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

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

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, v. GTCR Golder Rauner, L.L.C.; a Delaware limited liability company, et al., Defendants. No. CIV 02-2099 PHX RCB KIRKLAND & ELLIS' MOTION FOR SUMMARY JUDGMENT RE AIDING AND ABETTING AND TORTIOUS INTERFERENCE CLAIMS (Assigned to Hon. Robert C. Broomfield) (Oral Argument Requested)

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Snell & Wilmer L.L.P.

Six of the eight claims that plaintiffs bring against Kirkland & Ellis ("K&E") allege that: (1) K&E tortiously interfered with certain contracts or prospective economic advantages, or (2) K&E aided and abetted breaches of fiduciary duty by other defendants. Despite naming K&E as a defendant in numerous counts, the voluminous fact allegations in plaintiffs' Fourth Amended Complaint ("the Complaint") hardly even mention K&E. After extensive fact discovery, it is clear why: K&E did nothing wrong. Now that fact discovery is complete, the record demonstrates that plaintiffs cannot produce any evidence to support these claims. For the claims of tortious interference, there is no evidence that K&E improperly interfered with any contract or prospective economic advantage. For the aiding and abetting claims, there is no evidence that K&E rendered substantial assistance to any other party regarding breach of any duty.

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Filed 10/03/2005

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

Because there is no genuine issue of material fact, K&E is entitled to summary judgment pursuant to Fed. R. Civ. P. 56 on Counts One, Twelve, Fourteen, Eighteen, Twenty-One, and Twenty-Three.1 This motion is supported by the following Memorandum of Points and Authorities and the separately-filed Statement of Facts in Support of Motion for Summary Judgment. MEMORANDUM OF POINTS AND AUTHORITIES I. FACTUAL BACKGROUND. LeapSource, Inc. was a start-up company focused on business process outsourcing that never got off the ground. LeapSource was funded by the venture capital firm GTCR Golder Rauner, L.L.C. and its affiliates (collectively, "GTCR"). K&E represented GTCR in connection with its investment in LeapSource. As alleged in plaintiffs' Complaint, "five major agreements" were executed on September 27, 1999 to implement GTCR's funding of LeapSource and to launch LeapSource's operations (collectively, the "Agreements"). (Complaint ¶ 175.) K&E assisted in the drafting and negotiation of the Agreements. Plaintiff Christine Kirk, who would become LeapSource's CEO, was represented in these negotiations by her lawyers at the firm of Sachnoff & Weaver. (K&E's Statement of Facts in Support of Motion for Summary Judgment ("SOF") ¶ 2.) Notwithstanding the execution of the written Agreements, plaintiffs also allege that they entered into a joint venture agreement with GTCR that "would endure throughout the life of the business they were building, for the length of GTCR's commitment, despite the fact that the parties were implementing the new business venture though a corporate entity." (Complaint ¶ 173.) Plaintiffs do not allege that K&E played any role in the formation of the purported joint venture. 1 These claims also suffer from other deficiencies addressed in K&E's other pending motions. Counts Twelve and Fourteen also fail because there is no evidence that GTCR ever entered into a joint venture with plaintiffs, and there is no evidence that K&E had any knowledge about the supposed joint venture. See K&E's Motion for Summary Judgment on Joint Venture-Related Claims (filed on August 23, 2005). Counts One and Twenty-One (and others) also fail because there is no evidence that David Eaton or his company AEG Partners, LLC was acting as an agent for K&E. See K&E's Motion for Summary Judgment Regarding Vicarious Liability (filed on September 8, 2005).
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LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

LeapSource never succeeded. According to the Complaint, GTCR engaged in a "campaign of wrongful conduct," which culminated in "the destruction and bankruptcy" of LeapSource. (Complaint ¶ 242-44.) However, the Complaint is completely silent on what role K&E supposedly played in this alleged scheme. Section III(F) of the Complaint (¶¶ 242 - 319), which alleges that GTCR maliciously cut off funding "in league with its friends," contains no allegation of any specific conduct by K&E. Nonetheless, plaintiffs have alleged (among other things) that K&E aided and abetted breaches of fiduciary duty and tortiously interfered with contracts and business expectancies. In particular, the Complaint alleges that K&E is liable for the following: Tortiously Interfering With: The performance of the Purchase Agreement between GTCR and LeapSource (Count One); The prospective economic advantage arising from a joint venture between GTCR and the individual plaintiffs (Count Fourteen); The Senior Management Agreements and Employment Agreements of the individual plaintiffs (Count Twenty-One); and The Stockholders Agreement and the Purchase Agreement (Count Twenty-Three).

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Snell & Wilmer L.L.P.

Aiding and Abetting the Following: Breaches of fiduciary duty by GTCR arising out of a joint venture between GTCR and the individual plaintiffs (Count Twelve); and Breaches of fiduciary duty by GTCR in its role as majority shareholder of LeapSource (Count Eighteen).

On December 2, 2002, K&E moved to dismiss these claims for failure to state a claim. On September 30, 2003, the Court denied the motion and allowed plaintiffs an opportunity to conduct discovery regarding K&E's actions. See Order dated 9/30/2003 (docket #69) (the "Order"). With respect to the tortious interference claims, the Court stated that "Plaintiffs must be afforded the opportunity to conduct discovery into K&E's actions, in order to determine whether its actions were improper, given the restatement's elements on this issue." Order at 12. Reviewing the aiding and abetting claims, the Court noted that discovery was necessary "to unravel the parties' relationships" in order to
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evaluate these claims. Order at 19. Now that discovery is complete, it is crystal clear that plaintiffs cannot support these claims with evidence. There is no evidence that K&E interfered at all with plaintiffs' contracts or business expectancies, let alone that it did so improperly. There is no evidence that plaintiffs aided and abetted any breaches of fiduciary duty. Plaintiffs' unsupported - but oft repeated - conspiracy theory that K&E was somehow involved in wrongdoing connected to LeapSource's demise is not enough. Only one of the individual plaintiffs ­ Chris Kirk ­ had any contact with K&E. (SOF ¶¶ 3-9.) Ms. Kirk's deposition testimony made clear that the claims against K&E are based solely on the fact that K&E was GTCR's legal counsel: Q: And on what do you base your belief that Kirkland & Ellis provided legal advice to those persons [representatives of GTCR] that caused GTCR to breach the purchase agreement? Conversations that I had with them. What conversations? Where they would say, you know, "We need to get back and talk to K&E about this," or "We need to call K&E about this." About the breach of the purchase agreement? About LeapSource. And my question is: What do you base your belief on that Kirkland & Ellis provided legal advice to those persons that caused GTCR to breach the purchase agreement? I don't have any specifics on that.

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Snell & Wilmer L.L.P.

Pointing to the fact that GTCR received legal advice - the content of which is privileged and therefore unknown - from K&E does not satisfy plaintiffs' burden to support their claims with evidence. These six claims are ripe for summary judgment. II. LEGAL STANDARD Summary judgment is appropriate if the evidence shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter

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of law." Fed. R. Civ. P. 56(c). The moving party is entitled to summary judgment by demonstrating that "the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim." Celotex Corp. v. Catrett, 477 U.S. 317, 331 (1986). To avoid summary judgment, the nonmoving party must produce evidence and "set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). Allegations in the complaint, unsupported speculation, and conclusory statements cannot defeat summary judgment. Hernandez v. Spacelabs Medical, Inc., 343 F.3d 1107, 1112 (9th Cir. 2003); Nelson v. Pima Community College, 83 F.3d 1075, 108182 (9th Cir. 1996). III. THERE IS NO EVIDENCE TO SUPPORT PLAINTIFFS' TORTIOUS INTERFERENCE CLAIMS AGAINST K&E. Arizona law requires that plaintiffs prove the following elements to sustain a claim of tortious interference with contractual relations or economic advantage: (1) existence of a valid contractual relationship or economic advantage; (2) knowledge of the relationship on the part of the interferer; (3) intentional interference inducing or causing a breach; (4) resultant damage to the party whose relationship has been disrupted; and (5) that the defendant acted improperly. Safeway Insurance Co. v. Guerrero, 106 P.3d 1020, 1025 (Ariz. 2005) (citing Wells Fargo Bank v. Ariz. Laborers, Teamsters, & Cement Masons Local No. 395 Pension Trust, 38 P.3d 12, 31 (Ariz. 2002)). As the Court noted in its prior order, the key inquiry under this standard is whether there is evidence of improper interference. See Order at 12 ("[T]his court must consider whether K&E acted improperly in order to determine whether it can be liable for interfering with its principal's contract."). Arizona courts analyze seven factors to determine whether there is improper interference. Wagenseller v. Scottsdale Mem'l Hosp., 147 Ariz. 370, 386, 710 P.2d 1025, 1042 (1985) (citing Restatement (Second) of Torts § 767). These are: (1) the nature of the actor's conduct, (2) the actor's motive, (3) the interests of the other with which the actor's conduct interferes, (4) the interests sought to be advanced by the actor, (5) the social interest in protecting the freedom of action of
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LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

the actor and the contractual interests of the other, (6) the proximity or remoteness of the actor's conduct to the interference, and (7) the relations between the parties. Id. The record contains no conduct by K&E that could plausibly be described as improper interference with any contract or business expectancy of LeapSource or the individual plaintiffs. As the Arizona Supreme Court recently held, affirming summary judgment for a lawyer on a tortious interference claim, plaintiffs must "show more than the defendant's knowledge that his or her conduct would induce a breach." Safeway, 106 P.3d at 1026. Moreover, held the Court, "proof that an actor intentionally induced a breach of contract is not sufficient to establish that the actor's conduct was improper." Id. "Even such means as `physical violence, fraudulent misrepresentation and threats of illegal conduct' may not constitute `improper conduct' for purposes of the intentional interference tort in light of the particular `relation between the actor and the person induced.'" Id. at 1028 (quoting Restatement (Second) of Torts § 767, cmt. c). There is no evidence that K&E acted improperly to interfere with any of the written Agreements or the alleged joint venture. There is no witness with personal knowledge who has testified that K&E improperly interfered with any contract or expectancy, nor are there any documents in the record that would support such a finding. Indeed, there is no evidence that K&E interfered at all. The evidence establishes only that plaintiffs concluded that K&E was communicating with its client GTCR. But the mere act of giving legal advice to a client cannot constitute tortious interference, or every law firm that advises a client in a contract dispute would end up as a co-defendant with its client. It is now well-settled that "[l]awyers' advice to their own clients to breach a contract already lies outside the general scope of this tort." Safeway, 106 P.3d at 1025 n.7 (citing Restatement (Third) of Law Governing Lawyers § 57(3)) (emphasis in original); see also American Family Mut. Ins. Co. v. Zavala, 302 F. Supp. 2d 1108, 1121 (D. Ariz. 2003) ("A client, through his attorney, . . . cannot tortiously interfere with a contract to which the client is a party."), cited with approval in Safeway, 106 P.3d at 1025

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Snell & Wilmer L.L.P.

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n.7.2 Plaintiffs cannot meet their burden to produce evidence of improper interference simply by pointing to the fact that GTCR was communicating with K&E. Rather, plaintiffs must produce evidence of specific and improper conduct by K&E and prove that such conduct caused or induced a breach. Plaintiffs cannot meet this fundamental test. In particular, because GTCR has properly invoked the attorney-client privilege for its communications with K&E, plaintiffs have no evidence of the content of K&E's legal advice or even the general topics discussed. Plaintiffs cannot draw any negative inference from the assertion of this privilege, for it has long been settled that the invocation of the attorney-client privilege by a client is not evidence of wrongdoing. See Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmBH v. Dana Corp., 383 F.3d 1337, 1344 (Fed. Cir. 2004) ("[N]o adverse inference shall arise from invocation of the attorney-client and/or work product privilege."); Parker v. Prudential Ins. Co. of America, 900 F.2d 772, 775 (4th Cir. 1990) ("[A] client asserting the privilege should not face a negative inference about the substance of the information sought."). Plaintiffs have been unable to substantiate any of their unfounded accusations against K&E. For instance, plaintiffs asserted in discovery that K&E caused LeapSource to reclassify plaintiff Kirk's termination from LeapSource as "for cause" rather than "not for cause." Plaintiffs based this assertion on a draft of a letter to Kirk that terminated her for cause that was found in K&E's files. Every witness with knowledge of this letter, however, testified that it was prepared by the firm of Jennings Strouss & Salmon, which served as counsel for LeapSource on employment matters, not by K&E. (SOF ¶ 11.) In the absence of evidence that K&E intentionally and improperly interfered with some contract or business expectancy, K&E is entitled to summary judgment. Plaintiffs' subjective, unsupported belief that K&E acted improperly is not enough. "A plaintiff's belief that a defendant acted from an unlawful motive, without evidence supporting that 2 When the Court issued the previous Order, neither the Safeway case nor the Zavala case had been decided. At that time, as the Court noted, "Arizona law on this point is not extremely clear." Order at 5. K&E submits that both decisions clarify the scope of liability for tortious interference with contractual relations, especially for attorneys.
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Snell & Wilmer L.L.P.

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belief, is no more than speculation or unfounded accusation about whether the defendant really did act from unlawful motive." Carmen v. San Francisco Unified School Dist., 237 F.3d 1026, 1028 (9th Cir. 2001). Summary judgment is warranted on these claims. IV. THERE IS NO EVIDENCE TO SUPPORT PLAINTIFFS' AIDING AND ABETTING CLAIMS AGAINST K&E. Plaintiffs' two claims against K&E for aiding and abetting breaches of fiduciary duty fare no better. Under Arizona law, a claim for aiding and abetting breach of tortious conduct requires proof of three elements: (1) the primary tortfeasor must commit a tort that causes injury to plaintiff; (2) the defendant must know that the primary tortfeasor's conduct constitutes a breach of duty; and (3) the defendant must substantially assist or encourage the primary tortfeasor in the achievement of the breach. Wells Fargo Bank v. Arizona Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 485, 38 P.3d 12, 23 (Ariz. 2002) (quoting Gomez v. Hensley, 145 Ariz. 176, 178, 700 P.2d 874, 876 (Ct. App. 1984) (citing Restatement (Second) of Torts § 876(b)). Plaintiffs cannot meet their burden on either claim because there is no evidence that K&E rendered "substantial assistance" to achieve a breach of fiduciary duty. As with their tortious interference claims, there is no evidence that K&E did anything other than communicate with its client GTCR. As a matter of law, this is not enough. "In addressing aiding and abetting liability in cases involving professionals, most courts have recognized that `substantial assistance' means something more than the provision of routine professional services." Witzman v. Lehrman, Lehrman, & Flom, 601 N.W.2d 179, 188-89 (Minn. 1999). Alleging only that the supposed wrongdoer was acting under legal advice of attorneys, "without more, is insufficient to give rise to a claim that an attorney is responsible to third persons for the fraudulent acts of his clients." Spinner v. Nutt, 631 N.E. 2d 542, 556 (Mass. 1994).

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In the absence of specific evidence of wrongdoing, K&E is entitled to summary judgment. Plaintiffs have not identified a single witness who could testify from personal knowledge that K&E substantially assisted or encouraged anyone to commit a tort, nor is there any document or other evidence that would support such a finding. Plaintiffs are relying only on their unsupported belief that K&E must have been doing something wrong in communicating with GTCR. Without evidence to support this conclusion, however, plaintiffs have not met their burden on summary judgment to support their claims with evidence. K&E is entitled to summary judgment on the claims of aiding and abetting breaches of fiduciary duty. V. CONCLUSION. Plaintiffs cannot produce any evidence to support their claim that K&E improperly interfered with any business relationship or aided and abetted any breach of fiduciary duty. Plaintiffs' unsupported allegations of a grand conspiracy involving K&E is not supported by any evidence uncovered in discovery. K&E respectfully requests that the Court grant summary judgment on all claims relating to tortious interference and aiding and abetting liability against K&E. DATED this 3rd day of October, 2005. SNELL & WILMER L.L.P.

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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

Case 2:02-cv-02099-RCB

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

CERTIFICATE OF SERVICE I hereby certify that on October 3, 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: 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/ Joseph G. Adams
1731260

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Snell & Wilmer L.L.P.

Case 2:02-cv-02099-RCB

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