Free Statement - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11
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. Pursuant to LRCiv 56.1(a), Kirkland & Ellis ("K&E") submits this Statement of No. CIV 02-2099 PHX RCB KIRKLAND & ELLIS' STATEMENT OF FACTS IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT REGARDING VICARIOUS LIABILITY

12 13 14 15 16 17

Snell & Wilmer L.L.P.

Facts in Support of its Motion for Summary Judgment Regarding the Vicarious Liability 18 of David Eaton and AEG Partners, L.L.C. 19 1. 20 through 1990 in the field of bankruptcy law. (Excerpts of Deposition Transcript of David 21 L. Eaton ("Eaton Dep."), attached as Exhibit 1, at 26:8 - 27:17.) In 1990, he became head 22 workout and bankruptcy counsel for Continental Bank of Illinois, and in 1991 he joined 23 K&E as a partner. (Eaton Dep., Ex. 1, at 25:16 ­ 26:7.) He worked as a full-time lawyer 24 at K&E until 1997, when he resigned from the partnership. (Eaton Dep., Ex. 1, at 25:225 11.) 26 2. 27 Assurance Society ("ALAS"). (Eaton Dep., Ex. 1, at 23:11-16.) At ALAS, he served as 28
Case 2:02-cv-02099-RCB Document 251 Filed 09/08/2005 Page 1 of 10

David Eaton practiced law at various law firms in Chicago from 1978

When he left K&E, he joined an insurance company, Attorneys Liability

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

vice president of member services, and his duties included acting as a liaison between ALAS and its members, strategic planning, and marketing. (Eaton Dep., Ex. 1, at 23:17 ­ 24:8.) Eaton resigned as an officer of ALAS when he started his part-time "of counsel" position with K&E. (Eaton Dep., Ex. 1, at 42:16-19.) 3. While working at ALAS, Eaton joined the board of directors of L.A. Gear.

(Eaton Dep., Ex. 1, at 31:14 - 32:4.) In late 1999 or early 2000, he became the chairman of the board of directors of L.A. Gear. In addition to this executive role, he worked as the acting CEO of L.A. Gear and oversaw the operations of the company. (Eaton Dep., Ex. 1, at 30:2-16.) His affiliation with L.A. Gear continued until early 2001. 4. In 1999, a partner at K&E approached Eaton to return to K&E as a partner.

(Eaton Dep., Ex. 1, at 43:12-24.) Eaton declined the offer because he "wanted to be a businessman" and "did not want to practice law full-time." (Eaton Dep., Ex. 1, at 44:1019.) 5. K&E, however, suggested that Eaton practice law part-time in order to keep

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

working in business. (Eaton Dep., Ex. 1, at 45:2-10.) Eaton agreed to return to K&E "on a part-time basis, of-counsel," so that he "could be involved in other businesses." (Eaton Dep., Ex. 1, at 44:10-19.) 6. David Eaton became "of counsel" to Kirkland & Ellis ("K&E") effective

June 11, 1999 pursuant to the terms of a letter agreement. (Letter dated June 11, 1999, attached as Exhibit 2.) 7. The agreement provided that while serving as "Of Counsel," Eaton would

"not be a partner or employee of Kirkland & Ellis, but an independent contractor/consultant with a close relationship to Kirkland & Ellis as described in ABA Opinion 90-357." (Id.) 8. The purpose of Eaton's consultancy was "to assist Kirkland & Ellis

attorneys in the bankruptcy area, to work in close cooperation with them and to continue to serve Kirkland & Ellis clients." (Id.)

Case 2:02-cv-02099-RCB

Document 251 - 2 -Filed 09/08/2005

Page 2 of 10

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

9.

Eaton retained the ability to determine the times when he would "work on

Firm business and attend to personal interests." (Id.) 10. There was no minimum number of hours that K&E was required to offer

him or that Eaton was required to work, and the agreement provided that Eaton would be compensated at a rate of $230 per hour billed to a K&E client. (Id.) 11. As an "of counsel" attorney for K&E, Eaton never worked on any business

for GTCR, its principals, or its portfolio companies. (Eaton Dep., Ex. 1, at 49:3­50:2.) 12. For the time period of January 2001 through August 2001, Eaton's work as

an "of counsel" attorney for K&E was limited to a single matter for one client that was unrelated to LeapSource. (Affidavit of Kevin Evanich, attached as Exhibit 3.) 13. Eaton entered into the part-time "of counsel" arrangement because he

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

wanted to be involved in business rather than practice law full time. (Eaton Dep., Ex. 1, at 44:10-19.) 14. In January 2000, Eaton and two other businessmen formed AEG to provide

Snell & Wilmer L.L.P.

"financial advisory and crisis management for financially distressed companies." (Eaton Dep., Ex. 1, at 20:14-19.) 15. The other partners in AEG, Larry Adelman and Michael Goldsmith, are not

attorneys. (Eaton Dep., Ex. 1, at 20:20-22.) 16. AEG had its offices in Highland Park, Illinois, where Eaton maintained a

regular office. (Eaton Dep., Ex. 1, at 56:2-8.) 17. In February 2001, Kevin Evanich, a partner at K&E, called Eaton at his

AEG office. (Eaton Dep., Ex. 1, at 55:19 - 56:3.) 18. Evanich told him that "GTCR had a portfolio company that was in financial

trouble and that I may get a call from someone at GTCR." Eaton testified that Evanich was calling him "as an AEG partner" and "a crisis manager and financial advisor," not a K&E "of counsel" lawyer. (Eaton Dep., Ex. 1, at 56:21­57:7; 60:22­61:24.) 19. Evanich referred Eaton to GTCR because "he was an expert in the financial

restructuring advisory business." (Excerpts of Deposition Transcript of Kevin Evanich
Case 2:02-cv-02099-RCB Document 251 - 3 -Filed 09/08/2005 Page 3 of 10

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

("Evanich Dep."), attached as Exhibit 4, at 21:21­22:4.) 20. As Eaton understood things, the company "needed financial advisory

services and crisis management services, meaning working very closely with existing management, as opposed to providing legal advice to the company." (Eaton Dep., Ex. 1, at 57:8-20.) 21. Within a week of this phone call, Eaton met with representatives of GTCR

at GTCR's offices in Chicago regarding LeapSource. (Eaton Dep., Ex. 1, at 62:4-16.) At that point, he did not know whether the engagement by AEG would also require the services of Larry Adelman. (Id. at 65:21­66:7.) 22. Before settling on Eaton and AEG, GTCR interviewed and considered

several potential crisis managers. (Excerpts of Deposition Transcript of Daniel Yih ("Yih Dep."), attached as Exhibit 5, at 425:3-12; Excerpts of Deposition Transcript of Joseph Nolan ("Nolan Dep."), attached as Exhibit 6, at 315:15­316:19; Excerpts of Deposition Transcript of Bruce Rauner ("Rauner Dep."), attached as Exhibit 7, at 80:8-17.) 23. At the meeting, GTCR did not offer the engagement, nor did Eaton accept it

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

on behalf of AEG. (Eaton Dep., Ex. 1, at 76:14-18.) 24. On February 27, 2001, the LeapSource board of directors voted to retain

AEG to offer financial advisory services to LeapSource. (Minutes of February 27, 2001 Meeting of LeapSource, Inc. Board of Directors, attached as Exhibit 8.) 25. According to the minutes, the directors voting in favor of AEG's retention

were Bruce Rauner, Dan Yih, and Joe Nolan, who were GTCR principals, as well as plaintiff Chris Kirk, who was LeapSource's outgoing CEO. Plaintiff Tom Gilman was also present at the meeting but abstained from the vote. (Id.) 26. At the time of the board meeting, Kirk understood that AEG was "supposed

to be a crisis manager" but did not know anything about AEG's experience. (Excerpts of Deposition Transcript of Christine V. Kirk ("Kirk Dep."), attached as Exhibit 9, at 458:25­459:14.)

Case 2:02-cv-02099-RCB

Document 251 - 4 -Filed 09/08/2005

Page 4 of 10

1 2 3 4 5 6 7 2.)

27.

Kirk understood that AEG was not a law firm. (Kirk Dep., Ex. 9, at 654:1-

28.

As to the board's vote, Kirk testified as follows: Q: A: Q: A: Did you believe that that vote was a vote to retain Kirkland & Ellis? I don't believe so. Did you believe that by the vote to retain AEG, LeapSource retained Kirkland & Ellis? I don't believe do.

8 (Kirk Dep., Ex. 9, at 667:13-18.) 9 29. 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

Nothing changed after the board meeting: Q: After February 27, 2001, did anyone at Kirkland & Ellis tell you that David Eaton was acting on behalf of Kirkland & Ellis in the services he was providing through AEG to LeapSource? I don't believe so. After February 27, 2001, did anyone tell you that David Eaton was acting on behalf of Kirkland & Ellis in connection with the services he was providing . . . through AEG to LeapSource? I don't believe so.

12 13 14 15 A: 16 17 30. 18 19 A: Q:

Snell & Wilmer L.L.P.

(Kirk Dep., Ex. 9, at 671:6-15.) Gilman also testified that there was no discussion at the board meeting that

Eaton should be hired because of any relationship with K&E. (Excerpts of Rule 30(b)(6) Deposition Transcript of Thomas F. Gilman ("First Gilman Dep."), attached as Exhibit 10, 20 at 90:14-18.) 21 31. 22 to K&E. (First Gilman Dep., Ex. 10, at 90:10-13.) Instead, Gilman assumed that Eaton 23 was a member of GTCR. (Excerpts of Fact Witness Deposition of Transcript of Thomas 24 F. Gilman ("Second Gilman Dep."), attached as Exhibit 11, at 255:1-15.) 25 32. 26 5, at 298:24­299:9.) He knew that Eaton used to work with K&E, but did not recall being 27 aware of Eaton's "of counsel" status. (Id. at 298:24­299:14.) 28
Case 2:02-cv-02099-RCB Document 251 - 5 -Filed 09/08/2005 Page 5 of 10

At the time of the vote, Gilman was unaware that Eaton had any relationship

Yih recalls that Eaton "was with AEG Partners," not K&E. (Yih Dep., Ex.

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

33.

Nolan does not recall being informed of Eaton's "of counsel" status, and

recalls that the board focused on the experience of both Eaton and AEG in handling "turnaround and workouts and distressed situations." (Nolan Dep., Ex. 6, at 315:9-16:19.) 34. Rauner testified that he focused on Eaton's "expertise in restructuring,

refinancing, cutting costs, dealing with seriously troubled financial situations." (Rauner Dep., Ex. 7, at 83:12­84:1.) Rauner did not recall any discussion of the fact that Eaton had an "of counsel" relationship with K&E. (Id. at 233:21­234:1.) 35. LeapSource formally retained AEG through a letter agreement dated March

2, 2001. (Financial Advisory Engagement dated March 2, 2001, attached as Exhibit 12.) 36. The agreement was prepared on AEG letterhead and signed by David Eaton

as Managing Director of AEG. It was addressed to, and also signed by, Michael Makings as Chief Executive Officer of LeapSource. (Id.) 37. The agreement stated that the company was seeking AEG's advice in the

12 13 14 15 16 17 18 19 20 21 22 23 24 25

Snell & Wilmer L.L.P.

following areas: "a) developing and assessing restructuring alternatives that address the Company's current liquidity crisis; and b) assisting the Company, as requested in its negotiations with potential financing sources, creditors and other financial stakeholders to build consensus for a restructuring that meets the Company's financing needs." (Id.) 38. The agreement provided that LeapSource would pay AEG for Eaton's

services. (Id.) 39. The agreement contained the following acknowledgement:

Company acknowledges that it has been advised that David Eaton has an "Of Counsel" relationship with the law firm of Kirkland & Ellis ("K&E") and that he may, from time to time, provide legal services to clients of K&E on matters wholly unrelated to this engagement. (Id.) 40. Robert Mignanelli, LeapSource's in-house counsel, reviewed the proposed

agreement with AEG and prepared a memorandum with detailed comments regarding the 26 letter. Neither K&E nor Eaton's relationship with K&E is mentioned in Mignanelli's 27 memo. (Memorandum From R. Mignanelli to T. Rhodes dated March 5, 2001, attached 28
Case 2:02-cv-02099-RCB Document 251 - 6 -Filed 09/08/2005 Page 6 of 10

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

as Exhibit 13.) 41. Both before and after the agreement between AEG and LeapSource was

executed, Eaton met with the senior management then in place: Michael Makings, who was the "ranking senior officer of the company," Tina Rhodes, the controller; and Matt Appel, who was "second in command to Mike Makings." (Eaton Dep., Ex. 1, at 92: 3-19; 134:5-14.) According to Eaton, this group was "the management team that I was reporting to." (Id. at 143:22­144:4.) 42. Rhodes testified that she learned of Eaton's "prior history" with K&E but

that she "knew him as AEG Partners." (Excerpts of Deposition Transcript of Tina Rhodes, attached as Exhibit 14, at 42:14-22.) 43. Makings also stated that Eaton never told him anything about his

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

background "until he came on board," though Eaton later explained that K&E was part of "his background. (Excerpts of Deposition Transcript of Michael Makings, attached as Exhibit 15, at 268:5­269:8.) 44. While Eaton was working on the LeapSource engagement, he had two law

Snell & Wilmer L.L.P.

firms at his disposal: Osborn Maledon, which consulted "on general corporate and insolvency matters," and Jennings Strouss & Salmon, which handled employment issues. (Eaton Dep., Ex. 1, at 99:1-14.) 45. Eaton did not consult with Kirkland & Ellis on behalf of LeapSource.

(Eaton Dep., Ex. 1, at 101:1-2.) However, he sometimes gave "periodic status reports" to K&E "because they worked for GTCR," the major shareholder. (Id. at 101:7-16; 237:14­ 238:1.) 46. All of the fees for Eaton's work at LeapSource were paid to AEG. (Copies

of AEG invoices and corresponding checks from LeapSource to AEG, attached as Exhibit 16.) 47. Plaintiff Tom Gilman never had any conversations with any attorney,

representative, or employee from K&E (excluding David Eaton) during the times relevant to this case. (T. Gilman's Response to K&E's Interrogatory, dated March 18, 2005,
Case 2:02-cv-02099-RCB Document 251 - 7 -Filed 09/08/2005 Page 7 of 10

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

attached as Exhibit 17.) 48. Plaintiff Kim Hartmann never had any conversations with any attorney,

representative, or employee from K&E (excluding David Eaton) during the times relevant to this case. (K. Hartmann's Response to K&E's Interrogatory, dated March 23, 2005, attached as Exhibit 18.) 49. Plaintiff Julie McCollum never had any conversations with any attorney,

representative, or employee from K&E (excluding David Eaton) during the times relevant to this case. (J. McCollum's Response to K&E's Interrogatory, dated March 18, 2005, attached as Exhibit 19.) 50. Plaintiff Kelly Powers never had any conversations with any attorney,

representative, or employee from K&E (excluding David Eaton) during the times relevant to this case. (K. Powers' Response to K&E's Interrogatory, dated March 18, 2005, attached as Exhibit 20.) 51. Plaintiff Indu Gupta never had any conversations with any attorney,

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Snell & Wilmer L.L.P.

representative, or employee from K&E (excluding David Eaton) during the times relevant to this case. (I. Gupta's Response to K&E's Interrogatory, dated March 18, 2005, attached as Exhibit 21.) 52. Plaintiff Bobby Scott never had any conversations with any attorney,

representative, or employee from K&E (excluding David Eaton) during the times relevant to this case. (B. Scott's Response to K&E's Interrogatory, dated March 18, 2005, attached as Exhibit 22.) 53. Plaintiff Patrice Walker never had any conversations with any attorney,

representative, or employee from K&E (excluding David Eaton) during the times relevant to this case. (P. Walker's Response to K&E's Interrogatory, dated March 18, 2005, attached as Exhibit 23.) 54. Plaintiffs Kirk, Gupta, Scott, Walker, and Powers never spoke to Eaton.

(Kirk Dep., Ex. 9, at 342:21-22; Excerpts of Deposition Transcript of Indu Gupta, attached as Exhibit 24, at 173:21-22; Excerpts of Deposition Transcript of Bobby Scott,
Case 2:02-cv-02099-RCB Document 251 - 8 -Filed 09/08/2005 Page 8 of 10

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

attached as Exhibit 25, at 204:7-14; Excerpts of Deposition Transcript of Patrice Walker, attached as Exhibit 26, at 150:22-23; Excerpts of Deposition Transcript of Kelly Powers, attached as Exhibit 27, at 184:14-16.) 55. Plaintiffs McCollum and Hartmann each had a single conversation with

Eaton about the nature of their proposed severance payments from LeapSource. (Excerpts of Deposition Transcript of Julie McCollum, attached as Exhibit 28, at 255:5-256:1; Excerpts of Deposition Transcript of Kimberly Hartmann, attached as Exhibit 29, at 399:5-8.) 56. Plaintiff Thomas Gilman had two conversations with Eaton. The first

conversation concerned the nature of his proposed severance payment from LeapSource. (Second Gilman Dep., Ex. 11, at 187:1-6.) The second conversation concerned his subsequent request to inspect the books and records of LeapSource. (Id. at 193:19-194:8.) DATED this 8th day of September, 2005. SNELL & WILMER L.L.P.

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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

Document 251 - 9 -Filed 09/08/2005

Page 9 of 10

1 2 3 4 5 6 7 8 9 10 11
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

CERTIFICATE OF SERVICE I hereby certify that on September 8, 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

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
1705695

Snell & Wilmer L.L.P.

Case 2:02-cv-02099-RCB

Document 251- 10 Filed 09/08/2005

Page 10 of 10