products; 8. Visitalk's Board of Directors did not investigate, analyze and competitively bid

billing and accounting software and systems and consulting services regarding such software and systems and was not adequately informed about the need or lack thereof for the Portal billing software and the Oracle accounting softeware; Visitalk transferred $5,303,000.00 to MP3.com, Inc. ("MP3") in 2000 but did not

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10.

Visitalk entered into the transaction with MP3 in order to create the false

impression of substantial income to Visitalk and MP3 and that Visitalk was solvent; C. Thimmesch Breached His Fiduciary Duties To Visitalk And Its Creditors.

As the Chief Executive Officer and member of the Board of Directors of Visitalk, it is axiomatic that Thimmesch owed fiduciary duties to the company and, after it became insolvent, to its creditors. See DePinto v. Landoe, 411 F.2d 297, 300 (9th Cir. 1969)(fiduciary duty to corporation); A.R. Teeters & Associates, Inc., v. Eastman Kodak Co., 172 Ariz. 324, 331, 836 P.2d 1034, 1041 (Ariz.App. 1992)(fiduciary duty owed to creditors when corporation is

9 insolvent); See In re Southwest Supermarkets, LLC, 325 B.R. 417, 423 (Bankr. D.Ariz. 2005). 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Hammons, 34 Ariz. 95, 104, 268 P. 181 (1928); 6 Ariz.Practice §7.94 (2005). 24 In addition, officers and directors have a duty of loyalty requiring them to perform their 25 26 duties in good faith to further the best interests of the corporation. The officer/director has the Under the Model Business Corporation Act, which Arizona has adopted at A.R.S.§10-830, directors must act in good faith and in the best interests of the corporation. A.R.S.§10-830; Model Bus. Corp. Act § 8.30 (2000). A corporate director's standard of conduct is frequently referred to as the common law doctrine of director's "duty of care"; however, Arizona has "replaced" this doctrine with the obligation to discharge duties in good faith. Arizona Business Corp. Act § 7.48 (2000). Arizona law requires directors "look after" and "maintain supervision" over her corporation's business affairs and "have general knowledge of the manner in which its business is conducted." McQueen v. First Nat'l Bank, 36 Ariz. 74, 87, 283 P.2d 273 (1929); 6 The law requires directors, such as Thimmesch, to know the

Ariz.Practice §7.94 (2005).

financial condition of the company and creates an evidentiary presumption of such knowledge. Actual lack of knowledge of the corporations financial condition is irrelevant. Rossi v.

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burden of proving that a challenged action was fair and in the best interest of the corporation where she has a personal interest in a particular transaction. Schoen v. Schoen, 167 Ariz. 58. 804 P.2d 787 (Ariz. App. 1990); 6 Ariz. Practice, Corporate Practice §7.95 (2005). In Master Records, Inc. v. Backman, the Court recognized that "[t]here is little or no controversy as to the liability in general of directors or other corporate officers for misappropriation, diversion or conversion of corporate assets." 133 Ariz. 494, 499, 652 P.2d 1017 (1982) (quoting 3A W. Fletcher, Cyclopedia of the Law of Private Corporations § 1102 (rev.perm.ed. 1975)). Officers and directors of corporations are prohibited from usurping any

9 legally recognized interest, either actual or expectancy, belonging to the company without full 10 11 12 13 14 15 16 17 18 19 20 21 22 23 was negligent in the supervision and management of other employees and his knowledge 24 regarding the business affairs of the company which contributed to the damages. 25 26
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disclosure to the corporation so the corporation may act on the interest if it desires. Tovrea Land and Cattle Co. v. Linsenmeyer, 100 Ariz. 107, 123, 412 P.2d 47 (1966). Significantly, Arizona law imposes liability on corporate officers or directors if they "knowingly participate or acquiesce in corporate torts," as this is a breach of the fiduciary duty. Hall Fam. Prop. v. Gosnell Dev. Corp., 185 Ariz. 382, 387, 916 P.2d 1098 (App. Div. 1 1995). An officer or director is properly held liable where he "participate[d] or ha[d] knowledge amounting to acquiescence or [was] guilty of negligence in the management or supervision of the corporate affairs causing or contributing to the injury." Bischofshausen, Vasbinder, and Luckie v. D.W. Jaquays Mining and Equip. Contractors Co., 145 Ariz. 204, 210-11, 700 P.2d 902, 90809 (App.1985). In the case at bar, there can be no doubt that Thimmesch acquiesced and participated in the wrongful acts and inaction causing substantial harm to Visitalk. At best for Thimmesch, he

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First, the undisputed facts establish that the Founders Warrants were never validly authorized and issued to Thimmesch. However, after the Series A investors bought their stock, Thimmesch decided he needed protection against the dilution of his ownership interest in Visitalk and engaged in self dealing, in violation of his duty of loyalty, by causing the preparation of an Action by Unanimous Consent regarding the Founders Warrants in November of 1998 and then back dating that document. As a result of those actions and his failure to cause the company to comply with securities laws, a violation of the duty of due care, in its Series A, Series B and Series C stock offerings, all of those investors held claims against Visitalk. S&W

9 identified the fact that Timmesch had breached his fiduciary duties in connection with the 10 11 12 13 14 15 16 17 18 19 20 21 22 23 software and system, the Oracle software and system and the services of Ernst & Young to 24 provide consulting services regarding those products. See McQueen v. First Nat'l Bank, 36 Ariz. 25 26 at 87; Rossi v. Hammons, 34 Ariz. at 104; 6 Ariz.Practice §7.94 (2005). Founders Warrants, the existence of claims against Visitalk arising therefrom and other potentially serious securities law problems in two documents prepared in July 1999. Nevertheless, in violation of his duty of loyalty and duty of due care, Thimmesch failed to cause Visitalk to make truthful and complete disclosure to the investors regarding the events relating to the Founders Warrants, the claims held by each group of investors and Visitalk's securities law problems, obtain effective releases of the investors' claims and to make a rescission offering to all of the investors. Having knowingly participated or acquiesced in these corporate torts,

Thimesch is liable for the resulting damages. See Hall Fam. Prop. v. Gosnell Dev. Corp., 185 Ariz. at 387; D.W. Jaquays Mining and Equip. Contractors Co., 145 Ariz. at 210-11. Second, Thimmesch, in violation of his duty of due care, failed to investigate and competitively bid billing and accounting software and systems and consulting services regarding such software and systems and inform himself that Visitalk had no need for the Portal billing

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Third, Thimesch caused or permitted Visitalk to make fraudulent transfers violative of A.R.S. §§44-1004(a)(2) & 1005 to MP3 for the purpose of creating a false impression of substantial income to Visitalk and that Visitalk was solvent and fraudulent transfers to himself in violation of the duty of due care and loyalty. See Hall Fam. Prop. v. Gosnell Dev. Corp., 185 Ariz. at 387; D.W. Jaquays Mining and Equip. Contractors Co., 145 Ariz. at 210-11. Fourth, in violation of the duty of due care and loyalty, Thimmesch caused or permitted Visitalk to transfer the corporate opportunity to sell $1.2 million of Visitalk stock to an insider/director, Mark Cardwell, at a time Visitalk was insolvent. Even if this transfer did not

9 violate the corporate opportunity doctrine, it certainly was a fraudulent transfer under A.R.S. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 controls, including formal written policies and procedures to govern expenditure of corporate 24 funds, business expense reimbursement and corporate conduct from January of 1999 through 25 26 June of 2000. As a result, (1) Visitalk spent in excess of $1,153,000 on travel and entertainment §§44-1004(a)(2) & 1005 because Visitalk did not receive reasonably equivalent value in exchange for that transfer. See Hall Fam. Prop. v. Gosnell Dev. Corp., 185 Ariz. at 387; D.W. Jaquays Mining and Equip. Contractors Co., 145 Ariz. at 210-11. Fifth, Thimmesch violated the duty of due care by failing to inform himself that Visitalk did not have a commercially viable product at any time during 1999 and 2000. See McQueen v. First Nat'l Bank, 36 Ariz. at 87; Rossi v. Hammons, 34 Ariz. at 104; 6 Ariz.Practice §7.94 (2005). Sixth, Thimmesch violated the duty of due care by failing to inform himself that Visitalk was insolvent and he owed fiduciary duties to Visitalk's creditors. See McQueen v. First Nat'l Bank, 36 Ariz. at 87; Rossi v. Hammons, 34 Ariz. at 104; 6 Ariz.Practice §7.94 (2005). Seventh, Thimmesch violated the duty of due care by failing to inform himself about the need for Visitalk to have and failing to require Visitalk to implement operating and financial

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in one quarter alone and received revenue of less than $60,000 as a result of those expenditures; (2) Thimmesch was able to cause Visitalk to incur and reimburse him for at least $235,000 of expenses for which no or inadequate documentation or justification was provided, were excessive or which, in reality, were personal expenses; (3) Visitalk placed Marcia O'Donnell, the wife of Michael O'Donnell, in control of the build out of Visitalk's new building and the company spent over $2,000,000.00 in corporate funds for very expensive and unneeded tenant improvements, furniture, fixtures and equipment in that building which it did not occupy until April 2000 just months before its bankruptcy; and (4) Visitalk spent approximately $3.75 million

9 on the Portal and Oracle systems and consulting services related to those products even though 10 11 12 13 14 15 16 17 18 19 20 21 22 23 actions, including causing or permitting Visitalk to continue to sell securities, and failed to take 24 other actions, such as causing Visitalk to file for bankruptcy in late 1999 or early 2000, which 25 26 artificially prolonged Visitalk's corporate life and deepened its insolvency. See Hall Fam. Prop. Visitalk had no need for them. See McQueen v. First Nat'l Bank, 36 Ariz. at 87; Rossi v. Hammons, 34 Ariz. at 104; 6 Ariz.Practice §7.94 (2005). Eighth, Thimmesch operated Visitalk as a Ponzi scheme in violation of the duty of loyalty and the duty of due care. See Hall Fam. Prop. v. Gosnell Dev. Corp., 185 Ariz. at 387; D.W. Jaquays Mining and Equip. Contractors Co., 145 Ariz. at 210-11. Ninth, Thimmesch violated the duty of due care by failing to inform himself about the legal problems associated with the Founders Warrrants and other potentially serious securities law problems faced by Visitalk and adequately supervise disclosures made to creditors and investors regarding such matters, Visitalk's insolvency and the fact Visitalk did not have a commercially viable product. See McQueen v. First Nat'l Bank, 36 Ariz. at 87; Rossi v.

Hammons, 34 Ariz. at 104; 6 Ariz.Practice §7.94 (2005). Tenth, in violation of the duty of due care and the duty of loyalty, Thimmesch took

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v. Gosnell Dev. Corp., 185 Ariz. at 387; D.W. Jaquays Mining and Equip. Contractors Co., 145 Ariz. at 210-11. The undisputed facts, most of which are conclusively deemed admitted, relating to the history of Visitalk's short pre-bankruptcy life unequivocally demonstrate repeated and serious breaches of fiduciary duty by Thimmesch. Accordingly, Plaintiff is entitled to judgment as a matter of law against him. D. The Breaches Of Fiduciary Duty By Thimmesch Caused Substantial Damages To Visitalk. There also can be no dispute that the actions by Thimmesch in violation of his fiduciary duties caused serious harm to Visitalk. S&W advised Visitalk in July, 1999, that the effort by Thimmesch and Mr. O'Donnell to issue the Founders Warrants to themselves after the sale of the Series A stock and back date that alleged transaction gave rise to claims against Visitalk. Visitalk even acknowledged that all Series A, B and C investors held claims against the company in a draft rescission offering in March or April of 2000.

The loss to Visitalk as a result of (1) the transaction with MP3 was $5,303,000.00;
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(2) the expenditure of funds on Visitalk's new building was not less than $2,000,000.00; (3) the waste of corporate assets on the Portal and Oracle systems and the related consulting services was approximately $3,750,000; (4) the transfer to Mark Cardwell of the opportunity to sell Visitalk stock was $1,200,000.00; (5) the wasteful and grossly excessive expenditure of funds on travel and entertainment in one quarter was $1,153,000; and (6) the aggregate of the claims of and debts owed to Series A, B, C and F (convertible debentures) investors was $26,546,820.00. The total amount by which Visitalk's insolvency was deepened and the claims which arose against and debt which was incurred by Visitalk due to Thimmesch's actions is $54,870,646.00. Accordingly, the actual damages caused to Visitalk as a direct, proximate and foreseeable result

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of the breaches by Thimmesch of his duties as Chief Executive Officer and a board member of Visitalk is $54,870,646.00. IV. CONCLUSION. Most of the material facts have been conclusively deemed admitted by Thimmesch. There is and can be no dispute as to any other material fact relating to the Plaintiff's claims against Thimmesch. Thimmesch violated his fiduciary duties to Visitalk and its creditors in the manner set forth above and those actions artificially prolonged Visitalk's life, deepened its insolvency and caused damages to Visitalk in the amount of $54,870,646.00. Accordingly,

9 Plaintiff is entitled to judgment against Thimmesch in that amount as a matter of law. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
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RESPECTFULLY SUBMITTED this 7th day of June, 2007. TIFFANY & BOSCO, P.A.

By: _____/s/ CRK #014820______________ Christopher R. Kaup, Esq. Jeffrey A. Sandell, Esq. Counsel for the Plaintiff

ORIGINAL of this pleading filed Electronically with the Court on this 7th of June, 2007. COPIES of the foregoing were priority mailed this 8th of June, 2007, to: Honorable H. Russel Holland United States District Court 222 West 7th Avenue - No. 54 Anchorage, Alaska 99513

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COPIES of the foregoing were mailed this 8th of June, 2003, to: Peter Thimmesch 11329 Stonehouse Pl Potomac Falls, VA 20165-5123 and to Peter Thimmesch
11337 Stonehouse Place Potomac Falls, VA 20165

Gary L. Birnbaum Timothy J. Thomason James P. Armstrong Mariscal, Weeks, McIntyre & Friedlander, P.A. 2901 N. Central Avenue, Suite 200 Phoenix, AZ 85012 Attorneys for Defendant Snell & Wilmer, LLP Dean M. Dinner, Esq. JENNINGS, HAUG & CUNNINGHAM, LLP 2800 North Central Avenue, Suite 1800 Phoenix, Arizona 85004-1049 Attorneys for Defendant Stephen A. Best Mark J. Giunta 845 North Third Avenue Phoenix, Arizona 85003-1408

___________________________________

11400-001/326206.1 Case 2:02-cv-02405-HRH

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