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

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Christopher R. Kaup 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 DISTRICT OF ARIZONA
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; SNELL & WILMER, LLP, a limited liability partnership, et al., CIV 02-2405-PHX-HRH

REPLY TO SNELL & WILMER L.L.P'S, RESPONSE TO MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT
(Assigned to the Honorable H. Russel Holland)

Defendants. 17 18 19 20 21 Complaint (the "Motion"). 22 This Reply is supported by the following Memorandum of Points and Authorities, which 23 24 25 26 is incorporated herein by reference. /// /// BILTMORE ASSOCIATES, as Trustee for the Visitalk Creditors' Trust, the Plaintiff in the above-captioned action, hereby replies to the Response filed by defendant Snell & Wilmer, L.L.P. ("Defendant" or "S&W") to the Plaintiff's Motion for Leave to File Second Amended

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RESPECTFULLY SUBMITTED this 21st day of November, 2005.

TIFFANY & BOSCO, P.A. /s/ C.R.K. #014820 By: _________________________________ Christopher R. Kaup, Esq. Jeffrey A. Sandell, Esq. Counsel for Plaintiff INTRODUCTION S&W's Response to the Motion asks the Court to deny Plaintiff's Motion for Leave to Amend ("Motion") but fails to meet or even properly acknowledge the substantial burden it has in justifying such a denial.

11 Although it recognizes that leave to amend should be "freely given when justice so 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
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requires," Fed.R.Civ.P. 15(a), Defendant neglects to recognize that the burden rests squarely on its shoulders to prove that a reason justifying the denial exists. Absent prejudice, or a strong showing of some other factor, there is a presumption in favor of granting leave to amend. Eminence Capital, L.L.C., v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003); Leighton, 833 F.2d 186. Furthermore, Defendant treats as absolute what most certainly is not. The three alleged justifications provided by the Defendant ­ prejudice, undue delay and that the amendment is futile ­ do not in and of themselves justify denial and treating them as such would ignore the purpose of Rule 15(a)1 which is to allow proper disposition on the merits. Hurn v. Retirement Fund Trust of Plumbing, 648 F.2d 1252, 1254 (9th Cir. 1981). Specifically, the Defendant failed in the following respects:

All references to "Rule" shall refer to Fed.R.Civ.P. unless otherwise indicated.

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Defendant failed to point to any evidence suggesting it has suffered undue prejudice ­ the factor that is of the greatest weight in considering whether to grant or deny a request for leave to amend.

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Defendant alleged undue delay and even though Plaintiff disagrees the point is moot because undue delay is an insufficient reason, without more, to deny a request for leave to amend. The testimony of Mr. Schweigert, Plaintiff's responsible officer, does not establish that Plaintiff possessed sufficient

8 evidence that S&W qualified as an "insider" for purpose of preference 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Moreover, "if the underlying facts or circumstance relied upon by the plaintiff may be a proper 23 subject of relief, he ought to be afforded an opportunity to test his claim on the merits." Foman 24 25 26 v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230 (1962). After all, the purpose of the proceedings is to achieve a proper disposition on the merits. Hurn v. Retirement Fund Trust of Plumbing, 648 F.2d 1252, 1254 (9th Cir. 1981). The Ninth Circuit has referred to Rule 15 as a "command" that
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analysis such that it was able to allege at an earlier date, consistent with its obligations under Rule 11, Fed.R.Civ.P., that the one year recovery period provided by 11 U.S.C. §547(b)(4)(B) was applicable. · Defendant alleges that the amendment is futile, but the Defendant does so using the wrong standard. A proposed amendment can only be futile if no set of facts could support a sufficient claim or defense. Defendant does not even argue the issue. Instead, Defendant's Response argues its belief as to the sufficiency of Plaintiff's evidence ­ an issue appropriate for summary judgment or trial, but wholly inappropriate when considering a motion for leave to amend. ARGUMENT Rule 15(a) provides that leave to amend shall be freely given when justice so requires.

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lower courts must "heed carefully." DCD Programs, Ltd., v. Leighton, 833 F.2d 183, 186 (9thCir. 1987). Rule 15's policy of favoring amendments to pleadings should be applied with `extreme liberality.'" Id. Plaintiff does not dispute that this liberality in granting leave to amend is subject to some qualifications. The granting of the proposed amendment should not cause, among other things, undue prejudice, undue delay and should not be futile. Id.; see Foman, 371 U.S. at 182. That one or more of these conditions may be apparent or declared does not require a denial of leave to amend. Id. Such automatic results would clearly be inconsistent with the rule and with the

9 Supreme Court's interpretation of it. Rather, the court has discretion over granting or denying 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 the motion. Id. If no such apparent or declared justification exists, then a denial of a request for leave to amend is "merely [an] abuse of that discretion and inconsistent with the spirit of the Federal Rules." Foman, 371 U.S. at 182; see also Hurn, 648 F.2d 1254. Defendant's Response contends that Plaintiff's Motion should be denied for all three of the above mentioned justifications - undue prejudice, undue delay and futility. However, these factors are not of equal weight and should not be considered equal in weight when determining whether to grant or deny a motion for leave. Eminence Capital, L.L.C., v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003); Leighton, 833 F.2d 186. A. Undue Prejudice Carries the Greatest Weight in Justifying Denial of a Motion for Leave to Amend, but Defendant Fails to Point to Any Supporting Evidence Of all justifications for denying a Motion for Leave to Amend, undue prejudice is the most important and yet the Defendant failed to provide any support for its conclusory assertion of prejudice. "Prejudice is the touchstone of the inquiry under rule 15(a)" and thus carries the greatest weight. Id. Absent prejudice, or a strong showing of any of the remaining Foman factors, "there exists a presumption under Rule 15(a) in favor of granting leave to amend." Aspeon, 316 F.3d at -4Document 287 Filed 11/21/2005 Page 4 of 10

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1052(emphasis included). Furthermore, the party opposing the amendment bears the burden of showing prejudice. Id.; see also Howey v. United States, 481 F.2d 1187, 1190 (9th Cir. 1973). Defendant's Response includes only a conclusory statement that it has been prejudiced, and nothing more. The Ninth Circuit has overturned a denial of leave to amend as an abuse of discretion where defendant argued undue prejudice in a conclusory fashion. Hurn, 648 F.2d at 1254. "Bald assertions of prejudice cannot overcome the strong policy reflected in Rule 15(a) to "facilitate a proper disposition on the merits."" Id.; citing to Conley v. Gibson, 355 U.S. 41, 48 (1957). S&W's claim that the depositions of Mr. Best and Mr. Gaston (the "two former Visitalk executives" whose testimony supports the claim S&W was an "insider of Visitalk) have already

11 been taken does not establish prejudice. Counsel for S&W was present at both depositions and, 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
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in fact, examined both witnesses at length. As a result, Defendant had the opportunity to directly challenge the veracity of those witnesses' testimony. In addition, S&W retains the ability to challenge that evidence through the testimony of the lawyers at the firm, including Richard Mallery, involved in this case. Of course, S&W also possesses all of its own billing and payment records germane to Plaintiff's preference claims and the defenses to those claims. Defendant simply has failed to point to evidence of any actual or potential prejudice should leave to make the one proposed amendment be granted. Defendant does not identify any specific shortcomings in the discovery, any reason why it would be unable to litigate the issue or any other indication that it has otherwise been compromised. S&W has not done so because no such prejudice does or could exist. Defendant has a very high procedural bar and has failed to even reach for it.

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B. Undue Delay is Insufficient Justification, on Its Own, to Justify the Denial of a Motion for Leave to Amend Defendant next contends that undue delay on the part of Plaintiff provides sufficient

3 4 5 6 7 8 9 10 11 12 13 14 15 16 Amend at this juncture, based on undue delay alone, would be inappropriate and an abuse of 17 discretion. 18 19 20 21 22 23 24 25 26
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justification for denial of the Motion. However, delay alone is insufficient grounds for denying a leave to amend: Where there is lack of prejudice to the opposing party and the amended complaint is obviously not frivolous, or made as a dilatory maneuver in bad faith, it is an abuse of discretion to deny such motion. Hurn, 648 F.2d at 1254(citing Howey, 481 F.2d at 1190-91). Even a delay of five years between the filing of the complaint and the motion for leave to amend is insufficient without more to warrant a denial. Howey, 481 F.2d at 1190-91. To deny the motion solely for the five year delay is an abuse of discretion. Id. Here, Defendant does not and can not allege that the proposed amendment is a dilatory "maneuver" made in bad faith. Defendant also does not directly allege that the desired

amendment is frivolous.2 As mentioned above, Defendant has fallen well short of sustaining its burden on the issue of undue prejudice. Therefore a denial of Plaintiff's Motion for Leave to

C. "Futile" Requires that Under the Proposed Amendment, No Set of Facts can be Proven that Would Constitute a Valid and Sufficient Claim or Defense ­ Clearly Such a Set of Facts Could be Proved, but Now is Not the Time to Prove Them. The Defendant rests its hat on the argument that the proposed amendment isfutile. A motion for leave to amend is futile only if it is legally insufficient. Miller v. Rykoff-Sexton Inc., 845 F.2d 209, 214 (9th Cir. 1988)(emphasis added). Furthermore, "[A] proposed amendment is futile only if no set of facts can be proved under the amendment to the pleadings that would constitute a valid and sufficient claim or defense." Sweaney v. Ada County, Idaho, 119 f.3d

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1385, 1393 (9th Cir. 1997)(quoting Miller, 845 F.2d at 214)(emphasis added). In Sweaney the court found that the amendments were futile because Sweaney was not deprived of a constitutional right and the municipal defendants therefore remained immune and shielded from liability. Id. No questions of fact needed to be resolved. Id. The present case is substantially different from the one outlined in Sweaney. Here, there is no doubt that there are questions of fact to be resolved. Although S&W may dispute it, the testimony of two former officers of Visitalk suggest that Defendant had a sufficiently close relationship with Visitalk to qualify as an "insider" for preference purposes. That is all which is

9 required of Plaintiff at this point to defeat an argument that the amendment is futile. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 shielded. 119 f.3d at 1393. The instant case is clearly different. Assuming that Plaintiff in this 24 25 26
Even if the intention of Defendant is to claim the amendment is frivolous because it is futile, Defendant's opposition still fails for the reasons stated in section C.
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In its Response to the Motion, Defendant acknowledges that there are questions of fact to be resolved. Defendant discusses 11 U.S.C. § 101(31)(B) which states that "insider" includes ­ if the Debtor is a corporation ­ (vi) relative of a general partner, director, officer, or person in control of the Debtor...." The only way to determine whether a person was in control of the Debtor is by considering the facts of the specific situation. Defendant goes on to attack the factual support provided by plaintiff in the amendment. Plaintiff of course denies these

statements, but at this point it is absolutely unnecessary to do so. Whether the Plaintiff can or cannot sustain its burden at trial or even at summary judgment is not the standard when considering a request of leave to amend. Plaintiff is not required to prove its case in its complaint. Defendant fails to acknowledge this and instead seeks to try the facts prematurely. In Sweaney, what made the proposed amendment futile was that even if the plaintiff had all of the evidence in the world it did not matter because the defendant was immune and

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case had all the evidence in the world, it could succeed in classifying Defendant as an insider for purposes of 11 U.S.C. §547. That is all that is required for Plaintiff to succeed at this point. D. Plaintiff Did Not Possess Sufficient Evidence To Allege S&W Was An "Insider" Prior To Obtaining The Quoted Testimony Of Mr. Best And Mr. Gaston. Defendant's reliance of portions of Mr. Schweigert's deposition testimony is a red herring. Although Plaintiff was aware of S&W's conflict of interest, due to its representation of Visitalk and its two largest shareholders and officers of the company, Plaintiff did not know and could not reasonably have discovered that Mr. Mallery gave business advice to Mr. Thimmesch or was a "father figure" to Messrs' Thimmesch and O'Donnell. Mr. Schweigert may have believed S&W was "close to the company," but that is a far cry from possessing sufficient evidence such that Plaintiff had the ability to allege, consistent with its Rule 11 obligations, that Defendant was an "insider," as that term is used for purposes of 11 U.S.C. §547(b). Neither Mr. Gaston nor Mr. Best, former officers of Visitalk, have any relationship with Plaintiff and were not expected to be witnesses favorable to Plaintiff. Indeed, they were both defendants in this action, Mr. Best was often hostile and evasive during Plaintiff's examination

16 and Mr. Gaston stipulated to a judgment. Plaintiff had no reason to ask Mr. Gaston, during an 17 interview, whether any lawyers at S&W gave business advice to officers of Visitalk or were 18 19 20 21 22 23 24 25 26 "father figures" for Mr. Thimmesch and Mr. O'Donnell because such a role or the giving of such advice is so completely at odds with an ordinary attorney-client relationship. Plaintiff became the Trustee of the Visitalk Creditors' Trust as a result of confirmation of a Chapter 11 Plan of Reorganization long after all the former officers and directors of Visitalk had been terminated or resigned and S&W ceased representing the company. There are no former officers or directors on Plaintiff's "side" in this litigation. Plaintiff could not have discovered the evidence of S&W's "insider" status any earlier than it actually did through the deposition of Mr. Best, as later confirmed through the testimony of Mr. Gaston. There is no -8Document 287 Filed 11/21/2005 Page 8 of 10

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dispute that Plaintiff timely sought leave to amend to add just one additional allegation, Defendant was an insider of Visitalk, promptly after obtaining the testimony of Messrs. Gaston and Best. There was no "undue delay" by Plaintiff in seeking leave to make the proposed amendment. Accordingly, the Motion should be granted and Plaintiff be given leave to file its Second Amended Complaint. CONCLUSION Defendant's Response takes the tone of a Motion for Summary Judgment as opposed to a

9 response to a request for leave to amend. This approach is incorrect and as such Defendant fails 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
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to provide adequate justification why the court should deny Plaintiff's Motion. The policy justification for granting motions to amend is great. As a result, the burden on parties opposing amendment is equally as high. Defendant in this case failed to meet its burden. S&W has failed to point to any evidence that it will suffer undue prejudice, failed to provide anything more than bald argument regarding alleged delay (which even if true is insufficient as a justification for denying the request), and has failed to meet or even argue the correct standard for "futility." For these reasons Defendant's opposition to Plaintiff's Motion fails. Plaintiff's Motion for Leave to File Second Amendment Complaint must be granted. RESPECTFULLY SUBMITTED this 21st day of November, 2005.

TIFFANY & BOSCO, P.A.

/s/ C.R.K. #014820 By: _________________________________ Christopher R. Kaup, Esq. Counsel for Plaintiff

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ORIGINAL of this pleading electronically filed with the Court on this 21st day of November, 2005. and copies electronically mailed this 21st day of November, 2005, to: Douglas F. Behm Brian N. Spector Jennings, Strouss & Salmon 201 E. Washington, 11th Floor Phoenix, AZ 85004 Attorneys for Defendant MP3.com, Inc. Gary L. Birnbaum Timothy J. Thomason Mariscal, Weeks, McIntyre & Friedlander, P.A. 2901 N. Central Avenue, Suite 200 Phoenix, AZ 85012 Attorneys for Defendant Snell & Wilmer, LLP David B. Rosenbaum, Esq. Maureen Beyers, Esq. Osborn Maledon, PA 2929 North Central, Ste. 2100 Phoenix, AZ 85012 Attorneys for Cardwell/Mahoney Joseph E Mais Perkins Coie Brown Bain P.A. PO Box 400 Phoenix, AZ 85001-0400 Attorneys for Defendant Michael and Marcia O'Donnell

and copies mailed via U.S. First Class Mail this 21st day of November, 2005, to: Peter Thimmesch 11337 Stonehouse Place Potomac Falls, VA 20165-5123 Pro Per Ray Gaston Betty B. Gaston 5313 E. Pinchot Ave. Phoenix, AZ 85018 Pro Per Cynthia Thimmesch 6530 N Central Avenue Phoenix AZ 85012 Pro Per Vern Schweigert Biltmore Associates 1121 E. Missouri Avenue #100 Phoenix, AZ 85014 Trustee of Creditors' Trust

Dean M. Dinner, Esq. JENNINGS, HAUG & CUNNINGHAM, LLP 2800 North Central Avenue, Suite 1800 Phoenix, Arizona 85004-1049

Mark J. Giunta 845 North Third Avenue Phoenix, Arizona 85003-1408

/s/ Stephanie A. Martinez

____________________________________

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