Free Statement - 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. 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' STATEMENT OF FACTS IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT REGARDING MALPRACTICE AND PROFESSIONAL NEGLIGENCE (COUNT 10) (Assigned to Hon. Robert C. Broomfield)

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12 13 14 Defendants. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 GTCR Golder Rauner, L.L.C.; a Delaware limited liability company, et al.,

Snell & Wilmer L.L.P.

Pursuant to LRCiv 56.1(a), Kirkland & Ellis ("K&E") submits this Statement of Facts in Support of its Motion for Summary Judgment Regarding Malpractice and Professional Negligence (Count 10). 1. K&E has represented GTCR in private equity transactions and investments

for well over two decades. (Excerpts of Deposition Transcript of Kevin Evanich ("Evanich Dep."), attached as Exhibit 1, at 9:17 - 10:8.) 2. K&E's first invoice regarding GTCR's investment in LeapSource covered a

time period starting on September 1, 1999. (Invoice and billing letter dated 1/25/2000, [KE000350 - 51], attached as Exhibit 2.) 3. In August and September 1999, Kirk understood that "GTCR was a long-

standing client of Kirkland & Ellis." (Excerpts of Deposition Transcript of Christine Kirk ("Kirk Dep."), attached as Exhibit 3, at 587:1- 14.)

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4.

Kirk had previously retained counsel at the Chicago law firm of Sachnoff &

Weaver to represent her in the negotiations with GTCR. She first spoke with Jeff Gilbert, a partner at the Sachnoff & Weaver firm, in April 1999 or earlier. (Kirk Dep., Ex. 3, at 592:15 - 593:16.) 5. By late August and early September, Gilbert's partner Jeff Schumacher was

advising her in connection with the negotiations with GTCR. (Excerpts of Deposition Transcript of Jeffrey Schumacher ("Schumacher Dep."), attached as Exhibit 4, at 17:19 20:13, 28:17 - 29:2.) 6. Schumacher is experienced in representing clients in negotiations with

venture capital firms, he has over two decades of experience in corporate and securities work, and has served as the head of the securities group at Sachnoff for over ten years.. (Schumacher Dep., Ex. 4, at 9:22 - 10:11, 11:4-14.) 7. Sachnoff represented Kirk "in connection with negotiations with GTCR

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concerning a potential business opportunity." (Letter from J. Gilbert to J. Nolan dated 9/8/1999 [Dep. Ex. 503], attached as Exhibit 5; Kirk Dep., Ex. 3, at 602:13-18.) This representation included advice concerning multiple "potential funding sources." (Sachnoff & Weaver Invoice dated 10/25/99, attached as Exhibit 6.) 8. In connection with GTCR's investment in LeapSource, K&E worked on

behalf of GTCR to prepare documents related to the formation of the company. (Excerpts of Deposition Transcript of Stephen Ritchie ("Ritchie Dep."), attached as Exhibit 7, at 9:12 - 10:16.) Kirk's lawyer provided comments to K&E about the draft agreements, including the Purchase Agreement. (Schumacher Dep., Ex. 4, at 64:17-21, 71:13 ­ 72:8.) K&E prepared revised drafts of these documents based on the comments received from Schumacher. (Ritchie Dep., Ex. 7, at 14:11-21.) 9. In the course of the negotiations, Schumacher explained the agreements to

Kirk and answered all of her questions. (Schumacher Dep., Ex. 4, at 31:23 ­ 32:10, 72:913; Kirk Dep., Ex. 3, at 629: 7-18.)

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10.

Kirk and her lawyers at Sachnoff understood that K&E represented GTCR,

which they knew to be a long-standing client of K&E. (Kirk Dep., Ex. 3, at 587:1-14; Schumacher Dep., Ex. 4, at 27:14-28:15, 73:8-15.) 11. Kirk knew in September 1999 that K&E was actively negotiating with her

lawyers at Sachnoff on behalf of GTCR. (Kirk Dep., Ex. 3, at 628:1-13.) 12. Kirk knew throughout her time at LeapSource that K&E had GTCR as its

client. (Kirk Dep., Ex. 3, at 588:19-22.) 13. Steve Ritchie, the K&E partner handling the negotiations for GTCR,

testified that Kirk's lawyers "raised objections to the language we drafted in the documents" because "[t]hey were looking for a firmer commitment from GTCR." (Ritchie Dep., Ex. 7, at 15:15 - 16:3.) 14. A draft of the Purchase Agreement dated September 16, 1999 reflects

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Schumacher's handwritten notes and his circling of the words "up to" $65 million. (Draft of Purchase Agreement dated 9/16/1999 [Dep. Ex. 532], attached as Exhibit 8; Schumacher Dep., Ex. 4, at 62:3 - 63:12.) 15. Schumacher was involved with negotiations with K&E "on whether that

language should be deleted or replaced with other language which would remove the conditional aspect associated with those words." (Schumacher Dep., Ex. 4, at 50:1-10.) 16. Schumacher discussed with Kirk that "there were conditions to the funding"

commitment by GTCR. (Schumacher Dep., Ex. 4, at 63:3-20.) 17. Kirk testified that her lawyers fully explained the Purchase Agreement to

her and that she understood its terms before she signed it. (Kirk Dep., Ex. 3, at 629: 712.) 18. Kirk does not dispute that she never met any of the K&E lawyers

representing GTCR on the LeapSource transaction, either during the negotiations or at any other time. (Kirk Dep., Ex. 3, at 582:10 - 583:15; Excerpts of Deposition Transcript of Richard Clyne ("Clyne Dep."), attached as Exhibit 9, at 12:12-13; Ritchie Dep., Ex. 7, at 10:22 - 11:4; Evanich Dep., Ex. 1, at 19:5-9.)
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19.

During the negotiations, Kirk spoke with Richard Clyne, a K&E associate,

who told her that he would be faxing her materials to sign and return and requested that she provide information for registration forms for the company. (Kirk Dep., Ex. 3, at 616:20 - 618:3; Clyne Dep., Ex. 9, at 14:2-6.) 20. Kirk testified that she spoke with Steve Ritchie, the K&E partner, sometime

in September 1999, but cannot recall any conversations with him thereafter. (Kirk Dep., Ex. 3, at 583:22 - 584:9.) 21. Schumacher testified that Kirk never told him that she had any substantive

conversations with any K&E lawyer. (Schumacher Dep., Ex. 4, at 76:4-24.) 22. While the deal documents were being negotiated, a legal assistant at K&E

prepared and filed the necessary paperwork to form Kirkco, LeapSource's predecessor, as a Delaware corporation on September 16, 1999. (Kirkco Articles of Incorporation [Dep. Ex. 3], attached as Exhibit 10; Clyne Dep., Ex. 9, at 16:12 - 17:5.). 23. Schumacher was not surprised that K&E had filed the incorporation papers

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and did not believe that this rendered K&E counsel for Kirkco in all respects. (Schumacher Dep., Ex. 4, at 67:14 ­ 69:5.) 24. Schumacher testified that Kirkco did not need to be represented by counsel

between September 16 and 27, 1999 because "[i]t didn't have independent interests at that stage. The shareholders were -- the putative shareholders were -- I viewed them as the parties in interest." (Schumacher Dep., Ex. 4, at 69:15-24.) 25. To Schumacher's knowledge, LeapSource had no assets with which to

retain counsel between September 16 and 27, 1999. (Schumacher Dep., Ex. 4, at 70:1-4.) 26. Schumacher testified, it is "typical for the corporate entity being formed to

be unrepresented for some period of time while the parties negotiate other documents relating to the funding of that corporate entity." (Schumacher Dep., Ex. 4, at 70:5-13.) 27. Kirk did not tell Schumacher that she understood K&E to be representing

LeapSource while the deal documents were being negotiated. (Schumacher Dep., Ex. 4, at 70:15 - 71:9.)
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28.

As the sole director of the company once it was incorporated, Kirk

acknowledges that she was responsible for retaining counsel for the company. (Kirkco Consent In Lieu of Organizational Meeting [Dep. Ex. 505], attached as Exhibit 11; Kirk Dep., Ex. 3, at 613:5-8.) 29. Kirk could not identify any conversation or writing in which she retained

K&E to serve as LeapSource's counsel during the period between September 16 and 27, 1999. (Kirk Dep., Ex. 3, at 616:1-19.) 30. Kirk does not recall anyone from K&E telling her that K&E would be

representing LeapSource. (Kirk Dep., Ex. 3, at 619:17-20.) 31. Q: A: In her deposition, Kirk testified as follows: What legal advice did Kirkland & Ellis provide to you prior to September 27, 1999? About filing a -- filing tax forms, about which states that we should file the corporation in, about things that should go into other employment agreements.

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Besides information concerning tax forms, where the corporation should be incorporated and registered, and things that should go into employment agreements between LeapSource and certain employees, is there any other legal advice that you contend Kirkland & Ellis provided to you or through you to LeapSource in September 1999?

[objection] Not that I can recall at this time.

(Kirk Dep., Ex. 3, at 628:25 - 629:6, 630:17-24.) 32. No lawyer involved in negotiating the deal documents thought K&E

represented LeapSource in any aspect of the transaction. (Schumacher Dep., Ex. 4, at 70:15 - 71:1; Clyne Dep., Ex. 9, at 19:1-6, 40:11-19; Ritchie Dep., Ex. 7, at 17:17 - 18:4.) 33. Schumacher's contemporaneous time entries -- sent to LeapSource in

invoices -- refer to K&E as the "attorneys for GTCR." (Sachnoff & Weaver Invoice, Ex. 6; Schumacher Dep., Ex. 4, at 59:8-21.)

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34.

Schumacher never thought that K&E had a conflict of interest, nor did he

believe that K&E committed malpractice. (Schumacher Dep., Ex. 4, at 80:6 - 81:15.) If he had observed any such conflict of interest, he presumed he would have brought the matter to someone's attention. (Id. at 80:18 - 81:1.) 35. Jeff Gilbert, who represented LeapSource in litigation with Kirk's former

employer Arthur Andersen until August 2000, never thought that K&E ever had a conflict of interest. (Excerpts of Deposition Transcript of Jeffrey Gilbert ("Gilbert Dep."), attached as Exhibit 12, at 31:13-20.) He does not recall ever telling anyone that K&E had a conflict of interest. (Id. at 32:5-7.) 36. K&E has retained Sy Peck, an experienced venture capital lawyer, to serve

as an expert in venture capital transactions. In Mr. Peck's undisputed expert opinion: During the formation stage, the company does not need to be represented by counsel. The company does not have independent interests at this stage. The putative shareholders on the two sides of the transaction are the only parties in interest at this time. I am not aware of a single leveraged build up or consolidation transaction where the company was represented during the formation stage. (Expert Report of S. Michael Peck dated 10/14/2005, attached as Exhibit 13, at 5.)

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37. 17 18

Plaintiffs' ethics expert, Prof. Geoffrey Hazard, assumed that Kirkland was

engaged in September 1999 to provide legal representation to LeapSource. (Excerpts of Deposition Transcript of Geoffrey Hazard ("Hazard Dep."), attached as Exhibit 14, at 19 105:4-21.) Hazard did no investigation to determine whether that assumption was true, 20 and stated that he is not an expert in venture capital transactions. (Id. at 105:8-12, 111:23 21 - 112:2.) 22 38. 23 represent it. Sachnoff & Weaver continued its work with Kirk and started representing 24 LeapSource, both for corporate matters and in the litigation with Arthur Andersen. 25 (Schumacher Dep., Ex. 4, at 77:1-11.) 26 39. 27 Andersen litigation until the settlement agreement was finalized in September 2000. 28
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Once it was funded on September 27, 1999, LeapSource retained lawyers to

Sachnoff continued to represent LeapSource, Kirk, and others in the Arthur

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(Sachnoff & Weaver Invoices dated October 24, 2000 and November 27, 2000, attached as Exhibit 15.) 40. In October 1999, LeapSource retained the Phoenix firm of Osborn Maledon

as its principal outside law firm for transactional and corporate work. (Excerpts of Deposition Transcript of Michelle Matiski ("Matiski Dep."), attached as Exhibit 16, at 21:2-10.) 41. Sachnoff & Weaver stopped doing transactional work for LeapSource when

the company retained Osborn Maledon to perform the same type of work. (Schumacher Dep., Ex. 4, at 81:20 - 82:19.) 42. Osborn Maledon lawyers attended meetings of the LeapSource Board of

Directors. (Minutes of Meetings of LeapSource, Inc. Board of Directors, attached as Exhibit 17.) No K&E lawyer ever attended a LeapSource board meeting. (Kirk Dep., Ex. 3, at 638:25 - 639:2.) 43. Internal LeapSource documents describe Osborn Maledon as the company's

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"general counsel." (Chart Titled "Legal and Litigation Expense By Attorney" [Dep. Ex. 4], attached as Exhibit 18.) Tina Rhodes testified that Osborn was "regular outside counsel" to LeapSource. (Excerpts of Deposition Transcript of Tina Rhodes ("Rhodes Dep."), attached as Exhibit 19, at 189:9-13.) 44. From October 1999 through August 2001, Osborn Maledon billed

LeapSource $290,835 for corporate and transactional work. (Declaration of J. Altendorf, attached as Exhibit 20). 45. Michelle Matiski, the Osborn Maledon partner who was LeapSource's

principal corporate lawyer from 1999 to 2001, testified that K&E never represented LeapSource, that she never observed K&E rendering legal services to LeapSource, and that she never concluded that K&E had a conflict. (Matiski Dep., Ex. 16, at 23:13-16, 26:25 ­ 27:4, 30:1-17, 118:12-16.) 46. When she was first retained, Matiski reviewed the deal documents and told

Kirk that the agreements with GTCR did not provide a firm funding commitment.
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(Matiski Dep., Ex. 16, at 15:12 - 17:11.) 47. Early in the representation in 1999, Matiski told Kirk that K&E was

representing GTCR and looking out for GTCR's interests, not LeapSource's. (Matiski Dep., Ex. 16, at 27:18 - 28:5.) 48. LeapSource hired other law firms to perform legal work, such as the

Weinberg Legal Group for intellectual property matters. (Excerpts of Deposition Transcript of Indu Gupta, attached as Exhibit 21, at 177:1-15.) 49. A company document dated June 6, 2000 listing vendor agreements

identified law firms under the heading "Professional Services," including Osborn Maledon and Weinberg Legal Group. (Chart of Vendor Agreements [Dep. Ex. 6], attached as Exhibit 22.) LeapSource does not list Kirkland & Ellis on that list of vendors supplying professional services to the company. (Id.) 50. In 2000, LeapSource sent out letters to its legal counsel asking them to

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respond to audit requests from the company's auditors. LeapSource did not send an audit request letter to K&E. (Letter dated 3/7/2000 from T. Deniger to J. Gilbert [Dep. Ex. 537], attached as Exhibit 23; Rhodes Dep., Ex. 19, at 223:17 - 226:10.) 51. The Purchase Agreement required that LeapSource pay GTCR's legal fees

incurred in connection with LeapSource. Kirkland sent its bills jointly to LeapSource and to GTCR. (Purchase Agreement, attached as Exhibit 24, at Section 7A; Kirk Dep., Ex. 3, at 632:4 - 7; Rhodes Dep., Ex. 19, at 230:12 - 15.) 52. Tina Rhodes, LeapSource's controller responsible for managing relations

with legal counsel, stated that LeapSource's payment of GTCR's legal fees did not make K&E counsel for LeapSource. (Rhodes Dep., Ex. 19, at 226:11-16, 232:17-20.) 53. After the formation documents were executed, LeapSource's contact with

K&E was limited to communications with Clyne, the junior associate. (Ritchie Dep., Ex. 7, at 28:10-23.) Clyne's work relating to LeapSource consisted of preparing supplements to the Purchase Agreement to document GTCR's continuing investments in the company, and printing out related board consents and stock certificates. (Clyne Dep., Ex. 9, at
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30:13-25.) 54. Clyne testified that he confirmed with LeapSource's counsel at Osborn

Maledon that K&E would continue to perform the work relating to documentation of investments for GTCR. (Clyne Dep., Ex. 9, at 20:1-6.) 55. Matiski did not think there was anything improper about K&E preparing

stock certificates for LeapSource, and she did not think it meant that K&E was counsel for LeapSource. (Matiski Dep., Ex. 16, at 26:14-23.) 56. Kirk and Clyne communicated in early October 1999 about a draft offer

letter and employment agreement checklist for LeapSource. (Clyne Dep., Ex. 9, at 35:16 - 36:7.) All of the employment agreements between LeapSource and its employees (except Kirk) were prepared by Osborn Maledon and were not finalized by K&E. (Kirk Dep., Ex. 3, at 644:13-19; Rhodes Dep., Ex. 19, at 246:13 - 247:5.) 57. In October or November 1999, Clyne stopped sending documents related to

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GTCR's additional funding directly to Kirk for signature and started going to Rhodes. (Clyne Dep., Ex. 9, at 24:3 - 25:3.) 58. During the time period of October-November 1999 through February 27,

2001, Clyne only spoke with Rhodes between four and seven times, and the conversations were limited to "administrative-type matters, ministerial-type issues," such as obtaining signatures. (Clyne Dep., Ex. 9, at 25:4-25, 27:18-20.) 59. Clyne does not recall any conversations with Kirk after November 1999.

(Clyne Dep., Ex. 9, at 23:15 - 24:2.) 60. Rhodes, the person at LeapSource who "managed relations" with legal

counsel, never went to K&E for substantive legal advice for LeapSource during her entire tenure with the company, though she was aware that K&E performed certain ministerial tasks related to GTCR's investments in LeapSource. (Rhodes Dep., Ex. 19, at 223:8-14, 233:14-19.) She did not believe that performing these minor tasks made K&E counsel for LeapSource. (Id. at 27:5-25.)

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61.

Rhodes wrote to LeapSource's counsel at Osborn Maledon that K&E's

Richard Clyne was "GTCR's counsel." (E-mail from T. Rhodes to J. Forster dated 11/13/2000 [Dep. Ex. 275], attached as Exhibit 25; Rhodes Dep., Ex. 19, at 239:3 240:2.) 62. Rhodes testified that she dealt only with Clyne, not any other lawyers at

K&E. (Rhodes Dep., Ex. 19, at 21:25 - 22:3.) The only conversations that Rhodes had with Clyne concerned the issuance of stock certificates and minutes. (Id. at 158:21 159:4.) 63. K&E reviewed a 2000 loan transaction to LeapSource that was guaranteed

by GTCR. GTCR had a relationship with Harris Bank pursuant to which the bank extended loans to GTCR portfolio companies, supported by a GTCR guaranty. (Ritchie Dep., Ex. 7, at 37:7-14.) K&E reviewed the loan transaction on behalf of GTCR to ensure that the documents were in proper order. (Id.) 64. In March 2000, Harris Bank moved the loan to its parent company, Bank of

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Montreal, and K&E again reviewed the documentation on behalf of GTCR. (Ritchie Dep., Ex. 7, at 39:4-17.) 65. When LeapSource filed for bankruptcy, GTCR had to pay $10.25 million to

purchase the loan from Harris Bank to LeapSource that it had guaranteed. (Letter from D. Rubin to J. Nolan dated 4/18/2001 [KE003310], attached as Exhibit 26.) 66. Chris Kirk testified that she was not surprised that GTCR wanted its lawyers

involved in the loan that GTCR was guaranteeing on behalf of LeapSource. (Kirk Dep., Ex. 3, at 647:6-16.) 67. In late 2000, LeapSource authorized the issuance of certain stock options to

certain employees and others, the result of which was to dilute GTCR's stock ownership interest in LeapSource. Matiski, for LeapSource, and Clyne, for GTCR, negotiated over how to correct the dilution without causing tax consequences. (Clyne Dep., Ex. 9, at 33:12-24.) On behalf of LeapSource, Matiski negotiated with Clyne, representing GTCR, to draft an amendment to the purchase agreement to resolve this issue. (Matiski Dep., Ex.
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16, at 40:5-14.) 68. At LeapSource's direction, Matiski tried to negotiate a new promise from

GTCR in December 2000 that it would fund the full $65 million -- and GTCR refused. (Matiski Dep., Ex. 16, at 43:14 - 44:12.) 69. Kirk testified that K&E had no conflict of interest, and did nothing that

damaged LeapSource, during 2000. (Kirk Dep., Ex. 3, at 648:25 - 650:15.) 70. Kirk stated that she was aware at the time that "GTCR was in constant

contact with Kirkland & Ellis during January and February of 2001." (Kirk Dep., Ex. 3, at 688:2-12.) According to Kirk, GTCR told her, "`we need to get back and talk to K&E about this,' or `we need to call K&E about this'" during this time. (Id. at 687:6-16.) Kirk stated that she understood these statements at the time to mean that K&E was providing legal advice to GTCR principals. (Id. at 687:3-14.) 71. Kirk cannot point to any legal advice K&E rendered to the company in

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2001. (Kirk Dep., Ex. 3, 708:6 - 710:7.) 72. Q. Dan Yih of GTCR testified as follows: Were you aware that Kirkland & Ellis had provided professional services to LeapSource? Ms. Refo: Objection to the form. [Assumes a fact not in evidence; lacks foundation.] A. Q. A. Q. A. Q. A. I believed, yes, at the time that it was also company's counsel. Kirkland & Ellis was? Yes. Okay. And why did you think so? I thought that it had provided services, but I may have been mistaken. Where did you get the information that led you to believe that Kirkland & Ellis had provided services ­ professional services ­ to LeapSource? There was no particular reason.

He also testified: Q. Mr. Yih, did anyone from LeapSource ever tell you that Kirkland & Ellis was representing LeapSource?
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A. Q. A. Q. A.

No. Did anyone tell you that Kirkland & Ellis was representing LeapSource? No. Do you have any personal knowledge, Mr. Yih, that Kirkland & Ellis ever represented LeapSource? No.

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(Excerpts of Deposition Transcript of Dan Yih, attached as Exhibit 27, at 332:20 333:11, 493:24 - 494:12.) 73. Matiski represented LeapSource in its continuing discussions with GTCR in

early 2001 over its funding. Kirk admits that Osborn's representation of LeapSource was competent and that Osborn fulfilled all of its duties to LeapSource. (Kirk Dep., Ex. 3, at 650:16 - 651:19.) 74. Kirk had consulted with her lawyers at Sachnoff about GTCR's funding

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responsibilities. (Schumacher Dep., Ex. 4, at 27:14-28:15, 73:8-15.) 75. Matiski testified that Kirk and Gilman told her in early 2001 that they

believed K&E had a conflict of interest because it purportedly represented both LeapSource and GTCR. (Matiski Dep., Ex. 16, at 30:18 - 31:16.) 76. Matiski told Kirk and Gilman that "Kirkland & Ellis represented and had

always represented GTCR and was not looking out for the interests of LeapSource." (Matiski Dep., Ex. 16, at 31:21-25.) Matiski told Kirk and Gilman it was clear that "LeapSource and Chris were not represented by K&E." (Id. at 219:11-24.) 77. In mid-February 2001, Kirk retained separate counsel, Steve Savage of

Fennemore Craig, to represent her personally in matters relating to LeapSource and GTCR. (Kirk Dep., Ex. 3, at 690:3 - 691:5.) 78. Neither Matiski nor Savage told Kirk that K&E had a conflict of interest

with LeapSource. (Kirk Dep., Ex. 3, at 692:19-25.) 79. Kirk stated that while she was CEO of LeapSource, LeapSource suffered no

damage as a consequence of any supposed conflict of interest. (Kirk Dep., Ex. 3, at

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679:1-18.) She does not recall any steps that she took to address any supposed conflict of interest regarding K&E. (Id. at 675:10-18.) 80. Kirk could not identify any specific legal advice that Clyne gave to

LeapSource or GTCR in 2001. (Kirk Dep., Ex. 3, at 708:6 - 710:7.) 81. LeapSource sought advice on the termination of Kirk and other officers

from the firm of Jennings Strouss & Salmon. (Rhodes Dep., Ex. 19, at 234:8-14, 243:12 244:10.) 82. The Trustee retained Professor Geoffrey Hazard to offer expert opinions and

testimony regarding the conduct of K&E. (Expert Report of Geoffrey Hazard dated 7/15/2005 ("Hazard Report"), attached as Exhibit 28.) 83. In his expert report, Hazard assumed that "Kirkland was engaged in

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September 1999 to provide legal representation to LeapSource," and that the representation lasted until at least February 2001. (Hazard Report, Ex. 28, at ¶ 4(a).) 84. Hazard assumed that K&E provided advice to GTCR between January and

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March 2001, but did not offer advice to LeapSource or inform LeapSource that a conflict of interest existed. (Hazard Report, Ex. 28, at ¶ 4(g).) 85. Based on these assumptions, Hazard concluded that K&E had a conflict of

interest arising from its supposedly concurrent representation of GTCR and LeapSource in late 2000 through March 2001. (Hazard Report, Ex. 28, at ¶ 5(a).) 86. In the alternative, Hazard stated 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." (Hazard Report, Ex. 28, at ¶ 5(a).) 87. Hazard's report offered no opinion on causation. On this issue, it states only

that "I understand that there will be other evidence that, if LeapSource had been properly advised and assisted, it would have survived as a functioning company rather than going into bankruptcy." (Hazard Report, Ex. 28, ¶ 5(e).)

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LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

88.

In his deposition, Hazard stated that he assumed that K&E was engaged to

represent LeapSource in September 1999. (Hazard Dep., Ex. 14, at 105:4-7.) 89. Hazard did not conduct any independent investigation to confirm this

assumption and relied only on a "narrative" of facts supplied by plaintiffs' counsel. (Hazard Dep., Ex. 14, at 105:8-12, 121:10-23.) 90. Hazard did not know who supposedly engaged K&E or whether there was

an engagement letter between K&E and LeapSource. (Hazard Dep., Ex. 14, at 106:23 107:9.) He stated that his opinions would change if K&E was not engaged to provide legal representation to LeapSource. (Id. at 105:22 - 106:8.) 91. Hazard said that he did not know precisely what K&E was retained to do.

(Hazard Dep., Ex. 14, at 108:4-8.) 92. Hazard testified that it would be relevant to his opinion to know whether

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Kirk's lawyers testified that K&E was not representing LeapSource. (Hazard Dep., Ex. 14, at 112:21 - 113:7.) 93. Hazard stated that if LeapSource had agreed to pay GTCR's legal fees, it

would be "appropriate" for K&E to furnish LeapSource with copies of its invoices for LeapSource to pay GTCR's legal fees. (Hazard Dep., Ex. 14, at 118:23 - 119:16.) 94. Hazard testified that his opinions could change if LeapSource was regularly

represented in corporate matters during the year 2000 by another law firm. (Hazard Dep., Ex. 14, at 123:18 - 124:1.) 95. Hazard stated that it would be relevant to his opinion if internal LeapSource

documents referred to another law firm as the company's "general counsel." (Hazard Dep., Ex. 14, at 153:3-12.) 96. Hazard testified that K&E's supposed conflict in 2001 is based on K&E's

knowledge, acquired at the time that the formation documents were executed, "that Mrs. Kirk has 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." (Hazard Dep., Ex. 14, at 142:4-9.) In
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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. at 143:6-9.) 97. Hazard stated that Kirk's desire for a firm commitment was "not

confidential," and that "everyone knew that Chris Kirk wanted a firmer commitment" and that GTCR refused to give it. (Hazard Dep., Ex. 14, at 143:12-22.) 98. Hazard testified that this case does not involve a lawyer using confidential

disclosures against a former client. (Hazard Dep., Ex. 14, at 141:21 - 142:3.) 99. Hazard testified that 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." (Hazard Dep., Ex. 14, at 142:10-18.) Hazard stated that K&E learned this information while representing its client GTCR and while Kirk was represented by her own lawyers. (Id. at 150:1-6.) 100. According to Hazard, K&E's representation of GTCR "involve[d] measures

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to wind down LeapSource," and it was substantially related to the alleged earlier representation of LeapSource on the ground that "you help somebody set up a company; then you help somebody take it apart." (Hazard Dep., Ex. 14, at 138:2 - 139:8.) 101. When asked about the nature of the advice given by K&E to GTCR at that

time, Hazard said that he "infer[s] that the subject matter included whether GTCR was doing what its policy or plan was going to be concerning funding." (Hazard Dep., Ex. 14, at 146:22 - 147:23.) 102. Hazard testified that he did not have specific information about the advice

that K&E gave to GTCR, but he inferred the content of the advice from GTCR's claim of privilege for those communications. (Hazard Dep., Ex. 14, at 147:13 - 148:18.) 103. According to Hazard, if LeapSource had obtained independent legal advice

in January-March 2001, it "would raise a question about any []proximate cause," because "a conflict with Kirkland might have could well be vitiated or nullified by the fact that the LeapSource is getting independent advice." (Hazard Dep., Ex. 14, at 157:18 - 158:12.)

Case 2:02-cv-02099-RCB

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104.

Hazard testified, "if you say that 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." (Hazard Dep., Ex. 14 at 161:8-21.) 105. Hazard testified that he is "not providing" evidence of causation. (Hazard

Dep., Ex. 14, at 164:23 - 165:8.) DATED this 27th day of February, 2006. SNELL & WILMER L.L.P.

By

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Case 2:02-cv-02099-RCB

Snell & Wilmer L.L.P.

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 February 27, 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 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/ Joseph G. Adams
1794320

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