Free Response in Opposition to Motion - District Court of Arizona - Arizona

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BEUS GILBERT PLLC
ATTORNEYS AT LAW

4800 NORTH SCOTTSDALE ROAD SUITE 6000 SCOTTSDALE, ARIZONA 85251 TELEPHONE (480) 429-3000

Leo R. Beus / 002687 / [email protected] Scot C. Stirling / 005757 / [email protected] Steven E. Weinberger / 015349 / [email protected] Kevin Breger / 021004 / [email protected] Attorneys for Individual Plaintiffs and Trustee STEVE BROWN & ASSOCIATES, LLC
1440 EAST MISSOURI, STE. 185 PHOENIX, ARIZONA 85014-2412 TELEPHONE (602) 264-9224

Steven J. Brown / 010792 / [email protected] Co-Counsel for Trustee

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA DIANE MANN, as Trustee for the Estate of LeapSource, Inc., CHRISTINE V. KIRK, et al., Plaintiffs,

Case No.: CIV-02-2099-PHX-RCB PLAINTIFFS' RESPONSE TO KIRKLAND & ELLIS' MOTION FOR SUMMARY JUDGMENT REGARDING VICARIOUS LIABILITY (Assigned to the Honorable Robert C. Broomfield (Oral Argument Requested)

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H:\Leapsource\PLEADINGS\Plaintiffs Opposition to K&E Motion For Summary Judgment.doc

vs. GTCR GOLDER RAUNER, L.L.C., et al., Defendants, MICHAEL MAKINGS, Counterclaimant, vs. LEAPSOURCE, INC., et al., Counterdefendants.

Case 2:02-cv-02099-RCB

Document 260

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TABLE OF CONTENTS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
H:\Leapsource\PLEADINGS\Plaintiffs Opposition to K&E Motion For Summary Judgment.doc

Page MEMORANDUM OF POINTS AND AUTHORITIES .......................................................... 2 I. II. III. FACTUAL BACKGROUND........................................................................................ 2 RULE 56 STANDARD. ................................................................................................ 8 THE EXISTENCE OF AN AGENCY RELATIONSHIP BETWEEN K&E AND EATON IS A DISPUTED QUESTION OF FACT.................................... 9 A. David Eaton Was Authorized By K&E To Act As LeapSource "Crisis Manager" to Protect The Interests of K&E's Client GTCR................................................................................................................ 10 David Eaton Had Apparent or Ostensible Authority to Act for K&E in Protecting GTCR's Interests ............................................................... 11

B. IV. V.

K&E IS ALSO VICARIOUSLY LIABLE FOR THE ACTS OF DAVID EATON BECAUSE THEY WERE ACTING IN CONCERT...................... 15 CONCLUSION............................................................................................................ 17

Case 2:02-cv-02099-RCB

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Plaintiffs submit the following Memorandum in response to Kirkland & Ellis' ("K&E") Motion For Summary Judgment Regarding Vicarious Liability (the "Motion"). In its Motion, K&E argues that it cannot be vicariously liable for the acts of its "Of Counsel" attorney, David Eaton. The following Memorandum and supporting Statement of Facts demonstrate that a jury could hold K&E liable for the damages to LeapSource resulting from the acts of David Eaton complained of in this case both (1) because of the relationship

7 8 9 10 11 12 13 14 15 16 17 18 Gilman was not one of the Individual Plaintiffs who left Arthur Andersen to found 19 20 21 22
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between K&E and Eaton, and (2) because they were acting in concert.1 MEMORANDUM OF POINTS AND AUTHORITIES I. FACTUAL BACKGROUND. In February 2001, the conflicts between GTCR and LeapSource were coming to a head, as LeapSource complained about GTCR's wrongful interference with LeapSource management, and questioned GTCR's commitment to supporting the company as LeapSource management looked for additional investors or for a purchaser of the company. On February 24, 2001, Tom Gilman sent a memorandum to the members of the LeapSource board, reciting a history of wrongful and damaging acts by GTCR and its principals, including GTCR members on the LeapSource board. SOF ¶¶ 145-154. Mr.

LeapSource, but joined the LeapSource board after the company was started. Before he

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K&E has not argued in its Motion that Eaton and AEG did not commit tortious acts, but has instead moved for summary judgment only on the ground that K&E cannot be held vicariously liable for whatever wrongful acts Eaton and AEG may have committed. Therefore, this Response does not attempt to address arguments that were not made in the Motion concerning the conduct of Eaton and AEG. 2
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agreed to join the LeapSource board, Mr. Gilman had spent approximately 27 years with Chrysler, including serving as CFO of Chrysler Financial. SOF ¶¶ 162-165. After receiving Mr. Gilman's memorandum, Mr. Yih testified that GTCR immediately consulted with its attorneys at K&E, and that he could not remember any nonprivileged conversations about the memorandum outside the presence of counsel. SOF ¶ 155. Some of the documents produced by GTCR concerning its internal deliberations during

7 8 9 10 11 12 13 14 15 16 When Chris Kirk was terminated as CEO of LeapSource, Tom Gilman resigned as 17 18 19 20 21 22 23 24 25 3
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this period of time have been redacted because of the assertion of attorney-client privilege. SOF ¶ 158. During a meeting of the LeapSource board three days later, on February 27, the GTCR members of the board removed Chris Kirk as CEO of LeapSource, and voted to hire AEG Partners to assist LeapSource as a "crisis manager" or "financial advisor" (different terms were used at different times). When she was terminated as CEO, Ms. Kirk was participating in the board meeting by telephone from the offices of EDS, where she was engaged in negotiations for the potential sale of LeapSource to EDS. SOF ¶ 166-167.

CFO of the company.

However, both Chris Kirk and Tom Gilman remained on the

LeapSource board of directors. When the LeapSource board was asked to vote on Bruce Rauner's motion to retain AEG Partners, Chris Kirk and Tom Gilman were not told that the "crisis manager" recommended by the GTCR members of the board was in fact an attorney at K&E.

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During the week before the board meeting on February 27, in a telephone conference call among members of the LeapSource board, Dan Yih and Bruce Rauner disclosed that GTCR was consulting "a K&E kind of advisor" about LeapSource: Dan [Yih]: We have a K&E kind of advisor on us that we need for GTCR's perspective and he's gonna plan on being there on Monday to talk through things with you. Tom [Gilman]: Ok. Bruce [Rauner]: Yeah, GTCR is gonna hire a crisis manager/expert, you know, on troubled financings, etc. He's gonna come in on Monday. Tom: Down here?

10 11 12 13 14 15 16 17 18 19 20 21 Eaton, an attorney who was then "of counsel" to K&E, to serve in the role of the "crisis 22 23 24 25 4
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Bruce: Yeah. It's hard to get educated on what's going on and that can help because depending on what we as a Board recommend to GTCR tomorrow night that this guy's information can help GTCR make a decision on what it ought to do from a funding point of view. Tape recorded transcript of Board of Directors conference call, Bates number BOD/CALL0014 (emphasis added). SOF ¶¶ 94, 107, 108, 109. This "K&E kind of advisor" turned out to be David Eaton. Although Mr. Eaton had previously done legal work for GTCR when he was a bankruptcy partner at K&E, GTCR was re-introduced to Mr. Eaton after consulting other attorneys at K&E about the conflicts developing between GTCR and LeapSource in early 2001, and it was K&E partner Kevin Evanich who recommended that GTCR hire David

manager" at LeapSource.

Mr. Eaton then spoke to representatives of GTCR, without

including any representative of LeapSource management in the discussions. SOF ¶¶ 90, 92.

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Even before the LeapSource board was asked to approve hiring AEG Partners on February 27, Mr. Eaton ­ who had an office, a secretary, a direct telephone line, and an email address at K&E, and who in fact spent most of his time working at K&E for K&E clients ­ was consulting with at least one other attorney at K&E (Tim Stephenson, a partner in the firm's D.C. office) about one of the legal issues raised in Mr. Gilman's February 24 memorandum, compliance with the WARN Act. SOF ¶ 118. On February 26, Mr. Eaton

7 8 9 10 11 12 13 14 15 16 and Kevin Evanich of K&E admitted that David Eaton, while he was purportedly working 17 18 19 20 21 22 23 24 25 5
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received an email, addressed to him at his K&E email address from Mr. Stephenson, including advice ("the answer to your question") about compliance with the WARN Act. David Eaton did not stumble into this conflict of interest by accident. He understood very early on that there was a conflict between GTCR and LeapSource about the continued funding of the business and many other issues. SOF ¶¶ 103, 106, 156 (AEG file copy of Tom Gilman's February 24 memorandum to the LeapSource board). Significantly, David Eaton's "of counsel" agreement with Kirkland & Ellis prohibited him from undertaking any representation through AEG that was adverse to any K&E client,

for LeapSource, could not have taken any position adverse to GTCR absent a conflict waiver. SOF ¶¶ 120, 140. See Restatement (Third) of Law Governing Lawyers § 123, cmt. c(ii) ("The rule of imputation of this Section ordinarily applies due to the association of lawyers who are `of counsel'"). Notwithstanding their knowledge of the dispute between former LeapSource management (and current members of the board Tom Gilman and Chris Kirk) on the one hand and GTCR on the other, and knowing that GTCR was represented by the law firm that

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provided him with most of his work during the year, K&E recommended Eaton for, and Eaton agreed to accept, the position of "financial advisor / crisis manager" for LeapSource. SOF ¶ 122. Although K&E quotes self-serving testimony from Mr. Evanich to the effect that he recommended Mr. Eaton for that position only in his capacity as an expert in restructuring and not as an "of counsel" attorney from K&E, Mr. Evanich's legal characterization of Mr.

7 8 9 10 11 12 13 14 15 16 to cooperate with K&E in doing his part to protect GTCR's interests and to help get rid of 17 18 19 20 21 22 23 24 25 6
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Eaton's role is not a fact, and Mr. Evanich's testimony about his own intent in recommending Mr. Eaton for this role is disputed. The evidence shows that Mr. Eaton was expected to provide legal advice and did, in fact, provide legal advice ­ about where to file bankruptcy ("Delaware is trouble"), about priorities in bankruptcy, and about the ability to defend certain claims, and other matters. SOF ¶¶ 110-117. There is also evidence from which a jury may conclude that Eaton was constrained by his own ethical obligations to K&E's clients, and by the reality of the situation ­ that GTCR paid millions of dollars of fees every year to K&E, and was going to bankrupt LeapSource ­

potential claims by the former management. For example, there is evidence that Eaton took direction from K&E about opposing Tom Gilman's request for access to LeapSource books and records, forwarding the request to K&E, which suggested the need to consult GTCR before responding to Mr. Gilman's request for access to LeapSource books and records. SOF ¶ 137. There is also evidence that, after Eaton was made "Chief Restructuring Officer" of LeapSource, he cooperated with K&E lawyers in an effort to pressure Chris Kirk and Tom Gilman to release GTCR from any

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claims, by threatening to retroactively make Chris Kirk's termination as CEO "for cause." SOF ¶ 160 (draft of "for cause" termination letter produced from K&E files). In fact, all the evidence suggests that, after Eaton was brought on as the "crisis manager" and was then made "Chief Restructuring Officer" at LeapSource, he cooperated with his colleagues at K&E to help accomplish GTCR's objectives with respect to LeapSource ­minimizing GTCR's own downside, avoiding embarrassment, and protecting GTCR's interest in

7 8 9 10 11 12 13 14 15 16 including to COMSYS (another company funded by GTCR), and then­ after waiting more 17 18 19 20 21 22 23 24 25 7
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COMSYS and other investments. SOF ¶ 168. Although Mike Makings was made the CEO of LeapSource after Chris Kirk was fired, he soon made it known that he wanted to leave the company and to take back the assets of the ICG division of the business, which he had sold to LeapSource for $10 million only one year earlier. In his new position as "Chief Restructuring Officer" of LeapSource, Eaton negotiated the sale of the ICG assets to Mike Makings in return for the forgiveness of a promissory note for $2.5 million and other minimal consideration, in a transaction that the Trustee has challenged as a preference. Eaton also sold off other assets of the business,

than ninety days ­ caused the company to file a petition for relief in bankruptcy under Chapter 7. In all of this, the evidence suggests that Mr. Eaton was recommended to GTCR and passed off on to LeapSource as its "crisis manager" precisely because his "of counsel" position at K&E obliged him to defend the interests of K&E's multi-million dollar client GTCR, and to act in concert with K&E to accomplish GTCR's objectives.

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II.

RULE 56 STANDARD. The moving party on a summary judgment motion has the burden of demonstrating to

the Court that there is "no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Federal Rules of Civil Procedure ("FRCP") Rule 56(c). Rule 56 must be construed "with due regard ... for the rights of persons asserting claims and defenses that are adequately based in fact to have those claims and defenses tried to a jury ...." Celotex Corp. v. Catretti, 477 U.S. 317, 106 S. Ct. 2548, 2555 (1986).

8 9 10 11 12 13 14 15 16 17 Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 456, 112 S. Ct. 2072 18 19 20 21 22 23 24 25 8
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Summary judgment is a drastic remedy and should be granted with the utmost caution. As the Supreme Court stated in Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505, 2513-2514 (1986), "Neither do we suggest that the trial courts should act other than with caution in granting summary judgment ...." The Court must view the evidence presented in the light most favorable to the responding party. "The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor, Anderson, Id., at 255. The Court should also be mindful that the respondent's version of any disputed issue of fact is presumed correct.

(1992); Arizona v. Maricopa County Medical Society, 457 U.S. 332, 339, 102 S. Ct. 2466, 2470, 73 L. Ed. 2d 48 (1982). As the Seventh Circuit has stated, "[a]s a general rule, questions of motive and intent are inappropriate for summary judgment. Box v. A & P Tea Co., 772 F. 2d 1372, 1378 (7th Cir.), cert. denied, 478 U.S. 1010, 106 S. Ct. 3311 (1986) (citation omitted). As Justice Rehnquist said in his dissent in Hardin v. Pitney-Bowes, Inc., 451 U.S. 1008, 101 S. Ct. 2345

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(1981), "[i]t has long been established that it is inappropriate to resolve issues of credibility, motive, and intent on motions for summary judgment. It is equally clear that where such issues are presented, the submission of affidavits or depositions is insufficient to support a motion for summary judgment. Where the intent of the parties to a contract needs to be ascertained to determine their respective rights and obligations, summary judgment is particularly inappropriate. State v. Ashton Co., 4 Ariz. App. 599, 602, 422 P.2d 727 (1967).

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 III. THE EXISTENCE OF AN AGENCY RELATIONSHIP BETWEEN K&E AND EATON IS A DISPUTED QUESTION OF FACT. Whether David Eaton was an agent of K&E is a disputed question of fact, and is inappropriate for summary judgment. An agent's authority may be implied from the circumstances of a particular case and may be proved by circumstantial evidence. [Citation omitted] However, unless only one conclusion may be drawn, existence of an agency and the extent of an agent's authority is a question of fact and should not be decided on summary judgment. ... .... Contrary to CAR's claims, to establish ostensible authority, the principal's consent need not be express. See Tomerlin v. Canadian Indem. Co., 61 Cal.2d 638, 39 Cal.Rptr. 731, 394 P.2d 571, 575 (1964). While it is true that the ostensible authority of an agent cannot be based solely upon the agent's conduct, see Kaplan, 59 Cal.App.4th at 747, 69 Cal.Rptr.2d at 643, it is not true that the principal must make explicit representations regarding the agent's authority to the third party before ostensible authority can be found. C.A.R. Transportation Brokerage Company, Inc. v. Darden Restaurants, Inc., 213 F.3d 474, 479-480 (9th Cir. 2000) (emphasis added). As with GTCR in their recent Motion, Kirkland has selectively informed the Court of particular facts and testimony in which defendants deny the existence of an agency 9
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relationship between K&E and Eaton. However, the complete record discloses the existence of numerous disputed issues of material fact concerning the circumstances surrounding the formation of the existence of the K&E­Eaton agency relationship which are inappropriate for summary judgment and are proper for submission to a jury. A. David Eaton Was Authorized By K&E To Act As LeapSource "Crisis Manager" to Protect The Interests of K&E's Client GTCR

When David Eaton was first recommended by Kevin Evanich, it was ­ according to Mr. Evanich's own testimony ­ a recommendation that he made to GTCR as K&E's client. Because Mr. Evanich said the referral was made to GTCR and not to LeapSource or to members of the LeapSource board in that capacity, he asserted the attorney-client privilege and refused to answer other questions about exactly what he said to the principals of GTCR about Mr. Eaton and his reasons for recommending him to GTCR. However, his claim helps

13 14 15 16 17 18 19 20 21 22 122. 23 24 25 K&E's claim that David Eaton was referred to GTCR only in his capacity as "an AEG partner" and not because of his "Of Counsel" relationship with K&E is transparently self10
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to explain the statements made by Messrs. Yih and Rauner during the telephone conference call in which they referred to Mr. Eaton as a "K&E kind of advisor" for GTCR. Thus, there is evidence that, from the beginning, Evanich and the principals of GTCR saw Mr. Eaton's role as one in which he would be primarily looking out for GTCR's interests. Only because it was understood that Mr. Eaton would share that objective, was K&E willing to permit, and even recommend, one of its own "of counsel" attorneys for the role of "crisis manager" for LeapSource, although Eaton should have been precluded from taking on this role because of the known conflict of interest between GTCR and LeapSource. SOF ¶

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serving, and the jury is not required or likely to believe it. Motion at 4. The evidence of Mr. Eaton's actual cooperation with K&E in protecting GTCR's interests, and consulting K&E lawyers and apparently taking their direction with respect to LeapSource business for the benefit of GTCR, in addition to his contractual and ethical constraints against taking any position adverse to the interests of a K&E client, is sufficient evidence of actual control over Mr. Eaton's work by K&E to permit a jury to decide whether Eaton was actually doing

7 8 9 10 11 12 was recommended by Kevin Evanich to take on the role of "crisis manager" for LeapSource. 13 14 15 16 17 18 19 20 21 22 Eaton was associated with K&E. SOF ¶¶ 94, 107. K&E argues that Eaton cannot prove or 23 24 25 create his ostensible authority out of his own mouth, and at the same time have invoked the attorney client privilege to refuse to answer questions about what Kevin Evanich actually 11
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K&E's work protecting the interests of GTCR, with K&E's knowledge and approval, when he was purportedly representing the interests of LeapSource. B. David Eaton Had Apparent or Ostensible Authority to Act for K&E in Protecting GTCR's Interests

It is undisputed that David Eaton was an attorney and "of counsel" to K&E when he

SOF ¶¶ 57, 67, 68, 77, 78, 86. K&E claims that Eaton was referred to GTCR because "he was an expert in the financial restructuring advisory business," Motion at 4, but of course that is the same area of expertise that Mr. Eaton developed while practicing law at K&E, where he was a member of the "Restructuring, Insolvency, Workout and Bankruptcy Group," specializing in "financial restructuring and corporate reorganization and bankruptcy." SOF ¶¶ 60, 61, 65, 66, 69. Bruce Rauner and Dan Yih first mentioned David Eaton to other LeapSource board members as a "K&E kind of advisor." That statement certainly conveyed the impression that

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said to Mr. Rauner and Mr. Yih about Mr. Eaton and his relationship to K&E. However, it is undisputed that Dan Yih and Bruce Rauner received their information about David Eaton, and the recommendation to hire him, from Kevin Evanich. SOF ¶¶ 77, 78, 79, 80, 81, 82. We are left with what Mr. Rauner and Yih repeated to the other members of the LeapSource board, and the circumstances in which the GTCR members of the board moved to retain AEG as the LeapSource "crisis manager," as well as the inferences that the jury is

7 8 9 10 11 12 13 14 15 16 and because K&E knew that Eaton's loyalty and financial ties to K&E would prevent him 17 18 19 20 21 22 23 24 25 The jury in this case will be permitted to draw a negative inference from this exercise of the attorney-client privilege to avoid disclosing what Mr. Evanich said directly to the GTCR members of the LeapSource board about Mr. Eaton. See United California Bank v. Prudential Ins. Co., 140 Ariz. 238, 294, 681 P. 2d 390, 446 (1983). 12
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entitled to draw from that evidence, which support the reasonable conclusion that it was Mr. Evanich who told the principals of GTCR about Mr. Eaton's long history and relationship with K&E ­ as he was ethically required to do if he was going to recommend that GTCR use Mr. Eaton in the capacity of "crisis manager" at LeapSource ­ and that, because of Mr. Eaton's relationship with K&E, the GTCR members of the LeapSource board could count on Mr. Eaton to protect GTCR's interests, as a substantial client of K&E.2 It is also reasonable to conclude that David Eaton was recommended by Mr. Evanich precisely because K&E knew of the disputes between GTCR and LeapSource, SOF ¶ 106,

from taking any position adverse to GTCR. SOF ¶¶ 61, 62, 63, 64, 67, 68, 69, 76, 81, 82, 84. In those circumstances, GTCR's later references to Eaton as a "K&E kind of advisor" who would be used to advise GTCR about GTCR's concerns lend weight to the inference that this is precisely how Eaton was described and recommended to GTCR by Mr. Evanich.

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K&E argues that the "alleged comment" by GTCR principals about hiring a "K&E type of guy" is "utterly ambiguous." Motion at 11. In fact, the "alleged comment" was tape recorded, the reference was not to a "K&E type of guy" but to a "K&E kind of advisor," and more was said about the reasons for retaining the advisor beyond referring to his relationship with K&E. We do not believe the reference is "utterly ambiguous," as K&E claims, but even if it were ambiguous its meaning would be for the jury to decide. What the principals

7 8 9 10 11 12 13 14 15 16 Evanich's information and recommendation in deciding to retain Mr. Eaton. 17 18 19 20 21 22 23 24 25 13
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of GTCR meant by that reference to Mr. Eaton is not an appropriate question to be decided on a motion for summary judgment. Moreover, it is undisputed that the GTCR principals who made those statements about Mr. Eaton in fact first learned about him from Mr. Evanich, a partner at K&E. It would be obviously improper for Mr. Evanich to recommend to a client that it retain a person who was "of counsel" to the law firm without disclosing that fact to them, the jury may assume that he did so. Thus, there is evidence from which it can be inferred that Mr. Eaton's relationship with K&E was described by Mr. Evanich to principals of GTCR who were also members of the LeapSource board, who acted on Mr.

Because Eaton was not free to take a position contrary to the interests of GTCR, and was consulting with GTCR's attorneys at K&E, he was obligated by his loyalty to his law firm's client to do what GTCR and K&E wanted him to do. It is not necessary to

demonstrate that Eaton actually took specific direction from K&E ­ he was an experienced lawyer and had been a partner in the firm for years before he formed AEG ­ because his decisions were constrained by the fact that he was required to be loyal to K&E's client, and understood without having to be told what that meant.

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There is other evidence that K&E exercised control over Mr. Eaton's conduct at LeapSource, as Mr. Eaton (1) consulted with K&E lawyers about various issues, including Mr. Gilman's demand as a LeapSource shareholder for access to LeapSource corporate documents, (2) shared privileged LeapSource attorney-client communications with K&E, and (3) shared drafts of documents such as the Kirk "for cause" termination letter with K&E before it was sent to Ms. Kirk. SOF ¶¶ 101-103, 137.

7 8 9 10 11 12 13 14 15 16 not know of Homa's affiliation with LSRB until he received the engagement letter." Id. at 17 18 19 20 21 22 23 24 25 14
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In all of these particulars, this case is nothing like Homa v. Friendly Mobile Manor, 612 A.2d 322 (Md. App. 1992). In Homa, "Friendly presented no evidence of any contact with LSRB at all ..." Id. at 362. In fact, "there [was] no evidence that LSRB knew or should have known about this particular transaction." Id. at 364. Here, not only did K&E know about Eaton's work at LeapSource, but K&E recommended Eaton for the assignment, consulted with him about the LeapSource assignment after he was hired, and remained directly involved in the same matters that were ostensibly entrusted to Eaton at LeapSource. In Homa, Rossignol (the person who hired the "of counsel" attorney) testified that "[h]e did

361. Here, GTCR witnesses have carefully denied remembering any discussion of the "of counsel" relationship, but the evidence shows that they were aware that Eaton was affiliated with K&E, and referred to his relationship with K&E the very first time they mentioned him to other members of the LeapSource board. In this case, after Kirk and Gilman were removed as officers of LeapSource the written agreement executed with AEG disclosed the existence of Eaton's "of counsel" relationship with K&E, and also cited as one of the "resources" available to LeapSource the

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fact that Eaton was the former head of K&E's bankruptcy and reorganization department. Even then, the written agreement did not include the language purportedly required by Eaton's agreement with K&E waiving any conflict of interest. Mr. Evanich testified that he was "disappointed" that the AEG engagement letter did not comply with the terms of Mr. Eaton's agreement with K&E; Mr. Eaton testified that he "sometimes" put the required language in his AEG agreements, when he remembered to include it. SOF ¶¶ 121, 141.

7 8 9 10 11 12 In addition to the "agency" theory of liability briefed by K&E in its Motion, K&E 13 14 15 16 17 18 19 20 21 22 23 24 25 may also be held liable for the wrongful acts of David Eaton because Eaton and K&E were acting in concert: For harm resulting to a third person from the tortious conduct of another, one is subject to liability if he (a) does a tortious act in concert with the other or pursuant to a common design with him, or (b) knows that the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself, or (c) gives substantial assistance to the other in accomplishing a tortious result and his own conduct, separately considered, constitutes a breach of duty to the third person. Restatement (Second) Torts § 876. The comments to §876(a) state, in pertinent part: "a. Parties are acting in concert when they act in accordance with an agreement to cooperate in a particular line of conduct or 15
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In Trimble-Weber v. Weber, 119 Ohio App.3d 402 (1997), the only evidence of the alleged agency was the "of counsel" listing on the firm letterhead and a similar listing in Martindale Hubbell. IV. K&E IS ALSO VICARIOUSLY LIABLE FOR THE ACTS OF DAVID EATON BECAUSE THEY WERE ACTING IN CONCERT

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to accomplish a particular result. The agreement need not be expressed in words and may be implied and understood to exist from the conduct itself. Whenever two or more persons commit tortious acts in concert, each becomes subject to liability for the acts of the others, as well as for his own acts. The theory of the early common law was that there was a mutual agency of each to act for the others, which made all liable for the tortious acts of any one." (Emphasis added). That K&E and Eaton (and the other defendants) were acting in concert may be proved by circumstantial evidence, and inferred from the nature of the acts, the relationship of the parties, their interests, and other circumstances: We therefore reverse the trial court's order granting Byers partial summary judgment because a litigant can proffer circumstantial or inferential evidence to prove that parties were acting in concert. There was at least a fact issue that Byers and Carpenter were acting as each other's agents, or were intentionally acting pursuant to a common course of conduct to wrongfully use Mohave funds for personal gain. Mohave Elec. Co-op, Inc. v. Byers, 189 Ariz. 292, 306 P.2d 451, 465 (1997) (emphasis

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added). K&E may also be vicariously liable for the acts and omissions of Mr. Eaton to the extent that K&E lawyers directed or helped to perform those acts or omissions: A firm may also be liable to a nonclient for the acts and omissions of an outside lawyer, for example when principals or employees of the firm direct or help perform those acts or omissions (see Restatement Second, Torts §§ 875-881; Restatement Second, Agency §§ 351 & 358). Restatement (Third) of Law Governing Lawyers § 58, cmt. e. In Arizona, tortfeasors who act in concert are, by statute, jointly and severally liable for the resulting injury or damage:

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D. The liability of each defendant is several only and is not joint, except that a party is responsible for the fault of another person, or for payment of the proportionate share of another person, if any of the following applies: 1. Both the party and the other person were acting in concert. 2. The other person was acting as an agent or servant of the party. A.R.S. §12-2506(D) (emphasis added); Herstam v. Deloitte & Touche, LLP, 186 Ariz. 110, 113 (1996). The evidence of the communication and cooperation between K&E and Eaton while Eaton was purportedly representing LeapSource interests, and the alignment of their

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interests, will support the inference that they were consciously and intentionally pursuing a common course of action for the protection of GTCR's interests at the expense of LeapSource and its creditors. If the jury finds that the acts and omissions committed by David Eaton, including the sale of the ICG assets for the forgiveness of a $2.5 million note were committed while he was acting in concert with other defendants, including GTCR and K&E, the jury will be justified in holding all of the defendants who acted in concert jointly liable for the harm resulting from Eaton's acts and omissions. V. CONCLUSION. For all of the foregoing reasons, the Motion For Summary Judgment On Vicarious

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Dated this 11th day of October 2005. BEUS GILBERT PLLC

By

s/ Scot C. Stirling Leo R. Beus Scot C. Stirling Steven E. Weinberger Kevin Breger 4800 North Scottsdale Road, Suite 6000 Scottsdale, AZ 85251 Attorneys for Individual Plaintiffs and Trustee

STEVE BROWN & ASSOCIATES, LLC Steven J. Brown 1440 East Missouri, Suite 185 Phoenix, AZ 85014 Co-Counsel for Trustee

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CERTIFICATE OF SERVICE I hereby certify that on 11 October, 2005, 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: Kevin A. Russell David S. Foster Nicholas B. Gorga LATHAM & WATKINS LLP [email protected] [email protected] [email protected] Attorneys for Defendants GTCR Golder Rauner, LLC, GTCR Fund VI, LP, GTCR VI Executive Fund, LP, GTCR Associates VI, Joseph P. Nolan, Bruce V. Rauner, Daniel Yih, David A. Donnini and Philip A. Canfield Don P. Martin Edward A. Salanga QUARLES & BRADY STREICH LANG, LLP [email protected] [email protected] Attorneys for Defendants GTCR Golder Rauner, LLC, GTCR Fund VI, LP, GTCR VI Executive Fund, LP, GTCR Associates VI, Joseph P. Nolan, Bruce V. Rauner, Daniel Yih, David A. Donnini and Philip A. Canfield Merrick B. Firestone Veronica L. Manolio RONAN & FIRESTONE, PLC [email protected] [email protected] Attorney for Defendant Michael Makings

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Richard A. Halloran Jon Weiss LEWIS & ROCA, L.L.P. [email protected] [email protected] Attorneys for Defendants David Eaton and AEG Partners LLC John Bouma James R. Condo Patricia Lee Refo SNELL & WILMER LLP [email protected] [email protected] [email protected] Attorneys for Kirkland & Ellis Steven J. Brown STEVE BROWN & ASSOCIATES, LLC Co-Counsel for Trustee [email protected]

s/ Scot C. Stirling

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