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


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John J. Bouma (#001358) James R. Condo (#005867) Patricia Lee Refo (#017032) Joseph G. Adams (#018210) SNELL & WILMER L.L.P. One Arizona Center 400 E. Van Buren Phoenix, AZ 85004-2202 Telephone: (602) 382-6000 E-Mail: [email protected] Attorneys for Defendant Kirkland & Ellis IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Diane Mann, as Trustee for the Estate of LeapSource, Inc. et al., Plaintiffs, No. CIV 02-2099 PHX RCB KIRKLAND & ELLIS' REPLY IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT REGARDING MALPRACTICE AND PROFESSIONAL NEGLIGENCE (COUNT 10) (Assigned to Hon. Robert C. Broomfield) Defendants.

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The Trustee's burden on this summary judgment motion is to produce admissible evidence setting forth specific facts to show that there is a genuine issue for trial. She has not met this burden. Instead, the Trustee makes assertions that have no evidentiary support, dismisses the undisputed deposition testimony cited by K&E as "unreliable," and offers selective, misleading quotations in an effort to withstand summary judgment. None of these tactics meets the Trustee's burden of producing evidence in support of her claim of legal malpractice and professional negligence.1 Most significantly, the Trustee has not produced any evidence from which a jury could conclude that any supposed malpractice by K&E was the proximate cause of any harm that LeapSource suffered. The Trustee's legal ethics expert Geoffrey Hazard assumed the existence of such causation evidence in his deposition testimony and expert report, but plaintiffs have never produced it. The Trustee's repeated assertions that there Although the response is filed on behalf of all plaintiffs, the claim at issue is brought on behalf of the Trustee only.
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must have been a conflict of interest between K&E and LeapSource are no substitute for admissible evidence of causation. Without evidence or an expert opinion to provide a causal link between K&E's alleged malpractice and damage to LeapSource, the claim fails. As even Hazard admitted, it would be difficult to establish causation if LeapSource had been represented by independent counsel. The undisputed evidence that LeapSource had independent counsel for all relevant times is thus strong evidence that K&E did not cause any harm to LeapSource. Further, the Trustee offers no evidence that there was any attorney-client relationship between K&E and LeapSource in late 2000-2001, or that K&E's work for GTCR in 2001 was substantially related to its supposed prior work for LeapSource. The lawyers at K&E, Chris Kirk's personal lawyers, the lawyers for LeapSource, and LeapSource's controller all agree that K&E represented GTCR, not LeapSource. The only witness who claims that K&E ever represented LeapSource is Chris Kirk. But her subjective belief, even if genuine, is not objectively reasonable and not based on personal knowledge. The undisputed evidence shows that LeapSource's lawyer repeatedly told Kirk that K&E represented GTCR and was not looking out for the interests of LeapSource. Kirk's manifestly unreasonable belief that K&E represented LeapSource in late 2000-2001 -- in the face of all evidence to the contrary -- cannot, by itself, create an attorney-client relationship. I. THE TRUSTEE HAS NOT SUPPORTED THE MALPRACTICE CLAIM WITH EVIDENCE OF CAUSATION. A. The Trustee's Malpractice Claim Must Be Supported by Expert Testimony.

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The Trustee does not dispute the long-settled rule that a claim of legal malpractice must be supported by expert opinion. See Asphalt Engineers, Inc. v. Galusha, 770 P.2d 1180, 1181-82 (Ariz. Ct. App. 1989). Nonetheless, the Trustee makes a series of wideranging assertions in the opposition brief that have little relation to the specific testimony or opinions of plaintiffs' legal ethics expert Prof. Geoffrey Hazard. To the extent that these assertions are not grounded in Hazard's opinions, summary judgment is warranted.
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As set forth in K&E's moving papers, Hazard limited his opinions regarding K&E's alleged malpractice to a very specific time period and set of conduct. According to Hazard, K&E had a conflict of interest arising from its supposedly joint representation of GTCR and LeapSource in late 2000 through March 2001. (SOF ¶ 85.) In the alternative, he opined that if LeapSource had become a former client by late 2000, K&E had a conflict of interest because its work for GTCR in 2001 was "substantially related to the matters handled for LeapSource" earlier. (SOF ¶ 86.) These conclusions are based expressly on his assumptions that K&E "was engaged in September 1999 to provide legal representation to LeapSource," and that the representation lasted until at least February 2001. (SOF ¶ 83.) In Hazard's view, K&E's supposed conflict of interest is based on K&E's knowledge, acquired at the time that the formation documents were executed, "that Mrs. Kirk had wanted a firm contract arrangement; knew that it was not provided; and that therefore the reliance would have to be on the idea of good faith implementation of a less of a non-strict commitment, non-specific." (SOF ¶ 96.) In particular, Hazard claimed that K&E knew that Kirk thought that "good faith" entailed a "more positive helpful attitude" and that GTCR didn't share that view. (Id.) As Hazard opined, a conflict existed in 2001 because K&E's client GTCR was taking a position "adverse to Ms. Kirk's conception of what their responsibility is." (SOF ¶ 99.) Prof. Hazard does not claim that K&E committed malpractice beyond this specific conflict of interest.2 The Trustee, on the other hand, attempts to expand the malpractice claim far beyond anything that Hazard offered in his opinions. For instance, the Trustee asserts that K&E is subject to malpractice liability because K&E lawyers supposedly "helped [David] Eaton in a position of responsibility at LeapSource" while knowing of an 2 In her memorandum, the Trustee does not dispute that Prof. Hazard's opinions regarding K&E are limited to this specific alleged conflict of interest. In the response to K&E's Statement of Facts, the Trustee asserts that Hazard's opinion includes other matters, such as the Gilman Memorandum. (Resp. to SOF ¶ 96.) However, the cited testimony from Hazard's deposition on the other matters was limited to David Eaton, the restructuring expert whose company was retained by LeapSource. For the reasons explained in K&E's separate Motion for Summary Judgment Regarding Vicarious Liability (doc. #250), K&E is not vicariously liable for the conduct of Eaton or his company AEG Partners, LLC. Rather than repeat those arguments, K&E respectfully refers the Court to that motion.
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alleged conflict of interest. (Pls.' Resp. at 2:11-16.) But Hazard never offered such an opinion, either in his report or testimony. Similarly, the Trustee's allegation that "K&E and David Eaton worked together in responding to Tom Gilman's request to inspect LeapSource documents" does not assist plaintiffs with their malpractice claim because Prof. Hazard never offered any opinion relating to this conduct. (Pls.' Resp. at 12:11-17.) The Trustee cannot expand her malpractice theory beyond Hazard's specific opinions. B. Hazard Never Provided Any Evidence of Causation in His Report and Testimony.

Neither Hazard nor the Trustee explains how the supposed conflict of interest between K&E and LeapSource caused LeapSource to suffer any injury. It is hornbook 10 law that plaintiffs bear the burden of producing evidence that K&E's alleged negligence 11 "was a proximate cause of resulting injury." Phillips v. Clancy, 733 P.2d 300, 303 (Ariz.
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12 Ct. App. 1987). In the context of a legal malpractice claim, the Trustee must present 13 specific evidence of a clear causal link or expert testimony regarding causation. See, e.g., 14 Carbone v. Tierney, 864 A.2d 308, 314-15 (N.H. 2004) ("Unless the causal link is obvious 15 or can be established by other evidence, expert testimony may be essential to prove what 16 the lawyer should have done.") (quoting 5 R. Mallen & J. Smith, Legal Malpractice § 33, 17 at 116 (5th ed. 2000). The Trustee has not met this fundamental burden of producing such 18 evidence, either through expert opinion or other means. Indeed, it is difficult to conceive 19 how the alleged conflict -- deriving from K&E's knowledge of the negotiations with 20 Kirk's attorneys -- would have any connection to GTCR's decision to stop funding 21 LeapSource. As the Court has already ruled, the Purchase Agreement "imposed a 22 conditional funding obligation on GTCR," not "full funding." Order dated 9/30/2003 23 (doc. # 72) at 11. 24 Despite the Trustee's claims to the contrary, Prof. Hazard did not provide any 25 expert opinion on the issue of causation. (Pls.' Resp. at 9:7-16.) Instead, his opinion 26 shows that he expressly assumed that there would be such evidence offered at a later date: 27 28 I understand that there will be other evidence that, if LeapSource has been properly advised and assisted, it would have survived as a functioning
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company rather than going into bankruptcy. Assuming there is such evidence, in my opinion it was reasonably foreseeable to Kirkland and Eaton that their course of conduct in the period from late 2000 through March 2001 would have material adverse impact on LeapSource and Ms. Kirk and her associates. On that basis, the inhibitions imposed by their conflicts of interest in my opinion were a substantial cause of injury to LeapSource and Ms. Kirk and her associates. (Expert Report of Geoffrey Hazard at ¶ 5(e), attached as Exhibit 28 to K&E's Statement of Facts; SOF ¶ 87.) In her opposition brief, the Trustee quotes selectively and misleadingly from this paragraph and omits Hazard's express qualification that he is relying on other evidence of causation. The Trustee's conspicuous omission of these portions of Prof. Hazard's opinions is telling. Hazard even admitted that it would be difficult to prove that a conflict of interest caused LeapSource any harm because it was represented by independent counsel. In Hazard's words, "a conflict with Kirkland might have could well be vitiated or nullified by the fact that the LeapSource is getting independent advice." (SOF ¶ 103.) Although the Trustee's counsel apparently never told Hazard, it is undisputed that LeapSource was represented by Osborn Maledon, which served as the company's principal outside law firm for corporate and transaction work, during the entire time of K&E's alleged conflict. (SOF ¶¶ 40, 44; Response to SOF ¶ 40.)3 The Trustee also does not dispute that Kirk and Tom Gilman, who were LeapSource officers in early 2001, were told by Osborn Maledon at the time that K&E "represented and had always represented GTCR and was not looking out for the interests of LeapSource." (SOF ¶ 76; Response to SOF ¶ 76.) According to Hazard, if "LeapSource had independent representation on the subject matter of its relation to GTCR, . . . then it would be a very substantial question -- to put it mildly -- as to whether there's any proximate causation between whatever Kirkland was doing for GTCR and any consequence to LeapSource." (SOF ¶ 104.) This testimony confirms that Hazard did not provide any expert opinion on the issue of causation. The Trustee attempts to dismiss as a "complete red herring" the fact that LeapSource was represented by independent counsel for all relevant times. (Pls.' Resp. at 11:4-9.) In fact, it is undisputed that Osborn Maledon acted as LeapSource's principal outside counsel starting in 1999 for corporate and transactional matters.
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C.

The Trustee Has Not Produced Any Other Evidence of Causation to Support Hazard's Assumption.

The Trustee has never presented the "other evidence" of causation on which Hazard's opinion depends, and therefore there is no evidence from which a jury could conclude that the alleged conflict of interest caused any harm to LeapSource. The Trustee asserts that plaintiffs have "overwhelming evidence of K&E's and Eaton's direct assistance to GTCR in conduct that resulted in the destruction of LeapSource," yet fails to cite to any of it. (Pls.' Resp. at 13:9-13.) For example, the Trustee cites "the sale of the ICG assets to an insider without consideration" and "the breaches of duty described in the Gilman Memorandum," but offers no evidence that K&E had any role in them, much less that these actions resulted in the destruction of LeapSource.4 (Pls.' Resp. at 13:1213.) Indeed, the Gilman Memorandum, in its long litany of complaints, does not even mention K&E. See PSOF ¶¶ 146-145, Exhibit 6. Even if the Trustee could somehow substantiate the claims that K&E was involved with the ICG transaction or the conduct alleged in the Gilman Memorandum, there is no evident relationship between those issues and the specific conflict of interest identified by Prof. Hazard: K&E's knowledge that Kirk wanted a firmer commitment from GTCR. Because the malpractice claim must be supported by expert testimony, the evidence of causation must relate to the specific conflict of interest identified by the Trustee's legal ethics expert. Here, there is no relationship at all. The Trustee does not explain, much less offer admissible evidence, showing how K&E's knowledge of Kirk's negotiating position was the cause of anything related to ICG or the Gilman Memorandum. The Trustee also suggests that the existence of alleged conflicts of interest, standing alone, somehow supplies the missing causal link. According to the Trustee, K&E's conduct "in the face of those conflicts of interest was a proximate cause of the In an attempt to connect K&E to the ICG transaction, plaintiffs cite to the deposition testimony of Kirk, in which she claimed that Michael Makings told her that K&E would "help paper the ICG transaction." (Resp. to SOF ¶ 71.) But this assertion is not based on personal knowledge of K&E's conduct. There is no evidence or testimony from any witness with personal knowledge that K&E played any role in the ICG transaction. To the contrary, LeapSource was represented by Osborn Maledon.
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very foreseeable damage to LeapSource." (Pls.' Resp. at 9:23 - 10:3.) This is simply wrong as a matter of law. It has long been settled that a plaintiff alleging legal malpractice must prove that the alleged malpractice was the proximate cause of plaintiffs' claimed damages. See Brosie v. Stockton, 468 P.2d 933, 936 (Ariz. 1970) ("The whole theory of his cause of action is that the defendant had represented both plaintiff and his wife in a divorce case. This is not enough to show damage."); State v. Stockton, 499 S.E. 2d 790, 800 (N.C. Ct. App. 1998) (former client must established "that the fiduciary breach was a proximate cause of the injury.") (quoting 2 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 16.23 at 484 (4th ed. 1996)). With no evidence that any conduct by K&E caused injury to LeapSource, the Trustee's malpractice claim fails. II. THERE IS NO EVIDENCE THAT ANY ACTIONABLE CONFLICT OF INTEREST EVER EXISTED BETWEEN LEAPSOURCE AND K&E. Prof. Hazard asserts that K&E had a conflict of interest in late 2000 and early

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2001. To reach this conclusion, he assumed that K&E jointly represented LeapSource and 15 GTCR during this time period, or in the alternative, that K&E's representation of GTCR 16 was "substantially related" to its alleged earlier representation of LeapSource. There no 17 evidence to support these conclusions. All witnesses with personal knowledge have 18 testified that K&E was representing GTCR alone, not LeapSource, in late 2000 and 2001. 19 Further, there is no evidence that K&E's representation of GTCR in late 2000 and 2001 20 was substantially related to the ministerial work it performed related to LeapSource's 21 formation in 1999. 22 Although the Trustee devotes much of her memorandum to the issue, this Court 23 need not decide on this motion whether K&E did or did not represent LeapSource in 1999. 24 Even assuming K&E did represent LeapSource prior to late 2000, the Trustee's 25 malpractice claim cannot survive. 26 27 28 A. There Is No Evidence That K&E Simultaneously Represented LeapSource and GTCR in 2001.

All witnesses with personal knowledge of the interactions between K&E and
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LeapSource -- including K&E lawyers, LeapSource lawyers, and the LeapSource controller -- testified unanimously that K&E was representing GTCR, not LeapSource, in 2001. Not a single witness has testified that LeapSource asked for or received any legal advice from K&E in 2001. Instead, the Trustee relies on Chris Kirk's deposition testimony, which is not based on her personal knowledge, and documents reflecting K&E's work for GTCR. None of this evidence raises a genuine issue of fact as to the issue of K&E's representation. First, Chris Kirk's testimony that she believed K&E was representing LeapSource does not, by itself, raise a genuine factual issue. A client's belief that an attorney-client relationship existed must be "objectively reasonable" to be given legal effect. See In re Pappas, 768 P.2d 1161, 1167 (Ariz. 1988) (citing In re Neville, 708 P.2d 1297, 1302 (Ariz. 1985)). Here, there is no evidence that would show Kirk's belief, even if genuine, to be objectively reasonable. Neither Kirk nor any other witness for LeapSource testified that they asked K&E to perform legal work for LeapSource in 2001.5 The Trustee does not dispute that K&E did not communicate with Kirk after October or November 1999. (Resp. to SOF ¶ 57). None of Kirk's testimony is based on her personal knowledge, and her claim that K&E was somehow representing LeapSource in 2001 lacks any foundation. In addition, it is undisputed that LeapSource's attorney Michelle Matiski repeatedly told Kirk -- both in 1999 and in 2001 -- that K&E was representing GTCR only, not LeapSource. (SOF ¶ 76.) See Neville, 708 P.2d at 1302 (holding that "an experienced real estate investor who had dealt with attorneys in numerous transactions" should have realized that defendant was not acting as his attorney). Indeed, every witness with personal knowledge of the communications between K&E and LeapSource unanimously testified that K&E was not representing LeapSource during late 2000-2001. LeapSource's lawyers at other law firms, GTCR's lawyers at K&E, and the LeapSource The Trustee correctly notes that "K&E was asked to review potential issues arising under the WARN Act in January 2001," but tellingly offers no witness with personal knowledge to say that this was done for, or at the request of, LeapSource. In truth, this work was done for GTCR and billed to LeapSource under Section 7A of the Purchase Agreement, which requires LeapSource to pay GTCR's legal fees. See SOF ¶ 51.
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legal contact (controller Tina Rhodes) all testified that K&E was not representing LeapSource. (SOF ¶¶ 32, 45, 60.) Kirk's unsupported belief to the contrary does not create a genuine issue of material fact. The Trustee also points to a faxed note on March 10, 2001 from LeapSource's controller Tina Rhodes to Richard Clyne, the K&E associate attorney, as evidence that K&E was representing LeapSource. (Pls.' Resp. at 7:4-12; 12:7-10.) However, the document merely reflects Clyne's involvement on behalf of GTCR, the company's principal investor. The note does not ask for or refer to any legal advice, and the author testified that (despite the language in the note) she never discussed it with K&E's Clyne. (Rhodes Dep. at 154:4-10, Ex. 1 to Adams Decl.6) Indeed, Rhodes testified that she never thought that K&E was representing LeapSource.7 (SOF ¶ 60.) None of the individual plaintiffs had personal knowledge of LeapSource's limited communications with K&E. B. The Trustee Cannot Evade Her Burden of Producing Evidence By Questioning the Credibility of Witnesses.

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The Trustee responds to the substantial evidence cited by K&E by relying on obscure footnote ­ one that has not been cited elsewhere and serves, at best, as dicta in the 16 District Court of the District of Columbia ­ for the proposition that summary judgment 17 should be denied when most of the evidence consists of deposition testimony from 18 witnesses against the non-movants. (Pls.' Resp. at 3:2-7.) That is not the law in the Ninth 19 Circuit: "the nonmoving party may not merely state that it will discredit the moving 20 party's evidence at trial and proceed in the hope that something can be developed at trial 21 in the way of evidence to support its claim." T.W. Elec. Serv., Inc. v. Pacific Elec. 22 Contractors Assoc., 809 F.2d 626, 630 (9th Cir. 1987) (citing Anderson v. Liberty Lobby, 23 Inc., 477 U.S. 242, 255-56 (1986)). The Trustee acknowledges that K&E lawyers, 24 25 26 27 28 K&E submits certain exhibits attached to the supplemental Declaration of Joseph G. Adams ("Adams Decl.") with this reply to respond to new factual matters raised the Trustee in her response brief and supporting statement of additional facts.
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The Trustee also points to an April 30, 2001 note from Clyne to Eaton concerning Gilman's request to review LeapSource's books and records. (Pls.' Resp. at 7:12-16; 12:11-20.) Clyne's note says only that K&E will need to speak with GTCR (its client) before responding.
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LeapSource's lawyers at Osborn Maledon, and LeapSource's controller have all testified that K&E was not representing LeapSource. The Trustee's response is that "the jury is not obligated to believe their denials." (Pls.' Resp. at 12:6-7.) But the law in this circuit is settled that merely questioning the credibility of the movant's evidence is insufficient to avert summary judgment. See National Union Fire Ins. Co. of Pittsburgh, Pa. v. Argonaut Ins. Co., 701 F.2d 95, 97 (9th Cir. 1983) ("neither a desire to cross-examine an affiant nor an unspecified hope of undermining his or her credibility suffices to avert summary judgment"); Hostettler v. Dalton, Nos. C-94-2372-VRW & C-94-2373-VRW, 1006 WL 660594, at *1 (N.D. Cal. 1996) (granting summary judgment where plaintiff merely attacks declarations of witnesses). Under Rule 56, the Trustee has the burden of setting forth, by affidavit or otherwise, specific facts showing that a genuine issue for trial. A mere scintilla of evidence is insufficient. Fed. R. Civ. P. 56(e); see Anderson, 477 U.S. at 252. Once the moving party meets its initial burden of identifying portions of the materials that it believes demonstrates the absence of a genuine issue of material fact, the nonmoving party must come forward with direct evidence that an issue exists. T.W. Elec., 809 F.2d at 630-31. The Trustee "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). C. There Is No Evidence That K&E's Representation of GTCR in 2001 Was Substantially Related to Any Work For LeapSource.

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In the alternative, Hazard assumes that LeapSource was K&E's former client by 2001, and he opines that K&E's representation of GTCR in 2001 was "substantially 23 related" under Ethical Rule 1.9(a) to its supposed prior representation of LeapSource and 24 was therefore improper. However, even if K&E had somehow represented LeapSource in 25 1999, K&E would not be precluded from representing GTCR in 2000 and 2001. There is 26 no substantial relationship between K&E's ministerial work regarding LeapSource in 27 1999, such as incorporating the company and registering it to do business, and its later 28
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representation of GTCR regarding its funding commitment and obligations to LeapSource. The Trustee does not present any evidence with the opposition brief that would demonstrate any similarity between the two sets of work, let alone a substantial one. The Trustee merely accuses K&E of "falsely denying" the existence of a substantial relationship. (Pls.' Resp. at 11:10-12.) There is no record evidence that any of K&E's initial work relating to the formation of LeapSource -- such as the incorporation or filing of tax papers -- was ever at issue in late 2000 or early 2001. Likewise, there is no evidence before the Court that anyone at LeapSource ever transmitted confidential information to anyone at K&E. As a result, the "substantial relationship" test is entirely inapplicable. See Alexander v. Superior Court, 685 P.2d 1309, 1316 (Ariz. 1984) (a substantial relationship between former client and a current client is a conflict of interest only if the matter involves "disclosures of confidential information" from former client). III. CONCLUSION. The Trustee has not met her burden of producing admissible evidence showing that there is a genuine issue for trial regarding the claim of legal malpractice. There is no record evidence that K&E's alleged malpractice was the cause of any harm to LeapSource. Further, the Trustee has produced no admissible evidence that K&E simultaneously represented LeapSource in late 2000 and 2001 while it represented GTCR. Finally, the Trustee cannot establish that -- assuming LeapSource was a former client in 2001-- K&E's work was substantially related to its alleged prior work for LeapSource. K&E respectfully requests that the Court grant the motion for summary judgment. DATED this 22nd day of May, 2006. SNELL & WILMER L.L.P. By s/ Joseph G. Adams John J. Bouma James R. Condo Patricia Lee Refo Joseph G. Adams Attorneys for Kirkland & Ellis
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CERTIFICATE OF SERVICE I hereby certify that on May 22, 2006, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Leo R. Beus Richard R. Thomas Scot C. Stirling Beus Gilbert, PLLC 4800 North Scottsdale Road Scottsdale, AZ 85251 Attorneys for Plaintiffs Don P. Martin Edward A. Salanga Quarles & Brady Streich Lang, LLP Two North Central Phoenix, AZ 85004-2391 Attorneys for GTCR Defendants and Defendants Nolan, Rauner, Yih, Donnini and Canfield David S. Foster Latham & Watkins, LLP Sears Tower, Suite 5800 233 South Wacker Drive Chicago, IL 60606 Attorneys for GTCR Defendants and Defendants Nolan, Rauner, Yih, Donnini and Canfield Merrick B. Firestone Ronan & Firestone, P.L.C. 649 North Second Avenue Phoenix, AZ 85003 Attorneys for Michael Makings Foster Robberson Richard A. Halloran Lewis and Roca LLP 40 N. Central Avenue Phoenix, AZ 85004-4429 Attorneys for David L. Eaton and AEG Partners LLC Steven J. Brown Steve Brown & Associates, L.L.C. 1440 E. Missouri, Suite 185 Phoenix, AZ 85014-2412 Attorneys for Plaintiff Diane Mann, as Trustee for the Estate of LeapSource, Inc. s/ Kimberley K. Mosaidis

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